Transcription
Kitco News on-site coverage of the rule symposium natural resource investing is presented by Aerys Mining.
Hey everyone, welcome back. I'm Jeremy Safford. We're coming to you from the rule symposium on natural resource investing here at the beautiful Boca Raton Resort in Florida.
Now, there's an old pitch in this industry, one simple line. When gold goes up, the miners go up more. That's the leverage. And this year, investors find out it cuts a little bit of both ways as they could say. The miners ran hard with gold, then corrected just as hard. So even as gold still continues around 4150 today, a lot of them still trade like the market doesn't quite believe that the price will hold. So the real question here is not whether the gold is in a bull market. It's which miners actually turn a gold price above $4,000 into cash. And which ones are all a story.
Now, the next conversation is with Aerys Mining, a company that says it's firmly in the first camp. It's uh the head of capital markets, Oliver Dashel, joining me now. Oliver, good to see you.
>> Nice to meet Nice to have you.
>> Uh we Yeah, you know, it's an interesting one. We were talking a little bit about about the the market before coming into air because you guys came out with some really fascinating news today. Uh I'll share with the audience and bear with me because there are some numbers here. Uh second quarter production of about 74,000 ounces up 26% first half up 31% and you sold your gold in an average at around $4,445 an ounce. Uh congratulations first of all.
Um obviously there's a simple version here for everyone. Uh it cost you about $1,500 to dig up an ounce of gold and you're selling it for over 4,000. So I just got to ask you, I mean what does that spread do for the cash flow?
Yeah, I mean cash flow is great. You know, we're in the fortune position where we're uh scaling a mining against this very favorable macro backdrop and yes, gold prices have come up a lot, but still I mean we are at exceptionally elevated margins, right? I think we're in the best um part of the like the the the um cycle that the industry has ever seen, right? And so um you know us being able to deliver organic growth against this favorable macro backdrop is incredibly exciting for us and we have a tremendous amount of organic growth ahead of us. Last year we produced 257,000 ounces and we're in the process of doubling gold production in the near term and then potentially quadrupling gold production over the next 5 years. And you know clearly um it is it is a great environment to be in to do just that.
Yeah, it's been fascinating watching some of the the miners printing at these levels. Of course, we heard about some of the other streamers out there getting a little bit of capital. I wanted to ask you because I mean first first half revenue I think it it tops $680 million according to the company. So of every extra dollar the gold price gives you, I mean how much of that's actually landing in the bank?
It's a good margin. >> It's a good margin. Yeah. So um you know adjusted IBIDA for the last 12 months as of Q1 was $610 million right so um margins are solidly uh above 50% right >> wild >> so it's it's it's great it's um significant cash generation that comes from that right and clearly that funds our organic growth >> and you know the news that was just published I mean obviously uh you see a path, you have a big runway and you're fully funded.
But I got to talk about this whipsaw that we saw with the miners. I mean, we saw that price of gold and silver take a bit of a hit from those record levels. Got a little frothy in there. It's been even more volatile for the mining side. Uh what are you hearing from investors here at the show? I mean, people stepping back in after that haircut, excited to kind of come back in.
>> Yeah, it feels that way. feels like a great entry point. Yeah.
>> You know, uh when you think about what's going on bigger picture, yes, we've had a little bit of momentum lost as the debasement trade took a bit of a breather, >> but bigger picture, what has been driving the debasement trade like those huge factors if anything have intensified, right? So, I think uh we're in a situation where um it's a little bit like a coiled spring, right? the sector is doing well and once the gold price momentum is back then I think the the the the sector will do really well and I keep looking cuz gold is catching a bit of a bid today which is positive but you know there is that scar tissue right I mean we've seen it in last cycles where the miners dilute their share structure investors get a little bit angry I've talked to a lot of people in this industry that have really been surprised by the discipline that management teams are showing this time around You're seeing that as well, I mean with your deals.
>> Yeah, for sure. I mean, look, we uh expect to be able to selfund our growth. >> There's no need for external capital, right? And it is a function of the balance sheet strength. We ended the second quarter with $425 million cash on hand, significant cash generation from Siggoia. Mato is expected to become a significant generator of cash flow once we have delivered the expansion in Q4. So, and that in conjunction with how well sequenced the growth is with one project following the next, uh, we expect to be able to selfund that and comfortably at goal prices of $4,000 per ounce.
>> Jeez. Like, did you ever dream of it? Not a few years ago.
>> We I mean, I think uh, you know, we all lucky to be doing it in this type of macro environment >> and yeah, like it's it's it's it's great to be part of the mining industry and this part of the cycle. And I agree with you there is a sense of uh restrained conservatism and uh I think this is the sector seems to be you know very measured in terms of capital allocation uh and so far certainly not repeating the sins of the past.
>> Yeah. Amen to that. Uh let's talk a little bit about what you're doing with all that cash you're throwing off. that you mentioned the asset Marmato and we'll talk about that first but you know you're still guiding 300 to 350,000 ounces this year right and targeting 500,000 just walk people a little bit through that bridge and what actually gets you there.
>> okay so um we have two operating assets in Siggoia uh sorry in Colombia Siggoia and Mamato and we're expanding both of them organically through brownfield expansions and Siggoia is in the ramp up pro process to get to uh 300,000 ounces of annual gold production. Uh we expect to reach that level next year. So what we did at Siggoia is we increased the throughput capacity by 50% last year by debottlenecking the processing plant by installing a second bonal on time and on budget. And now we're ramping up mining rates. What we need to do is increase hollage capacity in order to be able to do this. and we expect to uh be able to run consistently at 3,000 tons per day from next year onwards. So that is what gets Siggoia to 300,000 ounces.
At Mamato, we are transforming what used to be a marginal asset into the second cornerstone asset within the portfolio. We're building the bulk mining zone which is targeting a porefree hosted misothermal gold deposit. And what that allows us to do is mechanize bulk mining by way of long haul open stooping. And we're also building a dedicated new 5,000 ton per day carbon pulp plant. And um that project is on track for first gold pour in Q4 and then a stage progressive ramp up throughout 2027. We expect to be at 4,000 tons per day um at the CIP plant by the first half of next year and then exiting 2027 at 5,000 tons per day. So set differently 2028 would be the first year when the CIP plant runs consistently at 5,000 tons per day which in turn should enable Mamato to produce 500,000 ounces sorry uh 200,000 ounces and then Siggoia and Mamato would be at 500,000 ounces combined.
>> combined. I mean Marato is obviously it's a big big lever here. Um the new plant as you mentioned kind of coming together. Is there anything that could go wrong to between now and that first pour that you're looking for to kind of mitigate that risk?
Look, I mean, everything is on track, right? Um, the team is doing a tremendous job. >> There are certain items that are a little bit tighter on the construction timeline than others, right? The things to look out for is the electrical substation, the gold room, but it's all well managed. Um, so no, we feel confident about being able to deliver it in Q4.
>> Yeah, and you did say it there. I mean, you said on time and on budget, which is an investor's ears going, "Ah, thank God." Uh, okay. There's a debate running through the entire conference here. I just had Rick Rule on and this is obviously his symposium are he's arguing a lot of miners have will have to kind of fund their growth obviously by selling some royalty a little bit of streamers. Um you ended the quarter with over 425 million in cash basically um according to the company. What do you actually need to kind of do you need to do any of that?
>> No.
>> You're funer.
>> We are.
>> Yeah.
>> Yes.
>> Exciting place to be.
>> Yes, for sure.
>> And printing a little bit of capital. You got to give me more.
>> Yeah. So you know it's uh it's it's a great place to be uh as I said like fortunate uh that we're doing this in this gold price environment and you know and uh as I said like a function of how well sequenced the growth is with one project following the other >> tour Peru is the next one we expect to build the FID expected in Q1 of next year which then obviously follows on the heel of Mamato which we expect to deliver in Q4 of this year right so um having it that well staged clearly helps.
>> and I mean we should talk about jurisdiction and obviously Colombia is going through a government change uh that seems to be more positive for the mining companies in that in that country. A key permit for your So Norte project is due this quarter and the politics have shifted before. So just talk to shareholders about how this has become a safer jurisdiction.
>> Yeah, so uh just to be clear, we expect to file our environmental license application this quarter, right? And then let's see how long the permitting process might take. Um you know our base case assumption had been around 18 months with this new government. Could it be quicker? Maybe. Who knows right? Hard to handicap right. But what we do know is that Abalad is Espria the president-elect has campaigned on a pro business pro mining pro security agenda. Right. and his uh appointees have recently been in the press being um quite constructive in the discussion of projects such as Sonorte, right? Because I think this new government does appreciate what the industrial scale gold mining sector can do for the economy, right? terms of job creation but also tax revenues, royalties, social investments and then importantly you know also um um the protection of the environment and protection of biodiversity because what we're doing is as part of our setup in Colombia is partnering with contract mining partners and so we are formalizing or helped to formalize uh what is still a vastly informal gold mining industry in Colombia and that is quite that positive in terms of uh in terms of protecting the environment, right?
>> Yeah. Um so there's there's a lot that this new government seems to subscribe to in terms of how we have set up the project and so you know I think our expectation would be that the government uh might streamline um license review processes without cutting corners but being constructive and pragmatic.
Yeah, it almost feels like, you know, the debasement trade obviously is not stopping anytime soon when we have nationalized debt crossing almost $40 trillion. But in a country like Colombia that has went through different presidents, this seems like maybe the first time they want to get behind mining in a big big way in a long time.
Yeah, I think you know um this uh new government seems to be strongly promin >> um mean strongly pro- natural resources but >> in particular strongly prominate right um and you look at the pfs that we published in September of last year the government take over the life of mine which is 22 years based on viz would between taxes and royalties, $7 billion at an assumed gold price of $2,600 per ounce, right? So that just shows you what projects like so can contribute in addition to of course like economic growth and job creation and social investments, right? So I think the gold mining industry can play an important role in uh in you know uh helping to to to further grow the Colombian economy.
>> Yeah, well said. And Oliver, I mean Gana and the Toro Pararu project, is that something you you build? Is it something you sell or just hold as optionality?
>> No, we expect to build it. I mean, we have not made a construction decision yet, but um we are in the process of working on a PFS that is going to be published in the second half of this year. In addition to that, we're doing geotechnical drilling, uh detailed engineering, uh mological test work. So from a technical point of view, um, Toro Peru will be construction ready by the end of this year. And from a permitting point of view, we already have the environmental license. The only thing that's required is an amendment of the mining license. and Neil Woodier, our chair and CEO, and some members of our team. They've been in Georgetown probably five times over the last eight months, meeting with the president, meeting with the minister of natural resources, meeting with the minister of finance, and there's a lot of support in Guana for nurturing the gold mining industry. Reason being, you know, they obviously have this tremendous advantage of offshore oil and gas, right? And that's going to make the country very rich in a short period of time. But what oil and gas offshore oil and gas doesn't do as much is uh create infrastructure within the country and creating jobs and that is what the gold industry does right and also obviously diversifies the revenue exposure for for for the government right away from oil and gas to to to gold as well. So we get the sense that uh the the government is quite supportive of gold mining in general and also that would apply to to Peru. So we expect to have that project fully permitted by the end of the year and that would then put us in a position to make a construction decision in Q1. If we do that at that point the construction timeline would be expected to be 2 and 1/2 years. So first gold late 2029 at which point um tour Peru would be expected to contribute about 235,000 ounces annually. Right. Um so that would lift then gold production from 500,000 ounces to 735,000 ounces.
>> Little different.
>> Uh you guys have been executing very very well and quickly over this year uh last kind of stretch and I want to pull a little bit out here because the macro crowd is in Bokeh right now even though right now I think it's lunch and we're not seeing them but that debt and debasement is obviously going to keep gold elevated for the next years. Just talk to me a little bit about what that means for a mid-tier producer like Aerys. I mean you're you're you're kind of built for that.
>> Yeah. Look, I think the uh outlook for gold is fundamentally positive, right? I mean, we at areas we don't have a gold price forecast, right? Like we focus on what we can control which is mine plans which then dictates opex and we clearly have kind of uh control over our capex budgets, right? So we focus on the things that we do control. Um but we are fundamentally positive on the outlook for gold given you know the debasement trade like the fiscal uh outlook across the western world is is is not not particularly rosy right and um you also still have an elevated level of geopolitical tensions they don't seem to be abating anytime soon so you know I think all of that is positive for gold as a you know diversifier risk in portfolios as a safe haven asset, right?
>> Yeah, absolutely. It's been fascinating to watch. I mean, obviously we've been covering this runup past 5,000 also the correction, but I mean for for a a mid toear producer like Eris, the the runway here for the next few years seems to be at an exceptional point.
Yeah, I think we're uh at a um exceptionally exciting time for our industry and for AIS mining in particular. You know, like when you think about the AIS mining investment case, it is one about transformational organic growth in the near-term, doubling gold production relative to last year's level to 500,000 ounces by 2028 and then potentially quadrupling gold production relative to last year's level by, you know, maybe 2031, right? Like within 5 years. So it is transformational near-term growth given where we are in in the kind of gold price environment. We expect to be able to self-fund it. And then uh the third important pillar to the whole investment case is a team that has done it multiple times before. Right? Our chair and co Neil Woodier is a serial entrepreneur. He created Endeavor Mining, grew that together with Frank Chustra, grew that from zero to a market cap of $2 billion, right? Um then partnered with Nagib Sever, one of the richest men of Egypt, handed over the reigns to the next management team, then founded Leia Gold, grew that from zero to a market cap of $800 million, merged it into Equinox Gold, and now Aerys Mining is the third stint. Right? So you have a team and Neil brought a lot of those members, team members that were important to the Endeavor mining and layer gold successes. He brought them with him to Aerys >> and so you have a team that has the experience and the expertise to build gold mines to scale gold mining companies.
>> Certainly. I mean it's I Yeah, Neil's been fantastic at building mines. Uh okay, last one and it's real fast here. I mean if if gold never kind of went a single dollar higher from here at this point. I mean, if it just sat right around $4,000, is ARIS still a great of investment or does it kind of does the story need the price to keep climbing?
>> No, for sure. It's uh I think an exceptionally attractive investment, right? When you no matter which valuation metric you look at, right? forward-looking EVA multiples below three times um PNAF multiple somewhere between 3 to 0 point4 significant free cash flow yields from uh next year onwards so you know I think um mining is still inexpensive trades at a discount to its peers fortunately we have a lot of catalysts ahead of us uh associ with each and every one of our assets that should help us close that gap, right? Uh so we have an exciting 12 months ahead of us.
>> Yeah. Amen. Oliver Dashelle of Aerys Mining, thanks for joining us.
>> Thank you very much.
>> All right, that was Oliver Dashelle of Aerys Mining and our thanks to Aerys for partnering with us on this conversation. Now, here's the thrill line. Bigger than any single company. Now, the miners handed investors a wild ride this cycle as you know, a big run and that hard correction. But at these prices, the ones actually making money finally have to prove the gains can stick or the market is right to keep on doubting them which side of the line AIS is on. You can judge for yourself. Now, we're going to be here all week long over at the Rick Rule Symposium in Boca Raton, Florida. I'm Jeremy Safford. Catch us next time. Kitco News on-site coverage of the rule symposium natural resource investing is presented by Aerys Mining.