Aura Minerals Inc. (AUGO) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to Third Quarter 2025 Earnings Call. This conference is being recorded, and the replay will be available at the company's website at auraminerals.com/investidores. The presentation will also be available for download. This call is also available in Portuguese. [Operator Instructions] [Foreign Language] [Operator Instructions] 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 Aura 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, the industry and other factors that could cause results to differ materially from those expressed in their respective forward-looking statements. Present at this conference, we have Mr. Rodrigo Barbosa, President and CEO; and Mr. Kleber Cardoso, CFO. Now I will turn the conference over to Rodrigo Barbosa. You may begin the conference.

Good morning, all. It's a pleasure to be here again with you sharing more about our results in the quarter and give a little bit of background and look in the future. This quarter was another solid step towards our programs to grow, and we are also walking the talk while growing while pay dividends. Just before I jump into the quarter results, I think it would be available to make a quick overview of what happened in this company in the last 2 years, and then can position ourselves that continue towards the future to continue trajectory to growth. In 2 years, we built Almas on time, on budget, setting new benchmarks how to put a mine in production with less than 24 months between start of construction to commercial production with no lost time incidents. Then we also built Borborema on time, on budget, again with no lost time incidents. In the meanwhile, we acquired Bluestone with the project at Dorado. We advanced in Matupa. We advanced also in exploration in Serra da Estrela. And recently, we signed a contract to buy -- to acquire MSG from AngloGold. In the meanwhile, we've been also reaching record high production in the last quarter with 74,000 ounces now with stable production, plus the production that's coming from Borborema is allowing us to grow production as we had promised to the market. In the meanwhile, we are also controlling our costs so that with the higher gold prices and also higher production, we've been able to achieve a record high results and then also be able to pay the dividends. But now let's move to the presentation, and I will share a little bit in more details about the quarter, and then Kleb is going to present about the financial results, and then I come back with the questions and answers. So in the quarter, as I mentioned, 74,000 ounces of production, reminding that we started with 60,000 ounces, 64,000 ounces and now 74,000 ounces, while Borborema in the third quarter was still ramping up. We now have Borborema continue to ramp up close to full production during this quarter. And very soon, we also have the closing for MSG, and then we will add new production from Serra Grande MSG. So as I mentioned, this higher production, stable costs and higher gold price allowed us to reach $152 million of EBITDA. This is close to 50% more -- 45% more than last quarter and almost double when you compare to the last -- the Q3 2024. And while the gold price for this quarter was $3,473, just slightly below $3,500 and now gold prices are hovering around $4,000 per ounce. When you look back and see our last 12 months of EBITDA, we reached now at close to $419 million with the gold price at $3,068. So our last 12-month EBITDA should continue to grow as we are adding new quarters with higher production and also higher gold price. As I mentioned, cost has been under control and actually, with this Almas plus Borborema has a lower all-in sustaining cash cost compared to our average, we've been able to gradually now decrease our all-in sustaining cash cost that now represented at $1,396 per ounce, equivalent ounce. Understanding that with -- and I will explain later with the higher gold price, we divide the copper production for a bigger denominator, so it's less gold equivalent ounces, which means also higher all-in sustaining cash cost, not because the mine is not performing, just because gold price is increasing. And even with that, we've been able to reduce our all-in sustaining cash cost. In one side, the very good news is gold price continued to appreciate. We come from $3,287 to $3,825 closing on Q3. That also has an impact over our 0 cost collars over our calls. And when we market to market, this higher gold price has impacted negatively by $75 million on our net income. Again, this has come from a very good news, which gold price is increasing. But for part of our production, a minor part, less than 20%, this impact we have calls that set the price between $2,400, $2,600 that Kleb is going to explain in more details. As other important events that happened during this quarter, MSG, we continue to advance on the conditions for closing. We expect to close during this quarter as we initially planned. We also -- we are now declaring dividends, important dividends for our shareholders at $0.48 per U.S. on shares in NASDAQ, which is the equivalent of $0.16 for each BDRs because each shares in NASDAQ means 3 BDRs, which compounded with a share buyback on the last 12 months, it's a yield of 7.4% to our shareholders. So we see our share is appreciating, but is appreciating more our results, our cash flows. So we still see a significant room for Aura to continue to grow in cash flows, but also in our market value. I mentioned already about Borborema, now commercial production on time, on budget with no lost time incidents. Another important milestone that we have reached now as we were projecting or one of the objectives of listing in NASDAQ was to increase daily trading volume by offering new shares over $200 million and now to increase our daily trading volume. We come from $1.5 million per day of daily trading volume, and now we are reaching close to $30 million per day on average, which allow more sophisticated and bigger investors to invest in our shares. And with that, still room for us to close the gap on our price per NAV that we are discounted -- still discounted compared to our peers. So on next slide. As we always present, we have another quarter with no lost time incident. Actually, now we are 2 years with only one single lost time incident while we also built Borborema. And Borborema also reaching over 1,000 days without a lost time incident. In terms of the stability of the structures, we do regular auditing by third parties and recently has been audited also, and we are fulfilling all the legal obligation and also all the structures are stable. In terms of quarter production on the left side of the slide, we see that we come from 60,000 ounces, 64,000 ounces, 74,000 ounces, and we still have room to continue to improve as we're going to add Borborema full production next year. We still have MSG after closing. And then we still have Era Dorada Matupa to build and down the road also develop Serra da Estrela. When you see on the right side, the mine has been stable quarter-over-quarter, up slightly better than last quarter, but yet 1,000 ounces more, Minosa, super stable. Almas, we are increasing production Almas, we are increasing also capacity and more volume at the plant. And now we see on the top of the slides on the charts, Borborema assuming a more relevant position that should continue to increase along the next quarters. In terms of all-in sustaining cash costs, as I mentioned to you, we've been able to manage and control our all-in sustaining cash costs. Actually, as you can see, we are reducing in Q3 2024 despite 2 things that's happening that's impacting negatively our all-in sustaining cash cost. Number one, Apoena, we are in investment phase of Apoena pushing back the pit to connect the pits and create a super pit that it will last until next year. So that pushback has a higher all-in sustaining cash cost compared to our average. So that is pushing more towards a higher number. However, we should go back to normal level in Apoena after 2027. On the other hand, we also see, as I mentioned, Aranzazu. Aranzazu is now, we are converting to less gold equivalent ounces. We get the production of copper. We get -- so we apply the price of copper. So the revenues of copper will divide by the gold price. So the higher the gold price, the lower the gold equivalent production and also the higher all-in sustaining cash cost on the calculation, but that doesn't mean that we are increasing on the efficiency level, the all-in sustaining cash cost for Aranzazu. It's just a mathematical result of this conversion of gold equivalent ounces. If we're not by that, we would be even lower all-in sustaining cash cost on this quarter. Next slide. As we are progressing very well during the year, we have maintained our guidance for the year. If you look on the left side in terms of production with the constant price that we used when we projected the guidance to the market early this year, we are now production of 204,000 ounces. Last quarter, 74, understanding that Borborema still have room to improve. So you'll see that we'll be very much in line with the guidance in the mid part of the guidance, slightly above or below the midpoint of the guidance in terms of production. On the other hand, in terms of cash cost and all-in sustaining cash costs, we can see here that Aura has been performing at the very low end of the guidance, if not below the lower end of the guidance. In terms of CapEx, we also continue to maintain our guidance for the year. As I mentioned earlier in this presentation, it's remarkable the achievements we are having with our shares in the NASDAQ and also Brazil. We come from, as I mentioned, [ $11.5 million ] per day on average. And since the NASDAQ listing, we've been able to reach $13 million, $15 million, $22 million, now $29.7 million per day. So that also shows that Aura can now be in the radar of major investors. And with that, start closing the gap of our price per NAV compared to our peers. Next, another remarkable event for the quarter is that we declared commercial production of Borborema on time, on budget with no lost time incident. Actually, again, setting benchmarks since from scratch 2 commercial production and close to 2 years. If you see on the picture on the top on the right up, we see the wastewater or the sewage treatment station. So now I would remind investors that we are innovating in this project where 100% of the water that we get externally come from sewage water from the city that we are treating and using in our operation. Then we recycle all this water within our own operation, and we add what we lose in terms of evaporation. Next slide. So Kleber, I'll turn to you.

Thanks, Rodrigo. Good morning, everyone. We're going to start with a summary of the main financial KPIs. On this page, we show the results of the reporting quarter, the last few quarters and dotted lines accumulated last 12 months for the end of each reporting period. Overall, as Rodrigo mentioned, this is a quarter of a couple of record highs in terms of net revenues, we reached $248 million in this third quarter, bringing the last 12 months to $772 million. In terms of adjusted EBITDA, we have a record high for the fifth quarter in a row. Our EBITDA improved over 40% compared to the previous quarter and with $152 million on this Q3 is a combination of the higher production, lower cash cost and improved gold prices. As Rodrigo mentioned, gold prices average market price is about $3,450 during Q3. So we still have some upside opportunity on the fourth quarter with current spot prices in the last 12 months, adjusted EBITDA now close to $420 million increasing quarter after quarter. When we look at the net income, we are reporting profits of $6 million this quarter. Once again, we saw our P&L being hit by noncash losses related to our outstanding gold derivatives. Gold prices came from the beginning of the quarter below $3,300 and ended the quarter over $3,800. So we had to market -- the mark-to-market on outstanding position, which impacting $75 million noncash financial loss in the quarter. On the bottom, we see what is our adjusted net income, excluding certain noncash items. We are reporting $69 million on this Q3, also a significant improvement compared to the previous quarters coming from $37 million on Q2. And then in terms of cash and net cash and net debt. Our cash -- we closed with our cash over $350 million in the third quarter, already benefiting from the $200 million net proceeds from the NASDAQ IPO. Our net debt dropped to only $64 million at the end of the quarter. It's a combination of the proceeds from the IPO and also a strong free cash flow from the operations, and that's a combination of much lower net debt and increasing adjusted EBITDA. Our net debt over last 12 months adjusted EBITDA dropped to 0.15x. Now understanding the main items between our adjusted EBITDA and the net income for the quarter. As you saw, we reported $152 million in adjusted EBITDA overall. What we highlight as well is the strong performance that we had in the all 5 operating business units with Aranzazu reporting the highest EBITDA close to $40 million. Minosa and Almas around $35 million, each of them, also very strong performances. Borborema, the first quarter in which it was -- we were still ramping up, but we had production in 3 months in the quarter, so reporting a very good EBITDA at $25 million and Apoena, despite being investment phase, as Rodrigo mentioned, also close to $20 million in EBITDA in the quarter. In terms of financial expense, the biggest we had $103 million in expenses in the quarter, most of it related to the outstanding of the hedges. We had -- most of that is the noncash loss that I mentioned before, $75 million, the mark-to-market. And in the quarter, we had about 17,000 ounces gold collars, which were settled and paid, which led to cash payments on those positions of $17 million. Income tax expenses of $20 million, pretty much consistent with the results from operations, bringing our net income to $6 million. And then to the right side, the items that we exclude to calculate our adjusted net income, all of them the unrealized. The biggest one, the unrealized loss with the gold hedges FX was immaterial for this quarter. And on this quarter, we had a benefit in our net income due to the appreciation of the Brazilian real and Mexican peso. We saw benefits on the deferred tax assets on monetary items. So we excluded this benefit as well, bringing the net income to $69 million at the end of the quarter. And here, we show the detailed analysis of the changes in our cash position throughout the third quarter. On the left side of -- far left side of the page in red, we see we started the quarter with $168 million. Then on this left portion of the page is what we call the recurring free cash flow to firm, which is the cash flow generated by about the 5 mines in production, not including how much we're investing to grow the business. We generated $75 million already deducting the realized losses with the hedges. In the middle of the chart, we report what we invest in to grow the business, either expansion CapEx or exploration CapEx in projects, or to increase the life of mines that we invested $19 million coming down from the previous quarters as Borborema announced in commercial production and to the right side for the financial items, highlighting the repayments of principal debt. So we paid $34 million of gross debt, paid dividends of $28 million in Q3 related to the Q2 results. And then of course, the net proceeds from the IPO, bringing the cash position over $350 million by the end of the quarter. With this, we end the presentation and open to questions.

[Operator Instructions] Our first question comes from Lucas Laghi with XP.

Congratulations on the results, really strong results and congratulations on the ramp-up of Borborema. I have 2 questions. The first one, considering your very comfort balance sheet, I mean, especially after the follow-on most recently. And with gold prices provide a very strong free cash flow level, could you please provide us an update on your like capital allocation strategy going forward? I mean we know about all the projects that you have to implement, Era Dorada, Matupa, Serra Grande, as you mentioned. But considering this free cash flow level and your balance sheet would be worth accelerating on M&A? I mean do you see opportunities here as well considering your leverage levels as you speak? Or the focus would be on the above-mentioned projects that you guys are indicating to the market. And another -- my second question, if you could provide an update on the company's priorities regarding resources to reserves conversion. I mean, where should we expect Aura to expand its life of mine considering operating performance projects going forward. And still on this topic, specifically on Borborema, if you have any updates on the road relocation that we know that could trigger an increased reserves figure as well. So that would be my questions.

Thank you, Lucas. And so in terms of capital allocation, as you mentioned, we have a plan to continue to grow, develop our greenfield projects, continue to invest in exploration to increase our resources and reserve. I will detail more on the final part of the question. And also, we still feel that -- we understand that the real valuation of price per NAV starts to get more decent levels when you are close to 1 million ounces of production. Before acquiring Era Dorada, before acquiring MSG, our plan was to go beyond 450,000 ounces. Now you can add MSG on the top of this. Last year, Anglo produced 80,000 ounces in that mine. That mine will produce less this year and probably next year, not 8,000 because we have investment plan to put that mine the full production. And then you can add also Era Dorada that we recently -- earlier this year, we issued a new PEA that has a production of 90,000 to 95,000 ounces and we are advancing on the feasibility study to publish by the end of this year. So if you add both, then you see that it can go beyond 600,000 ounces, but to get to a million ounces, we will we can continue to monitor and to look at new M&A. So we have not stopped that we see still room for us to grow through M&A, and we are actively looking at other alternatives. In terms of -- and above the dividends, as you can see, we've been able to pay strong dividends, actually highest in the yield in the industry in the last 4 to 5 years on average. In the meanwhile, we've been able to acquire companies to develop new projects, and exploration program and maintain a low net debt levels. And we should continue to see this kind of movement along the next years while now Aura, still including now benefiting from higher gold price and stable to lower all-in sustaining cash flow. So it's a very good combination for the company moving ahead, which will position us to continue to deliver growth and continue to deliver value through dividends and share buyback to our shareholders. In terms of exploration, we have exploration program in all our mines and business units. We see very interesting potential to expand resource reserves in Almas, either by the underground that we already developing the ramp. We see a lot of regional exploration targets that may take a few years to mature. But on the underground, this will be released probably in the next AIF and new resources and reserves. We see a lot of room to increase also resource and results in Matupa, adding the new acquisitions that we made last year and also [indiscernible] . We see very important upside also in Apoena. Apoena, only now we are understanding the geology and the few layers of coal that we have, we are now connecting the pit. There are a lot of opportunities also to expand the current pit and also on regional side to expand resources and reserves. Where we see a more limited is in Honduras in terms of exploration. This is where we don't see that much of upside, but we do have also, as you mentioned, a very interesting and very fast upside to be converted in Borborema once the road relocation is approved. And you ask about when this is progressing. It's is a little bit slower than we expected, but it's moving to the right direction. So we are now doing a lot of designing, engineering and all those in order to provide the natural authorities the good information, information enough so that they can approve.

Our next question comes from Ricardo Monegaglia with Safra.

Congrats on the results and dividend. So my first question, maybe to Kleber is how do you assess the ideal level of dividends to be paid in a quarter. Just to get a sense of how you got to this $40 million. Any color on that will be helpful. And maybe what could we expect for the upcoming quarters? Should we -- as your results will grow as you generate more cash, we'll have less CapEx from Borborema? Do you think maybe it's feasible to have dividends, quarterly dividends above the levels of this quarter? And my second question on nice work on the liquidity, right? The average daily traded volume. So I want to get a sense if you guys, if this current level or the current average is your end goal? And if not, if you could share any number in regards to what is your goal in terms of liquidity? And what else is in your hands to increase that?

Kleber, if you want to answer the first one, and then I go back to the second one.

Sure. Ricardo it's a combination of factors. It's above the minimum. We have been consistently paying dividends above the minimum. So we think in consideration, the cash -- the evolution of the cash flows on the increase of gold prices and also a preliminary view on expected cash investments, capital allocation in the new projects that we have ahead of us. So we have taken that in consideration and then have been able to pay, again, on the minimum and keeping our dividend yield above annualized about 7%. Going forward, so if you look at the fourth quarter, gold price is already new levels when compared to the third quarter. Borborema is now in commercial production. So we cannot promise, but we see room to keep increasing the level of dividends going forward. And of course, that depends for 2026 on the projects that we're going to invest in capital location decisions. But yes, in general, we see that potential.

On the liquidity targets, I think on the NASDAQ listing or recommendation from the banks was that for us to be included in the radar of major investment funds in the U.S. or Europe, we would have to reach about $10 million per day, desirely above $15 million per day. And now we are reaching close to $30 million, which is above what we expected. We don't see this number, except from our valuation of our shares to continue to increase because the calculation is based on the available shares to trade compared to the daily trading volume. We, of course, can have days more and days less, but $30 million is very comfortable for us. Of course, the higher the number, the better. And we will also always try to push this daily trading volume higher because the higher more investment those investors can do on Aura. $30 million is already a very good number.

Yes, I agree. Just a quick follow-up. Is there any indexes that you guys foresee to enter in the coming months? Or any like long-term desire of an index that you guys could potentially enter in the future?

Do you want to take this, Kleber?

There are several indexes, Ricardo. Some related to NASDAQ, some ESG indexes. So I hope as well will be not long time from now and some we need to work with those indexes to be added. But yes, not to mention one, but we have a couple that we're following, and we have a plan to work to be added more and more to those indexes.

Which is one of the reasons that we also listed in NASDAQ and to increase our daily trading volume is also to attract the indexes. But the index needs to see several months of high data volume in order to include this, if not 2 partners. But we do expect to be included in several indexes alone the next couple of months.

Our next question comes from Edgard de Souza with Itau BBA.

Congratulations for the results. Very strong results, record high EBITDA. So my first question, Rodrigo. I wanted to understand a little bit your focus next year. For the greenfield projects, of course, you still depend on the social license to decide where to proceed with Era Dorada, Matupa, but it seems that you will not get into next year without proceeding with one greenfield projects. But there are also a lot of opportunities that are operating assets, right? I was in Almas last week. I was impressed with the Brownfield expansion there. There is also the potential of the brownfield of expansion at Borborema and also MSG that is still pending the closing. So with all that, I wanted to understand how do you rank all those opportunities and which are your priorities for next year? If you could share a little bit your thoughts on those 3 assets maybe touch a little bit on the brownfield at Almas. How is the closing of MSG? What are you already doing there? How do you expect the turnaround should be next year. And even in Borborema, if you are even considering starting the brownfields before receiving all the approval for moving the rules maybe it could make sense given the current good price levels. And then my second question, we discussed -- you already discussed a lot your very strong balance sheet position with strong free cash flow generation that you will generate over the next few quarters. This will allow for higher dividend payments, your brownfield and greenfield expansions, but you have always been mentioned about potential M&As. And I know that you, Rodrigo, have been very active in this front. What I wanted to understand is that considering all that you have to deliver next year the greenfield, the expansions at our current projects, do you think that there is room for adding on other projects already in 2026. And would that be operating assets, pre-operating assets. How are you thinking about this? Those are my questions.

Thank you, Edgard. So the way we see all the brownfield expansions, Almas, Borborema, now the pushback in also in Apoena. Those are leaded by the mine itself. So we have the -- took us a while tool to create this culture of the decentralized decision-making process and also strengthen the local teams, but the lockout teams with some support from corporate, they've been able to plan and invest, and implemented the expansion. So that does compete with bandwidth with corporate. So all of them are analyzing. And actually, as you mentioned, Almas already implementing expansion, and we also have plan to expand, significantly Borborema, once the road is reallocated. We don't plan going to the second question to start investing heavily on expansion of Borborema before the road reallocation because the mine will not be able to supply the extra capacity Borborema, which is different from Almas that we've been able to see the underground and few other near mine operations. The mine can also provide a higher volume to the plant that's been expandable. In terms of capital allocation also next year, we continue to move forward with the feasibility study and also with the socialization of Era Dorada. We expect to release the new feasibility by the end of this year. Era Dorada saw that while we're advancing and getting close to also a construction decision for Matupa so that between the end of this year early next year, we can decide which one to start building first and far we will take from starting one to take another one. Are we taking 6 months of delay? One year of delay or a year and a half? All those studies are being done for us to understand how we could fast track the execution of both without overlapping a lot of activities. Then you ask us about M&As. As I mentioned, M&A continue to be an important pillar for our growth strategy. We aim to go move close to 1 million ounces, not at any cost. It needs to be a creative acquisitions in order to create value to our shareholders. In that direction, we see either brownfield operations, like MSG that will have a specific team to turn that mine around, taking some attention from corporate, but it's not the same team to build new mines. So that gave us a lot of bandwidth to do both to expand greenfield and also do the turnaround in MSG. So we continue to see other alternatives, either brownfield or greenfield. Not a greenfield that we would have to invest next year, but perhaps a greenfield that we could continue to plan detail engineering and be able to start during 2 years or 3 years after we are finishing with Era Dorada and Matupa.

Our next question comes from Marcelo Arazi with BTG.

Two questions on my side as well. So the first one is a follow-up on the dividend discussion. Given that you guys have been paying more than the policy over the past few quarters, can we expect a change in the policy? Is that something that you guys currently discuss? And on the second one, we saw some significant impact this quarter from the hedge -- the gold hedges. And I wanted to hear you guys, what are your thoughts on this going forward? Should we expect a change in the approach on the gold hedges going forward? How could -- can we expect this to evolve especially regarding the Guatemala project?

Thank you, Marcelo. On the dividend policy, we don't -- we have no discussion to change the policy, 20% of EBITDA minus recurring CapEx seems to be already a very interesting number, although we've been able to pay more, right? And that what we should see on Aura is at least 20% of the EBITDA minus recurring CapEx. And when we feel they have extra cash, and then we will pay more as we've been doing in the last quarters. And then you asked, the second question was about...

Derivatives for collars -- approach for Era Dorada.