This meeting is being recorded.
Our overall vision plus distribution-
Should probably improve.
During Q3 and Q4. Despite having a lower production compared to Q4, 20% below last quarter in Q4, we had the same EBITDA, basically because we had higher gold and copper prices. We could pay lot of the costs, and we also had a profit to the contract of Aranzazu that we had to last year and this year, but now we have inaudible on prices, either gold and so copper. We're already averaging 36%, so we're very much in line with the le- despite the lower production.
Shows how much we can increase our EBITDA as we should be improving production along the year, including the gold prices that is on close to the record high level and copper price that has also recovered from last year in terms of our total price per pound. All-in sustaining cash costs a little bit higher than last quarter, but very much in line with our estimate because of the lower grades that came mostly in Aranzazu. We have this increase in all-in sustaining cash costs, but we should be decreasing all-in sustaining cash costs along the year to reach our guidance. Net debt we increased from $77 million - $89 million.
This is a $12 million increase, despite having invested $22 million in development, mostly development of Almas, which is now entering the ramp-up. $6 million in exploration and also one-time is billion, $10 million in Aranzazu. That's the high-level results Kleber will go into today, but I would highlight that the very important milestones that we are meeting in our guidance, the first month of and the last month, such as we promised the market that we would generate value by increasing resources of the portfolio that we have within our operations. Number 2, we also will be increasing production. If you see what happened the last couple of months, we released AIF, Annual Information Form, that includes significant declaring a significant new resources and reserves involved.
I would invite everybody to take a look on those numbers to see that we are already starting to harvest some results of our exploration program that has been intensified during the last two years. The very important milestone is this, the ramp-up of Almas. We built Almas within the budget, within the timeline that we projected in less than 16 months. Now we are ramping up and we expect commercial production by Q3 this year. This first phase we build, probably build and we continue to work very hard to be a commercial production by Q3.
That's very important that Aura shows to the market and investors that we can build projects within the budget, within the timeline that we projected, despite all the challenges that we had during the last two years, such as high inflation, carbon sourcing equipment and so on. Next slide. As we also highlight in terms of safety during this quarter, we had 0 lost time. The objective that we have every year is 0 lost time in all operations. This quarter it's difficult to achieve, but this year we want to achieve this and we reached this very important result during this quarter.
We also constantly, quarterly, if not more than a quarterly basis, we do a monitoring of our geotechnical structures with satellites, with images, radars and consultants, external consultants that goes and visits also our structures and all of them are in satisfactory level and according to the rules. As you can see here, in production on the right side of this slide, the production came from 68,000 gold equivalent ounces. Last quarter of last year was very high, particularly in EPP, when we were mining 2.5, 3 grams per ton in that has to treat. As we projected this year, that has mostly been already mined, so we go back to grades that we usually mine in EPP, 1.2 ton according to the mining sequence.
We knew that this would be a lower production. That's mostly the decrease that we had from Q4 to Q1 this year. However, EPP should also have a bigger production mostly in the second semester of this year, taking us to be at the guidance that we released to the market. San Andrés, still below first quarter last year, but higher than last quarter last year. We continue to do improvements in the EPP in San Andrés to increase production to also reduce the cost. I hear now in Honduras reviewing the plan. We believe that mostly also during the second semester, we will be able to show a higher production should we continue to increase production among Q3-two, Q3, then also Q4.
Aranzazu had a lower production mostly because of lower ore mined specifically I already mentioned actually. Next slide. In terms of all-in sustaining cash costs, we saw an increase, slight increase from Q4 to Q1, mostly mine sequencing from Aranzazu. We could reduce a little bit in Honduras EPP, a little bit the same despite the lower production. That's because of the accounting rules that we have in the inventory. As we also will be moving forward along the year with higher production, also Almas is projected to have a lower all-in sustaining cash costs compared to our average the company. We should see during the year, we have been lowering all-in sustaining cash costs while increasing production and being able to meet, to reach our guidance that we released to the market earlier this year.
Just before I turn floor here to Kleber, but, yeah, it's very, very important for us, building up on time and budget. Now of course, running on time and also on budget, we are doing a lot of effort to ramping up this mine. We already have over 1,200 employees now. As you know, in our CCP, we value a lot of local labor to have the maximum possible local labor. Despite this area is being never a mine jurisdiction, and we are the first one to go there. We could take a lot of local labor to our mining operation in Matosinhos-Leixões, in the PP, so they can learn, they came back.
With this, we have intense training program with over 30,000 hours that we could have on local labor. Starting the ramp-up already with 57% is a very important. We believe we want to go significantly higher than this during the ramp-up and also the first years of operation will be progressing in this number.
The video camera froze. If you can wait a little bit until it comes back, please.
I'm back. Okay, sorry. I think I had some minor issue here in the connection. I was talking about Almas. I would invite everyone to follow up how we progress, also the ramp-up, very important milestone, and should be very commercial by Q3 this year. We have between 25,000-30,000 ounces of productions a year, which is half of the year and then next year. We continue also to move with the Borborema project. We are now advancing all the feasibility, converting the feasibility study that was done by Australian rules to Canadian rules, the NI 43-101. We would like to inform the market progress on this project by June and perhaps start the construction in June this year.
Again, just as I mentioned, important, very important part for us is on the strategic level that we are advancing Almas, we are advancing Borborema. This with a new response, including precise almost 600,000 ounces. We converted more than 100% of the inferred into, I mean, in NPP. That shows that our capacity should be constantly creating inferred and converting them into resources and then also a reserve. We increased measured and indicated by close to 700,000 ounces, and then this increased our P&P Proven and Probable reserve by 742,000 ounces.
We are very much in line, advancing with our plan, delivering results, increasing production, moving forward with the projects and increasing resource and reserves, which is our main objective for the next years.
Okay, thanks, Rodrigo. Good morning, everyone, thanks for attending our earnings call today. We start with a summary of the financial KPIs for the quarter, and each of the previous reporting quarters of the company in the last 12 months, at the end of each reporting periods. On this quarter, we are reporting $97 million in revenues, a decrease compared to $106 million in the last quarter, mainly due to reduction production, as Rodrigo was explaining, due to mining sequencing, mining areas, Aranzazu and in EPP. Although we see a reduction in revenues, our margins have increased as a result of higher gold and copper prices on this quarter. We see our EBITDA achieved at $37 million in this 1st quarter.
We are able to keep the same level of EBITDA we reported in the last quarter. In terms of net income, our net income increased this quarter to on the previous quarter. I'm gonna go over detail on the next page on the net income. Finally, in terms of cash and debt, our net debt had a slight increase as expected from $77 million at the end of Q4 2022 to $89 million at the end of this first quarter. As we invested almost $30 million in the expansion of the business in the final phase of our construction. We had no repayment of tax payments in Aranzazu of $10 million on this quarter. On this page. Yeah, next page. Yes. Thank you.
On this page, we explain more the items impacting our net income. As we saw before, just EBITDA was reached at $37 million in this first quarter. I'd like to highlight the very strong performance in Aranzazu, almost $24 million in this quarter. Also highlight the performance of Minosa, as we're reporting only $5 million, which is below its potential. We see some improvement compared to the previous quarter when the EBITDA of Minosa was just $1 million, which means that we are seeing a progress both in terms of operational results and also financial results, in San Andrés. Amortization and depreciation of $12 million means the lack of last year, we are accounting also the depreciation of capital leases of EPP, which accounted for $2 million this quarter.
Finance expenses and other expenses of $4 million and $1 million respectively came according to our expectation when compared with the last few quarters. On this quarter we reported a low income tax expenses, mainly because we reported again in deferred income taxes. Some upside and also because of the appreciation of the Brazilian real during the first part of the year. When that happens, we recognize again a non-cash gain in our books when converting the balance sheets from Brazilian reais to US dollar on consolidated base, bringing then our net income to $90 million net income.
Finally, as every quarter we bring the analysis on the change in cash and equivalents of the company throughout the quarter. We see on the very left side of the page, the initial cash position at the beginning of the quarter was $108 million. More to this left side of the page, what we call adjusted free cash flow to firm, which is the free cash flow to firm generated by the three business units which were in operation during the first quarter, not including investments in exploration and expansion. We see a robust cash, almost $20 million generated by the three business units, despite the annual tax payments of $10 million in Mexico, which we don't expect that amount to happen again for the rest of the year.
In the middle of the chart, we highlight the investment for growth of $28 million, six of which invest in exploration, to keep with our strategy to continue increasing the mineral reserves and mineral resources of the company. Expansion CapEx of $22 million, most of it's related to the final phase of Almas construction. More to the right side of the page, financial items, and mainly the, we highlight the $13 million debt payment term debt, which was already expected to happen in this 1st quarter, bringing the cash to $103 million at the end of the 1st quarter of the year. With this, we end our presentation and open to questions. Thank you.
We're going to start our Q&A session now. Feel free to send your questions through the Q&A icon below. We'll have the first question from Edgar of Itaú. Edgar, please.
Hi. Hi. Hi, everyone. Can you hear me?
Yes.
Hi. Hi, Rodrigo. Hi, Kleber. Congrats for the startup of Almas. I have two questions. My first one is regarding Borborema. You just mentioned, Rodrigo, that you expect to start up the construction in June or July. I just want to have more color on this given there are only a few weeks until June or July. Which were the last developments regarding the project, and how are the preparations for the startup of the construction? Still on Borborema, how do you expect to finance production last year? We saw a slight improvement. How do you expect production to improve this year? Are you confident that you will reach the guidance for the year? Still on Honduras, what do you believe that could be a sustainable production level for San Andrés in the midterm?
We could go back to those strong levels seen in 2021, for example.
Thank you, Edgar. We'll answer about Borborema, Kleber can talk about the finance of Borborema, I'll go back to answer about Honduras. Borborema is a project that is already fully permit with a full feasibility study already done. We'll be ready to start construction. We have not yet started the construction because most of the studies was done under the Australian rules, because this project used to belong to Australian company. As always, we are listed also in TSX. We need to have a feasibility study before we publish any numbers about that under the 43-101. Basically, the rules doesn't change much significantly on the numbers, particularly in resources and reserves. This is being converted now to 43-101.
Now, as we did with Almas, we are looking and understanding the engineering, see if we can access upsides in terms of to reduce CapEx and/or also mine sequencing in order to improve the internal rate of return and the payback of the project. We are progressing very much in line, very well in this conversion. We expect to have some preliminary numbers to discuss internally with the board by the end of this month. We can start and if it seems goes as we are according to our plan, start the construction either June or July.
I cannot give a lot of more information what we are understanding about the CapEx and also the cash flow of this, but we first need to have these reports and reviewed by the experts under the 43-101. Kleber, if you wanna talk about the finances, then I'll go back to Honduras.
Edgar, we are planning, as we have been indicating, some combination of debt and cash from the shareholders for in Dundee. We're targeting around between 50% and 60%, some kind of funding in debts or financing. So far we spoke with many banks that have dealership. We have the offers which we are discussing with our board of directors.
Yeah, we haven't made yet any commitments, but we are ready for the alternatives.
So, uh-
As you got going, as we saw last year, particularly the second semester, challenges we had in operations that we reduced production, which was right over 60,000 ounces reduction last year, coming from over 90,000 ounces back in 2021. 2021 we reached high rates and very high recoveries during the year. We are compared to last year, we are gradually improving, as you could see already Q4. In Q1 this year and Q2, we should also continue to improve as we are now It's a long process between mining and producing gold. It's a long lead time. It takes a while to adjust once it is stabilized.
To stabilize back, it takes a lot of time, and we are stabilizing and the production is increasing. If you see the resources and results we have here, we should not reach higher grades as we had in 2021, but we should not have the same problems that we had last year with the 60,000. The guidance for this year is to be well, above 70,000 ounces. This is why we're working in the year that we are already improving. You should see higher numbers next year. I don't think we'll be close to the 2021 year. Only if we can then invest and increase capacity, that we will be able to reach those numbers back again, which is could be part of our plan.
We are analyzing a lot of possibilities to reach that level again.
Okay, great. Thank you. Thank you, Rodrigo. Take care.
Thank you, Edgar. We have the second question from Guilherme of XP. Guilherme, please.
Hi, everyone. Can you hear me?
Yes.
Yes. Okay. Good morning. This is Guilherme Nippes from XP, thanks for taking my questions. I have two questions here on our side. The first one, if you could comment on CapEx. Guidance for 2023 is around $80 million-$93 million, and this quarter it came slightly above expectations. It came around $31 million, most of it explained by the expansion. I would like to understand your expectations on how it's going to be in the coming quarters, as a third of it came on the first quarter this year. My second questions is on EPP cash costs that came also below expectations, mostly due to low inventory costs from Ernesto. If you could also comment on that, how to see cash for the next quarter and if there is something else for Q2.
, that's on you.
Yeah. Yeah. On, on the CapEx side, Guilherme, not including Borborema yet, is a part of our guidance because the project has not been approved. We expect it to deliver on guidance. The reason why the CapEx was proportionally higher in the first quarter was because of the final phase of construction of Almas. Out of the $31 million in CapEx, more than 50% was also construction. That was according to our expectations. Not including yet new projects, the CapEx should reduce for the rest of the year and we should meet our guidance. Again, if we make, if our board makes the construction decision on Borborema then we would review the guidance and any adds in the CapEx related to Borborema construction.
Your second question was on the cash costs of Apoena. Apoena has some stockpile, a few months, two, three months of work in progress inventory. Because the grades in the 4th quarter of last year were very high from the Ernesto peaks. Accounting-wise, it reduced the cost of the work in progress inventory, because accounting-wise, we have to weigh the average cost of the inventory. Going forward, for the next few quarters, we don't expect to see that impact anymore as the grades are gonna be more close to historical numbers than the one we reported in the last quarter.
Thank you, Kleber.
No problem.
The next question we have is from Robbie of National Bank.
Hi, good morning, Rodrigo. Good morning, Kleber. Nice to see the update overnight. Most of my questions have been answered here. Just speaking about Almas, it's impressive the work you've completed in 16 months. We're looking forward to it coming online soon. I see that the CapEx for it was $16 million, if I'm tallying things right, in previous quarters. That brings a total of $73 now. Can you tell us a bit about what's going on on site in the final quarter, as you're getting up to commercial production? Tying into that, you know, this is your first greenfield build. Seems like it's gone exceptionally well. Could you tell us a bit about what you've, what you've learned from this experience that maybe you're kind of taking onwards towards Borborema?
Yes. Robbie, the line was cut off a little bit. The final question I didn't understand, but the first question about Almas when you mentioned on some numbers. Can you repeat that?
Right. If, if my tally is right, you've, you're reporting $16 million CapEx on Almas this quarter. If I'm adding things up correctly, that brings a total as of this quarter to $73 million that's been spent at Almas.
Okay.
Could you tell us a bit about what's the expectation for Q2? What kind of work is going on as you're in the final stages to come to production? I mean, obviously your cost control there has been impressive. I'm also curious to hear a bit more color on how you've managed that and what you might take forward into as you get into Borborema next year.
Right. Yeah. The first, the total CapEx, it's close to $78 million for Almas, for the completion, which is very much in line. It's slightly above our initial budget, but not material. I totally agree that was outstanding job of for the local team. You ask how we did that. I think it's as we did with Aranzazu and other operations, a lot of discipline, either on studying, analyzing, making sure that what we are targeted is what we can achieve. Number two, you have a lot of challenges during the construction, a lot of inflation.
The system that we work on the managerial side, which is under the 360°, that we empower more our local team to give them more autonomy to make decisions. They become much more fast, of course, through under the guidelines that we give to them. They were very creative, very innovative, building the planting parts before assembling them in one local place and renegotiating contracts with the providers. Reanalyze specification of a product so that with all of that, they could manage and contain significantly the inflation. That's how we work in Aura, right? We have a decentralized decision-making process while we have central ethical values around the 360° meritocratic environment to our employees. We've been able to attract with it very talents.
The same team that has built and learned, because we also make mistakes, we learn mistakes, will be the one that is already there analyzing and preparing both volume and two-star construction. We should expect a very strong team to be at site. Don't expect will be the same CapEx needed the same timeline. One support volume, it's a bigger project, although will be within what we have been exposing to the market.
Thank you, Rodrigo. The next question that we have is from Taylor of Red Cloud.
Good morning, Rodrigo and Kleber. Again, most of my questions have been grouped, but I just one, you know, I know this is more of a concern for the exploration stage companies, but there's been some recent mining law reforms in Mexico. Has that had any impact on your operations?
No. We are reviewing, analyzing. Most of these, changes goes through new projects.
Mm-hmm.
New licenses, which is adequately now social world standard levels in many areas. For those that are operating already under the highest environmental ESG rules and with all the privacy process, should not be impacted.
Okay, perfect. Appreciate that.
Thank you, Taylor.
The next question that we have, we've received from Victor of Safra from the Q&A icon. Congratulations on the good quarter and the advancements in new projects. Could you please give us more details on the price adjustments in Aranzazu from the Trafigura offtake agreement? The second, the capitalization of mining costs due to the IFRS 16 standard. Is there a decision on the startup order between Borborema and Matupá? Thanks.
Okay. I think I can start with the first two questions. In Mexico, under the agreement between Aranzazu and Trafigura, which is the buyer of the copper gold concentrate, at every shipment it's issued a provisional invoice, and payments are made by the clients, based on the provisional invoices which has an indication, estimate of gold, copper, silver contents and other metals, and it's paid according to the spot price. The contract, the agreement states that up to four months, they should have a review to make sure that all metal contents were delivered, in fact according to the provisional invoices. If there is higher or lower metal content, it's adjusted. Also, up to four months is when the definitive invoice is issued.
It's taking consideration with spot prices at the time the definitive invoice is issued, which is four months later. If you recall, in the third quarter of this year, we reported a $10 million negative impact of price adjustments in Aranzazu, because copper prices went from above $4, $4.50 per pound between first and second quarter of last year to around the $3.50, $3.40 in the third quarter. Four months later, we adjusted all the price of the shipments from months before with a negative impact at the time. What we see in this first quarter of the year is the opposite.
Since the third quarter of last year, copper prices and gold prices have been improving and we're closing and issuing definitive invoices from shipments from concentrate shipped four months ago. We're seeing a positive price adjustments in favor of Trafigura because of higher copper and gold prices. The second question on the IFRS 16. Since the second semester of last year, Apoena EPP signed a new agreement with the mining contractor. This new agreement has two different invoices. One is the contractor issues for the services provided, and the other one for the lease of the equipment. According to accounting rules, the lease of the equipment should be treated as capital and not as cost of production. We changed that criteria since the fourth quarter of last year.
It has been included in our guidance for this year, the impact on the cash costs. It doesn't impact all-in sustaining cash costs because we capture it. But there is kind of a positive impact of the $14 million expected for this year in the EBITDA for this change of criteria. I think that the last question is with Rodrigo.
About Matupá. Yes. Before the acquisition of Borborema, we were planning to start the construction of Matupá during the first semester of this year, 2023. With the Borborema, we limited the destruction, and we are giving priority to Borborema to start the construction of Borborema first, and then during early next year Matupá. The decision will be made with the board by the end of this month or in June.
We don't have any more questions. I'm going to give the floor to Rodrigo for his final considerations.
Well, thank you very much for being here. As I mentioned, this very important quarter for all of that, we could generate good results and good cash flow from operations despite lower production. We should increase production during the Q3, Q4 slide in Q2. If gold prices, copper price, maintain at this level, which is highest ever, we should see a boost in our results for the next quarter in the year. Not only that, we made significant step towards our strategic review. I remind everybody, we have a three very clear path to build value to our shareholders. Number one is increase production from 240,000-250,000 ounces to 450,000 ounces of production when all the products comes online.
Number two is the increase in resource and reserves. Number three is to go beyond the half million ounces to change the multiples. If you look what happened during this quarter, despite the cash flow from the operations, we made significant steps towards the growth. We could start the ramp up, finish the construction, start the ramp up of Almas. We are advancing on Borborema to start the construction, hopefully in June. We release Annual Information Form with the new resource and reserves, showing that we can increase resource and reserves within the mine. We are just in the beginning of this process. We just intensified it two years ago, the exploration program.
We continue to look alternatives in terms of M&A so that we can push our production above half million ounces within the next two years, so that we can also reach higher multiples. I remind everybody here that the multiples of the companies in our size is between four, 0.4, 0.5 times, and multiple of companies that goes beyond half a million ounces goes to six, seven, eight hundred is 0.7, 0.8. There's a significant value to unlock for shareholders also through the multiples. Growth, increased resource and reserves, and also a change in the multiple. That's objectives for the next two years.
I thank you all, and this is a very important quarter that we can show that we are consistently moving forward with the project that we disclosed with all the shareholders by the IPO in Brazil. Thank you all.
Thank you.