Good morning, everyone, and welcome to the Aris Mining conference call to discuss the acquisition of an additional 31% interest in the Soto Norte project. We will begin with a transaction overview from management, followed by a question and answer session. Please view the accompanying deck located on the Aris website, which management will refer to during the call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press Star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing Star, then zero. I would now like to turn the conference over to Mr. Neil Woodyer, Chief Executive Officer. Please go ahead.
Thank you, operator, and good day to everybody, wherever you may be. Thank you very much for joining us at such short notice. But before I begin to discuss what I believe to be a very exciting announcement today, I'd like to draw your attention to the cautionary statements on slide two, as we'll be making several forward-looking statements. Now on to our announcement today. A little over two years ago, Aris partnered with Mubadala by acquiring 20% of Project Soto Norte. Under the original agreement, Aris became the operator of PSN with a mandate to develop a large-scale mine. Today, we announced a second agreement with Mubadala, whereby we acquire an additional 31% stake in Project Soto Norte.
We do this in exchange for issuing 15.75 million shares of Aris, which will make Mubadala approximately a 9.9% shareholder. When we receive the license approval, we will issue another 6 million shares, which will bring them up to 13% shareholder in Aris. The transaction closes in mid-June, and when it does, we will be the majority shareholder with 51%. And as such, Aris will manage the design, development, and construction of the mine. Just some perspective, last year, Aris produced 225,000 ounces from our two Colombian mines, Segovia and Marmato, and we're currently investing approximately $300 million to double the production of these two mines. We employ 3,500 people directly and another 3,000 through our contract mining partners.
Our management team has been together for over 10 years, initially operating in five West African countries and subsequently in Brazil and Mexico. Over the last two years of our operatorship of PSN, we've applied our mining and Colombian experience, and we've also learned a lot about the project, social, and environmental complexities. But I think it's important to understand the significance of the project as defined by the 2022 feasibility study that we've published. Potentially, it's one of the largest underground mines in Latin America. 5 million ounces of mineral reserves is 6.2 g, 7,200 tons per day of processing plant, average annual production of 450,000 ounces over 11 years, and a low all-in sustaining cost of $471.
However, over the last couple of years, we've viewed the project through a mining company lens, obviously, as we should do, rather than through a finance lens, as in the past. We've looked how to optimize the project to reduce environmental, construction, and operating risks, and how best to integrate it into the communities and their mining history. Our conclusion is that the large-scale project does not make mining or business sense. It's just too ambitious. It doesn't adequately consider the complexities of Soto Norte and Santander. So we now reframe the project to a smaller, more efficient and longer mine life project. The key changes include building a smaller processing plant with a longer operating life, adopting a flexible mining approach to target high-grade material early in the mine life, and installing a paste backfill plant to minimize surface tailings storage requirements.
The revised plan also eliminates the need for a 7km tunnel and a tunnel boring machine. Many of these changes significantly reduce the project's environmental impact. We will also integrate our successful Segovia small mining model into the project. Now our partners, Mubadala, agree that this is the right approach, and we're both sure that the new approach will yield optimal results and build the best mine in the area. We'll be able to leverage our successes at Segovia and Marmato to the benefit of Soto Norte project and also to the PSN team. I'm very pleased with the transaction announced today and the decision to build a smaller mine, and the transaction today gives us majority control before we start to develop the small mine.
By integrating the Project Soto Norte team and the Aris team, we'll be able to focus our efforts to achieve synergies, streamline our procedures, and ensure that the best team drives the project forward. We'll continue to work on refining a new development plan for the project. In doing so, we'll implement best mining industry practice, we'll continue to reduce environmental impacts and bring benefits for the Soto Norte community. And as I said, at the same time, our model will support formalization in the region. We're ready to start the PFS now, as well as fine-tune the environmental submissions, so we can be ready by early 2025 to submit our new EIA to the environmental authority. We're convinced that the formula for success includes rescaling the project, reducing the environmental footprint, and working closely with the communities and small miners.
I'd like to close my introductory remarks by welcoming Mubadala as a significant shareholder in Aris, and we look forward to continued partnership to develop this very attractive project. And now I'd like to hand over to Oliver, who has recently joined us as Senior Vice President, Capital Markets, to share further details about the transaction.
Thank you, Neil. Starting on slide four, I'd like to add to what Neil has told you by highlighting the following: 1, we're securing control of the Tier One gold asset, and we're doing that at improved terms and an attractive valuation. We're acquiring an additional 31% interest in the project for two tranches of Aris Mining shares with an aggregate value of $19 million. $65 million at closing and $25 million contingent on receipt of an environmental license, replacing the previous option agreement, pursuant to which we would have had to pay $300 million in cash for a 30% interest.
To this transaction, we're gaining 2.6 million ounces of indicated and 1.1 million ounces of inferred resources on an attributable basis, as well as majority control of the project at a combined acquisition cost of $24 per attributable ounce, which compares favorably to other recent transactions in the sector. Also importantly, with a 51% controlling interest, as Neil mentioned, we will integrate the Soto Norte development team into our management structure and procedures, enhancing operational efficiencies and creating synergies. And we believe that this transaction will remove any possible overhang associated with the previous $300 million option and any potential financing needed.
Finally, we're convinced that our operating model, which is based on a collaborative partnership approach with contract mining partners, will enable us to unlock Soto Norte, and we're committed to incorporating processing solutions for contract mining partners into the design and development of Soto Norte, following the successful partnership model we have developed at our Segovia operations. As stated on slide five, this transaction increases our focus on Colombia, and we're excited about that prospect. Colombia is rich in high-grade gold deposits and remains underexplored compared to Andean countries such as Chile and Peru. We're at the vanguard of an emerging gold industry in Colombia, while pioneering an operating model that enables us to operate successfully in the country, taking into account its centuries-old legacy of artisanal mining. Moving on to slide six of our presentation.
This transaction furthers our repositioning within our peer group, increasing our measured and indicated resources from previously 17.5 million ounces to 20.1 million ounces, and our inferred resources from 8 million ounces to 9.1 million ounces upon transaction close. What this transaction doesn't change, though, is our focus on delivering our transformational organic growth projects at Segovia and Marmato, which will increase our production from 226,000 ounces last year to an annual production rate of 500,000 ounces, which we expect to achieve by the second half of 2026. On slides seven and eight, we have outlined our new, smaller-scale development plan for Soto Norte. As Neil mentioned, key changes compared to the feasibility study include, one, reducing the environmental footprint. Two, building a smaller processing plant with a longer operating life.
2,750 tons per day of processing plant capacity instead of 7,200 tons per day, which is a reduction of about 60%. Three, adopting a flexible mining method to target higher-grade material earlier in the mine life, which can be quickly accessed from an existing portal. Four, installing a paste backfill plant to minimize surface tailing storage requirements. Paste backfill will only be used in the second stage of mining, though, when the support pillars will get systematically extracted, and hence, CapEx for the paste backfill plant will be deferred.
It's also important to highlight that our new development plan envisions replacing a 6.9 km long tunnel, which was to be created by way of a tunnel boring machine, with aerial ropeway to move mill feed from the existing portal to the processing plant and tailings back to the paste backfill plant. Ropeway technology is currently in use in Colombia, requires minimal land use, and is easily removed at the end of the mine. It also accelerates construction timelines and reduces capital cost. As Neil has mentioned, we're commissioning a new pre-feasibility study and NI 43-101 compliant technical report for the scaled down concept to be completed in early 2025, and we're looking forward to providing a comprehensive update on Soto Norte then.
On slide nine, we are providing further details on the transaction, namely, one, the 15.75 million shares that we will issue to Mubadala will be subject to a 12-month hold period. Two, the current market value of the 21.75 million shares, this includes the 6 million shares to be issued to Mubadala upon receiving an environmental license for Soto Norte, is $90 million, implying $24 per attributable ounce. Third, Aris Mining and Mubadala have mutual rights of first offer should a partner choose to exit the JV. Fourth, as a result of us integrating the Soto Norte development team into our management structure and procedures, Aris Mining will solely fund certain operating costs on behalf of the joint venture during the pre-licensing period, including the pre-feasibility study.
However, non-operating and project construction costs will be funded on a pro rata ownership basis. Fifth, closing of the transaction is expected to occur in June 2024, following satisfaction of customary closing conditions, including execution of definitive documentation related to the issuance of the shares and approval of the Toronto Stock Exchange and the NYSE American. To conclude our prepared remarks, I'd like to summarize our key investment considerations. We have two operating mines undergoing transformational organic growth, which will double our production rate by the second half of 2026. We have a high-grade resource base, which we have further enhanced through this transaction. We have generated and remain committed to generating value through the drill bit, with an extensive exploration program at Segovia. With Soto Norte and Toroparu, we have two projects that we control for long-term growth.
All of this is underpinned by strong liquidity, ongoing cash flow generation from Segovia, and a management team with a track record of success, having built several gold mining companies over the past decades. With that, I will hand it back to the operator to kick off the question and answer session.
Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question is from Carey MacRury with Canaccord Genuity. Please go ahead.
Hey, good morning, guys, and congrats on the announcement. Just a question on grade. When you talk about pulling higher grade forward, is there any indication you can give us on what that potentially looks like, I guess, relative to, to the existing reserve grade?
Richard, can you handle that one?
Yes, I'll totally handle that one. Yeah, it's, you know, the original resource reserve grade was closer to 6 grams a ton. Of course, when you're mining a smaller mine, you can afford to high-grade it. We're looking at any numbers from upwards from 9g, from 9 g a ton, and probably even higher in the earlier years. However, these numbers will be confirmed once we do the mining design and schedule from the PFS, then we'll have a far better idea of what has happened. So initially, we did some work on our technical economic study, and yeah, we saw similar numbers like that, but really, we're waiting to confirm from the PFS.
Just on the reserve model, you know, like in the reserve grade, 6 g, how sensitive is that to cut-off grades? I guess what I'm asking is, you know, with the new sequential plan here, should we expect a similar reserve grade at the end of the day?
I think the reserve, I think you'll probably see that the reserve grade will definitely go north of that number in the longer term, yeah.
Sorry, can you say that again?
It will go, it'll go, it'll be above the 6 g a ton in the new mining plan, but we're waiting for the PFS to confirm that.
Okay, great. And last question for me. You know, you're targeting a PFS in Q1. Would then you go to FS and then permitting, or what does the sort of high-level timeline look like?
I'd be looking for a bankable pre-feasibility study.
Okay. So you can go right into permitting, potentially, and then that would take, what, two years or something, potentially?
Permitting is probably around 18 months.
Okay. That's it for me. Thanks, guys.
The next question is from Don DeMarco with National Bank Financial. Please go ahead.
Thank you, operator, and good morning, Neil and Oliver. First question, the prior arrangement that you had with Mubadala provided for purchase of additional 30% for $300 million. So we see this very attractive acquisition cost this morning. Can you explain some of the factors that contribute to that delta? Of course, we, we're awaiting this streamlined study, but what other factors might explain that delta?
I think one of the issues was that we've got very close to Mubadala over the period of time, and they've got a higher degree of confidence in this. And I think the fact that we've really wrapped Aris's arms around the project and refocused the whole effort, they could see that the best way to support it was to go forward with us. And we have a limited capacity, financial capacity, so it's a question of, this is the best way forward.
Okay. Okay, that's great. It's... So then, you know, building on the, you know, Kerry's questions on next steps, there'll be permitting, potentially construction, first pour. Do you have a kind of a blue sky timeframe for first pour? And also, if we could dive into the permitting a little bit more in terms of what some of the key issues might be. Of course, we understand that páramo is not far, but if you could just talk about mitigating aspects or other concerns with respect to permitting and the potential first pour timeline.
Alejandro, do you take that one?
Of course. So maybe recapping a little bit on what the other parties have been stating. We expect that the new PFS study should be finished by early 2025, which means that we will follow up with a submission to the environmental regulator of our EIA and environmental licensing process. This licensing process is estimated more or less at 18 months, which includes the public hearings, according to Escazú principles. And then after that, a construction decision will be made by the JV partners, with construction estimated to start in early 2027.
This timing is very suitable for Aris because we are currently finishing up the expansion of the Segovia in early 2025, and of course, the Marmato Lower Mine in late 2025, which these two compounded, hits an annual rate of production of 500,000 by second half of 2026, and then our team can fully focus on the Soto Norte project.
Yeah, okay. That, that really dovetails nicely. And then going back to the permitting, what are some of the key issues with respect to the permitting, do you anticipate?
We've been building a lot of information around the permitting process, not only the lessons learned from the prior estimation that the prior operator did, but also the other activities that have been coming around Colombia. We also are compounding our expertise that we got from the Marmato Lower Mine licensing process, and we believe that the main issues are: how water is going to be managed, and part of the message that has been very well conveyed is that industrial partners, industrial miners, partnered up with the small and artisanal miners, is actually a very good solution to the environmental issue brought by illegal or informal mining in the area. So that's one of the issues that is being addressed, and this is actually being conveyed as one of the solutions to the environmental issues in the area.
Secondly, is the stakeholder engagement in the area. When we received the project in maybe early 2022, we did a baseline survey where more or less 60% of the population was against the project. Our latest, review of the project and survey that we did in December 2023 actually scaled that number down to only 10% disapproval rating, with a 24% advocate rate as well. So we actually have community and miners on board with the project, very excited about it, including the new regional and local leaders in Santander and in the Soto Norte area.
And thirdly, and this is something that we've been developing very closely, is the hydrogeological models, which is something that the environmental authority is very interested in analyzing, and we believe we have the necessary information to correctly convey what the true impacts are and how this project actually serves as a solution from an environmental and social side to the illegal and informal mining in the Soto Norte area.
Can I just add a point? Alejandro's numbers on the social acceptability of the project were relating to the large mine. We expect a totally different situation with the small mine.
Okay. Okay, gentlemen. Well, thank you very much. And, Neil, congratulations on securing a larger piece of this tier one gold, copper asset. That's all for me. Thank you.
Thank you very much. Thanks.
The next question is from Kerry Smith with Haywood Securities. Please go ahead.
Thanks, operator. Neil, just so I'm clear, Alejandro, on this, stakeholder engagement survey that you did, the first one was done when you acquired your interest in March 2022, and the second one. That was 60% were against the project. In December of this past year, you did the same survey and 10% were opposed. I'm just curious how large those surveys might have been. Like, how many people would have been polled in those two studies?
Thank you for your question. Just to clarify, the disapproval rating when we received the project was at 60%, and now it got reduced to 10%. The total Soto Norte population of our area of influence of the project is more or less 4,000 people. The survey, the last survey conducted was done with 1,300 people in the area. So it is a sizable portion that represents the general feeling of the area currently.
Okay. Okay, that's helpful. And that area of influence, if you want to call it, the 4,000 people, is that, is that the area of influence that the government would recognize as being a reasonable area to consider in terms of seeing what the, what the stakeholder engagement is? Or would they want you to use a bigger area?
Currently, the area that we have been discussing with the environmental authority includes the 4,000 people in the Soto Norte area, which is three municipalities: California, Matanza, and Suratá. And additionally, we are also considering the inclusion of three other municipalities, which are Tona, Vetas, and Charta. All of these in the aggregate amount account for more or less 9,500 people in total. The environmental regulator feels that the footprint that is currently envisioned does address the local impacts in the areas where we would be operating.
Okay. And do you think the consensus in the broader 9,500 population area would be similar to the consensus that you got from the 1,300 people that you surveyed? I guess that's the expectation, eh?
Absolutely. And this asset has something very particular that is also something that is widely seen in Segovia and Marmato. These are mining districts. Contrary to other areas in Colombia that do not have a mining tradition, Soto Norte has been doing mining on an informal basis for perhaps more than 200 years. So we're dealing with a stakeholder that is very understanding of what the mining process is, and what the advantages of having an industrial player partner up with them in the areas actually represents. That also builds upon the experience that we've had in Segovia and Marmato, which has proved to us a very good advocate base from the communities locally, supporting the projects that we've been developing.
We believe that those other municipalities that are included are well on track because they're part of the mining district, and they understand the complexities of operating in these areas.
Right. Okay, that's great. And, and what would the rough number of artisanal miners be today in that area?
Currently, the latest survey that we have is approximately 600 miners within the project area, of which 160, we have already started a formalization process under the name Calimineros. These are 160 miners that are currently developing their formalization process with the regulator here in Colombia and partner up with ourselves. So at this point, we are roughly 160 out of those 600 in due course in discussing with them. There's a very ample opportunity to address those other 440 relatively quickly, building upon the good experience that we've had with Calimineros.
Right. Okay, great. And just a question on the structure of the joint venture. You mentioned that there are certain costs that Aris would fund on a 100% basis until you get the environmental permit. What might the number, that dollar amount be?
I think over the next three years, it's about $23 million in total. More this year because of the studies. So after this year, the studies are finished, it significantly reduces. So it's that order of magnitude, just over $20 million.
Okay. Okay, and that's, that's your sole funding obligation as well?
Yeah. Capital funding or anything like that will be split on a pro rata basis, but this is the operational funding of the studies and the environmental work and social work we have to do.
Right. Right. Great, okay.
It's considerably-
You mentioned-
It's considerably higher now, but the approach and integration will significantly reduce it.
Right. Okay. And you mentioned in the press release that you had completed a preliminary study, if you will, on this smaller operation. Who would have done that work for you, Neil? It sounds like you used a consultant. Who would have done that, and who will be the group that will do the PFS?
Richard or Graham, do you want to handle that?
Graham, go ahead.
Yes, we're currently engaged with Mining Plus to lead the PFS study, and they're supported by numerous subcontractors.
Okay. And did Mining Plus do that internal study that you guys just completed on the smaller scale operation as well, then?
That was, that was headed up by a different team, but various of the subcontractors, consultants are the same ones.
Okay. Okay, gotcha. And with the higher grade in the early years of the project, do you have a sense for what that production rate might get you to in terms of ounces? Like, it seems like at 2,750 tons a day, you're gonna be ±200,000 ounces long term. But what might that number be like in the earlier years when you were accessing these higher grades? Or should we just use the 9 grams and just calculate it out?
Richard?
It's hard to say at the moment because, you know, we still have to do the detailed scheduling and mine design, and looking at the high-grading strategies in the early years. Yeah, but I think we... The, one of our initial numbers came out to 250,000 ounces in the first few years.
Okay. And then kind of averaging out around 200-ish, I guess, would be the number.
Yep.
Okay.
But like I say, subject to the PFS.
Yeah, gotcha. Okay. And, and just on the permitting side, do you need the PFS to submit your EIA application then? I assume you do, but is that, is that actually the case?
Yes, we do.
Okay. Okay, okay, great. And there was also, Neil, on the old agreement, there was a stream option that Mubadala had after you produced a threshold number of ounces from the project, where they could acquire a stream. Is that piece of the old deal still live in the new deal?
Yes, it is, but that's after zillion ounces are produced. Yes, it's still alive.
Yeah. Okay. Okay, it was 5.7 or something. Yeah. Yeah. Okay.
Okay, that's fabulous. Great. Thank you very much. I appreciate your help. Thanks, guys. Congratulations.
Yeah. Thanks for attending, and your questions. Appreciate it.
The next question is from Taylor Combaluzier with Red Cloud Securities. Please go ahead.
Hi, Neil and team. Congratulations on this great milestone. Just a quick question here about getting clarification, I guess, on the smaller processing plant and its location. Is it still planned to be kind of the same distance away from the mine, and just use the ropeway? Or is it gonna be moved closer to the operation?
The terrain in that area is really quite aggressive. Of course, you know, we chose the plant for the big plant would be at in an area that is suitable for it, and we envisage the new plant being in that same area, with the ropeway then now supplying the ore from the mine portal to the plant.
Okay. Okay. So, and that, I guess, also gives kind of optionality for the future for expansion.
Exactly right.
Yeah. Okay, perfect. Yeah, that was it. Appreciate the clarification on that.
Once again, if you have a question, please press star then one. We have a follow-up from Carey MacRury with Canaccord Genuity. Please go ahead.
Yeah, just to follow up on the expansion potential in the future, is there anything that would limit an expansion in the future or could be designed to increase?
Conceptually, we've tried to see that we're building something that has expansion capability, and I think from a technical point, it will do that. I think once the mine is operating and is socially acceptable, then that may be a time to look at an expansion.
Just one last one on permitting. Is this being permitted at the federal level or at the regional level, or both?
Based upon our work to date, it should fall into the regional level rather than the federal level.
Okay. Great. Thanks, guys. Thanks, Neil.
Thank you. Thanks, Kerry.
The next question is from Juan Cruz with Morgan Stanley. Please go ahead.
Hi, good morning, guys. Just a clarification on the CapEx. Going forward, I know that there will be, I guess, per your previous statement, shared on a pro rata basis, but what is the total scale of the CapEx that you think, cash CapEx, that you will need going forward to develop the project? And how much of that will be financed by you, and how?
I think it's very difficult for us to say. I mean, the study we've had so far indicates a much lower figure than the original figure, but I think we have to wait for the study work before we can say that. From a financing point of view, it seems to generate very good cash in the first five years, so I think debt will be a considerable portion of the financing going forward, with the balance being shared on a pro rata basis. I think we will look to strong project financing going forward.
What was the original figure that you were using that is now smaller?
I think it was about $1.3 billion-$1.4 billion or something in that order of magnitude. I can't remember, actually.
Okay.
It was big.
Okay. Understood. And how... I know you addressed this before, but how quickly can you see new gold, in theory?
Well, it's another 12 months for study, 18 months for EIA, so we're 2.5 years away from being able to, quote-unquote, start.
Okay.
We'd have to do the financing in that time, which I think we could do so. That seems to be the order of magnitude that we're dealing with.
Understood. And if I may, a large portion of your financing comes through the capital markets, right? You have a bond that is due in 2026. Have you started to think about options as to how you are going to refinance that piece of debt?
Yeah, we certainly started to think about it. I don't think we've come to conclusions yet. We're looking at alternatives. So yeah, that's something down the line that we will be managing at the appropriate time. Yes, most definitely.
Okay, understood. Okay, thank you so much.
No, thank you.
As there are no more questions, I'd like to turn the conference back over to Mr. Woodyer for any closing remarks.
Well, operator, thank you. And do appreciate everybody being on the call. And again, apologies for such short notice, but I guess that's the way that deals go. So appreciate your questions, and if you would like us to enlarge on those or give you more information to the extent we're allowed to, under the 43-101 principles, we'd be delighted to. And again, thank you very much, and we are extremely excited about this. So look forward to the future. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.