Hello, and welcome to the Hochschild Mining interim results call. I will now hand over to Eduardo Landín, CEO of Hochschild Mining. Please go ahead.
Good morning, everyone, and welcome to the Hochschild Mining PLC interim results for 2024. If we can go, please go to Page 3. As we announced on the Capital Market Day, we renew our strategy. We said that we'll be focused on the core business, increasing production, and lowering cost. I have to say that on this first semester, we have been very strong on ESG performance. Revenues has come up 25% to $392, in line with the new prices. The EBITDA went up 79% to $178 million. And our all-in sustaining cash cost is at $1,510, which is at the lower end of the guidance. In terms of growth, Mara Rosa mine has been ramped up.
Monte do Carmo project, the option is secure. Royropata project, we continue with the process of the permits, and in terms of the cash discipline, we have a net cash of $89 million. Our net debt is $271 million, and we continue focused on debt repayment, growth, and capital return. If we can go to page number 4, please. In this slide, you can see our continued strong performance in all our ESG KPIs. Let me say that the company has been able to maintain the frequency rate around one, which is very good for underground mining. I have to say also, we are extremely happy with the fact that our ECO Score is close to the maximum rate. Today, we are at 5.85, better than last year.
We have been able to increase the local workforce up to 61%, and also the local procurement has increased from 17% to 23%. With this, with all these KPIs doing well, I mean, we can demonstrate that we have a lot of focus on ESG since we decided to start with this new strategy. Can we go to page number six, and then I pass the presentation to Eduardo Noriega, our CFO.
Thank you very much, Eduardo. I'm happy to present a strong set of results for the first half of 2024, with revenue of around $392 million, $78 million higher than what we had in H1 2023. Also, our annual net profit was $52 million, again, $54 million stronger than what we had in the first half of last year. Our strong adjusted EBITDA of $177 million, again, close to $78 million higher than what we had in 2023. Revenue is up 25%, mainly as a result of stronger production from Mara Rosa of course, which started commercial production in May 2024. But also the stronger production coming from Inmaculada after we received a permit in the second half of last year.
Also, gold and silver prices were higher than what we saw in 2023, having an important impact in our results. In terms of cost of sales, those were reduced by close to $3 million versus 2023, mainly as a result of a change in the production mix, which give us lower production cost. We're now replacing what we had last year in Pallancata with new production coming from Mara Rosa at a lower cost. We also had slightly lower D&A, but it's important to highlight the strong cost controls that the company have in place to ensure we mitigate an inflationary pressures of the industry.
Admin expenses were $2.7 million higher than last year, mainly as a result of the impact of stronger prices in workers' profit sharing in Peru, but also the performance of our company impacting our long-term compensation plans have impacted our results. Exploration expenses were slightly higher as well. Since the permit of Inmaculada was obtained last year, we started our exploration plans, and this is a result of that. Net interest were better than last year, mainly as a result of better interest rates, especially in Argentina, partially offset by slightly higher debt and interest rates as well, due to the investments we did to complete the construction of Mara Rosa.
Effective income tax rate for the year was 23%, which include a couple of benefits. I would just highlight the benefit of the net inflation had in Argentina and the adjustment that represents in our tax basis, which help us reduce the income tax by $8.7 million. We also recorded exceptional items of $12.5 million net of taxes due to an impairment that we recorded for in our Azuca, our non-strategic Azuca asset. If we could please go to the following slide.
We'd just like to show the improvement that we are seeing in our EBITDA margins, not only as a result of stronger production, but also the better prices and the good cost controls that the company have in place. We expect that the second half of 2024 will be better with the incremental production we'll see from Mara Rosa. On page eight of the presentation, we have the evolution of our cash balance, and you can see in the first group of columns, the cash generated from our two mines, Inmaculada with $92 million, San Jose with $35 million. We're coming very strong. The execution of our exploration budget, $10 million. Corporate expenses, that accounted for $22 million.
We also paid taxes for $14 million, executed our care and maintenance plans and our mine closure plans, and on that we invested $11 million. We paid interest net of $11 million, and we had temporary movements in our working capital of $9 million, negative. Net borrowings were increased by only $14 million to complete the construction of Mara Rosa and the other investments that we had. And we also sold our non-core asset, Crespo, for $15 million. On the last three columns of this table, you can see the cash used to put Mara Rosa up to commercial production in H1, where we invested in total $53 million between CapEx, but also stockpiles and other temporary working capital needs.
We invested $80 million to secure the option of Monte do Carmo and execute some exploration works in the properties. Finally, we invested $7 million in the process to secure the permit of Royropata in Peru. With that, our ending balance remained stable compared to December 2023 at $89 million. If we could please go to the following slide 9 of the presentation. Our All-in Sustaining Costs from operations in H1 was $1,510 per gold equivalent ounce. That number is lower than what we had in H1 2023, and in the lower part of the range of the guidance that we provided by the year. We're pretty much in line with guidance and in good position to achieve it for year-end.
In the case of Inmaculada, as you can see, our all-in sustaining cost was $1,349 per ounce of gold, as anticipated, higher than what we had last year, where we didn't have the permit of Inmaculada, and we had restrictions to execute on our mine development and other infrastructure CapEx, that we are now catching up. But that number is below the lower part of the range of Inmaculada guidance. This is a result mainly of timing the execution of mine developments and other infrastructure CapEx, no? CapEx will be more heavily weighted on the second half of the year.
In the case of San Jose, our All-in Sustaining Cost of $1,809 per ounce of gold equivalent is pretty much similar to what we had in H1 2023, and it's slightly higher than the guidance that we have provided for the year, mainly as a result of timing and execution of some expenses, but also local inflation, and marginally lower grades for the year. All-in Sustaining Costs is expected to be in line with 2024 guidance. In the case of Mara Rosa, the All-in Sustaining Cost of $1,495 per ounce of gold is only for the commercial for the period in which Mara Rosa started commercial production. That is from May 13 until the end of June.
Costs are expected to decrease significantly in the second part of the year once we increase our production volumes as expected. If we could please go to page ten of the presentation. As expected, our capital expenditures total were $79 million. Sustaining CapEx was $79 million, higher than what we had in 2023. Mainly, again, as a result of not having the permit in Inmaculada last year and having to postpone some of the mine development and infrastructure investments in Inmaculada. The CapEx will be more heavily weighted in the second half of the year, aligned with the explanation that I provided in the all-in sustaining cost slide.
In the case of Inmaculada, well, the explanation is pretty much similar to what I provided in the whole total operations. In the case of San Jose, the CapEx is lower than what we had; the $17 million is lower than what we had in 2023, mainly as a result of lower investments in mine development and equipment. This guidance that we're providing for 2024 doesn't include the project that we communicated to expand our throughput capacity at San Jose in the second half of the year. That account, that will be $9 million. In the case of Mara Rosa, we're showing here the sustaining CapEx, the $3 million.
It's important to highlight that from those $3 million, $0.8 million are related to a project, a side project to have an aggregate, a construction material project, to use the material that we already have in Mara Rosa, with very profitable returns. Finally, I would like to say that to reiterate that the Mara Rosa project was constructed on time, on budget, and we're showing the $205 million total construction CapEx of Mara Rosa since we acquired the project back in 2021. On page 11, we have the exploration expenditures.
No, as a total, exploration expenses for H1 2024 were $14.4 million, higher than the $11.9 million that we had in 2023, as a result of reinitiating and accelerating our exploration plans after securing the permit of Inmaculada in H2 2023. If we could please move to page 12 of the presentation. In terms of the balance sheet, we had $18 million of cash. Total debt was $360 million. Net debt was $271 million, and our net debt to EBITDA ratio was reduced from 0.9 times in December 2023 to 0.8 times in June 2024. So we have already started the reduction of our indebtedness ratios as expected, and communicated in our strategy. Hedges.
We have hedges in place to protect the cash flows. And finally, the company is reviewing the capital returns, but that would be a decision that will be taken by year-end with the full year 2024 results.
Thank you very much, Eduardo. I continue with the presentation, and we can go to page 14, please. Okay, in this slides, we represent our strategy. As you can see, it's a very simple and focused strategy. If we go to the brownfield Pilar, we believe that we are very good in brownfields, and we generate a lot of long-term value. We can extend our life of mines, and I think that's what we are doing at the moment with all these brownfield exploration that Eduardo just mentioned. And of course, we are focused on mineable resources. I mean, it's pointless to have resources if they are not mineable at the end of the day. Also, we are very focused on operational efficiency. We have established a very lean philosophy across the company.
We are working on process optimization, and Inmaculada result shows the projects that we have been able to implement in the last year. Of course, we have a proven development record on time, on budget, and that's something that we have proved in Mara Rosa. On the ESG, we driving the business with responsibility and respect, and we believe that we have a world-class safety performance. Today we have our KPIs established, ESG KPIs established until 2030, and of course we have the commitment to be net zero by 2050. In terms of the discipline, capital allocation, of course, with that capital we need to funding organic growth. We have debt repayment, of course, capital return, as Eduardo mentioned, that we are evaluating that at the end of the year.
And of course, value accretive M&A, as we have demonstrated in Mara Rosa, and also the option that we have today at Monte do Carmo. If we can go to page fifteen, that is the production projection and cost projection that we present on the Capital Market Day, and we continue believe that we can achieve those numbers. I have to mention that on 2025, we have established that we will be reducing our all-in sustaining cash costs between $1,300 and $1,400. I mean, there is an important opportunity in Argentina since the government has. I mean, we have heard that it could be an important evaluation at the end of the year, and inflation is going lower. So that mean that San Jose cost could be more competitive next year.
If we go into page 16, we have Inmaculada, which is beating our expectations in 2024. I mean, there are many projects ongoing to increase the tonnage extracted. All the mining cycle initiatives are like ventilation, improvement in mine supports, incorporating marginal cut-off grades. We have implemented shift change optimization. We have improved our ore control and also the blast lengths. We expect to beat our guidance on 2024 on production. Of course, in 2024, we have $45 million, including in the all-in sustaining cash cost since we are doing a TSF expansion. We are implementing all the waste rock facilities of the new environmental permits.
We are implementing a reverse osmosis plant that will save TSF capacity in the next years, and also we are doing all the mining development that were not done on 2022 and 2023. So we are extremely happy with the Inmaculada's performance. If we go to brownfield program, we are drilling at the Soto, Nicolas, and Kari veins. As you have seen on the interim results release, we have very, very interesting impacts on those veins. We are aiming to add between 0.7 and 0.85 million ounces of gold, which mean I mean, the possibility to add around four years of life of mine. And of course, we continue drilling on potential in Laura, Angela, and Bateas South. I mean, the...
As you know, our main objective is to increase our life of mining all operations, and it will be incredible if we can achieve 10 years life of mine very quickly in terms of mineable resources. If we go to Mara Rosa, well, Eduardo mentioned we complete this project on time and budget. We have had some mechanical availability in the plant problems, but today they are solved. We have some mine structural delays due to basically the contractor has, I mean, hasn't performed to the level to take out the waste from the pit. So that's basically reduce the amount of mineral that we can treat. So all these issues has been solved, and we believe that today, I mean, we will be producing around 10,000 ounces for the next, the...
I mean, for this semester. So we'll be very close to the guidance, I mean, just to the lower range of the guidance. We continue doing optimization and exploration opportunities, because we believe that we can increase our resources at the bottom of the pit. And of course, there is the potentiality to increase the plant capacity that will also help in on the amount of production that we can achieve. If we can go to page 19, we can see there the potentiality of the exploration areas in Mara Rosa. Today, we are mining at Posse, but as you can see on the Posse shear zone, there are many areas where we could be exploring and bringing new resources to extend the life of mine.
As you remember, we acquired this asset with 1 million ounces of gold, and our long-term target is to double that in the next years. If we can go to page 20, that's the exploration related to Pallancata. We have been able to infill drill Marco vein extension and to add between 30 and 35 million ounces of silver. And also, we are drilling for potential at Pablo, Cantera, and Erika veins. I mean, what we believe in Royropata is that we have a lot of potential, and we continue doing the permit process. In San Jose, also, we have very good news because we have been drilling at Frea, Lina, Maura, and we have been able to replace resources, so that would extend the life of mine of San Jose also.
Also, we are testing the continuity of Pillar. Pillar used to be a very powerful vein, and the plan, once the winter finish, is to continue drilling in the district El Retiro and also Telken Norte, which is very close to Cerro Negro operation. Monte do Carmo, if we go to page 22, as you know, we have acquired the option of $50 million for 100% of the assets. I mean, this operation was approved by their shareholders. We just been last week in Monte do Carmo. I am really impressed by the mining-friendly Tocantins area. We were received by the mayor of the city, and, I mean, they have a very good and positive attitude towards the mining business.
I mean, the project at the moment is at feasibility stage. It's an open pit and underground gold project, and of course, it has a very important, strong exploration upside. In terms of permitting, Monte do Carmo has already the environmental permit, so that's the most important permitting in Brazil. And the only thing that it would left is the installation license, and we have continued working on this permit to get this permit in the near six months, the longest. We have been very surprised by the excellent infrastructure of the area. I mean, we have paved highway, we have energy available, so it's very good place to do mining as Goiás, where we have Mara Rosa.
The current work at Monte do Carmo is we are drilling resources in order to bring more resources and make a stronger project in terms of profitability. We are reviewing all the basic engineering and CapEx. We are doing some metallurgical tests, and of course, we are working on the water balance to make sure that water availability, it will be positive, you know, at the time to develop the project. As you can see on the reserves and resources, today, Monte do Carmo has 746 ounces of gold in reserves, open pit and underground, it has 150,000 ounces.
I mean, we believe that is an important project, and we are looking forward, you know, to finish all this work and probably execute this option to acquire this project. If we go to Page 23 , we believe that, despite the great performance of our share in the last year, we believe that it's still a cheap share. Basically, it's because Inmaculada performance and the brownfield upside is there, and so that could boost the price of our share. Mara Rosa is already in commercial production, and of course, in terms of growth, we have Monte do Carmo, and we have Soracaya that they are incredibly good growth opportunities. As a conclusion, let me remind that we are focused on the core business.
We want to increase production, and we want to lowering costs. To do that, we are working to have an ESG world-class performance. Today, we have a new low-cost Brazil mining production. Inmaculada is with a great performance. We have the option of Monte do Carmo secure in the pipeline to have a new project in Brazil. Our brownfield progress is extremely strong in H1, and we believe that we will be able to add important amount of resources at the end of the year. I mean, Royropata is a project that can deliver 100,000 ounces per year from 2028. Of course, we have implemented a very disciplined capital allocation strategy, where it will let us grow also debt repayment and capital returns for our shareholders.
With that, I have finished the presentation. Thank you very much for being here. Thank you. Back to you.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. Our first question comes from the line of William Dalby from Berenberg. Please go ahead.
Yes. Hi to Eduardo and team. Thanks for taking questions today. Just a couple from me. First, on Pallancata, as you said, permitting continuing there. I just wonder if you could give, you know, a bit more color on the sort of progress you're seeing there, and if it's still reasonable to expect Pallancata to come online again from 2027 ? That's the first question.
I mean, we continue working on Pallancata, on the permit. At the moment, we are negotiating the easements with the communities, and we have been able to close nearly 85% of the surface. I mean, we have still pending some easements with some families that we are working, and we expect to close that in November. I mean, our review, our updated... I mean, based on these negotiations, we are doing the baselines, and we believe that we will be able to bring some production from Royropata from 2028.
Okay, that's helpful. Thank you. And then just a second question, really on Mara Rosa. Obviously, very good to see commercial production there. But just around some of the ramp-up delays that you flagged, you said on the call today that actually, those have kind of been resolved now. But, you know, yeah, in the results commentary, mill throughput running below the 8,000 tons per day, around the 7,000 tons per day mark. I just wonder if you can clarify there, have those issues in the mill and with the contractor in the pit been resolved, or is there still some work left to do there?
Let me say that the normal capacity of Mara Rosa is seven thousand tons, so that would mean that that is 100% of the plan. So we are running at 100%. Of course, we have the opportunity to bottle, I mean, bottle- I mean, take it out some bottlenecks at the plant and increase the capacity to eight thousand, and that is happening as we speak. And of course, that will contribute to eliminate the past problems that we had in the plant and contribute to the new guidance, I mean, to the production at the end of the year. In terms of the problems with the contractor, they are totally solved. They have brought new trucks and new lorries and drilling stuff.
They are performing now 100%. We believe that we will continue working as we have been working in July and August. As I said, we'll be close to the lower end of our guidance. Of course, I mean, we have established that we will not be able to reach the guidance, but we will be very close. Let me say also that-
Okay, great.
Since Inmaculada is performing extremely well, I mean, we still believe that we'll be able to reach our guidance in terms of production and in terms of cost for the whole company.
Okay, that's great. And then just very quick final one, if I may. So San Jose, seeing on the all-in sustaining cost, there was a credit in there, I think it was about $8 million related to the government export incentive program. I just wonder if you could give a bit more explanation around that, sorry, and if that's expected to continue.
Thank you, William. This is Eduardo Noriega. Yes, those $8 million refer to an incentive that the government have for export companies to exchange around 30% of your exports at the secondary market rate, which, as you know, is higher than the official one. So those $8 million correspond to that. It's presented separately in the P&L in other income, but in the end, it's the impact of the FX situation in Argentina. That has not been changed by the government recently. However, as Eduardo pointed out, and the new government in Argentina is doing a very good job controlling inflation, and it's working towards unifying the FX market.
So at some point, this benefit could be removed, but in exchange, you will have hopefully a much expected devaluation in Argentina. Good outcome for Argentina, and hopefully I provided a good explanation to your question, William.
Yeah, that's all, that's all very helpful. Thank you very much, guys. That's all for me.
Thank you.
The next question comes from the line of Dominic O'Cain from J.P. Morgan. Please go ahead.
Good morning, Eduardo. So just wanted to get your thoughts on the comment that you are looking to capital distributions or considering capital distributions, in early 2025 . If, if you're successful in obviously ramping up Mara Rosa, coupled with the lower CapEx, it looks as though the second half will be significantly more favorable in terms of free cash flow generation. So could you just maybe give us your thoughts on how Hochschild and the board are thinking about capital distributions in 2025 ? Are you thinking about a sustainable dividend policy, or are you looking to maybe be opportunistic in terms of special dividends and/or share buybacks?
Thank you, Dom. This is Eduardo Noriega again. So yes, as you described well, you know we expect strong cash generation in the second half of the year with Mara Rosa fully ramped up and with the strong prices that we're seeing today, and also with the performance of our other mines, Inmaculada and San Jose. So as you may recall, our strategy, the one that we announced in November last year, prioritized debt repayment.
No, and so we're waiting for that cash generation in the second half of the year to first reduce our indebtedness levels, and once we achieve that, we still expected to cure by the end of 2024. We are discussing on restarting our capital returns to shareholders. Yes, we're trying to create a policy that will help our investors to anticipate and know the dividends and for us to be more disciplined on those decisions. But that definition of the policy has not been finalized. These discussions are still going on at the board level, and we expect to have news by early 2025.
Very clear. Thank you.
The next question comes from the line of Marina Calero from RBC Capital Markets. Please go ahead.
... Hi, good afternoon. Thanks for the call. I have a question on your sustaining cost guidance. It looks like you are already towards the low end in the first half. With Mara Rosa ramping up production during the second half of the year, do you see potential to beat that guidance?
At this point, Marina, we are not considering or we're not planning for beating the guidance. Of course, that's always a challenge that we put internally. No, but you should keep in mind that the second half of the year will be more weighted in terms of CapEx. The much needed CapEx on mine developments and finalizing mainly the tailings dam capacity increase that we are working on in Inmaculada, together with some other projects that Eduardo described well in Inmaculada. So at this point, we are just reiterating the guidance for 2024.
Yep, understood. Thank you.
Before we take our next question, as a reminder, please press star one if you would like to ask a question. And our next question comes from the line of Tim Hoff from Canaccord. Please go ahead.
Yeah, thank you very much. Just a couple of questions. One on development. Monte do Carmo, you obviously have secured that, where you've made the payment, and you look positioned to secure that option. What's the timeline here that you, ideally, that you guys think you can achieve? Because it sounds to me like permitting is going well. You could possibly move on the option by the end of the year with the drilling that you're doing. Does that mean that you can get going on this in 2025, or is this more of a 2026? Because obviously with Pallancata moved out to 2028, you know, there could be some urgency to getting Monte do Carmo ahead of it and moving it a little bit faster, given the stage it's already at.
Yeah. At the moment, I mean, what we want from Monte do Carmo is to bring as little as 100,000 ounces of gold equivalent in new resources, with the same rates, to make sure that at consensus prices, it's a very profitable project. I mean, we don't want to execute the option if we are not sure that the project is totally profitable at very conservative price. So I would say that we have the option until February 2025 , but, if we are able to bring those resources that they are not much, you know, of course, we will be thinking to execute the option. I mean, at the end of this year or, you know, as soon as we get those resources, because as you said, I mean, permitting is going really well.
We believe that it's a great project. It has a very good fit with our structure and with the management that we have in Brazil. So there is a lot of synergies that we can implement to have a second operation in Brazil. So that's the current situation. I mean, we'll be having news very soon in terms of the exploration success.
Okay. That's really clear. Thank you for that. And then just two quick follow-up questions on financials, typical first half, second half sort of stuff. Obviously, you guys had a pretty good tax rate in the first half of the year. Noting why it was so low, but just sort of asking in general whether you think you'll be able to keep that low in the second half for the same reason, or whether it's gonna bump up a bit going into year-end. And similarly, on working cap, you had some outflows in the first half. Just wondering if we're gonna see them come back in the second half of the year.
Thank you very much, Tim. This is Eduardo Noriega again. On the tax front, we expect that. Actually, it will depend on how the FX movements behave in the second half of the year, you know. However, no, we do believe that we will be even within or below our statutory average statutory rate of around 34%. So, given these benefits that I mentioned at the beginning, one, the FX, the other, some other more technical matters, specifically in Brazil, we should be able to be even, even if the income tax increase a little bit, we should be within or even below our statutory income tax rate of, as I said, around 34%.
Then in terms of working capital, yes, the main movements on working capital during the first half of the year have to do with the building of stockpiles and inventories, operating inventories in Mara Rosa during the ramp-up phase of the project. Those inventories would not increase materially in the second half of the year. We may build a little bit more stockpiles in Mara Rosa, just looking for efficiencies at the cost level, but nothing relevant compared to what we had in H1 2024.
Okay. That's really helpful. Thank you very much, both of you.
Thank you, Tim.
We have no further questions on the phone lines, so I will now hand over for some webcast questions.
... Thanks very much. The first question is: what is the progress with the sale of Volcan? This year, is there any interest from the majors? If not, how are you gonna monetize this significant asset?
Thank you, Charlie. So the project is moving along. We continue with the process. Probably it is slower than expected, but it's moving along. It's moving along. We don't have sufficient information to give more details on when we expect to execute the transaction. No, but the strategy of the company has not changed, and we're still pushing for that process to evolve positively. So far, a good indication of interest, but it's... I have to say it's moving along slower than anticipated.
Okay, thank you. The next question is: congratulations on a good set of results and an encouraging H1 performance. Inmaculada outperformed expectations during the half. What was this due to?
Basically, it's due to the improvements that we have implemented on the mining cycles. Also the fact that we have been able to develop the mine and have the flexibility. That's something that we didn't have before we got the permit. We have many delays on developments, and today we have done that catch up. We have implemented all those measures on the mining cycle improvements, and I believe that they are totally sustainable in time. I can see Inmaculada performing as well as has been in the first semester on the second one, and of course, on 2025.
Right. And the next question is: how soon would you expect to realize the benefits of this year's brownfield exploration program and convert all the drill holes into resources? So when can we see an update on that?
We are planning to present the resources at year-end.
Okay. Thank you very much. There are no more on the webcast.
Okay.
Eduardo, if I could hand back to you for any additional closing remarks.
I would like to thank for being here at the presentation. We believe that we have very strong results on H1. We continue working on improvements, and we are totally focused on the strategy that I have mentioned. I mean, we believe that we are going to have a very strong second half generating interesting cash flows. I would say that in terms of pipeline, we have Royropata and Monte do Carmo, which are very, very interesting assets that could bring a lot of value. As you can see, we said that we will be very disciplined on our decisions of investment on M&A, and we are demonstrating that in the exercise of the option of Monte do Carmo.
Just thank you very much, and of course, I will see some of you in London next week. Thank you.