Hochschild Mining PLC

LSE:HOC

Earnings Call Transcript 2021-Q4

[Operator]

Good day, and welcome to the Hochschild Mining Q4 2021 Production Results Conference Call. At this time, I'd like to turn the conference over to Ignacio Bustamante. Please go ahead, sir.

[Ignacio Bustamante, CEO & Director]

Thank you very much. Hello, and welcome to our conference call to discuss the fourth quarter production results. I'm Ignacio Bustamante, and we also have in the line, our new CFO, Eduardo Noriega; and Charlie Gordon, our Head of Investor Relations.The fourth quarter was another successful one for us with group production at almost 94,000 gold equivalent ounces or 8.1 million silver equivalent ounces. We have, therefore, delivered on our production targets for 2021 with 363,000 gold equivalent ounces or 31.2 million silver equivalent ounces per use. At Inmaculada, higher-than-expected recoveries contributed to another strong period with production at 42,000 ounces of gold and almost 1.9 million ounces of silver, which is gold equivalent production of 63,500 ounces. Overall, the mine has had another good year and delivered a touch over 238,000 gold equivalent ounces. The robust performance from our flagship mine was a little offset at Pallancata, which produced just over 900,000 silver equivalent ounces in the quarter, bringing the full year total to 4.4 million ounces. The good news here is that we have completed our revised long-term mine plan and with a further 3.3 million ounces of silver hedged for 2023, demand should keep going for the next couple of years and hopefully, beyond.In Argentina, San Jose also enjoyed another strong quarter and produced 1.4 million ounces of silver and just over 23,000 ounces of gold, which makes 3.4 million silver equivalent ounces. Overall, in 2021, the operation has produced 12.4 million ounces, which is a good recovery, given the restrictions in place in the country during the pandemic.In terms of costs, we expect to hit our 2021 guidance, which, if you remember, was between $12.10 and $12.50 per gold equivalent ounce or between $14.1 and $14.5 per silver equivalent ounce. Our 2021 brownfield program continued during the quarter, and we continue to see very good results at Inmaculada. We will give you an update on our year-end reserves and resources at our full year results next month, but we are happy to say that we have added around 83 million silver equivalent ounces in 2021 with a strong improvement in grade at Inmaculada.On the business development side, we had a really busy and fruitful period where, of course, the key announcement was a definitive agreement to acquire Amarillo Gold in Brazil. We are really excited by the prospects for this project. I just completed a visit to the project this week together with persons [indiscernible] from our top management team, including our new CFO, Eduardo Noriega, who remains there, and we're very excited with outstanding perspectives for this project.As you can see from the $120 million budget, we have an ambitious target for 2022 to considerably advance this project. We will give you updates on progress throughout the year. Another addition to our growth pipeline once exercise of our option on the Snip project in British Columbia, Canada. This represented the first step in our strategy to add a high-grade project with a strong asset potential into our pipeline, and we are really looking forward to getting on with more drilling as soon as possible working with Skeena as well as building on their strong relationship with Tahltan Nation.Finally, as you all know, we also completed a successful demerger and IPO of Aclara Resources on the Toronto Stock Exchange and raised around $100 million, which we are very pleased about. Of course, we retained 20% of the business and are looking forward to an exciting year for taking the Penco project further to our development.We have also today provided our guidance for 2022. I should point out that we are using the updated ratio for the equivalent numbers in our forecast from now on, and this has changed quite a lot from the 86x that we used last year to the average for 2021 of 72x. On that line, we are expecting to produce between 335,000 to 345,000 gold equivalent ounces or between 28.8 million and 29.7 million silver equivalent ounces using the 2021 86x gold/silver ratio. If you use the updated 72x ratio then that is between 360,000 and 375,000 gold equivalent ounces or between 26 million and 27 million silver equivalent ounces.Our all-in sustaining cost guidance using 86x gold/silver ratio is between $1,440 and $1,480 per gold equivalent ounce or between $16.8 to $17.2 per silver equivalent ounce. And once again, using the 72x ratio that is between $1,330 and $1,370 per gold equivalent ounce or between $18.5 and $19 for silver equivalent ounces.CapEx is expected to be at between $150 million to $160 million and increased mine development costs at Inmaculada and San Jose to develop the high-grade ounces we found last year as well as certain increases totaling on capacity at both Inmaculada and Pallancata. As I mentioned, we have set aside a budget of $120 million for the Posse gold project in Brazil and our granted budget is once again at $34 million with another $11 million on our greenfield program and between $8 million to $9 million assigned to Snip. Turning to our balance sheet. We remain in a really strong position at the year-end with $387 million in cash, and $300 million in debt. We have, in fact, amended our current medium-term loan out to 5 years with a 2-year grace period at a very good interest rate of LIBOR plus 1.65% and drawn down on an additional $100 million. We are now in a solid position to complete the acquisition towards the end of the quarter and finance all our CapEx requirements for 2022. So to finish my summary, we have once again made our annual production and cost targets and our brownfield program continues to deliver excellent results, whilst we have added new low-cost short- and medium-term projects to our growth pipeline.And with that, I would like to open up for any questions that you may have.

[Operator]

[Operator Instructions] There are currently no questions in the queue at this time. We have our questions come through. We will now take our first question from Ian Rossouw from Barclays.

[Izak Jan Rossouw, Director]

Just a question on a comment you've made, Ignacio, about the gold -- the recoveries at Inmaculada being above expectations. Just do you expect this to continue? Or maybe just give a bit of details on that. That's the first question.And then just a second question on the Posse gold project. You're talking about $120 million spending. Is that at the project level? Or is that from when you will consolidate the project, which I think you were saying should close by the end of Q1 this year.And maybe just a timeline on, I guess, that spending throughout the year? Should we expect more in the second half than in the first half?

[Ignacio Bustamante, CEO & Director]

Yes. Thank you, Ian. Let me start with the second question. So what we're expecting is for the deal to close in March. So between now and March, there shouldn't be any major expenses. So most of this $120 million should come after March, after we take control of the project. We are also waiting for certain permits that we are expecting also during the first half of the year.So I would say, even though we are planning on starting with some investments in the first half of the year, most of the investment is going to come, of course, on the second half of the year based on this transaction completion timing and also the remaining permits.Regarding recoveries in Inmaculada, I would say, those are mainly the result of 2 things that we have done. The first one is new reagents and bubbling system in the tanks; and the other one is an addition of an eighth tank to give the material more time to recover the gold. That has gone very well. So we would expect those to continue getting in 2022. And furthermore, we are evaluating the possibility of adding an additional tank, a ninth tank to see if we can improve recoveries furthermore, but that is still under evaluation.

[Operator]

We will now take our next question from Kieron Hodgson from Panmure Gordon.

[Kieron John Hodgson]

Just talked about Volcan on the announcement for the first time in a while. Can you just sort of expand on the work program, et cetera, because obviously, this could be a sort of a new area of interest for watchers of the company.

[Ignacio Bustamante, CEO & Director]

Sure. Thank you very much, Kieron. So in the case of Volcan, we believe that the current context in the world with our current gold and gold prices, mostly in this case, are very favorable to look again at the possibility of developing the Volcan going forward.So as you may have seen in the news, we have hired a new CEO for the Volcan project. His name is Greg McCann, and he's taking a full charge of the project, and we have already many different alternatives to proceed during the year. Now, so the timing is the right one. We're in the process of reviewing and all the technical data that we have. We're in the process of preparing a plan for the year and to discuss it with our Board in our upcoming Board meeting in February, and based on that, we are going to be updating the market on what the next steps about the port will be. But I can tell you that it's already back in our main screen, and we believe the contract is favorable, and we would like to see what are the options to put it into value and generate value for shareholders.

[Kieron John Hodgson]

Okay. And just I assume there's not going to be a major expenditure this year with regards to the project.

[Ignacio Bustamante, CEO & Director]

It shouldn't be anything major this year. No, but is, of course, going to depend on the final review that we make, but we're not expecting anything that is really material for this year yet.

[Kieron John Hodgson]

Okay. And just on the group financial position. Obviously, taking on additional debt and looking to sort of reverse the trend of increasing cash balances for the group through the development of your other assets.Can you just sort of talk about the sort of the comfortability or comfort levels of debt in the group?

[Ignacio Bustamante, CEO & Director]

Yes. We feel very comfortable. As we have said, we have a net cash position of over $80 million. So we feel very comfortable with that, and we are going to be doing some major expenses this year. First one to complete the acquisition of Amarillo and the other one is to start the CapEx expenses for Amarillo as well, the $120 million that we just mentioned. So that is going to be using some of our cash, and we're going to be starting getting into a net debt position by the end of the year, but we also expect to have a very important cash flow generation in the year as well.So sure, we feel very comfortable with that situation. When you combine the projects that are also very relatively short term because Amarillo support us -- should get into pricing in 2024 and start generating cash flow that are again. Now, so in short, we feel very comfortable with the cash position that we have, the debt position that we have, and investments that we need to make in the next couple of years.

[Operator]

We will now take our next question from [ Iven Lo from Liberum ].

[Unknown Analyst]

I was wondering if you could give us more color on the potential you see in Snip. And whether there might be any environmental or indigenous issues.

[Ignacio Bustamante, CEO & Director]

Thank you very much, Iven. So we're very excited with Snip. The main difference between Snip and Amarillo, I would say, is the degree of advance. Amarillo is probably ready to start being built in the next couple of months. However, Snip is still a project that is in a much earlier stage that we're in the process of building a resource base.The focus for this year is to prepare a prefeasibility study, and also to do more drilling to quantify more the size of the resource. Now so it is still a much early stage, but we believe it shows a lot of prospectivity. And in terms of environmental issues, I can tell you that we are not anticipating any at this point in time. Of course, we need to do the feasibility and the prefeasibility studies and understand the situation much better to determine what the best course of action is. But I can tell you that we are not going to proceed if we're not -- if we do not feel 100% comfortable that all the environmental considerations are being taken into account.Now, so in short, we're very excited we believe has a lot of potential, but it's still in an earlier stage and the work that we do during 2022 in terms of completing the prefeasibility and completing the potential drilling are going to be critical to determine the next steps on the project.

[Operator]

[Operator Instructions] There are currently no questions in the queue at this time.

[Ignacio Bustamante, CEO & Director]

Thank you very much, operator, and thank you very much, everybody, for participating in today's call. And should you have any additional questions, please feel free to contact directly Charlie Gordon, our Head of Investor Relations at our London office. Thank you very much, and have a great day.

[Operator]

Ladies and gentlemen, that will conclude today's conference. You may now all disconnect.