Hochschild Mining PLC

LSE:HOC

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and welcome to the Hochschild Mining Q2 Production Results. At this time, I would like to turn the conference over to Ignacio Bustamante. Sir, please go ahead.

[Ignacio Bustamante, CEO & Director]

Thank you. Hello, and welcome to our second quarterly conference call of the year. I'm Ignacio Bustamante. And also with me is Ramón Barúa, our CFO; and in London is Charlie Gordon, our Head of Investor Relations. The second quarter was a solid one with all our mines continuing to operate as normal despite the COVID crisis still being a major issue in both Peru and Argentina. Gold production was just over 89,000 gold equivalent ounces or 7.7 million silver equivalent ounces. This is obviously a significant increase on the first half of 2020 when our operations were impacted by closures resulting from the start of the health crisis. We are firmly on track to meet our 2021 target of between 350 and 372,000 gold equivalent ounces -- sorry, 350,000 and 372,000 gold equivalent ounces or between 31 million and 32 million silver equivalent ounces. At Inmaculada, we had another good quarter with tonnage and grades in line with expectations. Production was just short of 40,000 ounces of gold and 1.4 million ounces of silver, which is gold equivalent production of a touch over 55,000 ounces. In the first half, the operation produced almost 112,000 gold equivalent ounces. Over at Pallancata, the mine produced 1.5 million silver equivalent ounces in the quarter with the half output coming in at 2.6 million ounces. The mine remains on track to keep its 2021 production target. Clearly, the focus of the operation is currently on mine development and brownfield exploration to try to extend the life of mine beyond 2022. In Argentina, in the second quarter, San Jose produced 1.2 million ounces of silver and just over 19,000 ounces of gold, which makes 2.9 million silver equivalent ounces. Overall, in the first half, the operation produced 5.5 million ounces. Grades at operation were lower than budget because COVID restrictions are still in place in the country. This is impacting labor availability, and therefore, our ability to access certain planned mining zones. We also used some low-grade mineral from developments to fill up the plant. In terms of costs, we remain on track with our 2021 guidance, which, if you remember, was between $1,210 and $1,250 per gold equivalent ounce or between 14.1% and 14.5% per silver equivalent ounce. As you know, since the end of 2020, our balance sheet has been in a net cash position. And currently, we have $257 million in cash, which gives net cash at the end of March of a -- at the end of June of $51 million. That compares to a cash position at the end of 2020, which was $232 million. Our 2021 brownfield program has continued during the quarter, and we have continued to see some good results at Inmaculada. I am very [indiscernible]. Year-to-date, we have already added 29 million silver equivalent ounces of high-grade inferred resources to the existing resource base. [indiscernible] across our portfolio in the second quarter. At San Jose, we have seen further good results in the areas surrounding the current mine at the Escondida and Betania veins. And we have already been able to add 7 million ounces of high-grade inferred resources [indiscernible] target and close to the current mine at the Pallancata and Pablo veins, among others. We have also continued to see good drill results from our partner, Skeena Resources, at the Snip project in British Colombia. Some of them in our release [Audio Gap] which would take us to 60% ownership. The option expires in October, so we're very close to making a decision on that. I want to finish by mentioning the accident that we disclosed over a month ago involving our bus contractor and our employees from Pallancata. It is with deep regret that this resulted in 26 fatalities, involving 16 company employees and 10 employees from contracting organizations. One of our key priorities has been to ensure the best possible provision of hospital care to the injured. Emergency transfer were arranged to nearby facilities in Nazca and Ica and to private clinics in Lima when necessary. Clearly, our teams have remained in constant contact to provide all the requisite support and this will continue during the recovery phase. Our other focus has been on supporting the families of all those who lost their lives. And we very quickly established a crisis committee with key personnel from our operations, HR and health teams deployed to ensure in situ support on financial, legal and logistical matters to all the affected families. This has also, of course, included the provision of necessary transport and accommodation as well as psychological support. The formal investigation, which is looking into both the cause of the accident and the transport contractor procedures, remains ongoing. And although we can't currently comment on the conclusions, there are indications that Hochschild's strict bus transfer safety protocols have been implemented by the contractor. We have naturally been working closely together with the relevant authorities as they progress with their investigations. The safety of everyone who works at Hochschild is our highest priority. And I hope you will see how important it is to us if you look to our sustainability report, which we published a couple of days ago. So to sum up, we have had a solid operational first half in line. And with robust precious metal prices and our brownfield program continuing, we can look forward to a busy second half with further robust cash flow generation. And with that, I would like to open up to any questions that you may have.

[Operator]

[Operator Instructions] Our first question comes from Tim Huff with Peel Hunt.

[Timothy Alan Huff, Analyst]

Yes. I just -- a quick question. I mean, numbers aside, I mean, obviously, everything is going well if you're maintaining guidance. And I saw you had some great drilling results around Inmaculada. I was wondering -- a couple of things. If you could give us a little more color around that and how that might be incorporated into the mine plan. And then also there was a note on Pallancata drilling, and I was wondering if you could give us maybe a little bit more color there as to how you're thinking about Pallancata in the coming 12 to 24 months.

[Ignacio Bustamante, CEO & Director]

Absolutely. Tim, thank you for the questions. So on more color on explorations, what I can tell you is that we are very excited with this new area in Inmaculada, the Angela North West area. That is looking very, very encouraging. You are going to see the results in the release -- or you have seen the results on the release looking at [Audio Gap] high grades and very good width, over 3 meters and I would say close to about 10 grams of gold. So looking very, very good. And we believe that this area will continue being extended even continuing to [indiscernible] for potential extensions of Angela West and other structures that we have done across in that area, and if we can add even more resources for the second half of the year. Also, we have the focus of trying to convert as many of those ounces as we can this year as well to reserves. So we're going to be doing a lot of [ drilling ] as well during the second half of the year to increase both resources and reserves in Inmaculada. And this is, if you may recall, only on a tiny area in Inmaculada. That was the only area left from last year with the permits that we had for last year. We're in the process of getting shortly in the next days another permit to drill in a new area called Minascucho. So we want to start drilling Minascucho very soon. And probably 2, 3 years -- 2, 3 months from now, we are going to start also drilling the area in the north of the Angela vein called Lineamiento 3 for San Francisco areas that are both Minascucho, San Francisco looking really encouraging. So there's plenty more to come and we're going to continue drilling at full speed there. We believe that those areas are relatively close to Angela, but still require the development, the main developments, that we need to do to access that area. So we expect that, hopefully, part of that production -- part of that, those resources should come into production in 2022, but mostly they're going to come on the upcoming years. And due to the very good grade that they have, we believe there are going to be a very good mix with the new resources that we incorporated in the past 3 years coming from Millet and Divina that, you may recall have very good veins. They have a lot of ounces, but the grade was below the grades in Angela vein. So this should average out and give a very important boost to the overall grade in our current inferred resources and reserves. So very excited with that and with the potential that, that should come now. In the case of San Jose, it's in the middle of the operations area, very close to the area that is developed. So we should continue expanding the life of mine and continue also looking for additional structures in the area. So that's looking very encouraging. And on Pallancata, clearly continues being the most important need for finding additional resources. We have been drilling so far with no major findings yet. But we still have plenty of targets to test in 2021 and in 2022. So we are not losing any hope there, and we are going to continue drilling as much as we can to try to come up with additional inferred resources there. With the resource that we already have, we -- as we have told the market in the past, we have 2021 and 2022 secured. We believe that from the resources that we have left, those that we find that we have been working on, we believe that we can guarantee probably one, if not a little bit more than one additional year, so 2023 and hopefully some of 2024 with a very detailed mine planning work that we are doing with the hope of trying to increase the resource -- the life of mine with the resource that we already have. So most likely, Pallancata with the [indiscernible] even if we don't find anything else, it's a mine that should be with us until at least the end of 2023, hopefully into 2024 as well. And that should give us a very good time for our [indiscernible] for more resources [indiscernible] area as well as in the satellite exploration areas such as Cochaloma, Palca and Corina.

[Timothy Alan Huff, Analyst]

Does that -- I mean, that's great news. Does that mean that with the extra 1-plus year at Pallancata not only gives you more time to drill, but also it bridges that gap towards the short-term resource versus the longer-term resource as well? So maybe a slightly higher chance of being able to bridge that gap between short-term, near-term resource. Is that about right? Or is that too soon to tell?

[Ignacio Bustamante, CEO & Director]

No. That's exactly right. The more we can use from the current resources, the better proposition we're going to be to bridge the gap between the short-term and the long-term resources, that's for sure. And the resources that we have already part of our resource build in Corina, but in order for it to be a more confirmed satellite mine for the Selene plant, we need to do more exploration work, and ideally try to take it to around 30 million ounces to try to justify having a satellite mine there. So we're still working on our long-term plan as well. But I would say the fact that we can guarantee more information from the one that we already have is fantastic news.

[Operator]

[Operator Instructions] Our next question comes from Ryan Thompson with BMO.

[Ryan Thompson, Analyst]

Yes. Could you just talk a little bit more about the option that you have on Snip, if you could just give us a quick overview of that project and what the latest is there. How much it would cost to exercise that option? And just what your overall thinking is right now.

[Ignacio Bustamante, CEO & Director]

Sure. Absolutely, Ryan. So as I mentioned, Snip is looking very encouraging. Skeena Resources continues releasing very good results from their drilling program -- drilling campaign. So the resource that they initially announced some months ago of 650,000 ounces of gold with an average grade of between 13 to 14 grams, based on the results that we're getting, the total amount of ounces is likely -- very likely that it's going to continue increasing. We're in the process of also building our own models and try to quantify the ounces that we have based on all the new drilling results. But it's looking very close to potentially being a mine. So we're very, very enthusiastic about those results. And we believe that after doing all the work, the chances of us exercising that option is increasing over time. We have, as I said, until October, so we need to make a decision quickly. I would say within the next 2 months, we should be able to complete all the work that we need to do before we make a decision. And of course, let the company and let the market know about that. In terms of the option, it's an option that expires in October. In order for us to exercise the option, we need to commit to invest in the ground, so no payments, but just money invested in the ground, about twice the amount of what they have spent. What they have spent so far is around USD 25 million. So if we commit to invest $50 million over the next 3 years or so, then we have the option bet and we have 60% of the volume. But even from the time that we make the decision to exercise the option and we leave a note that we're exercising the option, we take control of the project and start doing the investment. So that -- those are the key highlights, Ryan. And again, really enthusiastic about the potential that we're seeing there, and looking forward to completing our work before making a decision.

[Operator]

[Operator Instructions] At this time, I am showing no questions in the queue. I will now turn it back over to management.

[Ignacio Bustamante, CEO & Director]

Thank you very much. Thank you, everybody, for participating in today's call. And should you have any additional questions or comments, please feel free to contact Charlie Gordon directly on our London office. Thank you very much, and have a great day. Goodbye.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.