Hochschild Mining (LSE:HOC) — Final Results

0:00 Good morning, and welcome to the HOCHSCHILD MINING PLC Fund Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time just by using the Q and A tab situated in the right corner of screen. 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 view the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to split the following poll. I'd now like to hand you over to CEO, Eduardo Landin. Good morning to you, sir.

0:32 Good morning, everyone, and welcome to our presentation of the results of 2024. Charlie, if you can help me going through the slides. Okay. Yes. A very quick reminder of what we said back in November 2023 about our strategy. We set a strategy, very simple one, for delivery, and for growth. I mean, this strategy has four pillars. Brownfield is the way that we are going to bring new resources to the table, generating long term value, extending life of mine, and, of course, focus on mineable resources. The second one is the operational efficiency, online leadership.

1:18 We have to be close to the sites, lean philosophy across the company, cost optimization programs, and, of course, our proven development record as we demonstrate in Mararosa. ESG is on top of our head. We have a world class safety performance. We we are doing a lot of things on water management, a new community approach. We didn't have any blockages. We have been able to get the easements. So this new approach is working. An effective talent management and, of course, all our KPIs are in place for 2030. And finally, the disciplined capital allocation through our balance sheet. We found our organic growth.

2:08 We pay our debts. We establish capital returns. And, of course, if there is an opportunity, we'll do m and a if it's value accretive. Let's go to the next one. We said also in November 2023, they will be focusing on core assets. That's the reason. Finally, we have sold and Arcata. We have pending Bulkan. But our core assets are Inmaculada, which is our flagship with twenty years permit. Is a new high grade project that we have in Peru. We have Mararosa with the 2025, the first full year production.

2:53 We have Monte Ocamo, a new higher grade gold project in Tocantins. And we have San Jose, which is a high grade mine in Argentina. This is our results. We have the strongest financial over a decade. We have produced nearly 350,000 ounces. Our revenues went up 37%, nearly to $1,000,000,000 We have an adjusted EBITDA of $421,000,000 Our net debt today is $216,000,000 We have paid $40,000,000 and we end up the year with $97,000,000 cash.

3:38 We have restored the dividends, and, also, we have introduced a new dividend policy just approved by our board of directors. Finally, we have a record resource addition of 2,800,000 ounces of gold. What is going to go in 2025? We have an exciting year year ahead. It will be the first year of full production of Mararosa. Royal Opata is progressing with the permitting. Monteo Carmo has its its installation license. We are going to produce between 350,378 ounces. We will continue with ongoing cost efficiency programs.

4:25 And, of course, ESG, as I said, is, is one of our, first priorities in 2025. Next. ESG, as you can see, safety, we continue with very good safety performance, frequency rate around one, which is a world class level. And, also, our EcoScore is, at the excellent level.

4:58 As I said, we have, at 2,800,000 ounces of, new resources in across our across our sites. As you can see on the first graph, back in November, we said that, from 2023 to year '30, we would add between three point eight and five point two million ounces. I mean, just to reflect the the good results in 2024 is, we are comparing that 2.8 with that 5.2. So in a year, we have nearly reached 50%. On the rest of the graph, you can see the individual, additions in in all the sites, a million ounces in Inmaculada, 1,300,000 ounces in Royal Opata and nearly 250,000 ounces in San Jose.

5:53 Costs are extremely important for us, and that's the reason we are aiming to achieve saving during the year. We have established a very robust plans of how to get lower cost. Let me mention some of them. I mean, we we are developing new high areas in Inmaculada. We are doing some projects to see if we can increase recoveries. In San Jose, we are repeating the SWAT project that we did in Inmacula in 2024 with very good results. In San Jose, also, we are exploring the possibility of doing heap leaching for some open pits that we are exploding at the moment.

6:41 In Mararosa, we have increased the size of the fleet, in order to be more productive. And also, we have been doing some improvements on the plan to increase recoveries. And also on corporate level, we have ceased supply chain activities to make I mean, to to be able to acquire some goods with better price for the whole I mean, for the three three three countries. We are doing some processing improvements at corporate expenses. And, of course, this year, we are exploring, all the artificial intelligence options to try to automize, you know, as much as possible our corporate processes.

7:35 Immaculada has beaten the guidance then again. As I said, we had 1,000,000 ounces of resources discovered in 2024. It has produced 220,000 ounces in 2024, and we have our guidance for 2025 around 200,000 ounces. Royal Opata projects. As I said, we have add to this project, 1,300,000 ounces, in 2024. Royal Opata is a very important project for us. It could be the new Inmaculada. And, the most important item this year, 2024, has been that we have agreed, with the communities, all the easements, required to progress with the with the permits.

8:34 Brazil, 2024, we produced 63,000 ounces. And 2025, we are planning to produce a 100,000 ounces. And most important, we have been able to add 200,000 ounces of new resources in 2024.

8:55 Monte Del Carmen is a project that we acquired for $60,000,000. It's a million ounces of gold. This project is already fully permitted. In 2025, we are going to do all the detail engineering to go by the book. We will purchase the long lead time items, like the ball mills, for example. We'll we we expect to spend $90,000,000 on budget, and we expect also to update the economics of the project by the end of twenty twenty five. And in Argentina, in 2024, we increased capacity with $9,000,000 up to 2,000 tons per day, and we have plenty of twenty twenty five efficiency projects in order to try to reduce costs since we have a very conservative budget.

10:00 Going to the financial flexibility, I pass the presentation to Eduardo Oreguero, our Chief Financial Officer. Thank you, Eduardo. Our balance sheet is very strong together with the results that we saw in 2024 with cash at $97,000,000 and total debt at $312,000,000 Our net debt was $216,000,000

10:25 a reduction of around $40,000,000 from what we from the net debt we had in 2023. Our net debt to EBITDA ratio was 0.5x in the lower end of the range that we communicated in 2023. So we're achieving the reduction of indebtedness that we committed to. We also like to mention that we have a we closed a new debt facility that will that give us additional financial flexibility to execute on our debt reduction, but also on our growth plans with very competitive terms as you can see in the presentation. Finally, we have hedges that were placed in 2023, early twenty twenty four when we were completing the construction of Mana Rosa and we were using our balance sheet to do that.

11:27 We are very proud to announce a new dividend policy, a dividend policy for the first time in the history of the company. This policy is will be paying between 2030% of attributable free cash flow generated in the year with a minimum, what we call, a base even of $10,000,000 regardless of the free cash flow. This dividend will be distributed in two installments, around 30% in the as an interim dividend and 70% as a final dividend. For 2020 in 2024, with this policy frame or this dividend framework, we are announcing a $10,000,000 dividend.

12:15 And we should keep in mind that 2024 was a year in which we invested around $100,000,000 between the construction of Mararosa, but also advancing the the Monte Del Carmen project and and the permitting and and exploration and and and finally, the Royal Opata the Royal Repatha project.

12:39 We're also very proud, as Eduardo Landin pointed out earlier on, of the capacity of this company to execute on the strategy that outlined in 2023. And in terms of capital allocation, our first priority brownfield exploration, we invested $34,000,000 in 2024. And with that investment, we achieved an impressive incremental resource of 2,800,000 gold equivalent ounces. Second priority, we completed the construction of Mararosa, for which we invested $17,000,000 CapEx. And we also advanced on the Rollo Lopata project in Peru, our solar project in Peru and invested $33,000,000 mainly permitting and care and maintenance, administrative and exploration works.

13:33 Debt repayment, number three, we reduced our net debt by $40,000,000 And we have, as I said before, this new financial facility that give us flexibility. For capital return, we announced a $10,000,000 dividend and a new policy in place. And finally, number five, M and A. We completed the acquisition of Monte do Carmo, for which we invested a total of $51,000,000 including acquisition cost of $45,000,000 But we also divested noncore assets, as we said in our strategy, selling Arcata, Azuca and Crespo. Crespo was sold in Q1 twenty twenty four, and the sale of Arcata and Azuca was recently completed in

14:25 February 2025. So very proud again of the capacity of the company to execute on on the plan that that that we outlined. In terms of in terms of valuation metrics, you can you can see from analyzing our peers that in all metrics, we are we consider ourselves undervalued, and we believe that there's there's room for the market to consider not only the current metrics that we show as a company, but also the growth projects that we have with Monte do Carmo and Maran Rosa. Thank

15:11 you, Eduardo. And finally, the conclusion is that, I mean, we continue focus on the core business. We have a world class ESG performance. 2025 is going to be the first year of full production of our new Brazil mine. Inmaculare is outperforming. Monte Ocaro projects is has been recently added to the pipeline. We we have a record brownfield resource addition in 2024. Royal Repatha to deliver a 100,000 ounces from year 2028. Disciplined capital allocation strategy, dividend restore. And, also, we would like to announce that in June 2025, we will have a session on brownfields to explain all the potential brownfield exploration that we have in our properties.

16:09 Thank you very much. And I pass the presentation to Charlie Gordon. If you have any questions. Yes. Oh oh, you have the questions. Okay. Okay, Charlie. Sorry. Sorry. Okay. Go ahead, please. Thanks very much, Eduardo. I've got a number of questions here. The first one is the pipeline of future assets looks strong. What can you provide about the cost profile of the company when the future assets enter production? Well, I mean, today, would say that we are around $1,500, in all our all in sustaining cost cost.

16:57 But, I would say that and Monte Ocamo could bring production, with lower cost. So average, it could be lower. That's that's what I can say at the moment. I mean, we don't give any guidance on future cost, but, of course, Ruellipati

17:15 is a very powerful project, and Monteocarmo is an open pit. So the reality is that cost should go down a little bit when those units will enter into production. Thank you. The next question is your cash flow statement shows $213,000,000 in CapEx for PPE, etcetera. How much of that is sustaining CapEx versus development or growth CapEx? Thank you, Charlie. So as reported, our our sustaining CapEx for 2024 was $172,000,000. And those that that number, that $101,172,000,000 dollars, include around $30,000,000 of projects that are not executed annually.

18:10 No? What I'm talking about, the tailings dam capacity increase and reverse osmosis plant in Inmacula mainly. So from those $172,000,000 $30,000,000 are those the projects that I just referred to. Thank you very much. I think we've covered this one in the presentation, but let's just repeat it so that everyone understands it. This question says, how does the new dividend policy work? And what conditions must be met for dividend distribution? Go ahead, Eduardo. Thank you, Charlie. The dividend policy through dividend policy will apply between 2030% to our free cash attributable free cash flow.

18:55 And with that, we'll calculate the dividend for the year. That dividend will be paid in two installments. One, an interim dividend paid in the current year of the cash of the free cash flow and 70% after we close our books.

19:13 The we'll have a minimum dividend of $10,000,000 and the dividend will be paid if we are below 1.5x net debt to EBITDA. We think that with this policy, we'll be sharing the value that we are generating from our operations and at the same time will will will allow us to keep investing in the future of the company as well as reducing our training readiness levels. Thank you very much. And can I just add that at the back of the financial review, which is in the press release we issued today, the last table at the back of the financial review will give you the detailed calculation that you need or that we have done to calculate that $10,000,000 that we've announced today?

20:04 The next question is, what is the plan for Vulcan?

20:07 Any update? Well, basically, Vulcan is is is has been defined as a noncore asset, basically because I mean, it's a profitable project with many, many millions of gold, equivalent, but, ounces. But, I mean, at the end of the day, CapEx is extremely high, and there is some issues regarding water and permit. So we are looking for strategic options for Vulcan. We continue looking for strategic option for Vulcan, basically, to sell the asset. Thank you very much. This is on the gold prices. When do you expect the benefit of the high rise in gold price to come through in our profits?

20:53 Well, I mean I mean, that's I mean, that that I mean, I I believe that it's been reflected on our results in 2024. And, of course, it will be reflecting in 2025. If prices keep at the same level, I mean, of course, it will be reflected in our p and l. Mhmm. And just remember that this year is the first year where we have a full year from our new mine, Mararosa. Exactly. So that's that's exciting. Thank you very much. The next question is how significant is the brownfield exploration program? A lot of resources were added in 2024, but what should we expect in 2025 and beyond? Well, our plan is to continue drilling at the same rate.

21:43 I mean, we have a very similar budget around $30,000,000 for 2025. And the idea is to continue adding resources as much as possible because our idea is to increase life of mine across the whole operations. And, of course, you will be I mean, this this strategy will have a limit. But, at the end of the day, I mean, bringing in fair resources is something which is not very costly. And then you have your baskets full, and you can choose where you want to convert those inferred resources to measure indicated and reserves and give you a lot of flexibility on on on production. Thank you very much. The next one is, I understand that Monte De Camo is in the initial development stage, but are you able to outline what this potential mine looks like in terms of production and AISC and the timelines?

22:39 Well, let's let's start with the timelines. I mean, as I said, Monteo Carmo is fully permitted, and we could start building Monteo Carmo today. But we would like to go by a book, and we would like to finish detail engineering this year. When we finish that detailed engineering, we'll present a new economic assessment to the market. And, I mean, we expect to start building Monteo Carmo in March 2026. Let's say that we have eighteen months construction, so we are looking at the end of twenty twenty seven, you know, and start production on 2028. In terms of production, we believe that it will be something similar to Mararosa in, you know, in terms of production and in terms of cost.

23:34 So you have the actual production for 2025 of Mararosa and the actual cost for 2025 in our guidance. I believe that Montego Carmen could be more or less the same. Thank you very much. This is a question. We've got a couple of these. Just on hedging, how much of our total revenues or our production is currently hedged? Thank you, Charlie. For 2025, we only have 30% of our production hedged. And for 2026 2027, that amount that percentage is reduced to around 13%. And right now, we have we're not having discussions to hedge to further hedge our production in the future.

24:21 Thank you very much. And the final question here is, do you expect any unusual disruptions in the future like political issues and so on? That's a difficult question. But, I mean, it's dependent on the country. Let's talk about Peru. Peru has a a pre electoral year this year. Election will be next year. I mean, the truth is that HOCHSCHILD MINING has been working with, many governments in Peru for the past sixty years, so we expect to continue working in Peru. Argentina, with the president MINING is is is is going in the right direction.

25:08 I mean, we expect to have some major changes after the midterm elections, in in q three twenty twenty five. So we don't expect any any major issues in Argentina. And in Brazil, it's a it's a federal country, and we feel extremely comfortable working in Goias and Tocantins. Okay. Thank you very much indeed. That's all the questions we have, at the moment. Perfect. Thank you very much for answering those questions from investors. Of course, the company can review all the questions submitted today, we will publish out the responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which is important to the company, Eduardo, could I just ask you for a few closing comments?

25:54 Well, yeah. Yeah. I would like to thank everyone to be here today in the this retail presentation. I believe that we have presented a very robust set of results. And I have to say that the company is doing really well. It's sticking to the strategy that we present back in November 2023, and we'll continue trying to reduce cost, which is the most important thing at the moment, and, of course, maintaining our ESG standards in terms of safety environment and so on. Thank you very much. Nothing else from me. Thank you. Thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback and all the management team can better understand your views and expectations.

26:45 On behalf of management team of HOCHSCHILD MINING PLC, we'd like to thank you for attending today's presentation, and good morning to you all.