Aura Minerals Inc. (AUGO) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to the Third Quarter 2026 Earnings Call. This conference is being recorded, and the replay will be available at the company's website at auraminerals.com/investedoris.[Operator Instructions]. [Foreign Language]. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects operational and financial projections and goals are the beliefs and assumptions of our Executive Board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario and industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this conference, we have Rodrigo Barbosa, President and CEO; Kleber Cardoso, CFO; and Glauber Rosa-Luvizotto, COO. Now I turn the conference over to Rodrigo Barbosa, you may begin the conference.

Thank you very much for all participating in this earnings call for the third quarter morning all. And before I get started, just a quick reminder that you have here in your screen scan the care cold. We have our Aura Day happening in New York at NASDAQ on October 30 afternoon. We will have an important update about how we are running the operations. We're going to have important updates about the turnaround on MSG, how we are developing era dorada, that we are also thinking and doing now this year a zero-based budget. We're going to walk you through how we are planning the budget also for next year. There's also the transition of the mine fleet in sources that we recently announced. So there will be several updates, including important advancement in exploration that we would like to share with the market on October 30. So please put it in our agenda. And if you have availability, be there with us, that will be an important opportunity to have a more broad conversation and deep conversation about how or is performing and how we will perform in the next 3 to 5 years. So let's get started. And if we could put the first slide in terms of production and results. And as a quick summary, and as we all do, at the same time, same structure, I'm going to go through the main results and how major events that happened during the third quarter and then Kleber is going to go more in detail about our results and cash flows. So as we disclosed in the market, we had an important improvement in operations. As I mentioned in the last quarter, first and second quarter was the weaker of the year, and we could see that production was pushed towards the second semester this is an important improvement on Q3, and we project another improvement to Q4. So we should continue to grow in terms of production as we are now reaching higher grades or high productivity in most of our mines. So we reached a production of 96,000 gold equivalent ounce. This is a 27% increase compared to the last quarter. I'm going to walk you through mine by mine in the 2 slides ahead. so we can understand what is going on and project what can happen on the fourth quarter. So when we see the 9 months, it's 253,000 ounces of gold equivalent, we reiterate our guidance to be between 340,000 and 290,000 ounces until the end of the year. This higher production means also to have a record high, slightly above the first quarter of this year, $386 million of revenues, another 15% improvement quarter-by-quarter. That also translated in an EBITDA at $237 million. When we see the last 12 months -- the last 9 months of EBITDA, it's $677 million. This is already above what we performed in the full year of '25, and if we look at the last 12 months, it's $886 million. Understanding that the fourth quarter, we should have an improvement in terms of our production. In terms of our in sustaining cash cost, we are now million. Now we start to have improvements on that also improvements that I'm going to walk you through that's going to happen on the other operations. So although if you compare to the guidance of this year, you're going to see that we are above the guidance, but the improvements that we see happening in the fourth quarter gave us a comfortable zone to meet the guidance for the full year in terms of our in sustaining cash costs. Recurring free cash flow strong, $124 million, enough to continue to be able to grow, develop projects, investment exploration and also update the dividends. So we will continue to be a leveraged company walking the talk. We always mentioned to the market that we would be able to develop a greenfield projects invest in exploration chicken life of mine and do M&As while keeping an important dividend yield and low leverage. So this is another quarter that we show in the market that this is possible due to the very high return and strong cash flows we have from our operations. We also declared another strong dividend, $0.72 per share. And when we add that with the $10 million of buyback that happened during Q3, it's a yield over the last 12 months, we continue to be one of the highest dividend yields in the industry, why we are growing. Additional important events, and I'm going to have a slide about this. I don't want to give details now, but Teradata project on time, on budget developing according to the plan. Kleber also we raised an additional $200 million of syndicated loan. That happened during this quarter and improved our cash position above $400 million. We also announced the fleet in sources that will be -- will provide us an important opportunity to continue to reduce our all-in sustaining cash cost and control inflation bravely the inflation, as we will walk you through the industry all-in sustaining cash cost is going up. We are going up slightly, but yet way below the average of the industry, which put us in the first semester of this year as in the first quartile in terms of all-in sustaining cash cost. Important event also is capital world with vessels continued to buy more shares on our -- during the third quarter and reached recently, about 10% of the capital structure of oil. So now they have 10.2% of our shares. Next slide. In terms of safety, we had no lost time incident during quarters a very important, another quarter without any lost time incident. I always mentioned that it's important to combine always not important to combine, but strong results comes along with also a strong incidents and low incidence level. Important also that as we are implementing artificial intelligence all over our company. There's also important improvements that we are doing on safety standards going through artificial intelligence so that we gather more information and start acting way above when we predictably -- so we can predict when and where the next event can help of incidents can have that and then prevent that. So all the team is working on to have this advanced tools so that we can improve even further our safety standards. In terms of stability of structures, all of them has been gone through due diligence and inspections and all the that are under the safety levels. And according to the Brazilian regulations and all the international regulations. On the left side of this slide, I will highlight the continuous growth that we've been growing since Q3 '25, actually since Q2 '25 on the last 12 months. So now we are performing 335,000 ounces of production in the last 12 months. As you can see, record high production on Q3. While we continue to see improvement that's happening in Q4 that will replace the Q4 last year with 82,000 ounces with a stronger so that will continue to the important upward trends in terms of production for oral mines. And when we go mine by mine, we had going from the bottom to the important, important improvement in Aranzazu. We could see that the higher grades would come during the second semester. Management is also working in higher throughput, so improving also the plant, the combination of higher grades and better performance lead us to a higher production. In a small part of this is also, unfortunately, due to the lower gold prices than in the higher copper price. So that conversion happens and it's favorable, but most of the improvement comes from productivity and grades. [indiscernible], we saw a slight improvement in Q3. And again, Q4 is the quarter that we're going to have a very strong production on [indiscernible]. In Aranzazu as well, we should continue to see a small improvements for Q4. Apoena, we will see a significant improvement in terms of production in Q4. This is just about grades that we are already reaching on the pit that we're going to go through the plant. Masa, as I mentioned, to the vessels on last quarter, we had some challenges on pilot and stacking during Q2 that we know that the lag, it's a leaching pattern also the lag of why you new stack and produce happens to have 30, 40, 60 days. So we knew that the production would decrease during Q3, and now we know that's going to increase during Q4 because all the challenges has been overcome. And now we are stacking as we projected of even a little bit above our reprojected so that will result in an improved production almost, we knew also that we were hitting a lower grade. The mine plan is not, as I mentioned, gold. We are now sometimes in the very thin veins or straight veins and grade goes up, grade goes down. So it's normal for you to have a stronger and weaker quarter. What cannot be is not predictable, right? So we know that the Q3 would be weaker. Now we know that Q4 can also be slightly better than Q3. Borborema, that's how again, we hit strong grades. And also now we have already implemented two new filters, debottlenecking the plant. So we should see -- continue to see strong production in Borborema during Q4. MSG, the turnaround is still going on, but it's important to see the first signs of what we were telling -- talking about gain in productivity gain in production when over the top down to bottle up and put more and develop more on the ground. So we are now starting to have a small percentage of ore coming from underground on the methodology bottom up. So that improves the grades of the plant. And then on Q4, we will gradually improve, then we mix low grade that is on the top as an open pit with higher grade underground. And as we go and turn around as we advanced on development of the underground terminals, we will be more gradually to more and more increase the underground ore, which will increase average grades to the clot. And also, management has been doing significant cost savings, cost restructurings and also debottlenecking the plant so that we can gain even more efficiency for next year, putting us in a position to be able to produce close to 80,000 ounces and close to $2,000 per ounce all-in sustaining cash cost. So in terms of our sustaining cash costs, we had a slightly decrease from Q2 to Q3, that came mostly by MSG that showed some significant improvements. Also Aranzazu are going through higher grades. If we're not the MSG or in sustaining cash cost would be at 173 million which is already the first part time in the industry, although yet we see room to improve. When we looked at the next quarter, we will have improvement in -- and as we continue to perform well, we will see a significant improvement in Apoena, good improvement in Minas, almost slight improvement due to the higher grades. Borborema stable to the fourth quarter, perhaps lower cash cost as well. So we will see fourth quarter coming down in terms of our sustaining cash costs, putting us on the comfort cost to meet the guidance, perhaps closer to the top end of the guidance, but yet in the guidance. And I would also highlight that when we projected the guidance, the exchange rate was different than what happened during the 9 months was for Brazil, that's more important to us 5.5%, while the performance was close to 5%. Now we are back to 5.5%. So that only this is 80 ounces per $80 per ounce in terms of in sustaining cash costs. If we were at the same exchange rate of their budget. So that during the fourth quarter, we have improvements on grades, accrues and performance and also a better exchange rate in Brazil. Era Dorada, we already reached over 13% of physical progress. The earth moving of the operational plateau is completed. We started the civil works. And as we can see on the picture in the middle, the CIL tanks start to be built on the right side, all the infrastructure of our calling the underground as we are advancing on the underground, it will be more and more important gradually to improve the infrastructure and also cooling machines in order to keep the temperature low. This is a geothermal area that has hot water, and we are pumping already out of water out of the underground while calling so that we created the right environment for everybody to work. On the left side on the pictures, we continue to have a very strong support from the community. It's now over 1,500 hours of a dialogue with the community neighbors constant dialogue open table with each of them, we have Era Dorada house at the main city that people can come and make questions. So it's a full transparency project we're hiring local people. We are motivating and new suppliers to form within query close to the operations. And while we will -- we are investing on the purified water to provide them first municipality in Guatemala to have access to purify the water will be the communities around Era Dorada, once we finish the investment along next year, then we'll be able to provide qualified volume to the communities. And the Shell thermal plant, we continue to advise on the engineering. We are now looking for potential partners to invest in geothermal with us that can bring the know-how and operate and do the partnership with ore. So this project will be fully sustainable with renewable energy renewable water and also a very strong community relations and focusing on hiring and training local people. We now have 795 people employed as of September Guatemalan understanding that during the construction, sometimes we have a very specialized skills do it for the underground development and also for building the plant and that we should increase -- gradually increase this percentage hiring local people. MSG, again, a very important first quarter with just beginning of the results of the turnaround. We already generated in on EBITDA, and we continue to do advanced development on the underground activities so that we now can gradually inverter top down to bottom up and make more high-grade underground instead of low grade that is on the also on the top. So we will see improvements going through the Q4. And of course, major improvement is going to come during 2027. We will go through in more detail [indiscernible] participate, go directly there in New York or see the video or see the live video that we will walk you through major achievements happening also in safety standards. So there being important updates in the expiration. So please attend that we can walk you through what's going on in MSG that can become very -- enhance the potential and will become a very important mine for our miners from '27 and so a -- with that, I turn the floor to Kleber to walk you through on the financial results.

Thank you, Rodrigo. Good morning, everyone. We're going to start, as we always do, with a summary of the main financial KPIs for the reporting quarter for the previous quarters and accumulated last 12 months at the end of each reporting period. Starting with the net revenues. We are reporting net revenues of $36 million is a record high that we are reporting for a single quarter. That's driven by the increase of production that radio was showing. And when we look to the last 12 months, our revenues are exceeding $1.4 billion. And we see there has been a steady progress quarter-over-quarter aligned with our growth story. When we go to adjusted EBITDA, it's a similar story. We're reporting a strong EBITDA to $237 million up this quarter, also driven by the increase in production the last 12 months now at $886 million and is already the 13th increase in a row of our last 12 months EBITDA, again, consistent with our growth story. Moving to the bottom of the page, in terms of net income, our net income this quarter, $135 million coming down from previous quarter, but that's mainly because on the previous quarter, we had no cash nonrecurring gain related to the gold hedges because of the decrease of gold prices during the second quarter. If we exclude that noncash gain, which was much smaller this quarter, I'm going to show later. We see also an increase in net income. O n the bottom of the page, we see we're coming from $97 million adjusted net income on Q2 to $120 million now on Q3, consistent with what we see increasing aim in terms of cash and net debt, we remain in a very comfortable position in terms of cash and balance sheet. Our net debt basically stable throughout the quarter and close to $180 million by the end of Q3. Our financial leverage also basically stable in a couple of quarters already at 0.2x net debt and we see a significant improvement in our cash [indiscernible] cash position, now close to $420 million at the end of the quarter with the proceeds of the syndicated loan that we closed in September, $200 million. And now we are in a good position to continue funding the growth of the company, especially Era Dorada from now on. Now looking at the main items that explain the adjusted EBITDA and adjusted net income between adjusted EBITDA adjusted net income in the quarter. out of the $237 million adjusted EBITDA. Burger was the highlight. We saw it's our -- was very strong in terms of production, [indiscernible] is our lowest cash cost as well, so contributing with $7 million EBITDA. Aranzazu, also a very strong performance in Q3, combined with favorable copper prices adding another $60 million always also coming strong ours in [indiscernible] and we highlight as well as Rodrigo mentioned, MSG, already reporting $24 million EBITDA in the quarter is still in the turnaround phase. Moving to the next item. We see depreciation monetization, $30 million, basically consistent with our expectation. If we compare it to the same period of last year, there is an important increase but that's mainly related to the growth of the company. So the same period of last year, we didn't have MSG. Borborema was not in commercial production yet. So not depreciating. So that explains the increase in depreciation Financial expenses, we would highlight, as I mentioned before, the noncash gain with the market to market of the gold hedge. It was much smaller this quarter was only $13 million. And we had realized losses with gold hedges. We paid $34 million for the gold colors that were settled and paid during Q3, from now on, if you take November from November '26 to June 2028, we still have about 141,000 ounces in gold colors that is going to expire mostly now until mid of 2020. Income tax expense is pretty much consistent with the results of our operations. Then we had some smaller items in other income and provisions bringing the net income to $135 million. And then here on the right side of the page, the consolidation that we always show excluding some noncash items, mainly the unrealized gain in this case with the global hedges, bringing our adjusted net income to $121 million at the end of the quarter. And now here, we have all the details that explains the change in cash position throughout the quarter. So we see on the left side of the page, we started with $248 million in cash at the beginning of the quarter. On this left half of the page is what we call the recurring free cash flow to firm, which is the free cash flow to firm generated by the 6 minus production, not including the investment for growth, not including what we paid for the hedges, we show $158 million on the top of this page, those 6 mines degenerated $158 million in recurring free cash flow deducting $34 million that we paid in hedge comes to the $124 million recurring free cash flow that we're reporting, although the realized losses we have is included in the recurring free cash flow. We remind you that it expires in the middle of '28. So that is going to go our way after 2028. Then here in the middle of the page, we see investment for growth of $63 million, mainly expansion of CapEx and now mainly is catching up, ramping up the investments, cash investments in Era Dorada and to the right side, it's more in the financial like items, mainly the net proceeds from that. We received $200 million from the syndicated loan had some debt amortization. So we had net proceeds of $182 million. Dividends and share repurchase, $71 million in Q3 and then Rodrigo highlighted at the beginning. If you take the $15 million recurring free cash flow that we generated for the quarter, net pay, both for the losses with the hedges both the dividends and share buybacks and also paid entirely for the expansion of CapEx we had in the quarter. So with this, we end the presentation and open to your questions. Thank you.

[Operator Instructions]. Our first question comes from Mr. Marcelo Arazi from BTG Pactual.

Two questions on my side. So the first one on Era Dorada. It was very nice to see that the project has been evolving on time and within budget and with 13% physical progress. But I would like to understand a little bit more what are the main milestones and potential execution bottlenecks over the next 12 months. and especially regarding the geothermal side of the project, which remains a major concern for at investors that we normally talk to. And if I could make a second one about the fleet insourcing announcement. So a few questions here as well. So how quickly should these benefits materialize next year. What are the main risks associated with bringing those operations in-house? And what was actually the final trigger for Aura to decide and make this change?

Thank you, Marcelo. Can start answering here quick, and then I will ask Glauber that can give you more details about next steps in Era Dorada and also how he sees the in-source of the mine fleet upcoming in the next year with the potential also savings. The job thermal plant. I'm not sure if you asked about the short thermal plant is something that will come along the next few years. It's not -- we will not start construction anytime soon. We still need to partner and find the right partner and do the right our feasibility study in engineering. So that will -- once that will probably go into production after 2 or 3 years of operations. In the meanwhile, we have other alternatives to supply the power. And if we were mentioning about the potential high temperature underground, Glauber can also walk you through. That's a not usual conditions to have the few other mines in the world and run actually even in the worst conditions. As a matter of calculating and do the proper underground infrastructure, pumping hot water and also bringing a cool air down, but Glauber can walk you through more on the detail of this situation. plus what he sees coming up in the next 12 months. Glauber?

Yes, as Rodrigo said, we are -- in terms of construction and preparation of the mining that we call the pre-operation. We are on track for that. So it's a lot of challenge from the hydrothermal water, but we have the support from the specialists and also a very robust plan to offset that point. Right now, everything that we found is as we expected, but we are still we are just in the beginning also, we are pumping the water because the key point is we sold to pump the water in advance. We should go down with the table water to make sure that the moment that we assess that region, there is no more hot water in that region and the rock had time to refresh. So it's what we are doing right now. So the pumps are under construction, and we are using some old -- the wells are under preparation. We are using some old ones. We are being able to reduce the table water and doing all the money development all time. But in parallel, all the infrastructure that we have, like the refrigeration plant and all the other stuff, it's already on site, under commissioning. And I think that the main milestone in the next 12 months from the construction side -- we have the main equipment to arrive on site, the mill and all the other equipment and also put the mine development in the run rate. So it's -- we are considering -- right now, we have a contractor doing the underground development we are considering as well to have part of the work made by us. So we already bought some equipments that on time to be delivered in the end of this month and beginning of the next month. And we have also some continence plan to bring to the region some experts because the -- the main point is find people with experience in the underground that there isn't much in Guatemala but we are considering like we are doing like a task force to train and prepare people and have some experts to mainly in this beginning to put the minor track. And the other question from the in-stores, the key point is that we are seeing a lot of adjustments in the cost when we went to the market to have to make an assessment about the price and cost to do that primarily to do that with by contractor the costs are being significantly higher than we are practicing. And also, we feel that we are prepared to -- considering the maturity that we have in the operations, we are prepared to assume is another part of the work. But the process right now, we are in the transition to creating the company that you assume all the assets from the contractor we have the gate to be approved and cut. Once we have that in the beginning of next year, it should be fully [indiscernible]. Right now, we are in the transition phase. Everything is going well. We expected to be more efficient, mainly doing them properly maintenance to make sure that we have the reliability in the fleet. So I think that we can increase productive from the equipment and we can also see the impact in our cost. So for next year, in terms of our costs, we have seen some reduction in the 3 mines, but most part of the disimburse for the equity that we are paying will be next year once we phase it in accordance with we are advancing in the contract that we need. So it's going on track.

Our next question comes from Mr. Lawson Winder from Bank of America Securities.

Thanks very much, Natasha and hello Rodrigo and team. Thanks for the presentation today. Nice quarter. If I could ask about MSG, I think that would be a very helpful place to start. Particularly in thinking about the growth trajectory into 2026. So what specifically changed underground at MSG during Q3 in development meters, stope availability, mining flexibility. And then what still needs to be completed before you consider the turnaround finished? And then all-in sustaining costs were well, I mean, very high in the quarter. Like what's your latest thinking on where all-in sustaining costs can go on a run rate basis for MSG?

Well, I'll let Glauber to answer, but we see all-in sustaining cash costs going close to $2,000 per ounce and production at $80,000 per year probably next year, right? But Gabe can go in through details how he sees the progress on Q3 and project to you what you can expect in Q4 and most important to next year.

Yes. The key point there is the performance in mining development. So we have a combination of two things. So when we assume as is a backlog in mine development, in mining preparation. And we also [indiscernible] to do the change in the mine method that require much more development in advance to go to the bottom of the [indiscernible] start to mine bottle work. we're still in preparation. So we have some areas in production already, but not fully capacity in the underground mining. It will take the I think that 4 or 5 months more to have the mine fully prepared and the reserve release in the time that is required in parallel, a bunch of changes has been made. So we are improving the quality in the method that we mine to reduce the dilution, increase mining recovery and also reviewing all the contracts with significant reduction in our cost. We can see right now the reflect of -- how those changes will reflect because we are not in the in the full capacity. So I can say that we are spending more in development proportionally with what we are producing. So once we increase production, we do not -- will keep the same level of mine development because once we achieve the stabilization in the mine, we come back for the fully for the normal profile of mine development, but we are being able to feed the plant with more ore from the underground because right now. Almost 50% of the ore came from the -- from some lower grade stockpiles from the surface because we are preparing the mine. But once we are putting much more room of mining the plant with better grade, the production will increase. And also, we will be able to stabilize the mine development in the underground. And the combination of those can give us the production close to the 80,000 ounces per year, and the cash costs are the in sustained costs should reduce significantly.

And again, an ore day, we'll provide a full detail on what has been done and the including all the physical measurements, the speed, how we are -- the savings Glauber mentioned, have important savings that can go on PORs 30%, 40%. So that I think it will be important to invite everybody to be there and see, and we also bring the manager of MSG so that we can interact directly also with him.

Yes, fantastic. I mean it's nice to see MSG improving substantially in Q3. If I could ask one more question, it would probably be on the reserve and resource update and your expectations around that. globally for the entire firm, whether you anticipate replacing reserves this year in mind. But then just particularly with respect to Apoen and [ Menosa ], your two really short mine lives, are you starting to see the potential to drive material expansion in mine life there?

We will share what we've been finding during the day. Apoena, yes. There are several -- now we are opening more. We are focusing a lot on the near mine. We opened a little bit on 20 kilometers, 30 kilometers, so finding very interesting intersections that we will -- we are now finalizing all the results and be able to publish them then before they ore a day. [indiscernible], it's still unknown. So this is where [indiscernible] we are less optimistic about extending life of mine. But pens, there will be important improvements, we believe.

Our next question comes from Mr. Rabi Nizami from National Bank of Canada. Please, Mr. Ravi, you may proceed.

Rabi, if you're talking, I think you are on mute. Yes. Maybe he has some connection problems. Let's go to the next one and then -- we'll still reserve our room for him.

Our next question comes from Mr. Matheus Moreira from Banco Bradesco.

Just on my side. First, on CapEx. I mean, it caught our attention here that you're tracking well below your growth CapEx guidance for this year with a little bit over $130 million this birth year-to-date. While the low range of our guidance is of $260 million, right? So I'm just wondering how should we think of this CapEx for the fourth quarter specifically? Do you still expect to reach your guidance? Or should we see some spill out towards 2027? And does this somehow impact your time line for Era Dorado? That's my first question, and then I'll ask my second one.

Okay. There's no -- nothing is going different from the schedule, what Kleber can walk you through why you see this CapEx lower than the guidance of the year so far.

Yes, Matheus, we have the expansion of CapEx, we have opportunities to be closer to the low end of the guidance or even below. That's mainly because that's actually good news. It's the negotiation we have been doing with providers comment, for example, for the project. So we are negotiating lower down payments that improves our cash position at the moment. But then in terms of whatever we don't spend this year to your question, yes, that would move to 2027, the CapEx for the project itself wouldn't change. It's just a matter of having more working capital like, let's say, now in 2026 because of these negotiations that we're doing in country.

Great. That's very clear, Kleber. Maybe if I may, a second quick question on MSG is actually a follow-up. I mean, it was encouraging to see the operational performance in the quarter, right, which was much better than we were expecting. Still, I believe or from the operational conditions are wants to achieve, but definitely on track. I noticed that your production improved materially quarter-on-quarter. also because of higher throughput rates. And this in turn was also benefited by some material you recovered from the East pile, right? So I'm just wondering if you could provide more details on the stockpile. How big it is? What are the average grades? And when do you expect it to run out? I think you also mentioned a bit in the beginning that as underground might activities improves, you will rely less on these stockpiles, right? So just -- but I just wanted to get a sense on how big and how relevant this stockpile can be?

The stockpile is not the most relevant part of the plan to recover the production. So it's just to complement or to keep the plant fully feed. Once we weren't able to fill you with more ore from the underground mine, but the focus is mainly to put the mining operation, debottleneck the mine and get some reserves release in advance to make sure that we can feed the plant with which room of mining that is the highest grade that we have because the stockpile is a marginal award that was left in the past for the other company. We are using that as an opportunity once we -- we have this spare capacity in the plant, but it's not the base of the plan for the growth.

Yes. The stockpile is just a buffer that we are using why we are doing the turnaround the grades you asked can vary, 0.5, 0.6, 0.7, 0.4, but it'll be around this.