Aris Mining - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered strong operational execution: Total revenue rose to $118.61M, up 14.0% year-over-year and 5.6% sequential; Adjusted EBITDA was $54.48M, up 10% YoY and slightly above Q3.
• Water Solutions hit a quarterly record with recycled produced water volumes of 463 kbpd (+18% q/q) and total Water Solutions volumes of 524 kbpd (+14% q/q), driving per-barrel gross margin of $0.31 and adjusted operating margin of $0.44.
• Results landed at the top end of guidance and exceeded several Q4 outlook items (e.g., Water Solutions volumes, skim oil recoveries), while dividend was raised 33% to $0.14/share for Q1 2025 and McNeill Ranch (45,000 acres) was acquired for strategic disposal capacity and optionality.
• 2025 outlook calls for Adjusted EBITDA of $215–$235M, capex of $85–$105M, and free cash flow of $75–$95M; management highlighted progress on beneficial reuse (TCEQ discharge permit up to 475 kbpd) and industrial wastewater expansion.

What Went Well and What Went Wrong

What Went Well

• Record Water Solutions volumes and resilient margins: “We achieved an adjusted operating margin of $0.44 a barrel and adjusted EBITDA of $54.5 million” (CEO); per-barrel margins maintained near highs.
• Strategic growth optionality: Acquisition of McNeill Ranch for $45M adds disposal capacity and reduces future royalty burden; management cited “promising geology and porosity” and non-O&G surface income opportunities (solar, wind, battery).
• Shareholder returns momentum: Dividend increased 33% to $0.14/share reflecting confident 2025 outlook and low leverage (~2.0x).

What Went Wrong

• Sequential softness in produced water handling volumes: 1,112 kbpd vs 1,118 kbpd in Q3 (-1% q/q).
• Q1 2025 weather and customer downtime impact: ~-$1.5M Adjusted EBITDA expected due to January shut-ins and temporary completion delays; volumes guided lower than steady-state for Q1.
• Refinancing watch: $400M senior notes go current in April; management is assessing options, keeping leverage/ liquidity strong but adding near-term financing tasks.

Transcript

Operator (participant)

Good morning, everyone, and welcome to the Aris Mining Full Year 2024 Results Call. We will begin with an overview from management, followed by a question-and-answer 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 the management will refer to during today's call can be found in the events and presentation section of Aris Mining's website at arismining.com. Aris Mining has filed financial reports for the fourth quarter and full year 2024 on SEDAR+ and EDGAR. These reports can also be found on the Aris Mining 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 welcome, everyone. Thank you for joining us for our Full Year 2024 Earnings Call. Today, I'm joined by members of the management team, including Richard Thomas, Richard Orazietti, and Oliver Dachsel. We look forward to addressing your questions at the end of this call. Before we dive into the results, please note the caution statements on slide two, as we will be making several forward-looking statements today. Starting on slide three, I'm pleased to report that Q4 was a strong quarter, delivering our highest production for the year of 57,364 ounces. We generated $22 million of net income and $67 million of EBITDA in the fourth quarter. Segovia, we reduced all-in sustaining costs to $1,485 and achieved an all-in sustaining margin of $58 million, which is a 32% increase over Q3.

We remain on track to commission the expanding processing facility at Segovia in the second quarter of this year, following that a gradual ramp-up from 2,000 tonnes per day to 3,000 tonnes per day throughout the remainder of the year. This year, Segovia is targeting annual production of 210,000 to 250,000 ounces, and in the range of 300,000 ounces from 2026 onwards. We've also been exploring opportunities to scale up Marmato's current expansion into a higher capacity operation by way of upgrading the carbon-in-pulp processing facility by 25% to 5,000 tonnes per day. We're also looking at expanding our CMP business model at the Upper Mine Flotation processing facility. Together, these upgrades and expansions are expected to increase Marmato's annual production potential to more than 200,000 ounces. Richard Thomas will be giving more information about that later on in the presentation.

Growing cash flow generation and refinancing of our senior notes in October last year contributed to a year-end cash balance of $253 million. We're well-positioned and funded to deliver on our growth strategy. We expect to achieve an annual gold production rate of more than 500,000 ounces once our expansions and operations are fully ramped up to nameplate capacities. With that, I'll now hand you over to Richard, our COO.

Richard Thomas (COO)

Thank you, Neil. Moving on to slide four, for the full year, we produced 211,000 ounces from our mines, with 188,000 ounces of gold from Segovia and 53,000 ounces of gold from the Marmato Upper Mine. As Neil mentioned, Q4 was our standout quarter, delivering our highest gold production of the year at 57,364 ounces at Segovia, a modest increase in throughput in Q4, combined with a 7% rise in the average gold grade processed at Segovia at 9.484 grams per tonne, resulting in a gold production of 51,477 ounces, an 8% increase compared to the Q3 results. Despite an 8% higher realized gold cost, all-in sustaining costs reduced by 4% to $1,485 per ounce compared to Q3.

Owner mining all-in sustaining costs improved to $1,386 per ounce in Q4 from the $1,451 per ounce in Q3, while Contract Mining Partner segment generated the highest quarterly all-in sustaining cost sales margin of 39%. With that, I'll pass on to Richard Orazietti to cover our financial results and then provide an update on our growth project.

Richard Orazietti (CFO)

Thank you, Richard. Turning to slide five, as Neil said at the outset, we had a very strong quarter, especially when compared to the Third Quarter of 2024. Full revenue of $148 million was up 13% compared to the third quarter, driven by higher realized gold price of $2,642 per ounce and higher quarter-over-quarter sales volumes resulting from higher production. Altered by the revenue growth and a strong focus on cost control, income from mining operations increased 42% quarter-over-quarter to $54 million. Net earnings for the fourth quarter were $21.7 million compared to a net loss of $2.1 million. This was primarily due to the increase in income from mining operations, as well as a gain of $6.6 million on financial instruments and a $5.1 million FX gain recognized in the quarter.

Adjusted earnings in the fourth quarter were $24.7 million, or $0.14 per share, compared to $13.1 million, or $0.08 per share in the third quarter. Adjusted EBITDA was $55.6 million in the fourth quarter, a 29% increase quarter-over-quarter, reflecting the increase in Adjusted Net Earnings. For the full year 2024, we generated Adjusted EBITDA of $163.1 million and adjusted earnings of $55.9 million, or $0.35 per share. Now looking at slide six, I'd like to draw your attention to the graph. As mentioned earlier, the increase in realized gold price, higher production, and our continued focus on cost control supported a meaningful expansion in AISC margin in the fourth quarter at our Segovia operations. Our quarterly AISC margin reached a three-year high of $58 million, up 32% from $44 million in the prior quarter.

For the full year 2024, the Segovia operations generated an AISC margin of $163 million. While we enjoy the strong gold price environment, we remain focused on operational efficiencies and keeping costs low. Now moving on to slide seven, I'd like to discuss some key items on our cash flow statement. For the full year 2024, our gold revenue totaled $499 million, and we generated an AISC margin of $154 million. The adjusted sustaining margin after tax, G&A, together with working capital changes, amounted to $66 million, supporting the funding of $157 million of our growth projects, including $83 million at Marmato, mainly for the Lower Marmato project, and $65 million at Segovia operations, primarily for the processing plant and underground development and excavation. In the fourth quarter, our after-tax adjusted sustaining margin of $49 million more than covered our expansion and growth capital of $42 million.

In addition, financing activities in the fourth quarter generated a cash inflow of $164 million, including $136 million in net proceeds from refinancing the 2026 bonds with a new issue of five-year 2029 bonds and a $40 million inflow from Wheaton Precious Metals stream pertaining to the Marmato Lower Mine project. We ended the year with a cash balance of $253 million, up from $195 million at the end of 2023. I will now pass it back to Richard Thomas, and he'll provide an update on the expansion of the Segovia plant and the construction of the Marmato Lower Mine.

Richard Thomas (COO)

Thank you, Richard. Now moving on to slide eight, Segovia plant expansion has progressed as scheduled, and as previously disclosed, phase one of the Segovia expansion is complete. The new expanded receiving area for our CMP is fully commissioned and handed over to operations and working well.

The new facility began processing materials in October 2024. Phase two, which involves the installation of a formal and informal contractor receiving area, is underway, with commissioning expected in Q2 this year as scheduled. Following the ramp-up period, we expect to reach a production rate of about 300 tonnes per day by the end of 2025, enabling Segovia to produce 210,000 and 250,000 ounces of gold in 2025, and in the range of 300,000 ounces of gold from 2026 onwards, as per our guidance released earlier in January. The total cost of Segovia's processing plant expansion project is still estimated at $15 million, and at the end of the year last year, we expended $8.5 million. If we could move on to slide nine, please. I'd like to provide an update on our construction progress at the Marmato Lower Mine.

As you can see from the photographs on the slide, the construction at Lower Mine continues to advance, with firstly, the access roads to Lower Marmato process facility and the accommodation camp now 100% completed. Secondly, the deep mining development underway, with 200 meters completed by the end of February 2025, and the processing plant foundation is that 12% ahead of schedule as of the end of February 2025. At the beginning of this year, we initiated engineering assessments to evaluate whether we could expand the plant, the current CIP plant currently under construction. As a result of those studies, we have decided to expand the CIP processing facilities at the Lower Mine from 4,000 tonnes per day to an expanded 5,000 tonnes per day. Whilst also expanding our CMP business model, increasing the feed and average grade to the existing Upper Mine Flotation plant, thereby further increasing the gold production.

With the completion of these expansions, we expect Marmato to be able to produce in the range of 200,000 ounces of gold per year, which compares to the previous life-of-mine average of only 162,000 ounces per year. If we could move to slide ten, please. As you can see from the drawing on this slide, the key enhancements required to take the throughput from 4,000 tonnes per day to 5,000 tonnes per day are straightforward, as the upgraded 5,000 tonnes per day design will use major components from the current 4,000 tonnes per day design, while also integrating some high-capacity components, installing a secondary crusher unit, adding an extra leach tank to support the increased throughput, and accelerating certain project components into the initial capital phase. We expect this ramp-up to begin at Q1 2026. Moving on to slide eleven, as of February 2025, we expended $75 million on construction.

The estimated cost to complete revised construction, taking the throughput from 4,000 to 5,000 tonnes per day, is $290 million, bringing the total upfront cost to $365 million, $85 million over the previous construction plan. The 35% bigger plant requires bringing forward the tailings facility construction and the backfill plant into the upfront capital, and this is estimated at $50 million. We have also opted to build a $20 million power grid power line instead of relying on a third-party power purchase agreement. The process plant enhancement that I mentioned earlier, namely integrating some high-capacity components, a secondary crusher circuit, and adding an extra leach tank to support the increased throughput, are expected to cost around about $10 million. Importantly, the net construction cost to Aris is $208 million, considering the remaining stream funding of $82 million.

In our view, this is a very, very attractive investment proposition, being able to meaningfully increase production of a long-life asset for limited incremental capital against the backdrop of record high gold prices. Looking ahead with the new Marmato and the expansion of Segovia, Aris is targeting an annual production rate of more than 500,000 ounces of gold. With that, I'd like to hand over the floor to Oliver.

Oliver Dachsel (SVP Capital Markets)

Thank you, Richard. Turning to slide twelve, I'd like to summarize our previously disclosed guidance for 2025. Aris Mining expects consolidated gold production of between 230,000-275,000 ounces in 2025, with in-progress expansion projects to contribute to production growth in 2025 and beyond. With 2025 gold production expected to range between 210,000-250,000 ounces at our Segovia operations, the company anticipates a significant increase in Segovia's all-in sustaining cost margin this year of more than $230 million, using the midpoint of our 2025 guiding ranges at a gold price of $2,600 per ounce. This compares to an all-in sustaining cost margin of $163 million at Segovia in 2024. In 2025, production from the Segovia operations will be sourced approximately 50%-55% from owner mining and 45%-50% from mill feed purchased from Contract Mining Partners.

For the owner mining segment, all-in sustaining cost per ounce sold is expected to range between $1,450-$1,600 per ounce, and the CMP segment is expected to achieve an all-in sustaining cost sales margin of 35%-40%. The 2025 cash cost and all-in sustaining cost guidance have been provided separately for the two segments, owner mining and CMPs, given their distinct primary cost drivers. Owner mining costs are primarily driven by conventional expenses such as labor, consumables such as explosives and fuel, and power. In contrast, CMP costs are mainly influenced by the cost of purchasing mill feed, which depends on material volume, recoverable gold grade, and the spot gold price. Distinguishing between owner mining and CMP cost metrics is necessary given the current rise in gold prices and the resulting challenge in forecasting CMP costs.

As a result, we believe the CMP segment is best presented on a sales margin basis to provide a clearer representation of its financial performance. The Marmato Upper Mine produced 23,000 ounces in 2024, and a similar production level is expected for 2025, while construction of the new large-scale lower mine, which will access wider porphyry mineralization, continues. Aris Mining will resume providing cash cost and all-in sustaining cost values for the Marmato mine when the lower mine achieves commercial production. Now, especially for our credit investors on the line, slide thirteen highlights and summarizes the strength of our balance sheet: strong liquidity of $253 million, low net leverage of 1.5 times, insignificant near-term debt maturities, and a solid equity cushion sitting below our debt as evidenced by our gearing ratio.

Importantly, total and net leverage ratios have already started trending down compared to when we issued our 2029 bonds in October last year, from 3.1 times and 1.7 times, respectively. I'd now like to hand the call back to Neil to conclude our prepared remarks.

Neil Woodyer (CEO)

Thank you, Oliver. We now move to slide fourteen. Before opening the Q&A session, I'd like to summarize key takeaways that we've reported for this fourth quarter and for the full year. In Q4, we recorded our highest quarterly production at 57,000 ounces. We expect total production in 2025 to range between 230,000-275,000 ounces, which is up from 211,000 last year. We've seen meaningful margin expansion as evidenced by our quarterly all-in sustaining cost margin of $58 million in Q4, increasing by 32% over the prior quarter. We're in a strong financial position with cash balance of $253 million, $82 million still to be funded by Wheaton under the Marmato stream, and growing cash generation from Segovia. To close, Aris Mining is on track to more than double annual production to 500,000 ounces, and we have the means and the team to deliver that growth.

With that, we look forward to your questions, and I'd like to turn the call back to the operator to open the line for questions.

Operator (participant)

Thank you. To join the question queue, you may press star then one on your telephone keypad. You will 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. Today's first question comes from Carey MacRury with Canaccord Genuity. Please go ahead.

Carey MacRury (Equity Research Analyst)

Hi, good morning, guys. Just wondering if you could give us some color on how long you've been thinking about this expansion and sort of why now, I guess.

Richard Thomas (COO)

I think we've been thinking about the expansion for well over a year. When we started construction, we were following the plan that had been originally set up by SRK and then going on from there. That plan made sense to us, but as we got to know the upper mine more, we realized two things. It would not achieve the performance that had originally been anticipated, but it was a huge potential for the small miners. We started to reshape our thinking on the basis that our license was limited to 2 million tonnes a year as to whether we could increase the more profitable material from the lower mines. We've been thinking about it for some time and put the analysis strictly into play at the beginning of this year.

Carey MacRury (Equity Research Analyst)

Okay, thanks. Maybe just on the capital, can you give us a sense of how much capital we should expect this year versus next year for the expansion?

Oliver Dachsel (SVP Capital Markets)

I mean, we were forecasting roughly this year about $260 million, and the additional expenditure this year could be another $50 million depending on the spend. We are moving along.

Carey MacRury (Equity Research Analyst)

Okay, great. Thank you.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star then one at this time. We'll pause for just a moment to assemble our roster. This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Woodyer for any closing remarks.

Neil Woodyer (CEO)

Thank you, operator, thank you, everybody, for joining us. If you need more information, please contact Oliver, who will be more than happy to take you through any more details. Thank you very much, everybody. We appreciate your attendance. Thank you.

Operator (participant)

Thank you, sir. This brings to a close today's conference call. You may disconnect your lines, and we thank you for participating. Have a pleasant day.