Aris Mining - Earnings Call - Q2 2025

Executive Summary

• Q2 delivered record produced water handling volumes (+4% q/q, +13% y/y) and recycled water growth (+35% y/y). Revenue was $124.09M, up 3% q/q and 23% y/y, with net income of $14.1M and Adjusted EBITDA of $54.6M.
• Versus S&P Global consensus, ARIS beat on revenue ($124.09M vs $120.43M*) and Primary EPS ($0.33 vs $0.324*), while EBITDA (SPGI definition) trailed ($47.47M* vs $53.77M*). Company-reported Adjusted EBITDA was $54.6M. Values retrieved from S&P Global.
• Strategic catalysts: (1) WES to acquire ARIS in a ~$1.5B equity-and-cash deal announced Aug 6; ARIS did not host a Q2 call given the pending transaction. (2) Seven-year extension of ConocoPhillips water gathering and disposal agreement, extending the primary term to 2040 and lengthening produced-water contract tenor to >10 years on an acreage-weighted basis.
• Balance sheet/liquidity remained solid: net debt ~$445M, 2.02x leverage, $57M cash and $347M revolver availability; quarterly dividend maintained at $0.14 per share (payable Sept 18).

What Went Well and What Went Wrong

What Went Well

• Record operating volumes drove strong top-line growth: Produced water handling +4% q/q and +13% y/y; total revenue +23% y/y to $124.09M.
• Contract visibility strengthened: ConocoPhillips agreement extended to May 2040, taking produced-water contract tenor from ~6 to >10 years on an acreage-weighted basis; CEO: “This extension…provides Aris with substantial long-term revenue visibility”.
• Capital discipline and liquidity: Capex $22.1M; net debt ~$445M; leverage 2.02x; liquidity robust ($57M cash; $347M undrawn revolver).

What Went Wrong

• Margin compression: Gross margin per barrel fell to $0.29 (from $0.32 both q/q and y/y); Adjusted operating margin/bbl declined to $0.41 (from $0.44 q/q and $0.46 y/y), driven in part by higher direct operating costs/bbl ($0.36 vs $0.32 q/q; $0.30 y/y) and lower skim oil price realizations anticipated for Q2.
• Company did not host a Q2 call due to pending WES transaction, limiting real-time details and guidance color.
• S&P Global EBITDA miss (SPGI definition) vs consensus despite company Adjusted EBITDA at $54.6M; this reflects definitional differences (GAAP EBITDA vs company “Adjusted EBITDA”), which may cause model reconciliation for some analysts. Values retrieved from S&P Global.

Transcript

Speaker 4

Good morning, everyone, and welcome to the Aris Mining second quarter 2025 results call. We'll begin with an overview from management, followed by a question and answer period. To join the question queue, you may press star and then one on your telephone keypads. As a reminder, all participants are in a 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 and zero. Please also 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 second quarter 2025 financials have been filed on SEDAR Plus and EDGAR and can also be found on their website. I would now like to turn the conference call over to Mr. Neil Woodyer, Chief Executive Officer.

Sir, please go ahead.

Speaker 3

Thank you, Operator, and welcome, everyone. Thank you for joining us for our second quarter 2025 earnings call. I'm joined today by other members of the management team, including our new Chief Financial Officer, Cameron Paterson, who joined us last month, as well as Richard Thomas, Oliver Dachsel, and Alejandro Jimenez. We'll all be available to answer your questions at the end of the call. Before we begin, please take note of the disclaimers on slide two, as we will be making forward-looking statements throughout today's presentation. Starting on slide three, I'm pleased to report that we delivered another strong quarter with record-adjusted earnings and a significant increase in our cash position. After a strong start to the year in Q1, our Q2 performance has further increased our momentum, keeping us firmly on track to meet our 2025 guidance. The quarter's financial highlights can be summarized as follows.

Q2 net adjusted earnings were $48 million or $0.27 a share, our highest quarter since the formation of Aris Mining Corp in September 2022. Q2 gold revenue totaled $200 million, up 30% over Q1. Our trailing 12 months adjusted EBITDA was $264 million. We ended the quarter with $310 million of cash, including $54 million from warrants exercised in the quarter. After June 30, we received an additional $61 million of exercised warrants, which expired on July 29. In total, 99% of the warrants were exercised, generating $150 million of cash proceeds. Combined with a strong operating cash flow, the warrant proceeds have further strengthened our liquidity and reinforced our strong financial position. As reported in late June, we also completed the installation and commissioning of the second ball mill at Segovia.

The expansion increases Segovia's processing capacity by 50%, and I would like to take the opportunity to congratulate the project team and operations team for delivering this project on time, within budget, while maintaining strong operational performance. Our focus now shifts to ramping up production in the second half of the year, with a target of 300,000 ounces next year for Segovia. In addition, we continue to make good progress on the construction of the Marmato Lower Mine zone. Earthworks for the substation are completed. Earthworks for the CIP platforms are nearing completion. Equipment deliveries of key components are underway, and the project remains on schedule, with the first ore being processed and production ramp-up commencing in the second half of 2026. With increased production capacity, a supportive gold price environment, and strong operational momentum, we're well positioned to deliver a successful 2025.

We anticipate completing technical studies on both the revised Soto Norte project and the revised Toroparu project by the end of this third quarter. Finally, I have the pleasure of introducing our new Chief Financial Officer, Cameron Paterson. Delighted to welcome Cameron to the team. He brings highly relevant experience from his previous roles, where he worked closely with regional teams across South America, Canada, and Mexico, supporting both operational and financial performance. With that, welcome Cameron, and over to you.

Speaker 2

Thank you for that introduction, Neil. It certainly is an exciting time for Aris Mining, and I'm absolutely thrilled to be part of the team. With that, I'm pleased to update you on our financial performance from the second quarter. Moving on to slide four, our AISC margin increased by 43% compared to Q1. The result is strong production, higher realized gold prices, and solid cost controls. Importantly, we generated free cash flow from operations of $38 million this quarter. That's after investing $37 million in expansion projects and paying our 2024 taxes. Cash inflows were $31 million in the quarter compared to a $12 million buildup in Q1, which reflects the timing of VAT refunds. Taxes paid totaled $42 million in Q2, up $37 million from Q1, primarily due to the timing of annual 2024 Colombian income tax settlements.

Financing activities recorded a cash inflow of $32 million, mainly from the $53 million in proceeds from the warrant exercises that Neil mentioned earlier. As a result, we added $70 million to our cash position during Q2, closing the quarter with a cash balance of $310 million. Subsequent to quarter end, we received an additional $61 million from the final warrant exercises. Now, moving to slide five. While the warrants have been a significant source of cash, they've also introduced significant non-cash earnings volatility from mark-to-market revaluations. This slide reconciles the reported net loss in Q2, where there are adjusted earnings of $48 million for the quarter. The most significant adjustment being the $51 million non-cash loss on financial instruments, which was primarily from the warrant revaluation. Our share price increased by 38% during Q2, which increased the fair value of the underlying warrants.

This resulted in the $45 million non-cash loss in the quarter from that warrant revaluation. These warrants expired on July 29, 2025, and with that, the associated warrant liability was fully extinguished, thereby removing this significant source of non-cash earnings volatility from future earnings results after Q3. I'd now like to hand over the call to Oliver to discuss our capital structure.

Speaker 1

Thank you, Cam. Moving to slide six, the key takeaway from our cap table is that our balance sheet has improved significantly since we refinanced our senior unsecured notes in October of last year. Our liquidity position has increased to $310 million as of June 30 this year. Total and net leverage stood at 1.8 and 0.7 times, respectively. It is worth noting that we have decreased total leverage by 1.2 turns and net leverage by 0.8 turns since Q4 2024. Our market capitalization has increased to $1.5 billion as of August 4, resulting in significantly more equity cushioning below our debt when compared to our market cap of circa $820 million around the time of the notes offering.

With no meaningful debt maturities until October 2029 and stable credit ratings at B1, B+, B+, our balance sheet is in great shape to support our growth strategy to increase annual gold production to more than 500,000 ounces. With that, I'd like to hand over the call to Richard, who will provide an update on our operational performance in Q2 and our growth projects.

Speaker 0

Thank you, Oliver. Let's move on to slide number seven. In the second quarter, we delivered a total gold production of 58,700 ounces across our operations, an increase of a full 7% from first quarter in 2025. In the first half of this year, our operations produced 113,000 ounces, an increase of 13% compared to the first half of 2024. As gold production for 2025 is expected to be weighted in the second half of the year, reflecting an increased milling capacity and production ramp-up at Segovia, we are well positioned to deliver on our production guidance for the full year. At Segovia, we produced 51,500 ounces of gold during the quarter, supported by an average gold grade of 9.85 grams per ton, and gold recovery is nice and high at 96.1%, whilst maintaining a strong throughput of close to 2,000 tons per day.

We generated a total all-in sustaining cost margin from Segovia of $87 million, an increase of 43% compared to our quarter one this year. Our all-in sustaining margin for the first half of 2025 was $148 million, which compares favorably to the $168 million for the full year in 2024. It is a year of cash flow inflection as a result of strong operational performance in the first half of the year and production ramp-up in the second half against the backdrop of elevated gold prices. Owner mining all-in sustaining cost was $1,520 per ounce in quarter two and $1,503 per ounce for the first half of the year, tending towards the lower end of the company's full year 2025 guidance of $1,450 to $1,600 per ounce.

Meanwhile, gold produced from contract mining partners Mo Peat generated a 42% all-in sustaining cost sales margin in quarter two and 41% in the first half of the year, above the top end of the company's full year 2025 guidance range of 35% to 40%. Turning your attention to the chart at the bottom right, realized gold prices and continued cost discipline have more than doubled the all-in sustaining margins on a per ounce basis at Segovia when compared to the second quarter of 2025 to 2024. Segovia is a cornerstone asset for Aris Mining, and the commissioning of the second ball mill further strengthens its role as a key cash flow generator for Aris Mining. If we could please move on to slide number eight, I'd like to provide an update on our growth and expansion projects.

As Neil mentioned at the beginning of the call, commissioning of the second ball mill at Segovia was completed in June, on time and well within budget. We're very proud of this project, and we look forward to the increased production it will bring. The new bore mole increases production throughput from 2,000 tons a day to 3,000 tons per day. As underground development advances and mold feed from contract mining partners increase, Segovia remains on track to achieve annual production of between 210,000 ounces to 250,000 ounces this year, further ramping up in 2026, and we are targeting 300,000 ounces next year. To get a better idea of what it took to increase the throughput capacity to 3,000 tons per day, we have created a short video. You can find the link at the bottom of the slide. If we could please move on to slide number nine.

At Marmato, the construction of the bulk mining zone continues to advance as shown in the picture on the right-hand side of the slide. The earthworks for the main substation are completed. Earthworks for the carbon in pulp plant platforms are nearing completion. Equipment deliveries continue through the quarter too, including key component equipment such as crushers, molds, and tailing saucers. While we are very pleased with the pace of construction on surface, we did encounter some challenges with the decline development as advance rates slowed down due to poor ground conditions combined with a large ingress of water. We are handling this at the moment, and we expect similar conditions to continue until we have crossed the fault zone, which is 200 meters in front of the current development phase.

To address this, we are transitioning this work to our highly skilled owner team, and already we have seen results from this. I want to emphasize that the decline development is not on the critical path for delivering the first ore. The reason is that we already have access to the bulk mining zone from the existing narrow vein zone, which allows us to carry out early development works needed to keep the project on track. As a result, the overall project timeline remains unaffected, with the first ore and production ramp-up still expected in the second half of 2026. Once completed, the Marmato complex, consisting of the bulk mining zone and the narrow vein mining zone, has the potential to produce more than 200,000 ounces of gold per year.

For those interested in seeing our progress firsthand, I encourage you to watch the latest video on our website or use the link at the bottom of the slide. Now moving on to slide ten. As previously discussed, we continue to make progress with our two major technical studies for our development projects, Soto Norte and Toroparu. At Soto Norte, the pre-feasibility study is underway, with a completion expected in quarter three 2025. The study incorporates a smaller scale development plan and increased processing options designed to support local small-scale miners. Once the PFS is complete, we intend to finalize and submit the required studies to apply for an environmental license for development. At Toroparu, a new preliminary economic assessment is also in progress to evaluate updated development options in the context of the current gold price environment.

The PEA is also expected to be completed in the third quarter of this year. We look forward to providing a comprehensive update in the coming months once these studies are completed. With that, I'd like to hand over the call back to Neil.

Speaker 3

Thank you, Richard. Turning to slide 11. As announced on July 16, Aris Mining signed a memorandum of understanding with the Ministry of Energy and Mines, the National Mining Agency, the Governor of Caldas, the Mayor of Marmato, Corpocaldas, and other key stakeholders to accelerate the formalization of artisanal and small-scale miners in Marmato. This is a significant milestone, not just for our opportunity to increase production, but for responsible mining in Colombia. It reinforces the strong institutional support Aris Mining has received from the Colombian government and aligns us with our long-term commitments to inclusive, sustainable development in our host countries. The Cerro Morro area, where these artisanal and small-scale miners operate, sits above the Marmato narrow vein zone and represents a meaningful mutual benefit growth opportunity.

Through this agreement, we have committed to work with the government to streamline permitting for artisanal and small-scale miners, promote environmental stewardship and safety standards, while also providing technical training for those artisanal and small-scale miners. Aris Mining has also offered its milling capacity from our existing narrow vein zone flotation plant to process ASM source material. Importantly, the areas covered by this memorandum of understanding are entirely separate from the titles where Aris Mining operates its narrow vein mining zone and is developing the bulk mining zone at the Marmato complex. The bulk mining zone will remain 100% owner-operated. In closing, moving to slide 12, we're well positioned to deliver on our guidance with increased production capacity, solid operating momentum, and even stronger balance sheets supported by a favorable gold price environment.

I'm encouraged by the meaningful progress we're seeing across our growth initiatives, and I'm excited about our near-term catalysts. We expect to publish Soto Norte's pre-feasibility study and Toroparu's preliminary economic assessment in the third quarter. We're looking forward to that as it will be the first time that Aris Mining's management team will be able to articulate in great detail its plans for how those assets should be designed, built, and operated. At Segovia, we expect gold production to gradually increase in the second half of this year, targeting 300,000 ounces in 2026. Lastly, at Marmato, construction for the bulk mining zone continues to advance. Our first ore and ramp-up in production is expected in the second half of 2026.

Looking ahead, we remain focused on sustaining this momentum as we work towards more than doubling annual production to over 500,000 ounces, while advancing key projects with the potential to unlock longer-term growth. Thank you for your time today, and we look forward to addressing your questions. I'll now turn the call back over to the operator to open the line.

Speaker 4

Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star and then one on a telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. We'll pause momentarily to assemble the roster. Our first question today comes from Carey MacRury from Canaccord Genuity. Please go ahead with your question.

Hey, good morning, guys, and congrats on the strong quarter. Just wondering if you could give us a bit more color on Segovia. You've done 100,000 ounces in the first half, and we're expecting this to ramp up. Just thinking about your guidance, 210,000 seems like that wouldn't be much of an uptick here. 250 sounds like that would be consistent with exiting at 3,000. I'm just wondering, how do we think about the second half at Segovia? If you can give us any color on that.

Speaker 0

Yeah, Carey, I mean, as we open up our new surface area, a lot of development at the moment, opening up our new surface areas and getting access to surface. All that combined should get us well within that guidance range. I think if you had to guess, we'd be smack dab in the middle of that.

Should we expect a pretty modest increase in Q3 and then a bigger increase in Q4? Is that sort of a...

Yep, that would be appropriate.

On the contract mining partners, it's trending above your guidance. I'm just wondering, are there any factors that are driving that, or is that more reflective of maybe conservative guidance? I guess another way to put it is, what factors would make that margin range go lower versus going higher?

Those are always linked to gold price, and it's quite hard to predict what they're going to be. As the gold price fluctuates, so does the margin. That's a pretty much fixed margin. We've got it on the way we pay those guys, which is on a sliding scale according to the grade they deliver and the gold price at the farm. It's quite hard to predict what you're going to get versus what the gold price is. I think our guidance is a good guess for what's going to be at the end of the year.

Okay, and then maybe one last one for me. Just on Marmato, what should we be expecting for capital spending in the second half on that expansion?

I know our estimate to completion is still in the $283 million. What it would be for the second half of the year, I'd have to work that out and get back to you.

Okay, fair enough. Thank you.

Speaker 4

If you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. Ladies and gentlemen, at this time, showing no additional questions, I'd like to turn the floor back over to Mr. Woodyer for any closing remarks.

Speaker 3

Thank you, operator, and thank you, everybody, for attending our call today. We appreciate it very much. If you have any questions, I'm sure that Oliver will only be too pleased to supply you with information either straight from his brain or by looking things up. We will supply whatever information you need. Thank you very much for attending today. Thank you.

Speaker 4

Ladies and gentlemen, that does conclude today's conference call and presentation. You may now disconnect your lines. Thank you for participating and have a pleasant rest of the day.