Aris Mining Corporation (ARIS) Q3 2024 Earnings Report, Transcript and Summary

Good morning, everyone. And welcome to Aris Mining Q3 2024 Operational and Financial Results Call. We will begin with an overview for management, followed by a question-and-answer period. [Operator Instructions] As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions] Please note that the accompanying presentation that management will refer to during today’s call can be found in the Events and Presentation section of Aris Mining’s website at aris-mining.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.

Thank you, Operator, and hello, everybody, and thank you for joining our Q3 earnings call. Before we begin, please note the caution statements on Slide 2 regarding forward-looking statements. On Slide 3, I’ll give an overview of our operational and financial highlights, after which Richard Thomas, our COO, will discuss our performance and our growth projects at Segovia and Marmato. And then Richard Orazietti, our CFO, will review the financial results; and Oliver Dachsel will then update you on the funding and growth strategy. So looking at Slide 3, I’m pleased to report a strong third quarter. In Q3, we produced 53,600 ounces of gold, which is up 9% over Q2. Higher gold prices, increased production and cost controls helped us achieve a 37% increase an all-in sustaining margins of Segovia, reaching $44 million compared with $32 million in Q2. For the 12 months ending September 30th, we generated adjusted EBITDA of $147 million and adjusted net income of $43 million. In August, we announced Segovia high-grade exploration results, increasing our resources, and in October, we announced the replacement of our reserves. Segovia is operating at its 2,000 tons per day design capacity, with expansion underway to 3,000 tons. Phase 1 of the expansion is completed and contract mining partners are now delivering to the facility. Phase 2 is on schedule to be finished later Q1 next year. At Marmato, construction of the Lower Mine is on track. By the end of September, the project had reached its 25% spend level milestone, and on 6th of November, we received $40 million cash instalment related for the project. Last month, we strengthened our cash position by refinancing our $300 million notes, with a new five-year $450 million at 8% notes. Extending the debt maturity to October 2029. We’re well funded to execute our growth strategy and to continue to target an annual gold production rate of approximately 500,000 ounces by the second half of 2026. And lastly, before I hand over, I just encourage you to read our 2023 Sustainability Report, which was published in August and is available on our website. And now over to you, Richard.

Thank you, Neil. Moving on to Slide 4. In the first nine months of this year, our mine produced 153,591 ounces of gold. Segovia contributed 136,106 ounces of gold, while Marmato Upper Mines produced 17,485 ounces of gold. At Segovia, we produced 7% more material in Q3 than compared to Q2 with a slight improvement in grade. For the full year 2024, Segovia is on track to produce between 185,000 ounces and 195,000 ounces. If we go to Slide 5, please, I’d like to draw your attention to the graph on the top of the page. Our realized gold price increased by 6% in the quarter to $2,457 per ounce in Q2, while our all-in sustaining cost declined 2% to $1,540 per ounce, resulting in an all-in sustaining cost margin of $918 per ounce. Now, focusing on the lower half of the page, as Neil mentioned, the combination of higher gold prices, increased production and effective cost control led to an all-in sustaining cost margin at Segovia reaching $44.1 million, a 33% increase compared to quarter two. It was also worth noting that the part to purchase and value of the gold for high-grade commodities related to on-title CMP resulted in an increase of -- from $1,790 per ounce in quarter two to $1,834 per ounce in quarter three, due to the higher gold prices. This segment of our review maintained a strong sales margin of $4.9 million in Q3, up from $2.8 million in Q2. This brings us to Slide 6. The gradual processing plant expansion has produced well-scheduled and Phase 1 is now complete with the newly-expanded receiving area for our CMPs fully-commissioned and handed over to operations. The new facility began processing material in October. Phase 2, which involves installing a second ball mill in the former contractor receiving area is underway and scheduled for completion by Q1 next year, following a ramp-up period, we expect to reach a production rate of 3000 tons per day in the second half of 2025. The total cost of the expansion is still estimated at $15 million, with $8 million being spent as of 30th of September this year. Concluding my remarks on Slide 7, I would also like to update you on the construction projects of Marmato Lower Mines. We commenced construction of the new Marmato Lower Mines in Q3 2023, following the peak of the environmental service in July this year. The Lower Mines will access water-sourcing and mineralization below the Upper Mine, the first mine estimate to deliver a combined 162,000 ounces of gold per year as a 20-year mine life. As you can see from the pictures on the slide, we will provide access roads and focal sites for completion in Q3, and Q3, in the context of commencing the decline development inside of the earth both the Selma and the Bournemouth [ph] application are currently on schedule for completion before the end of this year. As of 30th of September, the estimated cost to complete the Lower Mines construction is $235 million, of which $122 million will be funded by existing stream financing commitments. As I mentioned, we received the first $40 million stream financing project’s milestone payment on November 6th. Further payments of $40 million and $42 million are expected upon receiving 50% and 75% of the construction, respectively, and this is expected to happen in 2025. With that, I’d like to hand over the call to our CFO, Richard Orazietti.

Thank you, Richard. We’re now looking at Slide 8. As we have set up the output, we had a strong third quarter, especially compared to the second quarter of 2024. Gold revenue of $131.6 million was up 15% quarter-over-quarter, driven by higher realized gold price of $2,447 per ounce and higher gold sales of approximately 54,000 ounces, up 9%. Income from mining operations of $38 million, was up 28% quarter-over-quarter, which reflects the upside in gold revenue, partially offset by higher costs of mill feed procured from our contracting partners and higher social contributions, both due to gold price appreciation. Despite the strong income from mining operations, we incurred a net loss of $2.2 million, primarily due to a $12.8 million loss on financial instruments. The revaluation of a warrant liability caused by increase in Aris Mining’s share price from C$5.17 per share to C$6.26 per share during the third quarter resulted in a non-cash expense of $11.4 million. We further incurred a $3.9 million loss on our gold loans notes due to the impact of gold price appreciation on the gold premium component of the notes. On an adjusted basis to better reflect the underlying performance of our business, adjusted EBITDA of $43 million was up 19% quarter-over-quarter, and adjusted earnings were $12.9 million, reflecting the improved operational performance. Now moving on to Slide 9. I’d like to discuss some of the key line items of our cash flow statement. Operating cash flow of $17.2 million was $9.6 million up quarter-over-quarter due to a higher all-in-sustaining margin of $40.4 million, bolstered by the increase in gold and by-product revenue. VAT receivable and a build-up of inventory, mainly materials and ore stockpiles, continued to draw on cash flow during the third quarter. Post Q3, Colombian tax authorities credited us with $29.6 million for the 2023 VAT amount owed. This was partially offset by $16.2 million of corporate income tax paid for the year. As Neil and Richard Thomas discussed earlier, we’re in a significant investment period and we spent $45 million in growth and expansion projects during the quarter, as well as $115 million for the first nine months of this year. Financing cash flows that serve as our debt were approximately $7 million for the quarter. This was offset by $4.3 million in proceeds from warrant and option exercises during the quarter. For the nine months to-date, we received approximately $29 million in proceeds from warrant and option exercises. In summary, net cash outflow for the third quarter was $41.4 million, which resulted in a cash balance of $80.3 million at quarter end. Subsequent to the quarter end, we proactively enhanced our financial position, liquidity and ability to fund our growth and sustaining projects to the recent debt offering and financing from Wheaton Precious Metals that Neil alluded to earlier. I would like to turn over the call to my colleague, Oliver Dachsel, to walk you through the recent actions to improve our financial position.

Thank you, Richard. On Slide 10, we have summarized these financing transactions that have occurred in October and November, as a result of which our performer cash balance has increased from $80 million as of September 30th this year to $266 million. Let me walk you through the adjustments. As Neil had mentioned, we refinanced our existing $300 million notes with a new five-year $450 million note offering in October. After transaction-related fees and expenses, we added $132 million of net proceeds to our cash position on October 31st, upon closing of this financing transaction. And as previously mentioned, we achieved the 25% spend threshold at the Marmato Lower Mine, and on November 6th, we received the corresponding $40 million stream funding installment from Wheaton. We also received a VAT refund of $30 million from the Colombian tax authority, while paying $16 million of income tax for a net inflow of $14 million. Now, looking at the waterfall chart in the lower half of the page, summarizing the capital requirements of our expansion projects of Marmato and Segovia. As of September this year, the estimated cost to complete the Marmato Lower Mine was $235 million, of which $82 million will be funded by the two remaining stream funding installments, which we expect to receive next year. This leaves a net construction budget remaining of $153 million. At Segovia, our remaining construction budget is $7 million. In total, for our two expansion projects, only $101 -- $161 million is remaining to be funded by us. In addition to our strong cash reserves of $266 million, we have additional funding sources, expected cash flow generation from Segovia in Q4 this year and beyond, together with potential proceeds from warrants of up to $124 million. In short, we are well-positioned and funded to deliver on our growth strategy, with current cash on hand and expected future funding sources well above expected capital expenditure requirements for our expansion projects. I now like to hand the call back to Neil to conclude our prepared remarks.

Thank you, Oliver. Now, looking at Slide 11, and before we open the Q&A, I’d like to emphasize the key takeaways we’ve reported in this third quarter. 9% production increase over Q2 and Segovia operating at nameplate capacity. Segovia generated an all-in-sustaining margin of $44 million, which is 37% improvement over Q2. On a last-12-month basis, we generated adjusted EBITDA of $147 million and adjusted net income of $42 million, and we have a strong pro forma cash position of $266 million. We’re going through a transformation of expansion projects, targeting annual production rate of approximately 500,000 ounces in the second half of 2026. And with that, I’d like to ask the Operator to open the Q&A session.

Thank you. [Operator Instructions] And today’s first question comes from Kerry Smith with Haywood Securities. Please go ahead.

Thanks, Operator. Good morning, everybody. Neil, I have a couple of questions. Firstly, on your mill expansion at Segovia from 2,000 tons a day to 3,000 tons a day, how are you making out with the expansion of the CMP program to be able to pull in more tonnage from those small miners to help deliver the extra 1,000 tons a day?

Okay. So already -- so from quarter one 2025, we’ll be ready to receive extra tonnage. The extra tonnage is coming from both increasing production from Aris site as well as our CMP mining. We have many contracts, currently 46 of them, and we have 41 waiting to be approved. So we’ve got a pipeline of small miners waiting to be contacted through, which we will do from now until the end of quarter one and this will help us to increase our CMP mining production.

Okay. Richard, and how many tons a day are you planning to pull in from the CMP once you get to 3,000?

We are planning to do 1,800 for Aris and the rest will come from the CMP.

Okay. Okay. And then, sorry, can you just remind me at 2,000 tons a day what that split is between the CMPs and your own production?

It’s 1,200 from us and the rest from CMP.

Okay. So 1,800. Okay. So you’re looking for 400 tons more a day from the CMPs then, okay.

Correct.

Okay. Okay. Great.

As we ramp up and extend operations in Segovia, our lines on the CMP will reduce over time.

Okay. And if I heard you correctly, you have, I think you said 48 CMP contracts today that you have in place and you have another 41 that are waiting to be ratified, if that’s the correct word. Is that -- did I get that correctly?

Correct. Waiting for approval, yes.

And that approval has to come from who? From the federal government or the provincial government?

Yeah. Those approvals are done by Aris.

Oh! By you.

In conjunction with the, yeah.

Okay. Gotcha. Okay. Okay. So it’s just a question of you picking the ones that you would like to work with then.

Correct.

Okay.

After a strict due diligence process.

Yeah. Gotcha. Okay. Great. That’s helpful. Thanks. And then just on Soto Norte, maybe Neil can just give me an update on how all of the discussions are going with all of the stakeholders in terms of trying to get a social licensee to be able to push that project along.

Alejandro, answer for Soto Norte.

So currently -- good morning. My name is Alejandro Jimenez, Country Manager. Currently, we have been engaging with the local communities and assisting them to get a solution for managing the area, as well as the six mayors in the province of Soto Norte and the Governor of Santander. All of them seem very well aligned with the vision that the company has regarding the new, smaller-scale productivity in Soto Norte. We are continuing to develop more technical and environmental studies going into Q2 2025. And during this period, we will continue to strengthen our bonds with the different stakeholders, which at this point has proven to be clear advocates of a process to be developed by our CDA.

Okay. Okay. That’s great. Thank you very much.

Thank you. [Operator Instructions] And this concludes the question-and-answer session. I’d like to turn the conference back over to Mr. Woodyer for any closing remarks.

Thank you very much, Operator. In particular, thank you all of you for joining us. We appreciate your interest and please don’t hesitate to reach out to all of you if you have any further questions. Thank you very much, everybody.

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