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Good day, and welcome to the Hochschild Mining Q3 2021 Production Results Call. I will now hand you over to Ignacio Bustamante. Please go ahead.
Thank you, Marie. Hello, and welcome to our conference call to discuss the third quarter production results. As usual, I'm here in Lima. And also with me is Ramón Barúa, our CFO; and Eduardo Noriega, Head of Finance; and in London is Charlie Gordon, our Head of Investor Relations.The third quarter was our strongest of the year, with good production of almost 94,000 gold equivalent ounces or 9 million silver equivalent ounces. Our 9-month figure is, therefore, almost 269,000 ounces or 23.1 million silver equivalent ounces, which places us in a very strong position to meet our 2021 target of between 360,000 and 372,000 gold equivalent ounces or between 31 million and 32 million silver equivalent ounces.At Inmaculada, grades and recoveries in the third quarter were better than we expected. Production was just over 44,000 ounces of gold and 1.6 million ounces of silver, which is gold equivalent production of [indiscernible] over 63,000 gold equivalent -- gold ounces.In the first 9 months of the year, the operation has produced almost 174,700 gold equivalent ounces. This robust performance from our flagship mine was partially offset by Pallancata, which produced 0.9 million silver equivalent ounces in the quarter, bringing the 9-month total to 3.5 million ounces. The focus of the operation remains on brownfield exploration and our revised mine plan to try to extend the life of mine beyond 2022.In Argentina, San Jose also enjoyed its strongest quarter since 2019 and produced 1.6 million ounces of silver and just over 22,000 ounces of gold, which makes 3.5 million silver equivalent ounces. Overall, in the first 9 months, the operation has delivered 9.1 million ounces and is on track to keep its full year target of just over 12.5 million ounces.In terms of costs, we remain on track with our 2021 guidance, which, if you remember, was between $12.10 and $12.50 per gold equivalent ounce or between $14.1 and $14.5 per silver equivalent ounce. As you know, since the end of 2020, our balance sheet has been in a net cash position. And currently, we have $270 million in cash, which gives net cash at the end of September of $64 million, as compared to the cash position at the end of 2020, which was $232 million.Our 2021 brownfield program has continued during the quarter, and we have seen some additional outstanding results at Inmaculada. At the half year, we're able to tell you that we had added 29 million silver equivalent ounces of high-grade resources. And I'm delighted to report that by the end of the third quarter, this figure has risen to 43 million ounces. We will update the additions figure at the end of the year, but you can expect a significant rise in Inmaculada resource base versus 2020 as well as a strong improvement in grades.Drilling has also continued elsewhere across our portfolio. The team at San Jose are still producing more high-grade results from the areas surrounding the current mine, in particular, at the Betania, Jimena and Angela veins. The 7 million-ounce of additions from the half year has risen to just over 9 million ounces for the first 3 quarters of the year.On the business development side, we have had a really busy few weeks. Last week, we announced our intention to demerge the Aclara rare earth business and then IPO it on the Toronto Stock Exchange. We have always said that the primary focus of our business in precious metals. Aclara, of course, has an ambitious growth plan, and we think that it's at a point in its journey when we need a dedicated stand-alone management team onboard. We also think it will allow the market to value both businesses independently, potentially leading to our re-rating. We are, of course, also retaining a 20% stake in Aclara, which will give shareholders some upside optionality.In addition, we also recently announced the exercise of our option on the Snip project in British Columbia, Canada. I think it could be the first step in our strategy to add another high-grade project with a strong upside potential into our pipeline, and we are really looking forward to getting on with more drilling as soon as possible and working with Skeena as well as building under strong relationship with the Tahltan Nation. Summing up, in the past few weeks, we are very much on track to meet all our production and cost targets for the year, and our brownfield program continues to deliver excellent results whilst we are demerging our exciting rare earth business and delivering additional low-cost projects to our growth pipeline.And with that, I would like to open up to any questions that you may have.
[Operator Instructions] We can now take our first question from Moses Ola of JPMorgan.
I just want to ask about Pallancata. So just looking at production compared to some numbers that we have on board here. And we're just looking at to reach middle to the [ operation ] of guidance is going to have to be a sharp recovery in grades and throughput. So how should we look at that recovery into Q4? Were there any operational challenges experienced in Q3 that we think will be mitigated in Q4?
Yes. So at Arcata, as you are aware, is the mine that has the shortest lots of mine and resources. The good news is that we have still plenty of targets to test that we're going to be testing during 2021 and 2022.In the meantime, what I can tell you in this type of operations, there are certain quarters that are -- could be lower than what we have planned, certain quarters that are higher than we have planned. Variability, in general, tends to be higher than in the mine that is operating with many years ahead of it. So we do expect some variability.In September and October, we had some operating issues that forced us to change a little bit our mine plan, and we have to go to areas with that goes lower tonnage and lower grades. But the areas with the higher grades and higher tonnage that we're expecting to mine are still there. So we expect that we're going to be catching up on those. I don't know if necessarily during the first quarter -- during the last quarter of the year, but for sure, sometime in the fourth quarter of the year, plus in the first quarter of 2022.So -- but having said that, we are still maintaining our guidance for the full year for the company of between 31 million and 32 million silver equivalent ounces. So if there's a change, they're not going to be material enough to change our guidance for the year.
[Operator Instructions] We can now take our next question from Ryan Thompson of BMO.
Can you talk a little bit more about the decision to exercise the Snip option? Can you just talk about the potential that you're seeing at that project and how you sort of see it evolving over the next few years as you continue on with the drilling work there?
Sure. So thank you, Ryan. So yes, we're very excited, as I mentioned, with this option that we have, even though the project is still in an early stage, as you have probably seen from Skeena's releases in the past. We have announced a maiden resource of between 650 -- about 650,000 ounces of gold with an average grade of between 13 and 14 grams. After that, they have continued drilling and posting a very attractive drilling results. So we're in the process also of evaluating all that and operating and building our own resource model as well as with all the new data.But in addition to that, we do believe that the [ grade ] has some additional exploration potential. So our goal is, one, that we'll have exercise the option is to be able to fund a more intensive drilling campaign in which we are in a position to prove all the drilling targets that Skeena and our team have identified in the property and try to get a better detail on the potential for exploration in the area and if we can find some potential and bring it into more determined or like inferred and measure indicated a category of resources and see if we can have a project there.So the way we're looking at this is still like an early-stage project with a significant exploration upside. And the idea is to try to see if we can materialize that upside and see if we can turn into a much higher resource in the area. And once we have that information, then we can decide on the next steps in terms of the future development of the project. But I would say, at this stage, the best way to look at it is an advanced -- an early-stage project already with a maiden resource and with significant potential that we're going to try to understand in the first 12 months of our option.
We can now take our next question from Ian Rossouw of Barclays.
Just one question on Inmaculada. Just -- I see there's been quite a bit of grade variability this year, I guess, with quite high grades in the last quarter. Could you give us a bit of a steer of what we should expect into Q4 and then next year as well? I guess just in the context of what you said, Ignacio, on the reserve grades, you expect that to pick up quite meaningfully. So just wanted to get a sense of what -- how that could compare to the update post the, I guess, full year results.
Yes. I mean what we are contemplating for the full year in Inmaculada, absent any major changes, but what we are estimating is that we're going to be having an average grade of gold of about 3.9 for the full year and about 170 of silver for the full year. So that's -- that will give you an idea of how much we're expecting in the fourth quarter. So that's the guidance -- or that's our estimate for the full year. And not that there's a [indiscernible] production within the guidance that we have given to the market of between 19.2 and 19.6 for the full year. So we're on track to achieve that hopefully on the higher end of the range.Then as you know, the grades of the remaining resources, absent the additions that we have had this year, were of lower grade because they already incorporated all the material amount of ounces that we found in the past 3 years in the areas on the east of Inmaculada or the Angela vein such as [indiscernible], et cetera. So those -- even though they gave us a significant amount of ounces, the grades were also lower than Angela.So next year, in 2022, we're going to be [indiscernible] to some of that area with lower grades. But the positive thing is that the discoveries that we have made this year that so far are about 43 million silver equivalent ounces are of a significantly higher grade than Angela. So this should help us materially improve the average grade of our resources and reserves going forward.Most likely, we're not going to be able to get the benefit of those additional ounces in 2022. But we expect that in 2023, we are going to be in a position that we can extract and put into production those ounces and take the average production as close as possible as we can to the one that we're dealing with Angela.Still plenty of optionality in the area. We are just starting to evaluate this area -- this Angela North area. We have made very good progress with Angela Northeast with [indiscernible] Angela, but we are still starting to evaluate Juliana, Shakira and other structures in the area and all the new areas that we're going to be getting the permits in the upcoming weeks, hopefully. So still plenty of potential to continue improving the amount of resources and the average quality of [indiscernible].
Great. And then just a similar question on San Jose, I mean, just around the additional ounces. Could you maybe just give us some context on the grades there versus the current reserves and resource grades? I mean I guess we can see from [indiscernible] maybe just overall.
Sure. I would say they are fairly similar on the 9.1 million ounces that we have added so far in the year. There are certain areas that are very, very interesting also that we still need to finish the work, but those certain areas that we mentioned in the release, Betania, for instance, that we have found about also 1 kilo of silver equivalent ounces, which is pretty much the average grade of the resources in San Jose, but we have found them very superficial and in good extensions. So that could allow us to mine them via open pit. So even though the grades would be similar, the operating cost could be materially lower. So that's an area that we are still evaluating to see what the net impact is [indiscernible].There are other areas that are also [indiscernible] with lower grades that we're going to evaluate also if they make economic sense. We do think so because the cost of mining open pit is really cheap. So we still [indiscernible]. But I can tell you from the 9.1 that we have found, they are very similar grades, and we are -- what we are aiming always is to try to find at least things that given the same economic value as the ones that we are currently holding in our resource grades.
Okay. Perfect. And then maybe just lastly on the Skeena option, do you -- apologies if you've mentioned it in the previous release, but do you expect to spend any of that CapEx this year? Or is it basically for next year?
Yes. What our option implies is that we have to spend a minimum of CAD 7.5 million, which is roughly USD 6 million in the first 12 months, and we do intend to invest at least that amount of money for [ this year ].
No. I mean in 2021. So this calendar year, do you expect to spend at least [indiscernible] much money [indiscernible]?
Yes. This calendar -- yes, we are. Since we are taking over and we're starting to -- we're having to start pretty much from 0 in all the work that we need to do there, probably it's going to take us a bit -- a few weeks to catch up and to have all the contractors and people in place. But if we can spend some of that this year, we will definitely try to do that. Hopefully, we can start doing some drilling before the year-end. But that's our goal.
[Operator Instructions] We can now take our next question from Kieron Hodgson of Panmure Gordon.
[indiscernible] Just wondering if you sort of help me understand your expenditure program, really, across the assets sort of how it's going to look, really, from '22, '23 onwards. Are you expecting to see a proportional reduction of investment in Peru in the face of a widened investment in Snip? And just sort of give me a sense of are you going to sacrifice absolute dollar investments? Or are you going to be increasingly -- or going to be increasingly absolute level of investment in the ground through drilling programs throughout the portfolio? Just sort of can you a sense of how that's going to look over the next couple of years, if you could, please.
Sure, Kieron. Thank you for the question. So look, in short, we do not anticipate to change our expenditure in Peru. We continue very committed to invest everything that Inmaculada and Pallancata require. We continue having a lot of [indiscernible] in their potential and all the exploration upside that we've seen there. So that's going to remain completely unchanged.In the case of the Snip, we're going to start spending money in Canada is going to be extra money that we're already spending. So probably what is going to be shifting a little bit is the amount on greenfield expenditure. In the past, we used to be very in charged to Peru probably as the main destination of our greenfield expenses. And now probably that's going to switch to more outside of Peru to see if we can continue building or adding attractive [indiscernible] in North America, in particular. So that is going to change [indiscernible]. That's a small part of our portfolio -- of our CapEx.So in short, I would say no, it should be additional what we are spending in Peru. And in Peru, we continue fully committed to spend whatever is required to continue delivering on the growth of our life of mine in Pallancata and Inmaculada.
[Operator Instructions] We see there are no further questions over the phones at this time. I'd like to now hand back to the speakers for any additional or closing remarks.
Thank you very much, Marie, and thank you very much, everybody, for participating in the call. Should you have any additional questions, please feel free to contact Charlie Gordon directly at our London office. Have a great day. Thank you.
This concludes today's call. Thank you all for your participation. You may now disconnect.