Aris Mining - Q2 2024

Transcript

Operator (participant)

Good morning, everyone, and welcome to the Aris Mining Q2 2024 Operational and Financial Results Call. We'll begin with an overview from management, followed by a question and answer session period. To join the question queue, you may press star then one on your telephone keypad. As a reminder, all participants are in listen-only mode, and the conference is being recorded. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. Please note that the accompanying presentation that management will refer to during today's call can be found in the Events and Presentations section of Aris Mining's website at arismining.com. Also, Aris Mining's second quarter 2024 financials have been filed on SEDAR+ and EDGAR, and can also be found on their website. I would now like to turn the conference over to Mr.

Neil Woodyer, Chief Executive Officer. Please go ahead.

Neil Woodyer (CEO)

Thank you, Operator, and good morning to everybody, and thank you for joining us on our 2024 Q2 earnings call. With me today in Bogotá are Richard Thomas, our COO, and Richard Orazietti, our CFO. But before we go into the quarterly results, I'd like to draw your attention to slide two, which shows our caution statements, as we will be making several forward-looking statements today. With that out of the way and starting on slide three, I'd like to share our operational and financial highlights with you before handing it over to Richard Thomas, who will discuss our operational performance and give us an update on our transitional growth projects at Segovia and Marmato. Then Richard Orazietti will discuss our financial performance this quarter and for the first half year.

Aris Mining produced 49,000 ounces of gold in Q2 and 99,983 ounces in H1. We generated a half-year Adjusted EBITDA of $64.5 million, and our Adjusted Earnings were $18.1 million or $0.12 a share. Segovia generated a significant all-in sustaining margin of $60.6 million in H1, contributing to our funding of our expansion projects. During H1, we invested $70 million in growth projects, including $7.5 million allocated to exploration programs. As highlighted in our news release on Monday, our drilling program at Segovia continues to deliver high-grade intersections, confirming the continuity and extensions of the large-scale veins at depth and along strike, and supporting Segovia's status as one of the highest grade gold operations in the world.

Without going into too much detail, as this will be covered by Richard, I'd like to briefly touch on the expansion of our Segovia operations and the construction of the Marmato Lower Mine. Both projects remain on track, and we continue to expect to achieve an annual gold production rate of approximately 500,000 ounces in the second half of 2026. And again, before I hand over to Richard, I'd like to spend a minute just to discuss Soto Norte. On June 28, we completed the acquisition of an additional 31% in Soto Norte, therefore increasing our project ownership to 51%, with Mubadala retaining a 49% interest, and they became a 9.3% shareholder of Aris Mining. We continue to develop the development team being integrated into our management structure and procedures.

We're also progressing the new Soto Norte development plan, studying to look into our next project growth for 2027. Beyond the feasibility, study levels are underway, with the results of these studies expected in early 2025. I'd also like to take the opportunity to emphasize that local contract mining partners will be integrated into the new Soto Norte design and development plan. With that, I'd like to hand over to Richard to carry on the discussion.

Richard Orazietti (CFO)

Thanks, Neil. Moving on to slide number four. In the first part, first half of 2024, we produced, we processed relatively low-grade material at Segovia, averaging at 9.3 grams per ton, and we did experience an unplanned 7-day plant maintenance shutdown in April, which affected our H1 production for the year. However, since May, the Segovia plant has been operating at its design capacity of 2,000 tons per day and is on track for expansion to 3,000 tons per day by early 2025 to support our future production growth. Despite these operational challenges in the first half of the year, Aris Mining remains on track to meet the lower end of its full-year production guidance of 220,000-240,000 ounces.

And what gives us confidence is this, that we have opened up some very high-grade sections in the El Silencio Mine, and we are- which we identified in our drilling program, and we are currently exploiting these. We are seeing this grade reporting to the mill at present. Also, we have managed to upgrade our Bolívar Shaft, and that production has been increased by 25%, which allows us increased production from the El Silencio Mine. Moving on to slide number five, where we provide further details of the cost structure of our Segovia Operations and our contract mining partners business model.

In Q2 2024, the cash cost per ounce was $1,222 per ounce for mine operations and $1,174 per ounce for on-title CMP operations. Cash costs for owner mining remained relatively stable with a modest 2% increase compared to Q1 2024. However, the cash costs for on-title CMPs rose by 11% over the previous quarter, directly driven by a 12% increase in realized gold prices to $2,300 net per ounce in Q2. Similarly, the purchase and processing cost per ounce for material delivered by third-party CMPs who operate off-title increased by 29% in Q2.

This was due to both the rise in realized gold prices and the delivery of significantly higher-grade material in Q2, which averaged 29.1 grams per ton, compared to the 18.7 in the previous quarter. However, despite the higher costs, third-party CMP mill feed purchases contributed approximately $7.2 million to Segovia's all-in sustaining margin of $60.6 million in the first half of the year, while consuming only 5% of Segovia's milling capacity. Moving on to slide six. The Segovia process plant expansion progressed as scheduled, with overall engineering work 85% complete. The manufacturing of the new mill was completed on time, and final payment has been made. The new mill overhaul is expected to be delivered on site in September.

Construction progress also includes the installation of concrete training walls, material receiving bins, foundations, foundation equipment, and CMP receiving facilities, and assembly of conveyor belts and other capital equipment. Additional work on the foundations and capital expenditures have increased the overall budget to $15 million, as previously disclosed in our press release on July 16. Once the Segovia processing plant expansion is complete in early 2025, following a ramp-up period, Segovia is expected to be able to produce over 300,000 ounces of gold per year. As Neil mentioned, in our 2024 exploration program, which is approximately 70% complete, has delivered excellent results, as disclosed in our press release on Monday. We expect to report updated mineral resources and reserve estimates for Segovia in quarter four. Moving on to slide seven.

I'd also like to update you on the construction progress at the Marmato Lower Mine. As you know, we commenced construction of the new Marmato Lower Mine in Q3 2023, following the receipt of environmental permits in July 2023. Lower Mine will access a wider porphyry-type mineralization below the Upper Mine, with both mines estimated to produce a combined 162,000 ounces of gold per year over a 20-year mine life. Detailed design and engineering of the process facility are over 90% complete. Manufacturing of the process plant equipment ordered in Q1 of this year is progressing on schedule, with long lead items on track to meet contracted delivery dates. The portal development is ahead of schedule, with completion expected by the end of the month.

The contractor selected for the twin decline is preparing equipment for mobilization, and key items like the drill rigs are already on site. Preparation for the road access to the processing plant is progressing well, and asphalting has commenced this month. Design and engineering of the power supply to the mine and process plant are complete, and the land rights acquisition process continues for the main power line. This design of the plant, paste plant, and water treatment plant are well underway. As of the end of July 2024, the estimated cost to complete the Lower Mine construction was $246 million, of which $122 million will be funded by stream financing, resulting in $124 million of cost to complete on a net basis.

Finally, I'd like to draw your attention to the video link at the bottom of the slide, which I recommend you visit for photographs and video updates of the Marmato Lower Mine construction progress. With that, I'd like to hand over to our CFO, Richard Orazietti.

Thank you, Richard. We're now looking at slide eight. In the second quarter of 2024, we generated revenue of $114.2 million and $219.4 million in the first half of the year. Our quarter-over-quarter revenue growth was driven by a rise in gold prices, as our average realized gold price increased by 12% to $2,308 per ounce in Q2, compared to $2,061 per ounce in the first quarter. Consequently, adjusted EBITDA increased by 27% quarter over quarter to $36.1 million, and in the first half, we generated adjusted EBITDA of $64.5 million. The bottom line here is that our profitable operations continue contributing to fund our transformational near-term growth that Neil and Richard had mentioned previously. Now, moving to slide nine.

I'd like to discuss some of the key line items of our management view of our cash flow statement. As Richard had mentioned, the market price of gold directly impacts the price of mill feed purchased from the CMP segment of the Segovia Operations. Consequently, higher gold prices also contributed to higher cash costs in the second quarter of 2024. Despite higher cash costs, our AISC margin of $30.6 million on a consolidated level increased by 22% in the second quarter compared to the first quarter. In the first half of the year, we generated an AISC margin of $55.6 million. During the first half of the year, we invested $70 million in growth projects and reduced our indebtedness by $21 million.

Debt reduction was achieved through the maturity of convertible debentures in April of this year, with the majority of the CAD 18 million converted into shares. And then we had a payment, a CAD 7.4 million repayment of the Gold X Notes. Working capital outflows related to VAT receivable of CAD 17.4 million incurred in the first half of the year, are expected to be recovered in the first half of 2025, in accordance with the regular timing of reimbursement from the Colombian tax authorities. We are also expecting cash of approximately CAD 20 million in the third quarter of this year related to our 2023 VAT receivables, net of corporate taxes payable. Originally, we had expected to receive cash for 2023 in the second quarter.

However, due to changes in the Colombian tax authority's administration of the certification of the VAT amounts, the reimbursement was delayed. Further, we had $25 million of cash from the exercise of warrants and options, which helped to finish the second quarter with a cash balance of $122 million. Lastly, as we previously disclosed, we're expecting to receive the first $40 million milestone payment related to the Marmato stream financing in the third quarter of this year. As of June 30th, 2024, the Lower Marmato Project completion was at approximately 22%, which is just under the first milestone threshold of 25% project completion. Concluding my remarks on slide 10, I'd like to update you on the full year guidance for 2024. Richard had already touched on our production guidance.

We remain on track to meet the lower end of the full year gold production guidance of 220,000-240,000 ounces. Our, our production profile is weighted towards the second half of the year. We expect Segovia's gold production in the first and the second half to increase by approximately 30% relative to the first half, with both improved tons milled and higher grade expected to contribute equally. Forecasting full year costs is challenging due to the direct link between CMP costs and the price of gold, which is used to determine the mill feed purchase costs.

Considering the first half results, the expectation of continued inflationary cost pressures and the potential for higher gold prices, we now anticipate cash costs per ounce at Segovia to range between $1,125-$1,225 per ounce for the full year 2024, compared to our prior guidance of $975-$1,075 per ounce. Similarly, we now expect full year 2024 AISC per ounce at Segovia to range between $1,400-$1,500, up from our prior guidance of $1,225-$1,325. Said differently, we expect an AISC margin of approximately $1,000 per ounce in this current gold price environment. It is also worth highlighting that our CMP business model is designed to maintain relatively stable margins while we grow gold production and strengthen our community relationships.

With that, I'd like to hand the call back to Neil for some concluding remarks.

Neil Woodyer (CEO)

Thank you, Richard. Now we move to slide 11. Before opening the Q&A session, I'd like to reemphasize the key takeaways that we reported in this second quarter. Despite the operational challenges in the first half, Aris Mining remains on track to meet the lower end of our full-year gold production guidance of 220,000-240,000 ounces, as our production profile is weighted towards the second half. Our profitable operations contribute to funding our transformational near-term growth. Segovia is generating a significant AISC margin of $60.6 million in H1. We're executing our transformational expansion project as planned and targeting annual production rate of approximately 500,000 ounces of gold in the second half of 2026.

Our drilling program at Segovia continues to deliver high-grade intersections, confirming the continuity and extension of the large scale veins at depth and along strike, supporting Segovia's status as one of the highest grade gold operations in the world. We're progressing the development of our study plans for the 51% owned Soto Norte to unlock our next growth project for 2027 and beyond. And with that, I'd ask the operator to open the Q&A session.

Operator (participant)

Thank you. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We'll pause for a moment as callers join the queue. The first question comes from Carey MacRury with Canaccord Genuity. Please go ahead.

Carey MacRury (Analyst)

Hi, good morning, guys. Can you hear me okay?

Neil Woodyer (CEO)

Yes.

Richard Orazietti (CFO)

Good morning.

Neil Woodyer (CEO)

Yeah.

Carey MacRury (Analyst)

Maybe first, yeah, first on Segovia, you did 9.2 grams in the first half. You've mentioned you're back into higher grades. I'm just, you know, we're halfway through Q3, just wondering what sort of grades we should be expecting sort of in Q3 and maybe into Q4.

Richard Orazietti (CFO)

Yeah, our grade goes from the 9.3-9.8, and then towards the end of the year, we're looking at 10.2 grams a ton.

Carey MacRury (Analyst)

9, 9.8 for Q3, roughly?

Richard Orazietti (CFO)

Yeah.

Carey MacRury (Analyst)

Yeah. Okay. And then on Marmato, I think your original guidance was to spend something like $140 million. It looks like maybe you're tracking a bit behind on the spending, but just what- how, how do we think about capital spending at Marmato in the second half of the year?

Richard Orazietti (CFO)

Okay. So up until now, we've been doing a lot of ground preparation and earthworks, so the big expenditures haven't come in yet. But as we ramp up in the second half of this year, we're buying a lot of our milling equipment. We are commencing the detail-

... development as of probably this, very close to this month, so the expenditures will begin to ramp up in the second half of this year.

Carey MacRury (Analyst)

Do you have a sense of how much we should budget for the second half in terms of capital?

Richard Orazietti (CFO)

I would have to get some better information and get that back to you.

Carey MacRury (Analyst)

Okay. And maybe just last question on Marmato, on just what the key sort of focus items in the project plan are for the second half of the year.

Richard Orazietti (CFO)

So the main one is beginning the portal decline development. So that kicks off, as I said, within the next month. Beginning of civil works and earthworks for the plant and beginning to start paying off the equipment for the milling and doing quite substantial work on non-process infrastructure in terms of camps, laboratories, et cetera.

Carey MacRury (Analyst)

Maybe one last one, if I can slip it in. Just on the grade at Segovia from your partner, is obviously a big step up in grade. Do you have any visibility into that, or is that, you know, you just kinda get what you get from, from them?

Richard Orazietti (CFO)

We have some visibility of that, and we are increasing our contract mining partner support, assistance or support infrastructure to be able to help planning and ventilation, rock mechanics and geology to assist them and to assist us to be there, to be able to be planning our production, future production.

Carey MacRury (Analyst)

Okay, that's it for me. Thanks, guys.

Richard Orazietti (CFO)

Thanks, Carey.

Operator (participant)

The next question comes from Don DeMarco with National Bank Financial. Please go ahead.

Don DeMarco (Analyst)

Thank you, operator, and good morning, Neil and team. Just a couple questions focusing on Marmato. Well, we saw at Segovia that there was the guidance increase in costs and inflationary pressures were cited. Are you seeing any potential inflationary pressures at Marmato with respect to Marmato development?

Richard Orazietti (CFO)

We have just reviewed our, our capital of the. About a month ago, we reviewed our capital. A lot of our costs had been tied into equipment. We understand those very well. They have been locked in, and a lot of them have prepayments are made for the deposits, so we are pretty confident on the, on the equipment for the mill. The process infrastructure, we've got good quotes on that and the development, we understand that very well. That, of course, will be reliant on the ground conditions we meet, but so far, we're pretty confident of the $280 million to date.

Don DeMarco (Analyst)

Okay, thanks. And of the 250 or so remaining, how much of that is locked into fixed price contracts?

Richard Orazietti (CFO)

Locked at the moment, the detail is definitely locked in, and the plant is definitely locked in, so that's $30, $70, but about $100 of that is definitely locked in.

Don DeMarco (Analyst)

Okay. Thank you. That's all for me.

Richard Orazietti (CFO)

Thanks.

Operator (participant)

Once again, if you have a question, please press star then One. The next question comes from Kerry Smith with Haywood Securities. Please go ahead.

Kerry Smith (Analyst)

Thanks, operator. Richard, so you're saying about $100 million of the $280 million of CapEx is a firm number now. So what the other $180 million is for, which construction activities does that relate to?

Richard Orazietti (CFO)

On non-process infrastructure like camps, most of the roads, water treatment plants.

Kerry Smith (Analyst)

Okay. So, the $100 million is basically the twin declines in the mill then?

Richard Orazietti (CFO)

Yeah.

Kerry Smith (Analyst)

Okay, gotcha. Okay, great. And then you said Marmato is 22% complete now on the construction. Is that roughly where you expect it to be? Like, are you on schedule with your timeline?

Richard Orazietti (CFO)

We are slightly ahead on the portal development, so we are where we expect it to be, yes.

Kerry Smith (Analyst)

Okay. Just going back to Kerry's question about the CapEx, you had originally talked about $140 million-$150 million budgeted for 2024 CapEx spend for the Lower Mine. Is that still the number that you expect to hit for the year then?

Richard Orazietti (CFO)

Yeah. As I said, we're beginning the development. A lot of the mining equipment is going forward, so we should be there or thereabouts by the end of the year, yeah. A lot of the ramp-up in expenditure happens in the second half.

Kerry Smith (Analyst)

Okay. Okay. And the contractors aren't having any issues so far, getting manpower to the site and, you know, having people available to get this work done then, eh?

Richard Orazietti (CFO)

No. Many of the contractors are local Colombian, and therefore, their labor pool is quite big, and we haven't had any issues so far.

Kerry Smith (Analyst)

Okay. Okay, and then just one last question. The original CapEx for the mill expansion at Segovia was the $11 million, and you've you said it's now gonna be $15 million. So that $4 million, was that all scope changes, or is any of that sort of cost escalation versus the original budget?

Richard Orazietti (CFO)

It was scope changes. The area where the expansion is located is based on a laterite area. We expected our foundations for much of the equipment to be about nine meters deep. However, when we got down to nine meters, we didn't find bedrock. We had to go down a further 10 meters, and that increase in that, in those foundations is accounting for the extra $4 million.

Kerry Smith (Analyst)

Okay, so it's just the civils associated with, with getting down to the-

Richard Orazietti (CFO)

The civils associated with the plant expansion. Correct.

Kerry Smith (Analyst)

Okay. Okay, gotcha. Okay, great. Thank you very much.

Operator (participant)

I would like to turn the conference back over to Mr. Woodyer for any closing remarks.

Neil Woodyer (CEO)

Well, thank you, everybody, for joining us today. We really appreciate your interest, and please don't hesitate to reach out to us, to Oliver or Kettina or any of the rest of us as appropriate. Many thanks, everybody. Thank you.

Operator (participant)

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.