Aura Minerals Inc

TSX:ORA

Earnings Call Transcript 2021-Q4

[Gabriel Catalani, Investor Relations Officer]

Good afternoon you all. Welcome, and thank you for attending Aura's fourth quarter earnings call. My name is Gabriel Catalani, I'm the Investor Relations Officer. We have also Rodrigo Barbosa, CEO of the company; and Kleber Cardoso, CFO. They will be presenting today. [Operator Instructions] The presentation is already available on our website, and the record of this meeting will also be available on our website by the end of the day at ir.auraminerals.com. Rodrigo?

[Rodrigo Cardoso Barbosa, CEO & President]

Thank you, Gabriel, and thank you for all for participating on this call where we will present the main results, achievements during the year 2021 and then Kleber is going to show more the financial of the fourth quarter and also the full year of 2021. Gabriel, I was going to share -- yes. Okay. So while we'll present a few slides about the main achievements and also progress of our production and cash cost. And then as I mentioned, Kleber is going to present in detail on the results. So we want to go one more. So on Slide #5, for those that are also following up with the printed version. 2021, and I will remind all the investors that we did the re-IPO of the company sharing a story where we would provide our shareholders with a combination of high growth, a company that was producing 204,000 ounces in 2020. And we shared the vision to which over 400,000 ounces, and we would do that low leverage, paying dividends and through very accretive projects such as Almas and Matupa. What have we achieved during the year of 2021. Number one, we increased production by 32%, coming from 204,000 ounces, going to 269,000 ounces during the year, which is a very strong step towards the 400,000 ounces. Not only that, we also paid 13.5% of dividend yield, one of the highest dividend yield in the industry and also one of the highest in Brazil while maintaining a low leverage. We paid, we grew 32%. We move forward with projects that greenfield projects, we pay the dividends, and we finished the year with a negative net debt and net cash position. So we are delivering as we promised to the market since 2020. Other very important achievements during the year 2021 is building a strong steps towards the 400,000 ounces. We initiated Almas project construction, which is now on track to start the plant in early next year and ramp up for commercial production by mid next year. I would remind shareholders that this project is giving us 100% internal rate of return leverage at gold prices 1,800. So it's a very accretive project that we should start production next year. Other project that we move forward is Matupa. Matupa is a project that also came with [indiscernible] a project that initiated its geological studies. And when we acquired ahead of only 340,000 ounces. Last year, we had an opportunity to invest in more geologies through a significant increase, the resources and reserves. We decided that both projects that has a very short payback and a very strong internal rate of return, we decided that it would be more important to convert the resources into reserves to start the process of environmental licensing so that we could start construction next year. So the result has confirmed our suspicions that would be a highly accretive project. We launched a PEA at December last year of Matupa, giving over 70% of internal rate of return leverage at 50% and gold prices at 1,800. And this project has only 340,000 ounces of resources. We should be releasing a new 43-101 and reserves very soon on the project. But we expect to be able to increase the geological resources and reserves, which would even move our internal rate of return at higher. So we also -- we published this PEA and now we are in the process of the environmental licensing. Now the very important point that we move forward also with our ESG agenda, not only issuing the new sustainability report and also the inventory of carbon footprint and water construction. We also committed to women in mining in all countries that we operate, and we committed also to have at least 40% of women be interviewed for managerial positions while we will be training a local labor in women in order to be able to attract -- train and attract them to work with us and that we -- so that we can assume more new targets for the next years. The operations, as you could see in the fourth quarter. We significantly improved production in Aranzazu due to a higher capacity and better grades. We also increased our production in Honduras with higher grade and also improvements that the management is doing at the site. And a combination of those improvements more than offset the nonproduction from Gold Road as we stopped investing Gold Road and Gold Road started spotting carry maintenance by October last year. On combination of good results and dividend, we reached the #1 performance in the whole TSX companies -- listed companies, not only mining, but also many other companies, Aura was #1 in performance, and we expect to continue delivering results so that we continue to be highly ranked on performance to our shareholders. On the finance side, we also worked -- we issued new debentures during the year. We releveraged some of the projects on Almas and also the current operations, stretching out the terms, not only stretching out the terms, but also reducing the cost of debt by 2.6 percent basis points. For -- as a guidance for next year -- for this year 2022, we now expect a slower growth for this year, more organic growth through our operations that we already have. So we would expect to be between 260,000 and 290,000 ounces during this year and the new big major steps are coming in early next year with Almas entering production and Matupa, we expect to hit production by 2024. Next. In terms of safety and COVID, we had, during the year, accumulated 9 lost-time injuries during the year 2021. This is below the industry average, but far from what we would like to be. So we are intensifying our measures our procedures and all our incentives internally in order to even reduce the lost-time in the act, the level address within our operations. In terms of COVID, we continue to monitor, we continue to help the communities where we are with information and also with suppliers. We've reached over -- close to 100% of people vaccinated in operations at least on those. In many places, we are already 95% over -- already with the second dose and we have not had any case that was spread between our operations in terms of COVID. Those that came with COVID was -- came with already contaminated from outside. So that means that the measures and the procedures we implemented in operations was very efficient in order to avoid the spread within our employees. And that also impacted us not having choose low production or didn't impact the production when we didn't have a lot of cases internally and none of the cases was spread within our operations. In this slide, #7, so we provide the production for the fourth quarter. The fourth quarter, you could see a significant increase compared to the other quarters basically. And Aranzazu as I mentioned to you, higher production. We increased capacity of Aranzazu as we had shared in the market early -- late 2020, we increased the capacity by 30%. And that was finished during the second quarter. So third and fourth quarter, we had a combination of high production in Aranzazu and also high grade. San Andres was negatively impacted on the Q3 because of the stoppage in July. And also in Q4, we didn't have the stoppage, but we also could make significant improvements on grades recoveries and also the whole performance. In EPP, we are now gradually moving forward on the higher grade of higher Ernesto. So we went up from 15,000 ounces to 17,000 ounces. And a combination of all of that, we reached 78,000 ounces on the quarter with a record high breaking for all our operations at least in the last 10 years. In terms of cash cost, the quarter -- the combination of higher -- better performance and higher production, we also could reduce the cash cost consolidated basis operations going to [ $691 ] of the operations at Aranzazu, San Andres and EPP. And when you add -- which is now on the carrying maintenance, Gold Road would be $717 per ounce. In terms of the full year of 2020, we had $809 per ounce. And this year, excluding Gold Road, we are now at $764 per ounce. And for the projection, which is very within the guidance that we gave in the market. So we reached the production and reached the cost on the guidance of the market. I would highlight in terms of cost also, as I mentioned, we still have 2 important projects to develop within our portfolio, Almas and Matupa, both projects are the ones that will give us an opportunity to grow additional 50% in terms of production compared to 2021. But not only that we will go through a very highly accretive project in terms of rate of return and also being able to reduce our average cash cost. So those either Matupa and Almas are on the first quartile of the industry in terms of cash cost. and that, with the combination of the project operations that we already have, we should be moving towards the second quarter in terms of cash cost by 2024. As our guidance -- and the next slide, I'll speak more about a longer-term view. So we produced 269,000 ounces during the year, both out of the 269,000, 10,000 came from Gold Road, which is now under carry maintenance. And for this year, we project to be between 250,000 ounces and 290,000 ounces which is more organic to grow in improvements that we are making in operations and some higher grades that we are also achieving in some of the assets that we have, then that's the big steps that we will see in the next slide come from Almas and Matupa. In terms of cash costs, we finished the year, as I was mentioning, close to $769 or $816, including Gold Road. And then we expect this year to be, we think, the same basis within $771 to $845. That currency cost that's some lower grade areas that we are reaching during the year and also higher strip ratio that mainly in San Andres that we'll reach -- that will basically maintain us had the same cash cost or a slightly higher on the combination of those things and also some small inflation that we are seeing in operations. Some of them, we have also been able to control. In terms of CapEx, we had a year of $78 million of investment, and that would include also our Gold Road, which required close to $15 million. Next year, we don't have Gold Road. But on the other hand, we will be investing in Almas projects that require the total close to $75 million, only in next year is going to be close to between 55%, 61% Almas and in other expansion products. So our guidance to the market for next year in terms of CapEx is going to be $100 million to $111 million. Understanding that out of this $55 million and $61 million is for growth projects that's still not yet generating cash flows. And the sustaining in the exploration from the project that already produced the cash flows. In terms of growth, and then Kleber will talk more about the results, I shared with you, our investors and analysts, that we are very much on track to reach over 400,000 ounces by 2024 unrealized. So we are coming -- this is a company that's coming from 122,000 ounces of production in 2018. We grew over 67% until 2020, reaching 204,000 ounces. We grew an additional 32% last year, reaching 269,000 ounces. Not only that, we significantly made strong steps towards the development of Almas in Matupa. Again, Almas, we already started production. We started the construction. In Matupa, we are now in process of licensing, and we issued pre-economic assessment during the same last year, very high accretive project for our shareholders. And a combination of organic growth that we will have this year and more opportunities that we can increase on the current operation plus Almas and Matupa will give us -- be able -- we will be able to reach over 400,000 ounces by 2024, very much on track on what we share with the market, not only this paying dividends and maintaining a low leverage. And finally -- go ahead. Now Kleber, I pass to you.

[Joao Kleber Cardoso, Chief Financial Officer]

Sure, Rodrigo. Good afternoon every one and thanks for being here today. Next couple of slides, I am going to show Aura financial results for the [indiscernible]. On page, we have a summary of the main financial KPIs for Aura for the fourth quarter and half of the year, the last 2 quarters accumulated 12 months at the end of each reporting period. As you can see overall, the message of this is it was a strong [indiscernible] capital operational results with net income achieving $160 million. At the end of the fourth quarter, for the year or requiring $444 million in net revenues. The result adjusted EBITDA, adjusted EBITDA required at $56 million. As Rodrigo saying, it's a record high credit company. Without Gold Road, that number would have been a bit higher. Gold Road had some amortization costs associated with transition into repair and maintenance part. So it also grow the adjusted EBITDA would have been $59 million. And for the year, [indiscernible] is requesting consolidated adjusted EBITDA of $185 million for the year of 2021. In terms of net income, positive net income of $23 million by a noncash expenses of $22 million in the quarter, which was a little bit more detail in the next slide and bringing the total net income for the year to $43 million. Partly in terms of cash and net debt, pricing, it's net debt, that is the column in red in this slide [indiscernible] required to and a longer quarter with negative net debt or a positive quarter net cash of $2 million despite paying $25 million in dividends in December. We also [indiscernible] on the right side of the chart, you can see a pro forma what would have been the net debt of Aura without exposing the Gold Road debt and the net debt would have been at the end of the year, minus $27 million, $25 million in net cash. So we can have an idea what's going to be an impact in our balance sheet while price growth with no longer part of the Aura portfolio. And finally, in dotted lines, we can see the cash position of the company. We remain with a strong cash position at the end of the first quarter, above $116 million, pretty much consistent with the previous quarter despite the payment of the end in the quarter. On the next page, on Page 14, we have a consolidation between the adjusted EBITDA and the net income for the fourth quarter. As we saw previously, the left hand side show adjusted EBITDA for the quarter was $56 million. We had an amortization depletion expenses of $9 million, which has been more or less consistent with the number of [indiscernible]. Finance costs were $7 million where -- this number is above the recurring number, and that's mainly because it includes around $3 million we accrued interest expense that is related to the acceleration of the Gold Road debt. So Gold Road is historically until the previous quarter recorded in its balance sheet that is debt considering the fair market value of the debts and with the acceleration of event during the fourth quarter, it has to recognize the value of US debts at full nominal event. The fair market value of the Goal Road debt was $22 million and the full loan amount value is $25 million. So $3 million difference had to be accrued in fact, in the first quarter, but again, this is an all cash site. We also had income tax expenses of $14 million, of which approximately half of that deferred and no cash in the quarter. That's mainly from our own result where I think there was an assumption of defeered tax assets, and you also spend the timing. Another noncash item in the prior year were related to changing estimate in asset retirement accommodation. For mining repair and maintenance that we require another $3 million in expenses in the [indiscernible], mainly tended, I think $20 million at the end of the fourth quarter. And then on next page, on Page 15. On this page, we bring a detailed analysis of the change of the cash position of the company through our fourth quarter. On the far left side of the slide, we can see the cash position at the beginning of the quarter at $165 million then it's left side of the page. There is one analysis that we call adjusted free cash flow equivalents. That is the free cash flow generated by the mining operations, not including investments to grow the company. That portion of the business generated $32 million in cash during the fourth quarter. Excluding overall adjusting considering EPP [indiscernible], the cash generated by those streamlines that were $36 million in the -- in line with the corporate expense. More in the middle of the chart, we have what we call investment for growth, investing in the company makes such increased production in the future by increase the life of the mine of the company, which is exploration status, exploration CapEx and expansion investments [indiscernible]. That part of the constituent $8 million in cash proving the fourth quarter and more to the right side of the page, we have Almas monetizing, but we also have the biggest cash outflow during the quarter that was the dividend payment in the early December, with $5 million, remitted cash and equivalents of over $160 million at the end of Q4. So overall, we see the main cash outflows dividends and investments should grow the company, that was sustained by the cash generated by the current operation. So that the company was able to keep almost stable the cash and equipment of the company for the quarter. And with this, we end our presentation and will go for answering questions.

[Rodrigo Cardoso Barbosa, CEO & President]

Yes. So while we see the questions here, overall, we are performing according to what we presented during the IPO. And not only that, when you see ROE performing according to what it should in terms of macroeconomics as well, right? While we see the world with uncertainties in many other areas, Brazil, for example, uncertainty about the growth and higher on higher interest rates. Aura is improving our margins, increasing production and also reducing the cost of debt once we are anticyclical and we have been able to improve our results according to higher gold prices as well.

[Rodrigo Cardoso Barbosa, CEO & President]

So I have one first question here, which is, "please elaborate a bit why the guidance now that we are presenting is different from what we presented in Aura day, which was a couple of months ago. And can you share an update of reserves and resources? Do you expect or measure particular highlight? Any mind that would highlight well." First question is on last presentation given Aura day, we can only present to the market things that has been discussed and approved by the Board. On that time, we still had the Gold Road as a potential production. Now we are most of the different comes taking out Gold Road on our guidance and now I'm using the [indiscernible] operation plus Almas and Matupa. Then I have question, "does our management consider streaming royalty agreements for financial Almas and Matupa?" For Almas, we are already fully funded. We are not considered streaming. Streaming normally has a higher cost compared to what we've been able to assess. So we are not considering for Almas, we are not considered streaming from Matupa, but we might consider for other projects, if we think that is the best alternative for the company and for our shareholders. I also received one another question here from Daniel, "if we plan to increase our production even further above the 400,000 ounces." So yes, -- we have a very good plan, a very well-detailed plan that is now in execution to reach, and we know very much how to reach over 400,000 ounces on the yearly production. But we understand very well that companies that produce more than 500,000 ounces, they changed the peers, they are consolidated more to a major company. And those companies that has more than 500,000 ounces they trade with 50% or more premium in terms of multiples compared to those that are under 500,000 ounces. So we know very much that we can significantly also increase further the results and the value for our shareholders if we reach above 500,000 ounces. And that's why we are actively looking alternatives for M&A. We know very much how to reach 400,000 ounces, but above that, we'll have to go through M&As. There's another question that I have here, if I can give some highlights in terms of resources and reserves, the findings from exploration and expenses, we should be releasing the new report in the coming weeks, updating resources and reserves. But as we've been able to show the market. Since we started the turnaround project was 2017, '18, we start investing more on a high basis in the first 2 years, but we start increasing more last year. So we've been able with the small investments that we have done so far, but now increasing not only to replenish our resources and reserves, but also increase. So we should be continue to do that as we are now increasing investment geology. So we are not only replenish resources and reserves, but we've been able also to increase. So I have another question. "With regards to exploration expense, which are the areas in which there are no reserves yet that you will do exploration works. Do you expect volumes could be added in the next reserve report." We expect to have some additional resource reserves, but that the report is coming up as soon, we cannot anticipate. But there are -- Aura is a company that has been underinvested under management in the past. We started this turnaround in '17. During the first year, we had a lot of decisions of selling assets, merging with another company, restarting another. And we only started paying more attention to geology that was when we start having a better cash flows as well that was back in '19. And then '19 and '20, we did all the superficial investments on the surface, and we started drilling more last year, and we intensified the drilling during this year. So there are many areas that we found that would be very interesting to drill and that could significantly increase resources reserve. And that is in all the assets. We have opportunities in EPP, which we are underway right now, even Almas that we already have 15 years of life of mine. There are many indications that we could have a smaller but higher grade pockets very close to the plant. So we are now intensifying geology in order to understand this potential because if we do find it, then we can put higher grades that we have on the current plan that would increase also the capacity of production. Matupa is a project that we did almost nothing in terms of geology in the last 3 years, just a minor exploration on copper and also gold. It's a very, very high potential area than many other companies operating around us. And we are just now starting to invest more in geology in order to expand the resources reserves, not only with the -- again, with the 340,000 ounces of resources, we've been able to publish a PEA of 70% leverage depending upon rate of return. And as we've move forward now on more geological investments, we expect again to us to be able to increase. "In regards of cost of goods sold, do you expect an impact from higher diesel prices in the 2022 guidance?" Most of them the inflation that we already -- that was already transferred during last year. We are not projecting a significant increase now in our cost and our productions. We have contracts that now expires of operations of 3 years in the mine that we are now renegotiating, understanding the opportunities not to increase but also to reduce. So there is a strong front in order not only to contain the inflation, but also be able to further find possibilities to decrease our cash cost. So we do not expect significant increase or even we could expect some decrease on cost of operation, those mines. "Is the new expansion, new project CapEx largely devoted to Almas in 2022? Is Matupa construction, you expect that to starting half 1, 2022." We -- our schedule is we start construction of Almas last year. During this year, we would do the whole construction to initiate production next year. Matupa, the idea is we start construction next year. This year is a year of licensing and also advancing some geology to start construction next year and then enter the production by 2024. So Matupa we're already in construction start production '23, Matupa starts construction '23 and production in 2024. With regards -- from Daniel Sasson, "with regards of possibility of M&A and financing capital, could we see the leverage pick up a little bit or the acquisition might be financed exclusive by -- with equity? If so, what level of leverage we could see in the future." So we have a policy internally to run under the low leverage ratios, not with the cash positive. We have -- every time we have an excess of cash, we will be distributing to our shareholders, either by dividend, by share buybacks or if we find good opportunities for M&A, we could use this cash. How much -- how far could we go on average? We would like to operate another onetime EBITDA in terms of net debt. We could go a little over 1.5 million, a little over and some acquisitions. If we see an opportunity to reduce below onetime very fast. So that would be the range and the policy that we already have. Everything that would move us acquisition that would require more cash than 1.5x, 1x EBITDA, then we would consider, yes, equity to -- as a source of funding for that acquisition, but we already start with a very strong balance sheet with negative net debt. So that gives us a significant flexibility in order to pursue the growth through M&A that we are -- that we plan. That's another question here if we can share about the dividend policy. Yes, we approved with the Board a policy of 20% of the EBITDA minus recurring CapEx. That's what we also shared with the market during 2020. And every time we see that there's excess of cash, as I was mentioning earlier, we would also transfer this cash back to our shareholders, either by dividends or buybacks. I think that's...

[Gabriel Catalani, Investor Relations Officer]

There is a question from Caio Gren. He said can you elaborate a little bit more on the lower production guidance for 2022 versus the one shown in the Investor Day. Does EPPs help in our expectations in the short term, specifically about 2022 guidance?

[Rodrigo Cardoso Barbosa, CEO & President]

On Ernesto specifically, Ernesto it is a very high grade that we would operate only during the year 2022 that would also give us opportunity to increase production during this year. What we had is some delay entering on the Ernesto pit together with a short-term model was showing a slightly difference grade compared to the long term. So that also creates some, I would say, frustration. But most importantly, what we saw as an opportunity to reduce the cutoff. As we see gold prices moving up, that means that we can enter in grades that was not a quantifiable in the past. So we reduced now the cutoff of the project that together with the change on the short-term mine decrease the grade of Ernesto, but on the other hand, increase the life of mine of Ernesto. So we are not only operating Ernesto during 2022, but we also operated during the year 2023. On average, a lower grade compared to what we had, but on the -- with more mode of production.

[Gabriel Catalani, Investor Relations Officer]

There's also a question regarding M&A. So with regards to possible M&A and financing capital, would we see the leverage pick up a little bit of the acquisition might be finally exclusively with equity. If so, what level of leverage we could see in the future?

[Rodrigo Cardoso Barbosa, CEO & President]

Yes. So as I mentioned, we -- I think I already answered this. It's the -- rate should be not more than 1.5x EBITDA in terms of leverage. We would like to run always under 1. So any acquisition would consider this kind of thresholds and if we see that's accretive, it requires more cash than we could finance internally, then we would also access the equity capital market in order to raise the cash or even use our shares as a payment on the acquisition, but we already started with a very strong position with a lot of room to work internally without having to access equity capital markets. So I would like to thank you, and thank you all for being with us for the Brazilians, it's carnival is coming soon. We wish all the good holidays for everybody. We've been delivering results consistent with the market. Gold now -- particularly now with the consequences of the geopolitical change in the world should remain strong. Not only that, but this change can and should also make the countries such as the United States and Europe to increase the expanding on the Army which increased significantly more the assets, which reduced the flexibility of federal reserve to increase and nominal interest rates, which can sustain or could push gold price even further [indiscernible] should not be considered as -- not only considered as an investment, opportunistic or just to leverage up on the future gold prices, but it's very accretive to any vessels to diversify its portfolio as a company such as Aura to reduce the beta while not compromising the alpha. We will be able -- with Aura, you can reduce the volatility of your portfolio and also not compromising the growth. But the story could also provide you a 50% of growth with dividends and also through very accretive projects. Thank you all. Wish all the best weekend for everybody, and happy holidays for the Brazilians. Goodbye.