Hello and welcome to Hochschild Mining Q4 Production Results Call. I would now like to hand the call over to Eduardo Landin, CEO. Please go ahead, sir.
Hello and welcome to our conference call to discuss our full-year quarter production results. I'm here in Lima with Eduardo Noriega, our CFO, and in London is Charlie Gordon, our Head of Investor Relations. Group production in the quarter was just over 98,000 gold equivalent ounces or 8.2 million silver equivalent ounces, which is, once again, the strongest quarter we have had in all five years. Production grows a little versus third quarter and clearly shows the impact of a further rise in contribution from our new Mara Rosa mine, as well as a strong last period at San José. Therefore, for the year as a whole, Hochschild produced 347,000 gold equivalent ounces, which is within our guidance, once again, mostly due to the better-than-expected performance at Inmaculada.
At Inmaculada, we continue to see the benefit from our optimization initiatives with output in the quarter of almost 34,000 ounces of gold and 1.6 million ounces of silver, which is a gold equivalent total of 52,800 ounces. For the full year, the total was just over 220,000 ounces, which is a pleasing 8% improvement on 2023, when delays to the permit decision impacted mine development and consequently production. In Argentina, San José delivered its best quarter of the year with output at 3.2 million silver equivalent ounces, which gives a full-year total of 10.3 million ounces, which is slightly ahead of our guidance.
Turning to our new Mara Rosa operation in Brazil, as you know, we reached commercial production in the second quarter of this year, and since then, we have seen the plant reaching 7,000 tons per day nominal capacity as expected, and a monthly production hit a peak of 9,700 ounces in December. Overall production for the year came in at 63,700 ounces of gold, which was lower than original guidance due to the slower-than-anticipated ramp-up at the operation. In terms of the cost for the company as a whole in 2024, due to the slower-than-expected ramp-up at Mara Rosa earlier in the year and continuing with high inflation in Argentina, we expect that all-in sustaining costs to be between 5% to 10% higher than our 2024 guidance, which, if you remember, is between $1,510-$1,550 per gold equivalent ounce.
On the exploration side, I am pleased to report that results from our brownfield campaign have been very strong in 2024, with our team expected to deliver a substantial addition to all our mines and project resources when we report our audited annual reserves and resources in March at the full-year results. We remain in a good balance sheet position. We have approximately $97 million in cash, which translates to a net debt figure of $260 million, and with a net debt-to-EBITDA ratio of 0.51, which has reduced quickly from almost one time a year ago. We have also added further flexibility with our arrangement of a new $300 million green loan on improved terms. We will use it to repay existing loans and finance our future growth strategy. We have currently only drawn down $30 million of it.
We have also provided for 2025 guidance today. In summary, we expect to produce between 350,000 and 378,000 gold equivalent ounces at all-in sustaining costs of $1,587-$1,687 per gold equivalent ounce. You can see the split of this forecast by mine in the release. Sustaining and development CAPEX is set at between $169 million and $180 million, and the exploration budget would be around $36 million. To sum up, we are proud of all the efforts our production team has made to deliver output in line with the guidance and can look forward to a busy year of work at Monte do Carmo and Royropata projects and the first full year of Mara Rosa production. With that, I would like to open up for questions. Thank you very much.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please signal by pressing Star 1 on your telephone keypad. And please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you wish to cancel your request, please press Star 2. Again, it is Star 1 to ask a question. And our first question is from Marina Calero from RBC Capital Markets. Please go ahead.
Hi, good morning. Can you hear me?
Yes, very well.
Hi, good morning. Thanks for the call. I just have a quick question on your CapEx guidance. You are guiding for sustaining and development CapEx of $169-$180 million this year. Is there any part of that that is CapEx that was not spent in 2024? And as an extension of that, how should we think about your sustaining CapEx after 2025? Thank you.
Thank you, Marina . I'm Eduardo Noriega. Yes, there were some carryovers from 2024 to 2025, mainly with the Inmaculada associated with projects that we were executing both with our tailings dam expansion, capacity expansion, as well as a water treatment plant to dewater our tailings dams. So there is a portion, I would say, probably around between $10 million and $15 million that come from 2024 projects. So if you exclude those elements from the guidance, it's what 2025 would look like with two projects related to this year. Yeah, so that's the answer to your question.
Okay, and how should we think about sustaining CapEx after 2025?
For 2025, if you exclude those elements from the CAPEX, yes, after 2025. The rest of the CAPEX is mainly sustaining CAPEX, so around $150 million is an amount that would be used. Taking into consideration, of course, that our sustaining CAPEX includes the development of new areas that we are finding in all of our operations: Inmaculada, in San José, in Mara Rosa.
That's fantastic. Thank you.
Thank you. We'll now take our next question from William Dalby from Berenberg. Please go ahead.
Hi, yes. Hi, Eduardo Landin. Can you hear me okay?
Yeah, very well. Thank you.
Great. Yeah, thanks for taking questions. I've got a couple on costs and CAPEX. May I sort of carry on from Marina there with the first one? Yeah, so first off, I'm hoping maybe you could outline the main drivers of the higher CAPEX spend at Inmaculada specifically in 2025, and then maybe give a little bit of a steer on the more medium-term expectation for Inmaculada, so 2026, 2027.
Sure, Richard. Hi. So as I said, we have projects for next year of around $30 million. And from those $30 million, around $15 million are projects that were started in 2024 and were not completed and were carried over to 2025. So we have tailings dam capacity expansions of around $20 million for 2025. We also have the construction of the water treatment plant in Inmaculada of around $10 million. And we also have some other projects that are more related to the 2025 and onwards operation.
Okay, excellent. That's very helpful. Sorry, John.
Thank you. No, no, I was saying that, let's say, from the guidance that we have, around $120 million is Inmaculada. So if you deduct what I just explained in terms of projects, you will have more ongoing sustaining CAPEX for the mine.
And then it's fair to assume that the Inmaculada CAPEX profile should start to come down 26 onwards. Is that fair?
Let me say something. As you know, I mean, we expand the tailings dam capacity every two years. Yeah, so it will be years where we will expend between $20 million and $30 million additional. So I would say that, I mean, the figures that Eduardo just said, that of $90 million, it could fluctuate from $90 million to $120 million, depending if you have to do an expansion or you don't have it.
Okay, yeah, that makes sense. And then just a second one, if I may, or more on the OpEx front, just looking at Inmaculada and San José, the cost guidance for 2025 looks quite elevated versus recent years. Just wondering whether you can give us a steer on how we should think about those operating costs more over the kind of medium term?
In the case, Richard, in the case of I will start with Argentina, with San José. The cost in San José is highly dependent on local inflation and the capacity of the government to devalue the Argentine peso. What we are assuming for this year 2025 is that there is no material devaluation aligned with what analysts are expecting. That doesn't mean that the peso has to devalue sometime in the near future. We expect it will start doing so in the second half of the year. But for the first half of the year, we are not assuming any devaluation on the contractors, a small inflation of around 1-2% per month until June, July. So that's the main driver for the cost in Argentina. But we do expect, as the market expects, that there will be a devaluation starting in the second half of next year.
And then in the case of Inmaculada, I mean, we were also seeing some inflation in the mine, not in the mine, in Peru, and has to do with the high price environment. Our budget for next year and our guidance for next year includes this inflation represented, for example, in agreement with communities and social programs that we have to implement with our neighboring communities. Likewise, we're seeing that inflation being reflected in other parts of the cost, around between 3% and 5%. And that is reflected in our cost guidance.
Okay, very helpful. And Marina, is it realistic to think, is that kind of the new status quo for those two operations, or do we think those unit costs are going to start to moderate from 26, 27?
No, we are working with different initiatives to obtain efficiencies and keep reducing costs in Inmaculada and neutralize those effects. So yes, we have plans for that. We're working on that. But inflation-wise, I would say it will be also dependent on how the metal prices stay. They stay up, we will see some inflationary pressure, but if they come a little bit down, I mean, that will be less relevant.
Okay, brilliant. Thank you very much, guys, for the answers. That's all from me. Thank you.
Thank you very much for your questions.
We'll now move to our next question from Tim Huff from Canaccord. Please go ahead.
Yes, thank you very much. Just a couple of questions for me on costs. I mean, obviously, the stock is down, getting hammered down 17% today. And a lot of that has to do with the cost guidance that you've given today. A couple of things, I guess the first one short term and the other one 2025. From a 2024 perspective, I mean, obviously, you guys have gone from late October saying you could hit guidance to now you're 5%-10% above. And that's not 5%-10% above for the fourth quarter, it's for the year. So something dramatic has dramatically changed. Did you guys have huge cost blowouts in the fourth quarter across all operations? Was it one operation, or was there something else in there that's not disclosed in today's release?
So let me say a couple of things. First, we were expecting to have a huge devaluation in Argentina in November, December, and that was what we, I mean, what we heard from the financial analysts that we have been talking about. At the end, it happened, and of course, it had a very big impact on Argentinian costs. And on the other hand, we were trying to do a lot of efforts to pass through high-grade materials to Mara Rosa and try to increase production until the end. But based on the performance of our contractor, we couldn't open the mine enough to get that high-grade material to accomplish, I mean, to increase production. So that's two effects on the fourth quarter has been the reason why we haven't accomplished.
I mean, in October, we believed that it was possible, but what happened on the fourth quarter based on inflation and based on what happened in Mara Rosa, they are the reason that we were not able to reduce the cost, but on the other hand, Inmaculada performed really well. I mean, they produced more than its guidance, and of course, its costs were below also guidance, so we were very happy with the Inmaculada's performance.
Okay. Okay, that's great and helpful. Thank you. The other questions I had, I guess, more longer-term coming to Will's point. Mara Rosa was brought online, lower cost operation, and so forth. And that was aiming to lower the overall costs of the Hochschild asset profile. I mean, obviously, the guidance for next year, for 2025, is not lower. Longer-term, I guess, beyond 2025, I mean, coming back to the same question, is it your intention to lower the overall cost profile at Hochschild? Or at this point in time, does it look like San José and Mara Rosa will stay a little bit higher cost more sustainably than maybe we previously thought?
Hi, it's Eduardo Noriega again, no, the plan is certainly to reduce our costs. And we're working hard with efficiency programs to achieve that. And we also expect the macroeconomic conditions in Argentina improve and at least return to the conditions that we had previous to the shock program that President Milei is executing. And of course, our exploration program is providing with exceptional results that we look forward to have the final estimates and show them with our year-end results. The combination of those three factors should help us, should allow us to reduce our all-in sustaining costs in all our mines. If you let me, Eduardo, I mean, there is a factor that hasn't been considered on our guidance, which is the exchange rate in Brazil. We have been extremely conservative at the time to do these numbers.
We have used 5.25, and today exchange rate is more than 6. That could mean, I mean, 10% savings on Mara Rosa costs. I mean, if the exchange rate stays at 6, yeah, instead of 5, I mean, costs will go down. Of course, I mean, it will be a way to compensate the inflation that we are suffering with very high metal prices.
Okay. That's fair enough. I guess last question outside FX rates, assumptions versus real, and so forth. Could we expect at some point in 2025 to see a cost savings program announced by you guys in order to more effectively give investors visibility on that cost trajectory as we go into 2026?
We need to evaluate that. But for now, I would maintain the practice that we have been doing. We are working on specific programs to mitigate inflation in the sector. And depending on the results and the progress of those programs, we will be announcing a more detailed guidance if we have the elements to do so. But rest assured that we are fully focused on that initiative. There are plans that are being developed.
That's great. Okay. Thank you very much for your help.
Thank you, Tim. Thank you, Tim.
Thank you. As a reminder, to ask a question, please signal by pressing star one. Now, our next question is from Richard Hatch from Berenberg. Please go ahead.
Yes, thanks, guys. Thanks for the call. Just a couple of questions. Just the first one's on net debt. I was just interested to kind of understand a bit about what drove the net debt number into year-end. I think consensus was at $189 million. You came in at $216 million. Sorry if I've missed the first part if anyone's asked this question. But is there anything there, whether it's phasing of CAPEX, whether it's working capital, that's just kind of pushing that net debt number up? That's the first one, please.
Thank you, Richard. So net debt has been reduced since September. And it has been reduced despite the fact that we have completed the investment in Monte do Carmo. You know that we paid $30 million in the last quarter of the year in Q4 to secure the acquisition of Monte do Carmo. We have also done fantastic progress in the Royropata permitting front and negotiation with our community. So we have been able to secure easements, and we have executed payments to secure those easements, which, to be honest, is a key milestone for the Royropata permitting process.
And so between those expenses, the Monte do Carmo, together with advancing on the permitting front and negotiating with communities, we have invested in the quarter around $50 million, which is reducing, of course, our cash and increasing our net debt versus a scenario where we would not have had those projects. So those are, I would say, the drivers for the net debt for us not to be able to reduce it even further. But on the other side, it has added a lot of value to the company to be able to secure Monte do Carmo and to advance in the way we have done in Royropata.
Okay. Thanks. Thanks, Eduardo. And then just a question on inflation. So I think costs seem to be a theme on this call. But have you got a kind of a rule of thumb of what kind of inflation you're seeing in the region, maybe on a percentage basis? I've got one more after this.
Sure. In the case of Peru and Brazil, the inflation that we're seeing is between 3% and 5%. That's local inflation. In the case of Argentina, it's different. And as I said before, we are assuming that there will be, in the first half of the year, probably a net inflation of more than around 15%. And then in the second half of the year, there will be a devaluation that will offset that inflation. But in ballpark, that's what we are seeing today.
Okay. Understood. Thank you. And then lastly, it's just on Mara Rosa. Can you just give us a quick update? Is the mill now running to plan? Are you now ramped up? Is there any more kind of teething problems that we need to sort of be expecting? And I think with that, I think you've alluded to it, but just to confirm, should we now start to see that Mara Rosa costs come down into 2026 as you fully stabilize operations?
No. I have to say that, I mean, we have guidance. The Mara Rosa will produce between 94,000 and 104,000 ounces for year 2025. That means that Mara Rosa will run between 7,000 and 8,000 tons per day with recoveries, design recoveries. And everything is working. I mean, the filters, we got them to work up to 50% of their rate. But we solved the problem with these pools that we did, these funds that we made back in October, and now it's running, I mean, totally normal at design rates. So I don't anticipate any technical problems with Mara Rosa for now. Yes, you need to take into account that Mara Rosa will not perform really well during the first quarter since we have a very heavy rainy season. Yeah? But that production will be recovered during the year.
I mean, the way that we have packaged our production is that way, considering the rainy season.
Okay. And what kind of ounce impact is that, Eduardo? Is that like a 5,000-ounce impact or more?
No, I mean, in total, it will not be any impact at all. I mean, we will be inside the guidance between 94,000 and 104,000 ounces of gold produced in 2025.
Okay. But key one, softness. How soft should we expect as a rule of thumb?
Which one? I mean, the first quarter. Well, let's say that we produce between 6,000 and 7,000 ounces of gold per month. So you could expect between around 20,000 ounces for the first quarter.
Okay. And then next.
But it will really pardon?
Okay. Cool. That's clear. And then just to confirm, the outlook for the 2026 costs should come off a little bit at Mara Rosa, correct?
Yes. We have guidance, I mean, between 1,287 to 1,370. We will try to reduce that, and as I said, that figure considers an exchange rate of 5.25, and today we have 6. I would say that the cost in reais is like 80%.
Okay. Helpful. Thank you very much for your time.
And sorry, Richard, it's Charlie here. But can I just add that it's worth remembering, and I think we've mentioned it already, that in December, the plant at Mara Rosa produced 9,700 ounces. So that was the record for the year. So it's going very well there at the moment. So I don't think there are any envisaged problems going forward.
Okay. Thanks, Charlie.
No.
Thank you. We will now move to our next question from Alex Opong from Bank of America. Please go ahead.
Thank you very much for taking my questions. So firstly, on your brownfield drilling work done in 2024, just wondering, are you able to give us at this stage what's the indicative range for the additional mineral resources you're mentioning? I guess a rough estimate we'll do here. And second one, looking ahead, just curious, what level of gold and silver prices you're using in your projection for the next 12 months? Just wondering if you're able to share any insight on this. Thank you very much.
Thank you, Alex, Mr. Eduardo Noriega, again. We're not able to provide a figure for the additional resources because we're still producing the reports and auditing the numbers. But you can see from the drilling results that we have shown in our production reports during the year that we're being very active and we're seeing very good results. We do expect to have very strong resource additions in all our mines. Probably the best ever in line with our strategy. I mean, we decided to put all our broader strategy is brownfields. So that's why we decided to spend $30 million. You can refer to the impact that we have published on the release. I mean, there is very good impact, and it will have good results.
It's not only the ounces that we're expecting to add, but the quality of the ounces in Inmaculada, both in Pallancata, as well as in San José and Mara Rosa. The prices that we're using in our budget are very conservative. It's $2,100 per ounce of gold and $26 per ounce of silver. I mean, those are the numbers that we use for our budgeting cycle. Of course, we're looking at the market today, and we expect that those assumptions will be fully surpassed.
Thank you. We will now move to our next question from Alfredo Schmalzer from Equinox Partners. Please go ahead.
Yeah. Hi, Eduardo and Eduardo. Thank you for the call. Just wanted to ask again on Mara Rosa. So basically, you mentioned inflation has been around 5% in Brazil. And then from the FX perspective, the devaluation has been like 15. So I guess I would have expected, I guess, a positive impact in terms of costs, but we're seeing higher costs. But just wanted to, I guess, understand why the cost is, yeah, higher than what I was expecting from the previous guidance.
Thank you, Alfredo. Certainly, especially in the second half of 2024, the devaluation that they provided a positive impact in our costs. But the factor that Eduardo Landin explained before associated to our capacity to open the pit and extract higher-grade areas as we had in the original plan was a little bit delayed. And also, I mean, compared to the original guidance on Mara Rosa, you could take into account that our ramp-up estimations were more aggressive and that we had a slower one. So those two technical factors were not offset by the devaluation that we saw in H2. The inflation that I mentioned too, it was more and more looking ahead in 2025.
Okay. Okay. Yeah. Sorry. I was also referring to 2025. So I guess the guidance is between, let's say, 1,300, but that's still above the I had in my mind, like 1,100, something like that. So yeah, I guess, is that coming down at some point, or this is more like kind of the new number that we should have in mind going forward?
No, I guess compared to our original estimates, we're also being more, we'll say, conservative, but we're more on the conservative side of our production capacity in Mara Rosa, and that also has an impact on All-In Sustaining Costs. But on the flip side, the exploration team are also executing a plan in Mara Rosa, and hopefully, with additional resources, we are going to be able to, and with the cost optimization plans that we have in place, we should be able to improve that number.
Okay. Thanks. And then maybe very quickly, any update on the estimated CAPEX for Monte do Carmo? And maybe if you can also talk briefly on the timeline for that project.
No, we don't have any estimation of CAPEX around the one that we presented before because we are doing at the moment detailed engineering. That detailed engineering will be finished, I would say, Q3 2025. And that will be the point that we will be able to present the value engineering results, try to reduce CAPEX for this project. I mean, in terms of timelines, as I said, we will try to finish detailed engineering on Q3. We will be buying main equipment, meantime equipment, like mills, things like that this year. And we will be ready to start building the project probably on Q4 2025 or Q1 2026.
Thank you very much. That's very helpful.
At the moment, our estimation is like $250 million.
Okay. Thanks.
Thank you. And it appears there are currently no further questions at this time. With this, I'd like to hand the call back over to Eduardo Landin for closing remarks. Over to you, sir.
Thank you very much. No, I would like to thank you for being here at this call, and of course, I would like to say that we will try to continue reducing costs through looking for efficiencies. I have to say that our estimations are conservative in terms of exchange rates, and I think that could help the results in 2025, and I think we will continue doing a lot of efforts in order to develop Monte do Carmo as soon as possible and also Royropata. We have plans to restart dividends on 2025. It's something that we will be proposing to the board of directors. We believe that it will be well received.
And I have to say that we will continue putting a lot of effort on exploration, trying to bring as many resources, inferred resources, quality resources to the table to try to extend our life of mine. And I have to say also that our balance sheet is quite strong, and we are ready to get into the investment cycle again with Monte do Carmo. Thank you very much, and that's all for me.
Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.