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Hello, and welcome to the Hochschild Q4 production results call. [Operator Instructions] And just to remind you, this conference call is being recorded. Today, I'm pleased to present Ignacio Bustamante, CEO. Please go ahead with your meeting.
Thank you very much. Hello, and welcome to our fourth quarter and full year production conference call. I'm Ignacio Bustamante, CEO. We also have in the line Ramón Barúa, our CFO; and in London is Charlie Gordon, our Head of Investor Relations. Before I discuss today's announcement, let me remind you that our full year results will be released on 20th February.So to the Q4 performance. As you may have read, we have delivered a good last quarter of the year and it, therefore, completes another record year. We have finished 39 million silver equivalent ounces or 514,000 gold equivalent ounces, which is actually ahead of our revised production forecast for the year of 38.5 million silver equivalent ounces.As well as that, at the end of Q3, we brought our cost guidance for the year down to between $12.7 and $13.1 per silver equivalent ounce, or for those who think in gold between $940 and $970 per gold equivalent ounce. I can confirm that we will be within that range.So to a little bit more of the detail. Fourth quarter attributable production was 61,000 ounces of gold and 5 million ounces of silver, which combined makes 128,000 gold equivalent ounces or 9.5 million silver equivalent ounces. As I stated, this means we have, again, achieved record production in 2018 and is the 6th year of growth.Inmaculada was, of course, the key asset and had another great year. In the fourth quarter, we produced 55,000 gold equivalent ounces, and this makes just over 251,000 ounces for the year, which is almost 5% ahead of where we were last year. I would remind you that in the first half, we did have some ounces, which were in the processing stage at the year-end 2017. So the one-off boost to production was clearly not present in the second half. Some slightly stronger than expected gold grades during the year also helped.At Pallancata in the fourth quarter, the Pablo vein ramped up smoothly reaching at 2,800 tonnes per day rate. And you can see that, as expected, grades fell towards the average Pablo grade. Fourth quarter production was 2.6 million silver equivalent ounces, that means that the full year total reached 9.4 million silver equivalent ounces, which is 22% ahead of the total for 2017.San Jose in Argentina entered a good quarter with production of 3.6 million silver equivalent ounces, and this, therefore, makes a full year total of 13.3 million silver equivalent ounces, slightly less than 2017, although that was a record year. The reduction was mostly due to lower mine grades.Arcata's performance in the fourth quarter was in line with our expectations producing 1 million silver equivalent ounces, bringing the total for the year to 4.2 million ounces, slightly ahead of the 4 million ounce guidance.The current situation with regards to our CapEx future is that we are finalizing the 2018 drilling program results as well as making the necessary preparations for a potential temporary shutdown, and we expect to be able to make a final decision before results in February.Regarding our brownfield program. We gave you a wealth of detail at the Capital Markets Day, but it is worth reminding you that we have discovered almost 1.3 million gold equivalent ounces at Inmaculada in 2018, which demonstrate that our ambitious life-of-mine targets are starting to be delivered. It is no exaggeration to say that Inmaculada is now a long life-of-mine asset. We, again, also look forward to the 2019 brownfield program with the targets continuing in Q1 at Inmaculada, San Jose and at Pallancata in the second or third quarter following the receipt of the necessary permits.On the financial side, our cash balance at the end of the year is around $80 million, with net debt now at only $76 million. I should point out that this balance reflects another $50 million of debt repayment in December in addition to our temporary increase in working capital of around $10 million, some in strategic investments and an increased investment in our brownfield program following the success at Inmaculada.As per usual, we have disclosed our guidance for this year. We expect to produce 37 million silver equivalent ounces or 457,000 gold equivalent ounces. This does not include Arcata and equivalent figures calculated using the 2018 average ratio of 81x. You can see the split in the press release. This ounces will be produced at the forecast all-in sustaining cost of between $11.8 and $12.3 per silver equivalent ounce or between $960 and $1,000 per gold equivalent ounce. Again, the split by mine of cost forecast is included in the release, but it is worth mentioning that Inmaculada forecast includes an investment of approximately $15 million of development expenditure to incorporate the new resources discovered in 2018.Our sustaining and development capital expenditure budget for this year is expected to be $130 million to $140 million, and that includes that investment at Inmaculada of $15 million, but as I said before, it excludes Arcata. We also have a brownfield exploration budget for the year at $27 million, and a greenfield budget set at the same as last year $10 million.To sum up, we have had another record year of production and are set to meet our positively revised all-in sustaining cost forecast of between $12.7 and $13.1 per silver equivalent ounce. I look forward to seeing you at the results next month.And with that, I would like to open up to any questions that you may have.
[Operator Instructions] Our first question comes from the line of Daniel Major, UBS.
Couple of questions. You mentioned briefly about your requirement for some more permitting to continue with the exploration or to increase exploration at Pallancata. Can you just remind us on any outstanding permits you have, I guess, across any of the portfolio that are required for you to execute on your exploration plans for this year?
Absolutely, Daniel. So the only mine that requires additional permits for exploration this year is Pallancata. We don't need any additional permits in Inmaculada. We don't need any additional permits in San Jose. And the permits that are required in Pallancata are now only the legal permits. You may recall that last year we were able to obtain all the community relations permits or community relations related permits, which were the ones that took us some time to get. Now we have all of them. We are looking -- just waiting for the final legal permits, which will take to get some time at the end of Q2 or beginning of Q3. Those are following the expected time lines. We do not anticipate any delays. We are working very closely with all the authorities. And we should be in good shape to start as we're indicating and complete the full program before the year ends.
So you expect to receive the permits Q2? And when do you...
We expect to receive the permits by the end of Q2 or beginning of Q3, and we are ready to drill as soon as we get them. So that's what the program for this year is contemplating. And we stated with that we should be able to complete with no problem the full exploration program for Pallancata before the year ends.
Okay. Just looking forward to your full year numbers, in particular the reserve and the resource statement, you've obviously effectively already provided the update on reserves and resources at Inmaculada. Will you, first of all, be, I guess, removing Arcata from your full reserve statements? And will you be taking any impairments? Is there any book value there left? Or if you would be taking an impairment there in Arcata? And what should we be expecting at Pallancata and San Jose in terms of resource reserve progression with the full year numbers?
Sure. We are right at -- continuing leaving the resource numbers for Arcata there because Arcata, even though there's a possibility that it might temporarily shut down, it's going to be temporary, and we continue to be very excited about the geological potential except that is going to take us some time to prove it and also to permit it. So the resources will continue being there adjusted, obviously, for whatever we need to adjust in terms of economics because of the reduction of the silver price. You may recall that Arcata is mostly silver, but the resources will continue being there. In terms of the resources for 2018, you may also recall that the intensive plan was for Inmaculada, and Inmaculada which have been very successful. In Pallancata, in particular, we are not going to drill. So you should expect that the resources should go down in 2018 taking into account the production of the year but also they have some positive grade reconciliations that are allowing us to partially offset the decrease in production. But that comes as expected because we have not had a drilling program in Pallancata because we are waiting for the permits. And in San Jose, we also had a program that was not too intensive. The intensity of that program will start in 2019, but I still would expect to have some positive reconciliations in the modeling of San Jose and hopefully some increasing resources as well.
Okay, great.
If I may add, Ignacio...
Yes, sorry. Go ahead.
This is Ramón. Just to clarify, [ Arcata ] is fully impaired already. So there will be no impairment -- additional impairments in that asset.
And the next question comes from the line of Richard Hatch from Berenberg.
Can you just clarify the potential costs for the Arcata care and maintenance, please? And also I just wonder whether you might on the balance sheet whether you can just talk a little bit more about this working capital build and whether you expect it to flow back through into H1 '18? And what your forecast is for the new vessel in 2019, please?
Sure. Let me cover the Arcata care and maintenance situation, and then I'll have Ramón cover the working capital question. So regarding Arcata care and maintenance, the number that we have so far, our best estimate, is that it's going to require us around $3 million per year to keep it under care and maintenance while we continue doing in parallel all the exploration work. So that is the number that we have. Obviously, we're going to try to optimize it. But the best guidance that we can give now is that number of around $3 million.
Okay. And is that included in your CapEx/AISC guidance in any way, shape or form? Or is that in addition to that?
That's in addition to that because it only takes into account 3 operating assets.
And regarding the working capital, what we have is the -- when you look at the results from the year, there's an improvement overall in 2018 of working capital of around $5 million. But when you look at the quarter, there's a decrease -- sorry, there's an increase in the working capital. And it's mainly associated to the fact that always towards the end of the year there's an accumulation of product in process that I think in the press release we mentioned around $10 million that we would expect to be quickly recovered during Q1. There's another -- a smaller portion or portion of additional stockpiles that we have been able to build in Inmaculada and Pallancata, but those are in addition to the $10 million, and those will not be quickly eliminated but will probably stay as a contingency ability of those operations to perform should there be any situation.
Okay. And my last one is just on vessel, your forecast for the year in terms of the FX rate.
Yes, what we have set in our budget and what is incorporated in our guidance is, we have assumed a 4.5% inflation represented for the country, for the industry and for the business, and that evaluation is only assumed at 1%. So basically flat, just a slight a pulls on inflation and pushing our costs up, but it's very minimum.
Okay. On a -- like a foreign exchange rate, do you forecast that? Or are you just assuming it all?
Yes, flat. Essentially flat to earnings right now.
So about [ 3 30 ] something that?
Exactly.
[Operator Instructions] And the next question comes from the line of Ian Rossouw from Barclays.
Just a follow-up on the care and maintenance cost of $3 million. I assume the layoffs, there's one-off of '18 you provided at the Capital Markets Day. That would still be the case, right, so that would be an additional cash outflow in the first year if you decide to shut the operation down?
That is correct. That is the cost of letting -- that will be the cost of letting the people go. That's something that means during the life of mine or the permits of the people that to an extent that has to be done no matter what because of the cost of letting the people go, so it comes now or later. And we estimated at around $18 million, but we're also working on the numbers to try to see if we can minimize that because there might be some good people in Arcata who could be in a position to find all the opportunities within the company. So we still need to review that number, but that is so far that is the best estimate that we can give.
Okay. So there's -- I guess -- so $21 million for this year is the $3 million in the '18 and then hopefully it's slightly lower than that?
Exactly.
And we have a follow-up question from Richard Hatch from Berenberg.
I just wonder perhaps you might just be able to talk a little bit more about some of the strategic investments that you referenced in your -- in the release and what opportunities you're seeing at the moment?
So Richard, this is Ramón. By far, the largest investment that we've made in that front around $4.3 million is the deal that we've done with Skeena. Probably you remember that -- the transaction. When we have purchased some shares of this Canadian a junior company, so we do have the shares and plus in exchange for that we have the optionality in one of their projects to eventually acquire for a relatively small amount up to 60% of the project. Of course, when I say a small amount, if they are successful, no. So I think, it's a great transaction for the company because it offers us value of our optionality in exchange for a payment that is also packed with shares. So...
Yes, just to add, Ramón, so the business that we did there was $4.3 million, and that money goes only for exploration purposes on the particular asset that we have identified. So we make sure that all the money that we put goes straight into exploration to try to capitalize on the geological potential of that asset. So it looks like a very good opportunity for the company.
As there are no further questions, I'll hand back to the speakers.
Well, thank you very much. And thank you very much, everybody, for participating in this call. I look forward to seeing you all in February when we present our full year results. And 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 now concludes our conference call. Thank you all for attending. You may now disconnect your lines.