Thank you for standing by. This is the conference operator. Welcome to the Cerrado Gold Second Quarter 2026 Financial and Operational Results Webcast and Conference Call. As a reminder, all participants are in a 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 one one on your telephone, and you will hear an automated message letting you know that your line is there. If you are on the webcast, you can enter your questions in the window and management will address the questions in the Q&A portion of the call. I would now like to turn the conference over to Mike McAllister, Vice President, Investor Relations. Sir, please go ahead.
Thank you, operator. Good morning, everyone. Turning to page two of the presentation, I would like to note that today's call may contain forward-looking information that is based on the company's current expectations, estimates, and beliefs. Please review this slide and other forward-looking information contained on page two of today's presentation, as well as in the company's annual information form, which is publicly available on SEDAR+ and the company's website.
The accompanying presentation for today's call is available for download from the company's website at www.cerradogold.com. The accompanying press release is also posted on our website and on SEDAR+. Please note that all dollar amounts mentioned on today's call are in US dollars unless otherwise noted.
Joining me on the call today are Mark Brennan, our CEO and Chairman, Jason Brooks, our CFO, Cliff Hale-Sanders, our President, Ed Guimaraes, our Executive Vice President, Andrew Croal, our Chief Technical Officer, and David Ball, our Vice President Corporate Development. With that, I would now like to turn the call over to Mark Brennan.
Thanks, Mike. I would like to thank everyone for joining us today. We are very pleased with our continued operational performance and where the company is at today. Our positive Q2 results continue a trend of increased production and cash flow. We are confident that we will continue to see strong operational and financial performance at MDN given the improvements and initiatives recently completed or currently underway across our operations.
We are also pleased by the benefits of sustained higher gold prices and our unhedged gold position. Furthermore, strong cash flow from operations continues to strengthen our financial position as we realize the benefits of our cost-cutting initiatives, despite significant wage inflation in Argentina. We are also strategically deploying capital for exploration, development to lower cost production, and to drive our project pipeline to grow production while sustaining a healthy mine life.
Encouragingly, our full-year production appears increasingly likely to come in at a higher end of guidance as we continue to see strong month-over-month production. The long-term future potential at MDN has been strengthened by the Falcon acquisition, combined with additional success with the 50,000 m surface and 20,000 m underground exploration programs, which are currently underway.
Results from these initiatives will be included in an upcoming updated PEA or preliminary economic assessment and mineral resource update in Q1 2027, where we hope to demonstrate our ability to extend the life of mine while fostering increased production levels. Looking to our other projects, we continue to advance the updated optimized feasibility study at Lagoa Salgada and are driving it in tandem with the process of the permitting process. We hope to be in a position to provide greater detail of our plans over the next few months.
At Mont Sorcier, we have elected to delay the feasibility study until 2027 in order to allow us to complete additional drilling and trade-off studies to further optimize project economics. We are confident that the result will be a robust project, but we have seen inflationary pressure since we completed our PEA. Progress on both projects continues to strengthen our belief that there remains significant value to be unlocked. I'd now like to turn the call over to Jason Brooks to take us through the financial highlights for the second quarter.
Thanks, Mark. Turning to slide three of the presentation. In the second quarter of 2026, the company produced 15,415 gold equivalent ounces, a 35% increase as compared to the 11,437 ounces produced for the same period last year. Heap leach ounces increased by 27% as compared to prior year, and CIL ounces increased by 52% compared to prior year.
Production rates increased at the heap leach operations versus the previous quarter as the irrigation issues subsided and more crushed material was placed on the heap leach pads, benefiting from recent improvements in the crushing circuit. At the CIL operation, both grade and recovery improvements led to the increased production. All-In Sustaining Cost per ounce of gold for Q2 2026 were $1,933 per ounce as compared to $1,799 per ounce for the same period in 2025.
Higher costs were primarily the result of the increased labor and fuel costs in Argentina. The company maintains its 2026 guidance for gold equivalent ounce production at 50,000 to 60,000 ounces, with strong quarterly results suggesting we may be at the upper end of that range.
The company generated near record EBITDA of $28.2 million in Q2, benefiting from an unhedged gold position, higher gold prices, and increased production. Net income for Q2 2026 was $9.2 million, and pre-tax net income was $23 million as compared to net income of $1.2 million for Q2 2025 and pre-tax income of $2 million in 2025.
This increase in net income is primarily the result of a $35 million increase in revenue and $7.9 million increase in other income, offset by higher costs of sales of $18.3 million and higher taxes of $13.1 million. Finally, the company finished the quarter with a strong cash position of $25.3 million.
During 2026, given the current gold price environment and an unhedged gold position, the company expects to continue improving its cash position while both meeting capital allocation needs for project growth plans and addressing the payments under the recently announced repurchase of the company's stream agreements. With that, I would now like to return the call to Mark Brennan to take us through some production highlights and outlook for the quarter.
Thanks, Jason. Turning to slide four. During the second quarter, results continued the trend of increased production relative to previous quarters. Production rates increased at the heap leach operations as irrigation issues subsided and more crushed material was placed on the heap leach pad, benefiting from recent improvements in the crushing circuit.
As irrigation water becomes normalized, all the gold inventory previously placed on the pad should be recovered over time. Gold recovery rates remain lower than expected due to the mix of primary ore placed on the heap leach pads due to mine sequencing. However, silver recoveries improved significantly versus the previous quarter. CIL production remained steady during the quarter, supporting overall production levels. We continued to focus on accelerating underground development during the quarter, reducing the ore available for immediate processing.
However, this will lead to increased development, which will provide access to greater amounts of ore in the coming quarters, which should increase production and improve head grades to the plant over the balance of the year. We continue to advance our 50,000 m surface and our 20,000 m underground exploration programs at MDN, with four drills turning. We are focusing on near mine targets with the potential to materially extend resources and mine life.
This includes supporting medium-term operational sustainability through high-grade underground feed to the CIL plant, as well as increasing the resources available for heap leach processing. A new underground drill rig arrived at our site in July and is expected to accelerate underground exploration. A new preliminary economic assessment and mineral resource estimate is expected in Q1 2027, incorporating the results from our ongoing exploration program and recent property acquisitions adjacent to MDN.
We expect the PEA will demonstrate enhanced mine life and a growing production profile. Turning to Lagoa Salgada in Portugal, we continue to work on the optimized feasibility study while we progress the permitting and project financing activities. Workflows have slowed amid permitting uncertainty but are ready to accelerate at the appropriate time.
In June 2026, the court ruled in favor of the company's Portuguese subsidiary and granted it an injunction suspending the effect of the unfavorable opinion regarding environmental permitting. Legal proceedings related to the principal case concerning environmental permitting remain ongoing. As such, the timing of the optimized feasibility study's completion is expected to be somewhat delayed, pending greater clarity on permitting issues. In Canada, work continued at the Mont Sorcier high-grade iron project to deliver a bankable feasibility study.
As the study progressed, the company identified several opportunities to further optimize project economics and reduce both capital and operating costs, despite the ongoing industry-wide inflation. A number of trade-off studies are expected to be completed to evaluate and capture these improvements. Taking into account the time to complete these studies, the BFS is now targeted for completion in the first half of 2027.
A significant opportunity to enhance project is to convert a modest amount of currently inferred resources into measured resources within a defined area just east of the planned pit. The material in this area is expected to be shallower, reducing stripping and tailings management costs over the life of mine. As a result, the company will undertake a small targeted definition drill program in Q3 2026, so that any resources may be converted to measured category can be incorporated into the optimized mine plan.
Additional trade-off studies will also be undertaken for product quality and an overall review of CapEx and OpEx estimates will be conducted considering ongoing inflation. Work on the environmental and social impact assessment is still expected to be filed in Q2 2027 and remains ongoing, although there is some risk to this timing. Recent comments by policymakers indicate a desire to accelerate the permitting process.
However, no clear timeline for how this will impact Mont Sorcier is available at this time. The Mont Sorcier project is being designed as an 8 million ton per annum concentrate operation compared with the 5 million ton per annum operation in the PEA. This reflects a strong demand for high-grade iron concentrates containing low silica and alumina, which is suitable for the direct reduction iron or pellet feed markets. This is the fastest growing segment of the iron ore market, for which premium prices are expected.
Development is expected to occur in two phases, with phase one producing 4 million ton per annum, followed by a second 4 million ton per annum expansion targeted approximately three years after startup. In conclusion, this is a very exciting time for the company and as an undervalued ongoing producer with strong cash flow.
With sustained higher gold prices and no price hedging, we have a strengthening balance sheet to support our growth initiatives and the development of projects through to construction decisions. That concludes the formal presentation of the call. I will now turn the call back to the operator to open the call for Q&A portion of the call.
Thank you. As a reminder, to ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. In fairness to all, we ask that you please limit yourselves to one question and one follow-up. One moment while we compile our Q&A roster. Our first question is going to come from the line of Heiko Ihle with H.C. Wainwright. Your line is open. Please go ahead.
Hey, Mark and team. Thanks for taking my questions.
No problem. Thank you, Heiko.
Hey, let's start with probably the biggest thing here. You mentioned on this call that you expect to be at the higher end of guidance. What factors do you think the analysts and we initial holders and analysts see where the guidance spectrum you expect to come in?
I think the factors that are most critical to that extension is that we're seeing, one is obviously we're seeing the expanded production coming from the leach pads. That has been moving very well. With regard to, you saw, obviously we had some lower heap leach production than expected due to water issues in the early quarters of the year, yearly period of the year.
Frankly, as I mentioned on the call earlier, we'll start to see some of those ounces come into the production schedule as well that we didn't get the first time around. Also, really underground production, we've really focused on in the second quarter of looking at development of the underground at the expense of production a little bit. So what you'll see is you should see an expansion and an increase in underground production as well. I hope I answered your question, Heiko.
Yes. In fact, you actually almost prefaced my question, which I guess now is more of a follow-up. You want to give a bit of color on variability in regards to cash costs as you see them. I mean, obviously things seem to be humming quite well right now. Maybe just give a bit of color on what you're seeing in the markets and what you think we should look out for on external factors.
I mean, external factors are a significant component. Inflation in Argentina probably has the greatest impact on us right now. We have about 30% annualized inflation in Argentina. Basically, 60% of our production costs are coming out of labor and contractors and such. That probably has the most significant impact on our production costs.
However, we also in the second quarter and late in the first quarter, we also improved and increased our CapEx and operating costs in order to get to a position where we're very comfortable that even at $3,000 gold, we would make very strong cash flows. Basically, I would like to see, I'm very comfortable seeing our all-in sustaining costs around that $1,800 mark.
I would like to see it get down a little lower, but I think that's where we would like to get to and be at on a consistent basis. You may see some variability quarter to quarter. But again, labor costs, inflation, and also production levels with every increased unit of production brings our cost down as well.
Perfect. I'll get back in queue.
Thank you, Heiko.
Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question is going to come from the line of Riley Benton with Atrium Research. Your line is open. Please go ahead.
Hey, guys. Congrats on the quarter, and thanks for taking my call. Can you maybe just talk a little bit more about the cost-cutting measures at MDN and how you expect AISC to trend in the back half of the year?
Well, really, again, really what we've tried to do is when we saw gold prices at $4,000 and they looked like they were heading south, we really got into a mode where we wanted to reduce our cost dramatically. So what we've done is we embarked upon some CapEx programs, some growth programs, such as expanding our weekly [pad.
We instigated, and are now completed, the tailings facility at Martinetas, which has now a five-year mine life. We also looked at replacing our equipment, so our fleet and our crushing units, which we had as high cost rentals. We've now taken the ownership of those, and we've brought them in-house. So we've done whatever we can, aside from day-to-day operational activities and reducing costs. That's really the main impacts that you'll see on the increased AISC for the quarter.
Okay, thanks for taking my question.
Thank you, Riley.
Thank you. I'm showing no further questions at this time, and I would like to hand the conference back over to Mike McAllister for closing remarks.
Certainly. That concludes our session today, and thank you, everyone, who joined the call. As a reminder, a recording of this call, along with the presentation, will be available on the company's website at www.cerradogold.com. For any follow-up questions or concerns, you may find our contact details on our website. With that, operator, please end the call.
This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Very smooth.