Earnings call: Hochschild Mining reports solid ESG performance, plans growth

Hochschild Mining (HOC.L) showcased resilience and strategic focus in its latest earnings call, reporting a strong balance sheet and emphasizing its commitment to environmental, social, and governance (ESG) initiatives. The company announced revenues of $694 million and earnings per share of $0.02, with a notable EBITDA of $274 million.

Despite a delay in the environmental permit for the Inmaculada project, Hochschild achieved commercial production at Mara Rosa and signed an option agreement for the Monte Do Carmo project in Brazil. The company's net debt stands at $256 million, and it plans to prioritize debt repayment, capital return, and value-accretive mergers and acquisitions (M&A).

Key Takeaways

• Hochschild Mining reported a 6% decrease in revenue to $694 million, attributed to the Inmaculada permit delay.
• EBITDA reached $274 million, with net debt to EBITDA ratio at 0.7x.
• The company achieved commercial production at Mara Rosa and maintains a strong balance sheet with $89 million in cash.
• Significant ESG milestones were reached, including a reduction in the frequency rate below 1.
• Hochschild aims to focus on debt repayment, capital return, and value-accretive M&A.

Company Outlook

• Hochschild Mining is focusing on core assets, with a 20-year exploration plan for Inmaculada and a 10-year life of mine for Mara Rosa.
• The company plans to double the resource base at the Royropata deposit in Peru and obtain permits by 2026.
• A projected 20% production growth and cost decrease is expected from 2023 to 2026.
• Brownfield exploration and the implementation of new technologies are key strategies to optimize operations.

Bearish Highlights

• The delay in obtaining the environmental permit for the Inmaculada project has led to a decrease in revenue.
• The rainy season's impact on the Mara Rosa project, although not specified, is a potential concern.

Bullish Highlights

• Commercial production at Mara Rosa was achieved on time and within budget.
• The option agreement with Rado Gold for the Monte Do Carmo project shows potential for expansion.
• The company's strong ESG performance and the highest ECO score in its history bolster its reputation.

Misses

• Revenue decreased by 6% due to the delay in the Inmaculada permit.
• Exploration expenses were lower than the previous year, which might indicate a slower pace in resource expansion.

Q&A Highlights

• Hochschild is considering a robust capital return strategy but wants to maintain flexibility.
• There is potential for M&A, but some analysts prefer this before capital returns.
• Positive results are expected from brownfield exploration, with updates anticipated by mid-year.
• Projects are evaluated based on a minimum post-tax IRR of 15%.

Hochschild Mining's earnings call painted a picture of a company that is navigating challenges with strategic planning and a focus on operational efficiency. The company's commitment to ESG, capital discipline, and growth through exploration and technology implementation positions it to potentially increase production while reducing costs. As Hochschild continues to strengthen its core assets and explore new opportunities, it remains a company to watch in the mining sector.

InvestingPro Insights

Hochschild Mining (HCHDF) has recently been in the spotlight for its strategic initiatives and financial performance. To provide a more comprehensive understanding of the company's current market position, here are some insights based on real-time data from InvestingPro:

InvestingPro Data:

• The company's market capitalization stands at approximately $712.74 million, reflecting its size and investor valuation in the current market.

• With a negative P/E ratio of -12.95 and an adjusted P/E ratio for the last twelve months as of Q4 2023 at -62.8, Hochschild Mining is currently unprofitable. However, this is not uncommon in the mining industry, where investments in capital-intensive projects can lead to short-term losses with the expectation of long-term gains.

• The revenue for the last twelve months as of Q4 2023 was reported to be $693.72 million, with a slight decline in revenue growth of -5.7%. Despite this, the company's gross profit margin remains strong at 26.92%.

InvestingPro Tips:

• Analysts are optimistic about Hochschild Mining's future, as the company is expected to become profitable this year. This aligns with the company's own outlook, which anticipates production growth and cost reductions over the next few years.

• The company has shown a high return over the last year, with a 1 Year Price Total Return of 69.87%. This robust performance could be indicative of investor confidence in the company's strategic direction and its ability to navigate market challenges.

For investors seeking more comprehensive analysis and additional insights, InvestingPro offers a suite of tips that may further inform investment decisions. There are currently 7 additional InvestingPro Tips available for Hochschild Mining, which can be accessed through the platform. For those interested in subscribing, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

As Hochschild Mining focuses on its core assets and looks to the future with strategic mergers and acquisitions, these InvestingPro metrics and tips offer valuable context for understanding the company's financial health and market potential.

Full transcript - Hochschild Mining OTC (HCHDF) Q4 2023:

Eduardo Landin: Good morning, everyone, and welcome to our results presentation of 2023 results. I will do a brief introduction to the results and then I will pass the presentation to Eduardo Noriega. He will go through the financials, and then I will go back to do -- I mean, to present an update on the strategy of the company. And finally, we will see some conclusions. So going to the first. We feel very proud of a year of delivery. First of all, I have to say that we have a very strong performance on ESG, that I will tell you later. In terms of results, we have $694 million on revenues, EBITDA of $274 million, EPS $0.02, and an all-in sustaining cash cost of $1,454, better than the guidance, in terms of -- I mean, the EBITDA guidance in terms of cost, and also we were very close to the high end of the guidance that we present in the middle of the year. We have to remember that it was a tough year because we're supposed to get the environmental permit for Inmaculada on the 1st of January, and that was the budget done based on that assumption. And we finally got it in August. So that was a difficult situation. But finally, we got it. In terms of growth, Mara Rosa today is in production. We finished the project on time, on budget on the 31st of January. We have the first gold pour on the 22nd of February. And today, we feel that we will achieve commercial production before the end of June 2024. So a fantastic results of Hochschild getting in a new country, in a country that we feel very comfortable to work. Also, we have Royropata. It's a fantastic deposit with 50 million ounces. We have already [indiscernible] in order to bring new resources. And the new thing is that we have signed this new option of Monte Do Carmo with Rado Gold that give us the possibility to have a new operation in Brazil. I mean our balance sheet remains very strong. We have $89 million in cash. We remain with a net debt of $256 million. And we are focused on repayment, debt growth and capital return. I mean despite the difficulties during 2023, we feel very good in terms of our ESG results. Let me say that for the first time in history, in Hochschild history, we have been able to reduce our frequency rate below 1, 0.99, is a fantastic number not only for open pit mines, but I mean, is remarkable for underground mines. Also, we have the best ECO score in history, reaching 5.75 out of 6. That's very good. We have been able to build Mara Rosa project that has been 5.5 million hours of work without 1 lost time accident. Being in a new country with new contractors and a new team, is an impressive achievement. We have been able to increase the local workforce up to 61%, and we have been able also to bring new businesses to communities for $156 million. That's from services and from local providers. With that, I will pass the presentation to Eduardo Noriega to go through the financials, and I'll come back with you in a minute.

Eduardo Noriega: Thank you, Eduardo. Our 2023 financial results were very strong, with revenue of $694 million. Our EBITDA was $274 million, $25 million better or more than what we had in 2022. Our attributable net profit was $9 million, $4.1 million higher than our 2022 results. Revenue was 6% lower than the previous year, mainly as a result of the impact of the delay in the Inmaculada permit on production. So we had lower production than the previous year. But that was partially offset by better prices, as you can see on the slide. Cost of sales also fell by 4%, in line with the lower production, partially offset by scheduled higher proportion of conventional mining methods in Inmaculada and slightly higher depreciation. Exploration expenses were lower than the previous year, mainly as a result of the termination of the SNP option and also budgeting lower expenses as a result of the situation of the Inmaculada permit at the beginning of the year. Our net interest were also lower than last year's, mainly as a result of the capitalization of our interest cost in the Mara Rosa project. That was partially offset by higher debt that we had to complete the construction of Inmaculada, and also increasing interest rates during the year. We recorded an FX loss of $15.6 million, mainly associated to the devaluation of the Argentinian peso impacting our monetary assets in Argentina. Our income tax of $44 million includes also an impact on our deferred income tax from the devaluation of the Argentinian peso, of $7 million. And the number also includes the special mining tax and royalties in Peru for $6.8 million. In addition to these items, we recorded exceptional items for a net amount of $69.5 million, mainly associated to impairments in Azuca & Crespo, our 2 noncore assets for the company, for $63 million. We also recorded an impairment in San Jose of $17 million in the first half of the year as a result of the increasing cost and uncertainty before the elections. In Pallancata, we had $9 million of exceptional termination benefits as a result of putting our Pallancata mine in temporary care and maintenance until we complete the permitting of Royropata, the fantastic Royropata project. And then finally, we recorded an impairment in Aclara, our project -- the project that -- where Hochschild has 20% interest, of $7 million associated to the challenges the projects have in the permitting process. The tax impact of all these effects were -- was $27.4 million. In terms of cash generation, I would say that we use part of our cash and the cash generated during the period to complete the construction of Mara Rosa, as you can see on Slide 7 of this presentation. We started the year with $144 million and then we generated in Inmaculada $145 million, in San Jose $30 million. We used $4 million of our cash to -- in Pallancata, including the termination benefits that we had to pay. We had $17 million of brownfield exploration in our projects. Our corporate expenses accounted for $47 million. We paid $10 million in cash. We executed a mine closure expenses, and we had care and maintenance expenses of $23 million. Our net interest paid was $18 million. We had $5 million of negative working capital movements and other effects. And then our debt increase, the net debt increased by $25 million. With these items, as I said before, we invested $131 million in Mara Rosa in Brazil, which, as you can see from the slide, most of it went to the construction of our project in Brazil Mara Rosa project. In terms of costs, our all-in sustaining cost was pretty much aligned with what we saw in 2022, with $1,454 per ounce at a consolidated level. In the case of Inmaculada, we had a slightly higher cost than what we had in 2022, but the number was below the guidance that we provided to you, mainly associated to the higher proportion of conventional mining methods that I mentioned a couple of slides ago. And also the impact of the delay of the permitting in Inmaculada versus what we consider at the beginning of the year. These negative effects were partially offset by savings achieved by the team and efficiencies. In terms of San Jose, our all-in sustaining cost at $1,570 was lower than what we showed in 2022 and lower than what we guided to the market, mainly as a result of the FX impact in our costs. The devaluation of the peso helped us during 2023. In Pallancata, we had lower all-in sustaining costs than the previous year and that we guided, as a result of lower CapEx, lower exploration and production costs. Talking about capital expenditures, our CapEx for the year was $129 million, below the CapEx of 2022 and below the guidance that we provided to the market, mainly as a result of, again, the impact of the Inmaculada delay didn't -- the impact of the delay of the permit in Inmaculada didn't allow us to execute all that CapEx that we originally planned. And then in the case of San Jose, we also had a reduced CapEx versus previous year and versus what we guided to the market, mainly as a result of a better FX rate for the company. In terms of the Mara Rosa construction CapEx, it was $121 million, higher than what we anticipated. But this is only a timing effect. We accelerated the execution of the project, so that we are able to complete the note, to complete the first pour as early as possible. We're on track to meet the $200 million CapEx that we set for the project. Our balance sheet remains very strong with a cash balance of $89 million and a net debt of $256 million. Our net debt to EBITDA was 0.7x. I think there's a pipeline in this slide. It was not intended. And as Eduardo -- as we said in our Capital Markets Day, our target -- or the range of net debt-to-EBITDA ratio is between 0.5x and 1.5x, and we are heading towards the lower end of that range. We executed on some hedges to protect our cash flows exactly in order to be able to reduce indebtedness at the company level. I would just like to point out in this slide that this -- the lower on this hedge, the second one, the 60,000 ounces hedge that we did for 2025, the lower end of the range, meaning the ceiling of the zero-cost quarter is $2,485. There is a typo on that line as well. Then finally, we have -- we're not announcing any dividend in this year-end. We will review that further in the second part of the year. We'll have internal discussions too on that. But before, we need to put Mara Rosa into commercial production and we start -- we need to start seeing the cash being generated from the project. Finally, on the financial results section, just to remind the capital allocation priorities that we outlined during our Capital Markets Day in November, where we first would like to complete the investments that we have in the Mara Rosa project and the Royropata permitting, so the current projects that we are developing needs to be completed. Second, we invest in brownfield and we add value to the company through our exploration programs in the properties and the JV properties that we have. Third, we focus on debt repayment and indebtedness reduction. Fourth, capital return. And as I said, we will discuss that later in the year. And finally, on M&A with clear parameters, and hopefully, we can repeat at some point what we just executed on Mara Rosa, which has worked very well for us. So with that, I will return to Eduardo.

Eduardo Landin: Thank you. Well, our strategy is very simple, is to be focused on core assets. We have Inmaculada, is our flagship mine. We have 20 years ahead to do all the exploration brownfield with a huge land package. We have Mara Rosa today in production, and it has a life of mine of 10 years with 100,000 ounces of production with very good all-in sustaining cash cost. San Jose is a very high-grade mine that is being producing since 2008. And today, with the Argentinian situation, we have an option to get a better macroeconomic situation that will be reflected in our results. Royropata is the new deposit in Peru using the current infrastructure. And Monte Do Carmo, the new option for a new mine in Brazil. Our strategy is very simple. Brownfield is the way to generate new resources and bring value to the company, extending the life of mine. And of course, we need to be focused on mineable resources. Then we have the operational efficiencies. We need to have a lean philosophy across the company. We need to work on process optimization all the time. We have proved that we have a lot of capabilities in order to develop projects on time, on budget. And we need to try to get new technologies in order to reduce cost, which is the operational efficiency at the end. Also something which is very important is to be close to the operations. And that's the reason I've been traveling to the operation on the -- on Q1, and I will be traveling again on Q3. And with me, all the executives in the company. On ESG, we need to drive responsibility and respect. We have a world-class safety performance and we need to continue to get to the 0 accident target, which is our dream. And we have already set the KPIs on ESG for 2030 and they are part of our objectives. And as Eduardo mentioned, the capital discipline is also very important in order to funding organic growth, I mean, to debt repayment, capital returns and, of course, value-accretive M&A as, for example, Monte Do Carmo is a perfect example, or Mara Rosa that has been execute and is today in production. What we presented on the Capital Market Day is a projection of our production for the next 3 years that it will be 20% from 2023 to 2026 and also a decrease in costs during the same period or another 20%. The good thing is that from 2027, we'll have also Royropata. And if the option works in Monte Do Carmo, we could have also production from Monte Do Carmo from 2027 onwards. Going to Inmaculada. Inmaculada, as I mentioned, we have a $45 million CapEx that is recorded as cost on 2024. But that's based on the TSF expansion developments that we didn't do it during 2022 and 2023. We are installing a reversal of Moses plant. And that's the reason we have this cost here this year. We have a lot of initiatives in order to reduce cost in Inmaculada during this year. But I have to mention that we are working with Boston Consulting Group. Today, Boston Consulting Group is implementing a SWOT team. And on the first 3 weeks of the work, they have identified with us [17] initiatives to increase production or to reduce costs. So that's very good news. I mean the idea in Inmaculada is to maintain 200,000 ounces during the life of mine and be in this level of cost that will be reached in 2025. If possible, reduce that level of cost with these initiatives. Going into the potential of the brownfield strategy in Inmaculada, I mean the short-term objective is to extend life of mine. We have the plan to bring between 2.0 and 2.4 million ounces of gold during the next 4 years. And the most interesting area at the moment is Eduardo Belt, which is this gray area, where we have fantastic drilling results on the first 2 months of the year. So we believe that we could give you some news once we present the new resources during the year. Then we have Royropata. Royropata is a resource of 50 million ounces. You have the gold equivalent here. We have that resource. We have the geological potential in order to extend this -- I mean, to double really this resource. And we have already started drilling. I mean the grades and the width of the pane are extremely good, so it will lead us to introduce mining methods, productive mining methods, in order to have very good all-in sustaining cash costs. And you can see the financial here. I mean, all-in sustaining cash cost will be around $1,000. The internal return will be between 45% and 55%, because the CapEx is quite low for a new mine. Basically, we will use all the infrastructure that we have in Selene and Pallancata. But it's not only that. I mean, we have -- this is the area where we are working, that we call Royropata Belt, but also we have [Pacapausa] system, Pallancata Northwest and [Bolsa], which is new areas where we could bring new potential. Today, what we are doing at Royropata is to try to get the permit as soon as possible, and we believe that in 2 years, on 2026, we will be able to get these new permits. Mara Rosa, well, everybody knows that is in Goias, is our new mine. We have the first pour. We will reach commercial production on H1 2024. Its life of mine is for 10 years. We are trying to analyzing at the moment, identifying the bottlenecks at the plant in order to try to get an extra production that that could be a very good upside. In terms of production, Mara Rosa, the idea is to maintain 100,000 ounces for the first 4 years in production and the all-in sustaining cash cost will be between $1,100 and $1,000, more or less, that you can see there. I mean we have the first gold pour on the 20th of February. But let me say that the most important achievement in Mara Rosa is not the production, it's the safety. I mean we have been able to build this project with 5.5 million ounces -- I mean, 5.5 million hours of work without 1 lost time accident. I mean the project is completed on time, on budget. We are ramping up, and we don't see any problem at the moment. And also in terms of ESG, we have been able to introduce a lot of measures in order to have a very good relationship with Mara Rosa community. We build this trail knowledge place where we have a lot of schools coming to see the history of the project and the history of Mara Rosa and everything. That's been -- that has been very welcomed by the local government. Also, we have been able to buy from local producers and local suppliers around $9 million. And today, we have 320 people working at the site. And that's the maximum we can have because there is no more workforce available for us. I mean we could increase it, but I mean, they don't have any more. And the objective in Mara Rosa is really to double the resource in the next 6 years. I mean, we believe that we have the potential to bring a new 1 million ounces of production in order to extend the life of mine for another 10 years. And the good thing is that Pose is there, that's where the current deposit is. And we are drilling around this belt. And we believe that there is a lot of potential. There is some other targets that we'll try in the next few years. But today, we are concentrating here where we can add quickly new resources and also use the current infrastructure of the plant. Going to Monte Do Carmo, I believe that this option makes a lot of sense for the company and is totally in line what -- on the -- on our strategy, on what we propose as our strategy. First of all, because we have a current resource of 700,000 ounces with good grades. Second, because we believe that, using our brownfield capabilities, we can increase that resource base and try to put this project in a situation where it could be very profitable for us. And for that, we have 12.5 months. We didn't compromise a lot of cash. It's only $50 million, I mean, to have this option. And later, if the project is profitable, we will add another $45 million, is a total of $60 million. And it's also very close by to Mara Rosa. It's only 4, 5 hours driving. So it's in [Tocantins], which is a very mining-friendly state in Brazil. And you need to remember that we established a very strong corporate office in [Bello Horizonte] for the Mara Rosa project. So today, we have a country manager, we have managers, financial team. Everything is in place in order to be able to grow in Brazil. So I believe that this is a great opportunity for us, and that's the reason we signed this option. Going to the conclusion, and this is the final page. We are and we will be focused on the core assets. We will be focused on increased production. And we will be focused on reducing cost. We want to maintain a world-class ESG performance. We have this new low-cost mine in Brazil, which is a very important asset for us. Inmaculada today is the risk, and we have 20 years to implement an exploration brownfield strategy in order to bring new resources and extend life of mine. We have Royropata. We need to get the permit, that is another 100,000 ounces with a low cost from year 2027. We will continue with the brownfield strategy. We put $33 million this year in order to drill, and we are drilling everywhere. We are drilling in Argentina, we are drilling in Royropata, we are drilling in Brazil, we are drilling in Inmaculada. We have today secured a new project in Brazil, which is totally in line with our strategy of brownfield exploration. As Eduardo mentioned, we have implemented a very disciplined capital allocation strategy. And finally, as you know, we are a new team in Hochschild, but I mean we are new and very old because all of us has been in the company for many years and we have a lot of experience of working in Peru, Argentina and Brazil. That's all for me. Thank you very much for being here today in our presentation of 2023 results. And we will pass to Q&A. Thank you very much.

Q - Dan Major: It's Dan Major from UBS. A couple of questions. Just on Royropata, can you just walk us through the permitting time line and requirements, key deadlines, key dates needed to achieve the 2027 kind of start-up?

Eduardo Landin: On 2023, what we have done is the feasibility study and all the engineering work. And that's ready. That's totally ready. Also, we have been negotiating the easements with the communities, which are the same communities as we used to have in Pallancata, they are the same area. But it's an additional land that we need to negotiate with them. I would say that today, we have around 80% of the land negotiated, and of course, there is a lot of expectations from the communities in terms of this new project. So we need to end up the baseline study, which is the dry season and the wet season work on the field has to be done on 2024. 2025, once we finish that baseline studies together with engineering and easements, 2025 will be the year that the Peruvian government will review the whole work. We believe that in 12 months, they will be able to do the review, do the observations, for us to take the opportunity to answer their observations. And that process, that evaluation process should finish on 2025. So we should expect to get the permit sometime during 2026. If that's the case, on 2026, we will start developing the mine. Today, mineralization is on the next wall of the current operations. So it's not difficult to start doing developments and start getting production. It will be a ramp up, of course, because we need to develop the mine and have enough front in order to produce, let's say, 2,000, 3,000 tonnes. I mean we have a huge plan, 3,000 tonnes flotation plan at Selene, so we need to -- I mean to get to that level of production. But that's the time line for Royropata today.

Dan Major: Okay. Just maybe to follow up on that, I mean, if you look at the history of the company, you've, I guess, fallen short of targets set to the market as a consequence of permit delays. Is there not any way to try and accelerate that permit? You sort of indicated to the market 2027 and you're not going to be able to receive the permit in 2026. History would suggest permits take longer than expectations. This is still quite a way away for a relatively simple restart. What's stopping that permit process from accelerating? Because it feels to me, if we take the time line of the past, 2027 seems optimistic, if you only expect to receive the permit in '26.

Eduardo Landin: Okay. Let me tell you, I mean, probably with the consequence, I mean, that -- I mean, that analysis that you have done is based on Inmaculada permit, but that's the only permit that we have been delayed in the past. But if we compare Inmaculada with Royropata, there is many difference. First of all, the area of Inmaculada, it was 10 times of Royropata, so does make a huge difference. Then I mean, we don't need to deal with new communities. In this case, they are the current communities that we have the relationship. Also, I would say that the Peruvian government is totally different. I mean we have today a new cabinet with a prime minister that they are promoting mining all over the world. They have been on the BDC in Canada a few weeks ago, promoting mining. So they are willing to give us those permits in order to develop new projects. Remember that in the Inmaculada permit, we have the COVID. And authorities would not able to go to the site. So that was a remote evaluation. That was extremely difficult situation. So we would say that, today, allowing a year for evaluation, we believe that the time set -- I mean, the schedule that I just gave it to you is something that it could be achievable. To do it quicker is impossible, because I mean, we have today, the engineering, you need 2 seasons for the dry and to the wet season, then you need at the evaluation time for the government, which is -- I mean, it's supposed to be 90 days, but in real time, it will be a year. So that's the reason why I believe that, on 2026, we could get the permit. So I believe that is realistic.

Dan Major: Okay. That's useful color. And then one other question, if I may. So CapEx guidance for this year is around $175 million, $180 million. Should we assume that the $15 million on top of that for the new project will go to the CapEx line, it won't be expensed? Or will it -- where will that sit in the financial statements?

Eduardo Noriega: Thank you very much, Dan. That expense will go to the CapEx, will be capitalized, because it's a project that we're going to build later on. So yes.

Dan Major: So around $200 million, about $190 million, $200 million is where we should be in CapEx?

Eduardo Noriega: Yes.

Dan Major: Okay. And just a follow-up on that CapEx dynamic. If we go into 2025 based on the expected sort of rate of spend, how should CapEx trend in 2025 at this stage, without giving us, I guess, a clear guidance?

Eduardo Noriega: We have not provided guidance on CapEx for 2025. We have done it for this year 2024. But it will be pretty much similar. I mean in the case of Inmaculada, you should take into account that there are $45 million that will be expensed this year that we will not have next year, similar, excluding that effect because that is CapEx that we have -- we are catching up from the last couple of years. But other than that, it should be relatively similar.

Dan Major: All else equal, $45 million less. .

Eduardo Noriega: Yes.

Richard Hatch: Richard Hatch from Berenberg. Just one question on the dividend, you sort of suggested that you might consider it in midyear. So is it fair to assume that we might see a reinstatement of the dividend with the H1 numbers? .

Eduardo Noriega: We have not suggested that yet because what we have said is we need to put -- thank you for the question, Richard, sorry. We need to put Mara Rosa into commercial production first. We need to focus on seeing the cash flows and start seeing that our indebtedness ratios come down. And then once we have that, we'll have a discussion about it. But there is no decision being taken so far.

Richard Hatch: Would it be -- just to push you on that, would it be kind of crazy to think that, if all moves in the right direction, the balance sheet is in good shape, you're about 1x net debt to EBITDA, you're in the middle of your target range, mara Rosa seems to be going well so far, so congratulations to you on that and generating a lot of cash. So is it wild to think that the Board would perhaps consider showing that? Or do we...

Eduardo Noriega: No, for sure, they will take those -- that -- your comments into -- I mean what you are pointing out into consideration and will be part of the discussion. It's just that we haven't made that decision yet and we need to wait and kind of execute on what we said and then have that internal conversation. So that's...

Richard Hatch: And then just on the costs, and Eduardo, you mentioned about Boston Consulting Group. Just a couple of questions on that. So on Slide 15, you've got your cost guidance. So can you just clarify, does that include any of those efficiencies or not? And then secondly is -- no? And then secondly -- I've seen -- sceptical analyst, right? I've seen this before where Boston Consulting come and do it, and then they charge you an arm and a leg to do it as well. So what's the actual net benefit here to the company?

Eduardo Landin: No. Basically, what we have agreed with Boston Consulting Group is a variable fee based on results. So there will not be any fees on top that affect the actual all-in sustaining cash cost.

Richard Hatch: Okay. Is there any way to put kind of a rough number or target around it, or you perhaps give us an update with the H1s as to where you are with that just in terms of cost of volume?

Eduardo Landin: To tell you the truth, it's too early on the diagnostic -- I mean we have the diagnostic, but we don't have the -- I mean, the implementation plan. So I would prefer not to give any -- I mean, any number that it will be with no base.

Richard Hatch: And then last one, I suspect you might not be able to answer it. But on Monte Do Carmo, the PFS or feasibility study suggests CapEx of $181 million. Is that a number that you feel comfortable with or do you feel that there's more work to be done on that?

Eduardo Landin: No. We believe that we need to do a lot of work on that. And it will be part of our option period to analyze everything, feasibility study, engineering, resources, everything, money method, everything. We're not going to take a decision based on any, I mean, numbers of third parties. I mean, we need to do our engineering, our numbers. And for sure, we will bring to the market a figure that it will be doable. We are not trying to sell in our project. We are trying to develop a project, putting it into production on time and on budget again, and achieve our production and our cost targets.

Marina Calero Ródenas: Following up from Richard's question. Can you give us maybe some examples of the initiatives you're looking at, at Inmaculada, to increase production and reduce costs?

Eduardo Landin: Well, basically, at Inmaculada, since we have been able to do the developments during 2022 and 2023, there is the opportunity to, I mean, to make better ventilation, for example, to increase the cycles, the mining cycles to increase the speed in order to get more production. I mean in 2024, we have budget full capacity of the plant. So anything on top of the budget, it will be an upside. So all the initiatives are basically to increase production from the mine and try to reduce cost. That's the kind of initiatives. And I believe that they are totally doable. The thing is that, since we have a very difficult years with -- I mean, we restrict all the capital expenditure until we got the MEIA, today, the mine is less developed than it would need it. So that's the reason we need to introduce these measures. And it's good to have these consultants to bring energy to the people and to the operation, in order to wake up and realize that we are in a totally different situation.

Marina Calero Ródenas: And one more question, if I may. At your Capital Markets Day, you mentioned the potential to increase the plant capacity at San Jose. Can you give us an update on the project?

Eduardo Landin: Yes. We have in the process of finishing a detailed engineering for that project. It seems like we will be able to increase capacity for up to 2,000 tonnes per day, which is an important increased capacity for San Jose. And the most important benefit on that is that we could process less grade material that has been mined in the past and is already on the stockpiles. So that could give us an extra, I mean, material and ounces, I mean, nearly free of charge. And the good thing about this project is that the -- we are analyzing to install a [Verti mill] it's a special equipment that you put between the current mills. You get [indiscernible] material and that's the reason you can pass through 2,000 tonnes through the cells, flotation cells, and the ILR, I mean the leaching process at San Jose.

Marina Calero Ródenas: Can you remind us what extra production will you get from that? And what was the CapEx?

Eduardo Landin: I mean the CapEx will be something around $10 million. I don't have the amount of production that we will be able to -- but it will be, I mean, enough, of course, to get a very profitable project.

Eduardo Noriega: If I may add to Eduardo's answer, I mean, the payback we estimate on a project like that is less than a year, probably 8 to 9 months. So it's -- yes.

Eduardo Landin: It's a very good opportunity.

Marina Calero Ródenas: And those ounces are not part of your production guidance?

Eduardo Landin: It's not. They are not.

Unidentified Analyst: Just a couple of questions on the projects. First of all, there are a couple of comments in the presentation. First one on Mara Rosa, under the rainy season impacts. I was just wondering, I mean, obviously, it didn't have an impact on first gold, the budget, the time line or anything. But has it had any impact on stockpiles or maybe the commissioning process? I was just wondering if you could give us any color, just since you mentioned it.

Eduardo Landin: That's a good question. Well, I mean the original plan, it was to finish the project in December. That was not public, yes, but that was the objective. Of course, we have a very heavy rainy season, and that was the reason that we finished the project on the 31st of January. In terms of the impact on the ramp-up, there is an impact. But I mean we have that impact until March because the rainy season is going to end up in March. I mean, today, the dry stock operation is something that we are learning because there's huge filters working there. But the good thing is that we will have a dry season for the next 9 months. So at the end of the day, we don't -- I mean, we don't think that we are going to have any impact on the ramp-up. We will have the time to learn that process during the next 9 months. So the next rainy season we will be ready for, I mean, continued production.

Unidentified Analyst: That's great. And then the second 1 is also on Mara Rosa, which you just mentioned the debottlenecking, that you're working on something that might help you with volumes. Are we talking about, I mean it's so early stage that I would have thought it's something like less than a 10% increase in volumes, but are you looking at something that's bigger than that at this stage?

Eduardo Landin: No. That's exactly the figure that I'm looking at. When we put Inmaculada in production, the capacity was 3,500 tonnes, and we reached 3,350, 10%. So we believe that we will be able to get all those bottlenecks out and try to get something similar. But we are not looking at more production. I mean the capacity is the capacity.

Unidentified Analyst: That's great. And then the last one was coming back to Richard's point. I mean, personally, I'd always rather see growth than a dividend. So I wasn't disappointed at all to see you holding off on the div and talking about deleveraging, which adds so much more value. But just around the thinking, and obviously, it's not just your own thinking, it's the rest of the Board's thinking. But you're within that 0.5 to 1.5 net debt to EBITDA. Do you think of the excess cash as the bottom -- when you reach the bottom end of that range, and is that the point where you're very comfortable given the div and I mean you still have other growth opportunities. I mean, you've got San Jose, which you're talking about, you've got Monte Do Carmo, which looks phenomenal but such early days and you still have Pine Cotton and so forth. So lots of growth opportunities. But with that in mind, I would have thought excess cash is sort of the lower end of that range, not the middle end of the range. Is that about right?

Eduardo Noriega: Thank you, Tim, for your question. We don't have a specific -- we have that range for the Board to have some flexibility on when to define that, taking into consideration the opportunities that we -- the growth opportunities we have in front of us but also the situation of the market and our operations at that time. So we would like to have that flexibility. I have to say that if you look at the dividends that we have paid in the past, I mean, those amounts will not prevent us from also executing on our growth strategy. So I think we like having that flexibility. And also we're working also on having a more robust framework on capital returns in the future. So we're thinking about it, and we would like -- but we would like to retain some flexibility, which I think is important for a mining company.

Unidentified Analyst: Okay. Since you're considering having a more robust capital allocation, capital return strategy in the future, I would prefer to see M&A ahead of capital returns, not capital returns ahead of M&A., personally.

Eduardo Landin: Thank you. We'll take that in consideration.

Patrick Jones: Patrick Jones, JPMorgan. Just a quick one on the reserves and resources. Obviously, it mostly just reflects the reduction from production during the year given the delay in the exploration and the drilling program. Can you just talk about when you think you get a bit more of an update on that? Do you think you could give something, say, with H1 results to have a bit more resources there at Inmaculada, et cetera? And then secondly, just on the Argentina side, given you're looking to be spending a little bit more there at San Jose with that expansion possible. Do you think there's any additional possibility to step up exploration in the vicinity of San Jose as well?

Eduardo Noriega: Okay. Go ahead with the first question, the resources.

Eduardo Landin: Yes. So on the resources, we are starting our exploration programs in all the mines, as Eduardo pointed out. And we are already drilling. So right now, we are already drilling. Depending on how advanced we are, but by half year, we may provide some update on where we are. What I can tell you is that we are seeing excellent results in the drilling campaign so far. So yes, we do have expectations on our brownfield exploration plans. And hopefully, we can provide more updates shortly.

Eduardo Noriega: And then your question was in Argentina, Yes, we're drilling in Argentina. We're really drilling in the southern part of the property, and we do have expectations. As I said in my previous answer, the capital return -- sorry, the payback of the investments that we will do in Argentina will be short, so less than a year. And that's I think it's positive for the projects that we're looking at.

Eduardo Landin: I mean we have a huge land package in San Jose. I mean we have San Jose here, and we have [Cerro Negro], which is the Newmont operation. It's like 30 kilometers away, one to each other. We have a lot of mining properties between these 2. And we are drilling in a property, which is south of [Cerro Negro] and is supposed to be the continuation of [Cerro Negro] veins. So we are drilling now there. And I mean, we will expect to get results probably in the middle of the year.

Unidentified Analyst: Yohan from [Liberum]. Could I just ask you about Royropata, the IRR. What commodity prices were assumed? And are you able to say what the post-tax IRR would be?

Eduardo Noriega: You mean by Royropata, or Mara Rosa.

Unidentified Analyst: Royropata.

Eduardo Noriega: So for all our projects, we typically look at the analyst consensus prices. And I think we have stated that the IRR, the minimum IRR that we require is 15%. So we're evaluating all our projects taking that into consideration.

Unidentified Analyst: 15% post-tax or pretax?

Eduardo Noriega: Post tax.

Eduardo Landin: Okay. No more questions. Any more questions? Well, thank you very much for being here today. We will see again in any meetings here in London. Thank you very much. Thank you. Bye.

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