Hochschild Mining (LSE:HOC) — Preliminary Results for the year ended 31 December 2023

0:00 Good morning, and welcome to the HOCHSCHILD MINING PLC preliminary results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time. On the q and a tab situated in the right hand corner of your screen, just simply type in your questions and press send. The company may not be in a position to answer every question it received in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Eduardo Landine, CEO. Good morning to you,

0:32 sir. Good morning, and welcome to our full year 2023 results presentation. We have a very good year, during 2023. On ESG, we have a very, very strong performance. Our revenues, were $694,000,000. Our EBITDA was $274,000,000. And all in sustaining cash cost, it was 1,454 below our revised guidance that we presented during the year. In terms of growth, we have been able to, put in into production Mararosa, which is the Brazilian project that we acquired two years ago.

1:24 That project has been developed on time on budget. We have finished the construction on the 30, and we have the first port in, the February 20. Today, we are in the ramping up process. We expect to get commercial production on h one twenty twenty four. Also, on the Royal Opata project, we are progressing with the, permitting, and we expect to get that permit on 2026 and start production on 2027. And, also, we have signed a new option for Monte Del Carmen project in Brazil. I will tell you later about this project.

2:11 The the the best, news that we could have during 2023 is that in August, we received the environmental permit, for Inmaculada that unlock the whole potential geological potential of the Inmaculada, for the next twenty years, and that will let us, you know, to implement our brownfield strategy in that place. In terms of capital discipline, we have cash for $89,000,000. We have a net debt of $258,000,000, and the company is focused on debt repayment growth and capital return for the investors. Investors.

2:56 In terms of ESG, we have an excellent year. We have very good results on safety. For the first time in history of the company, we have been able to reach 0.99 in frequency rate, which is below one, and that's a world class result even, I mean, for for open pit mines and, of course, for underground mines. In terms of, our performance in environment, we have been able to reach 5.67 five sorry. 5.6, six out of six in our ECO score. And backing, I mean, backing backing on safety, I mean, we have been able to build Mararosa project, I mean, without a one lost time accident.

3:54 We have increased the workforce, up to 59%, and we continue with investment in the communities.

4:05 We have, tried to simplify, the strategy. Basically, what we do today is focus on the core assets in land in Latin America. As I said, we have Inmaculada, our flagship mine with twenty years permit, in order to extend its life of mine, and be producing 200,000 ounces for the next years. Now we have Mararosa in production. It's a new ten year Brazil mine, which has a very strong geological potential. We have San Jose, which is a high grade Argentinian mine, which is, it has a very good track record on replacing resources.

4:51 And today, with the new macroeconomic situation in Argentina, we believe that we could have an upside. As I mentioned, Royropata is the new high grade Peru project, which is with the existing infrastructure of Pallancata and Selene. So it would be really simple, you know, to to to develop that project and to put into production, in the near future. And Monte Do Carmo, which is an option that we secure to acquire an exciting project in Brazil. Our strategy is very simple. I mean, we have four pillars. We have the brownfield, which generates long term value, extend the life of mine, and we are focused on mineable resources.

5:44 Then we have the operational operational efficiency. We need to have a lean philosophy across the company. We need to have a a process optimization across the whole company also. We have proved that we have the capabilities in order to develop projects on time, on budget. On ESG, we want to drive responsibility and respect. We have a world class safety, results. We have established on our KPIs on ESG for twenty twenty thirty. They are already in place, and they are part of our long term objectives. Also, the fourth pillar is the disciplined capital allocation, which founding organic growth.

6:37 We need to focus on the repayment, capital return, and, of course, value accretive m and a as we demonstrate with the option, that we have signed with MonteoCargo.

6:51 Going into the production, we present that, our Capital Market Day, in October. That represent the projections on production for the next fifty three years. That represent 20% increase in production and 20% redo a reduction in cost. On 2024, as you can see, we have a $110 per ounce as part of our cost, but that that could be I mean, that was part of of of the CapEx that we didn't invest during 2022 and 2023 due to the cash restrictions that we imposed to the company, until we got the environmental permit of Immaculada.

7:41 Immaculada, as I said, we we we are investing $45,000,000 on cap deferrals, on the TSF expansion, waste rock facilities, a new plan reversal Moses plan, a mine development, and that's included on the all in sustaining cash cost on the figure that we present, on 2024. The idea with Inmaculada is to maintain 200,000 ounces of production and in 2025, return to the level of cost of 1,300 to 1,400. In the meantime, we have a lot of initiatives to reduce cost even further than the the the the figures that we present.

8:28 Basically, we want to eliminate the spare capacity, trying to increase the throughput of the mine, trying to implement mechanized mining methods all over the place, and, of course, implement, improved productivity and new technologies like telemetry, ventilation on demand, pumping automatation, and different efficiency projects that we are implementing.

9:00 The brownfield potential at the Inmaculada area is is is is very impressive. We have a a huge land package, and now we have the twenty years permit. The our objective is to maximize the life of mine, and we have an objective to increase resources by twenty twenty seven, four years, really, between two and two point four million ounces of gold. I mean, the the the actual area where we are working and we start already drilling is Eduardo Belts, where we found couple of years ago, Angela Northeast, which is a vein with very high grades. And today, we are working at Nicolas, vein that the initial results are very, very positive.

9:54 Going to Ruellopata, as you know, we have an existing resource of of 700,000 ounces of, of of gold. It has, I mean, this resource has very strong economic, figures. I mean, the good thing about this new deposit is that it has a high grade and also the average width of the deposit is five meters. So that will let us introduce a massive mining method like long hauls. And with that, we expect to get production, on 2027, a 100,000 ounces per year. I mean, the level of CapEx to develop this positive will be between 55 and $65,000,000.

10:42 So just a little CapEx, you know, to have a new mine. The average, all in sustaining Cascosi will be between one thousand and one thousand one hundred, and the return is very high since the CapEx is low, and and we'll have very good production from this deposit. But it's not only that. I mean, in Pallancata area, we have a a an important, potential geological potential. I mean, we believe that we can double the 16 resource, adding 50,000,000 ounces of silver equivalent in the, Royal Opata Belt, what we call today macro extension. But, also, we have Pacapausa system, Payancata, North Northwest, and Bolsa system that we need to continuing with our brownfield strategy in order to extend its life of mine.

11:42 Mararosa, for people that know are familiar, is located in the state of Goias. It's our new mine. It's an open pit. Ten years life of mine. We are in the process of looking for optimization and exploration opportunities in order to improve the economics, and we have the potential to increase the plant capacity by around 10%. So today's figures doesn't include those that that that that additionals, but the idea is to produce around 100,000 ounces for the first four years, and the all in sustaining cost cost would be around $1,000 per per ounce of gold.

12:29 So very, very interesting project that today is it has its first pour, and we are ramping up to reach commercial production. I mean, going to the first pour, that was achieved on the February 21, I have to say that we have been able to, develop this project on time on budget. That's unique in the industry. I mean, we have a study the last ten years in Brazil, the the gold, Brazil projects. We are the only one that has been able to complete a project on time on budget. We are at the moment in the ramp up to commercial production, and we believe that we'll achieve that on h one twenty twenty four.

13:22 And I would say that the most important figure in this project is the five point five million hours that we have been able to develop the project without one lost time accident. In terms of ESG, we have a lot of visits, to the Knowledge Trail, something that we implement during the construction. We have, had local purchases of around $9,000,000 for the for the villages, So they are really in totally tuned with us. We have very good relationship with them. And we have created 320 works, you know, for the people for Marrosa and Amaralina, which is the the maximum that they have.

14:08 So, they are, I mean, very pleased with the presence of HOCHSCHILD MINING in the area. Mararosa has also a lot of potential in terms of brownfield exploration as you can see on the, right hand side of the map. Pose is the yellow dot there. It's, the actual, deposit. But on the same shear zone, we have different possibilities like Paso Pastinho Pose South, and we have already start drilling in the area in order to bring, in the next six years, we have the objective to double the the actual resource. Going to Monte Del Carmen option, today, secure is an option that we have, paid $50,000,000.

15:03 And we will have twelve and a half months in order to drill and to see if there is additional brownfield potential.

15:13 Today, Monte Del Carmen project has 700,000 ounces, of around 1.6 grams per ton. And we believe that, in the next twelve and a half months, we'll be able to drill it and bring more potential. It could be a big possibility to have another project with a similar production of Mararosa of a 100,000 ounces, for the next ten years. It would be a a reserve of a million ounces. The good thing about this project is that it's in Tocantins, which is a state which is totally mining friendly, is very close to Goias, and we can use our internal competencies and, the the actual management that we have in place in Brazil in order to grow as a country.

16:13 Finally, we have the financial flexibility. As you can see on the graph on the right hand side, that's the our net debt, to EBITDA ratio. We have increased that ratio to 0.9 during 2023 since we have been been investment invest investing,

16:35 the the CapEx for Mararosa development. We have in place some, hedges in order to, make sure that, we have the floor of 2,000, but that's only effect, of around 30% of our production. We are aiming to distribute value, you know, through the investment cycle, And, we believe that, we could reconsidering capital return, following the Marrosa production start on h one twenty twenty four. Finally, I would like to say that we are focused on the core business, focused on increasing production and focused on lowering cost.

17:23 We have a world class ESG performance, especially on safety and environment. We have this new low cost Brazil mine now in production, and it will reach commercial production before the end of h one twenty twenty four. We have been able through getting the permit at Inmaculada to derisk, these important assets, and it will be I mean, we have this permit for the next twenty years, so we can unlock a lot of value through brownfield exploration. We have the new Rue Repatha deposit that could deliver a 100,000 ounces per year from 2027 with a very good all in sustaining cash cost.

18:08 We'll continue with the brownfield explorations. It's a pillar for us, very, very important pillar in order to extend life of mine, and that's the reason we have allocate $33,000,000 on the budget for in 2024. Today, we have the we have secured the option to add a new project in Brazil into the pipeline similar to Mararosa. So we believe that we we can use our current resources, being in Brazil in order to develop this project. We have implement a very disciplined capital allocation strategy. And as you know, we are new, we have a new management in place.

18:54 But, I mean, me and my team, we are in HOCHSCHILD for many years, and we have, all the experience from the past. So with that, I finish this presentation. Thank you very much to be here today. We could open the session for q and a. Thank you. Perfect. Eduardo, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the right hand corner of your screen. But just while the company takes few moments to review those questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we have received a question throughout this presentation. Charles, if I could

19:41 just hand over to you just read out the questions where appropriate to do so, that'd be great. And I'll pick up from you at the end. Thanks very much. We have a question here. Could you expand on the strategy to reduce existing debt levels in the medium term and hedging? Well, I would like to pass this question to Eduardo Noria, which is next to me. He's our CFO. Go ahead, Eduardo, please. Thank you. Thank you, Eduardo. Well, our strategy, it's it's based on execution at this point. So we are focused on completing the construction of Maranorosa and achieve commercial production and with incremental cash flows that we're seeing from the project together with the strong performance of our operations and the strong performance of metal prices, we will be able to reduce our indebtedness our indebtedness ratios.

20:35 Thank you very much. The next question is, can you talk us through the brand for potential existing assets?

20:45 Yes. Of course. Well, we I mean, we have a state this budget of $33,000,000 from 2024. I would say that, we have a huge potential in the land packages that we have at Inmaculada. Today, we have the twenty years, permit. So that's unlock a huge possibility to bring new new resources. And I would say that the initial results on Eduardo Belts are very, very positive. And for sure, we continue drilling during the year, and we'll bring some news later in the year.

21:24 Also, San Jose as an existing, operation, it has also a very good land package. Remember that San Jose is 30 kilometers away from Cerro Negro, which is a Newmont operation, and, we have all the mining properties, between those sites. So we believe that continuing with the brownfield exploration program, we could also bring, new resources to San Jose and able to extend its life of mine. As I mentioned, Pose, which is the current Mararosa deposit, it it has a lot of, targets in the same shear zone, and we are already drilling there.

22:12 So, we believe that we can, double the, the the existing resource.

22:19 And going to Royal Opata, we have an existing 50,000,000 ounces of silver equivalent, and we believe that we can double that also, in Royal Opata, and we are already drilling. Monte Del Carmen also is a is an area that has 83,000 hectares and has a lot of potential on on brownfield. So as you can see, our strategy on brownfield, it has a lot of basis, you know, a lot of land property, mining property that we have. And the idea is to continue with the strategy drilling and bring, I mean, bring bringing new resources extend life of mine across our operations.

23:04 Thank you. The next question is, given the financial results and the outlook for 2024, what are the key priorities in achieving those targets? And what external factors need, active management? Well, we have established a, the the production and the all in sustaining cash cost, and we need to focus on delivering those productions from the units. We need to be very focused on cost management, cost reduction. We need to continue implementing a a lean philosophy across the across the company. And I would say that the external factors that could affect, the performance of the company, it would be macroeconomic situation of Argentina, for example. But we believe that with the new government and, with with what we have seen in the past three months with the reduction in inflation, that could be an opportunity.

24:12 So, I mean, we have budgeted only 10% between the valuation and inflation, so we believe that that could be an opportunity. In working in Brazil has been a very good situation for us. The experience has been very positive with the local governments and with the state governments, so we don't see any problem working along during 2024. And in Peru, we can see that the government is willing, to bring new, mining investment to the country. They they are willing to to be very positive on the mining industry.

24:59 And, I mean, the the the the prime minister has been in Canada promoting mining, so we believe that that could be I mean, the the the environment for 2024 looks like very positive for us. Thank you. What is your criteria for future m and a? Can we expect anything further in 2024? Well, I mean, our criteria for m and a is to bring things similar to Mana Rosa. That's the size of the project that we believe we can develop. We are talking about of a purchasing price of around a $100,000,000 and CapEx of $200,000,000.

25:45 I mean, today, we have the option of Monte Del Carmen. Monte Del Carmen is a very similar project of La Rosa, so that could be the the criteria. We have an m and a team that they are looking every single time for new opportunities, and, they are analyzing all the opportunities, I mean, that they are available in Latin America. Our, I mean, our target in terms of internal return is 50%, and that could be taken into account at the time that we review an opportunity on m and a. The next question is, would there be any synergies between bringing San Jose and Newmont's assets together, and might this be desirable?

26:40 Well, I mean, we I mean, San Jose has been there for many years and also, the Newman operation there. We've we've been talking, on synergies, for some time. Sometimes, we have been able to help them, and sometimes they help us in terms of, logistics, but there is no conversation of any other collaboration at the moment between the companies. Thank you. The next question is any chance that the time frame for production at Royal Rapatzel could be brought forward? Well, today, we have been able to finish the engineering, I mean, the basic engineering and the feasibility study for.

27:33 I mean, this year, we have the aim to finish the baseline studies, so so that's 2024. Once we present, those studies to the government, the government will review all this information during 2025. Officially, they have ninety days, but we know that it will take a little bit longer. But we believe that on 2026, we'll be able to get this permit if everything goes, right. And, of course, we will need some time to develop the mine. It will be a short time because mineralization is next door. But, I mean, we believe that three years from now, it will be an optimal time to get this, permit. Thank you. And I think the final question is the company is clearly prioritizing ESG.

28:23 What progress was made last year, and what are you planning to do to evolve this further in 2024? Okay. As I said, we have a a very, very impressive results on safety, frequency rate below one, severity 37. Also, being able to develop a Maranosa project, on time, on budget with 5,500,000 hours, without a lost time accident. So I would say that safety is there. Of course, our objective on safety is to have zero accidents. On the environmental part, we have been able to perform really well on the ECO score. This year, we want to focus on, having the best possible relationship with communities in Peru.

29:15 That's part of our strategy, and we have a new team in place. The strategy there is to get closer to communities to understand their needs and to be able to work with them and work with them, for the best future possible, of them. And I would say that in terms of ESG in general, the KPIs are set for twenty thirty in every single sense. And they are today, they are part of our of our long term objectives. So that's the plans for ESG. Thank you very much. Alessandro, I think that's all we have at the moment. Perfect. And thank you for answering those questions from investors. Of course, the company can review all the questions submitted today, and we'll publish those responses on the Investor Meet company platform.

30:06 But just before redirecting investors, provide you with their feedback, which you know is particularly important to the company. Eduardo, could I just ask you for a few closing comments? Well, basically, as I said, we are focused on a strategy to, I mean, to be on top of our core business, the core assets. We want to increase production, to find new opportunities, to bring a lot of value through brownfields, to lowering cost. We believe that we can bring a lot of value to investors, through this strategy. It's very simple, very simple to understand for everyone and to internally, very simple to understand. So we believe that we have the right strategy, you know, to bring a lot of value to investors.

30:56 Thank you. Perfect. And thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will then take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of HOCHSCHILD MINING PLC, we'd like to thank you for attending today's presentation, and good morning to you all. Thank you very much.