Aris Mining Corporation

Great. Thank you, Hilda.

Good morning and thank you for joining us today for our 2019 fourth quarter and year end results webcast. With me on the webcast this morning hopefully will be our CEO, Lombardo Paredes.

They are having some tower outages this morning and I understand he is having some difficulty connecting. But as is customary, I will first go through our prepared remarks regarding our performance in 2019and if Lombardo is able to connect, he will join us for the Q&A session when we open things up.

Before we proceed with the presentation, I would first like to draw your attention to our legal disclaimer regarding forward-looking statements that maybe made by us this morning during the webcast. So last night we released our operating and financial results for 2019’s fourth quarter and full year.

We are very pleased to once again be able to report another solid quarter consistent with our expectations. In the fourth quarter, record gold production coupled with strong gold prices propelled our adjusted EBITDA, adjusted net income and cash flow metrics in the right direction.

For the full year, we have set new highs across the board. Over the next few slides – good morning, Lombardo.

Yes, good morning Mike. Sorry.

Yes, it’s okay. We have just got started.

Alright. So as I was saying, over the next few slides, we will take a closer look at the results we reported last night.

One of the items we reported last night was the impairment charge taken in the fourth quarter. We completed the spin-out of Zona Baja mining assets at Marmato into its new public vehicle, Caldas Gold Corp.

in February. So we can proceed to develop the underground mine expansion in the deep mineralization without impacting Gran Colombia’s capital structure or its balance sheet.

We think this is going to be a fantastic project and our initial investment is valued at $44 million. With the spin-out, we had to assess the carrying value of the Zona Alta mining title that remained behind with Gran Colombia.

Prior to 2013, this area was a key focal point in the open pit strategy and a lot of investment, including values assigned back in the 2011 merger with Medoro, remained attached to the upper portion of the mountain. However, with the continuing presence of legal miners in Zona Alta, we aren’t able to do any exploration nor can we establish any mining operations in Zona Alta at this time.

As we stated in the last night’s press release, this is one of the reasons we commenced the free trade arbitration to Colombian government back in May of 2018. And after considering the various alternatives and recognizing nothing has changed since we launched the arbitration, we do not believe the carrying values recoverable at this time and so we took the opportunity to write the carrying value down in the fourth quarter.

With this slide, I want to highlight that the carrying values on our December balance sheet reflect the core strategic assets in our portfolio that we believe will drive value creation for our shareholders. The dollar amount shown represents the accounting carrying values of the net assets at the end of 2019.

Each of Segovia, Caldas Gold, Gold X and even Western Atlas all have the potential to be worth far more than the current carrying values as their individual exploration development and growth strategies unfold. And Caldas Gold is a great example of what I am referring to.

The mineral resource estimate last year’s PEA was based on drilling up to the end of July 2019. Since then, we have issued several press releases with infill drilling results in the main zone, showing higher grade results than were in the mid PEA resource.

This bodes well for the PFS that is currently in process and expected to be completed midyear. The other exciting development is the discovery of a new zone, parallel and very close to the main zone.

It has the potential to add to the projects resources with more drilling. The more drilling we complete with each mineralization, the better this project is looking for us.

We had a record quarter at Segovia in the fourth quarter bringing our total gold production for the year to 214,000 ounces, up 10% over last year and more than double our production level 5 years ago. In fact, since 2010, we have now produced over 1.3 million ounces of gold from our two projects in Colombia.

At Segovia, we processed an average of 1,345 tons per day in the fourth quarter with an average head grade of 16.2 grams per ton resulting in 58,000 ounces of gold production. At Marmato, an improvement in head grades to an average of 2.7 grams per ton increased its quarterly production to 7,000 ounces.

For the year, Segovia’s 214,000 ounces of gold production was a new record with Providencia and El Silencio continue to be the key contributors. We saw additional growth in Sandra K and we also saw an increase in the artisanal miner production as new contracts came on stream in 2019 under our contract mining model in our title.

Our models 2019 production was near the top end of its guidance range. The spinout of Marmato to Caldas Gold sets the stage now for us to improve production as they implement the mine optimization plan envisioned in the PEA.

Last night, we also reported the 2019 update to Segovia’s mineral resources and reserves after completing our drilling program last year, which comprised almost 36,000 meters. We are pleased with the results replacing the reserves we mined in 2019 and adding over 360,000 ounces to our mineral resources more than replacing what we mined.

The results also reaffirmed our confidence in the high-grade nature of our Segovia gold project with the M&I grades averaging 11.7 grams per ton and an average of 10.5 grams per ton in our proven and probable gold reserves. The biggest increases in resources came at El Silencio and Sandra K and our drilling last year identified several high priority targets that have the potential to increase our reserves and mine life.

Our 2020 drilling program will be following up on all of these targets. Revenue of $88.5 million in the fourth quarter brought the total revenues for 2019 to $326 million, up 22% over 2018.

Our revenue growth over the last 5 years has predominantly been driven by our production growth at Segovia. The lift in spot gold prices in the second half of 2019 was also a major catalyst in 2019’s revenue growth.

And overall, our total cash cost was $685 per ounce in the fourth quarter this year bringing our company average for the year to $661 per ounce, about 3% lower than 2018. From this chart, you can see that Segovia’s cash cost continues to hover around the $600 per ounce level, while Marmato at just over $1,100 per ounce, is expected to see significant improvement going forward as Caldas Gold implements the optimized mine plane, improving production and identifying cost savings opportunities.

We also expect with the recent Colombian peso devaluation in March of 2020 it should have some positive impact on our U.S. dollar equivalent cost for both mining operations.

Our all-in sustaining cost increased to $1,003 per ounce in the fourth quarter this year reflecting an increase in capital expenditures of Segovia, most notably associated with exploration and mine development and our G&A reflected the cost of the legal work required this quarter related to our arbitrations in process. That brought our ASIC for 2019 to $916 per ounce below our guidance of $925 per ounce.

In 2019, we incurred another $30 per ounce of non-sustaining CapEx mainly on the drilling PEA and PFS work at Marmato resulting in an all-in-cost for the year of $946 per ounce, which was also below guidance which was $950 per ounce. The gold prices rising in 2019, you can see the gap between revenue and all-in-cost widened in 2019, the key driver behind our free cash flow growth.

And with the boost in revenue from the increase in gold prices in the second half of the year combined with 2019’s production growth and lower cash costs, our adjusted EBITDA reached a total of $147 million in 2019, up 43% over last year. That means, we are currently trading at less than 1.5x EBITDA in the current market.

Cash flow metrics in 2019 also benefited from the higher gold prices in our continuing strong operating performance. Operating cash flow in 2019 surpassed $100 million this after paying $35 million income taxes earlier in the year and was up 30% over 2018.

After $43 million spent on CapEx and exploration in 2019, our free cash flow was $60 million, up 38% over 2018. With about $22 million in free cash flow in the fourth quarter and after debt service, the purchase of a $5 million convertible debenture in Gold X Mining and a $1 million spent to acquire a 20% interest in Western Atlas.

Our cash position increased to $84 million by the end of 2019. This also included about $11 million we received in the private placement with Eric Sprott in November that we used in the first quarter of 2020 in connection with our private placement with Caldas Gold.

Meanwhile, we reduced the principal amount of the gold notes by another $5 million in October bringing them down to about $69 million by the end of 2019. Including the convertible debentures, the total principal amount of debt outstanding at the end of the year, was also about $84 million.

We have come a long way in strengthening our financial liquidity in just 2 years. And in February, we completed a private placement for both $30 million and today we have used $22 million of the proceeds to redeem 30% of the gold notes bringing their principal outstanding down to $45 million.

We will have about another $4 million in savings this year in our debt service because of the early redemption that we have taken. And with the private placement in February, our issued and outstanding common shares, now stands at $60.8 million of shares.

With warrants options in the convertible debentures, our fully diluted count is about $88.7 million. Our share price, much like others in the market, has taken a beating with the COVID-19 crisis, but we feel confident in our assets and we are optimistic the value will return once the markets normalize.

I am expecting there will be many questions this morning about COVID-19, what we are doing about it and how it’s affecting us. We are closely monitoring the situation and we are adapting our response plans on a daily basis as new information becomes available.

The safety and well-being of our workers is of the utmost importance and we are taking all the necessary precautions. Today, our production and shipments have not been significantly impacted by COVID-19.

Colombia is in the midst of a national quarantine. So we have implemented our business continuity plan.

We do have mining plan to maintenance operations going on at this time. As you can get the impression from this slide, we have also focused on the humanitarian side of things in the crisis providing food and water to the communities as well as ensuring everyone follows their recommended protocols to remain safe and healthy.

This is the situation that’s changing almost on a daily basis. So we will keep you informed as the time goes on.

And I would like to take the opportunity before the Q&A session, Lombardo did you have anything that you wanted to add about what’s happening with COVID-19 at the moment in Colombia?

Yes. Well, one of the advantages of Colombia is that Colombia took the measure to isolate people early in the process.

It was not like Spain or Italy for example. And in our case, especially, Segovia, for example, that Segovia and enabling municipalities are free of coronavirus and [indiscernible] which is 2.5 hour by road like car carrying on road, which is we have only one case.

So in our – from the point of view of isolation, Segovia is in a very good position. Segovia-Remedios, they do not have any cases of coronavirus and the town which has only one person with symptom is 2.5 hours far from Segovia by car.

So we are – and the municipalities, Segovia-Remedios, are isolated. So no one can cross the border.

Our people who are working there are isolated within the mine facilities. So we are cooperating hand-to-hand with the authorities, sanitary authorities.

So we are confident that we have handled the situation of emergency properly.

Great. Thank you.

So with that, Hilda, we would now like to open up the lines for the Q&A session.

Gentlemen, congratulations on the strong results. Maybe some more color on COVID-19 and the impact, are you revising your production guidance that was provided few weeks ago?

Lombardo do you want to answer

Yes please for example the production of March and also their first quarter we have almost no impact at all the isolation was started in March 23 so for our whole promotion will be on about 92% to 94% of our target April is going to be a little bit more challenging we are monitoring the situation we depending on how challenging is April or if situation is extended beyond April we already have to revise our guidance.

How easy or challenging is it to turn off production and resume production at both the mines?

This type of situation varies and that kind of thing is not it's not unusual for us. Our – for example, our last similar strike was in 2017 and last 42 days and we have to implement strict measures and an effective, by the way, unaffected emergency plan, continue with the plan.

This time, it’s a little bit different because the authorities are limited the mobility of the people but for example we have around 800 people, 550 people for our own people and the rest are contractors. They are working in all the mines.

They are working in the plant we have to drill So – and probably – probably is in a saying that for 50% probability is that the measures, knowing how we are we are handling the situation and cooperation that we are having with authorities will allow us to have more people working so I am optimistic with that situation. I am saying that we challenge it because you never know how that [indiscernible] situation evolve, but taking the proper measure we believe that we will be able to handle the situation in our regional manner and purely my expectation for April is going to be around probably around from 10,000 15000 ounces of gold remain as it is

Okay. And how about CapEx so last year the CapEx is about $43 million do you have any are you starting to do you have any guidance for that?

So we were going to provide guidance on CapEx. We do have programs that are underway as you have seen in our press release we have taken some precautionary measures in light of the situation to slow down some discretionary CapEx so at this point we would have seen CapEx probably similar level this year to last year in normal times, we are going to wait and update guidance on where we think CapEx will be once we get on the situation of a better sense of just what the numbers will look like for the year.

Okay, gentlemen. Thank you so much.

Hope this COVID-19 does not cause any disruptions. All the best.

Thank you.

Great. Thanks, Sid.

Good morning, guys and thanks for hosting the call and congratulations on a solid quarter. Just looking at the – looking back here when the sort of the exploration program picked off, the 2019 exploration program or the mine that was raised with the convert – design was that it would be sort of 2020 loaded on the exploration side.

If you do 36,000 or – yes, 36,000 meters last year, what’s the plan, I mean obviously COVID-19 could be an issue there, but what’s the plan to drill or what was the plan to drill in 2020?

Well, as we announced about a month ago and it was in our MD&A last night, we’ve – we do have a plan this year at Segovia for about 45,000 meters of drilling and we are leveraging – we extended the 36,000 meters last year was already increased relative to what we have initially set out to do in the year. The 45,000 meters this year is going to include about 30% of those meters on the regional program stepping out now into some of those veins where we are not currently mining and looking at high priority targets for expansion into new mining areas in the title.

So we will see an increase this year, but obviously, we have got to color that comment at the moment given the slowdown of some things that are happening as a result of COVID-19.

Just, Mike, let me add something new.

Sure.

For exploration, we are using a Peruvian company the name is [indiscernible]. Out of the 6 drilling rigs that we had in Segovia, we have 3 in operation, especially 2 in El Silencio, 1 in Sandra K.

So those 3 rigs are working on the high priority targets.

Okay, alright. So that’s why the drilling guidance might be a little bit – drilling results might differ from the 45 kilometers up.

And then just on the accounting side, typically, with Gran Colombia cash, you guys pay your incurred taxes or your taxes are paid in the first half. Mike, can you give us a little bit of color as to what sort of cash taxes payable are in half one this year, I think last year it’s around $30 million?

Yes. And certainly with the increased profitability last year, our cash taxes are higher obviously this year to pay.

We have about $45 million of cash taxes that we expensed last year. So our cash tax payments in the first half of this year will be about $35 million or so.

The primary payments come forward in later in April and in June. I think you know one of the things that I am happy about despite everything that’s going on is that we have been very prudent in the last year and a half to take the opportunity to invest wisely in the assets, but at the same time put cash on the balance sheet.

So as we go through this situation, we are obviously taking some steps to lessen some of the liquidity issue with slowdown in some of the discretionary OpEx and CapEx items, but we do feel that the cash balance that we have will give us the necessary funding that we will need to keep everything moving along and as typical later in the second half of the year to hopefully when everything is back to normal, that’s the period again which we start stocking up on cash on the balance sheet.

Okay. And then maybe you can provide a little bit of color on how March – how March production – March production has been going?

March production, you say?

Yes, please.

Well, in Segovia, it’s going to be around 17,000 ounces of gold you know and the target was 18,000 and in Marmato it’s going to be – in Caldas, it’s going to be 2,000 ounces of gold, the target was 2,500. So, we are going to be a little bit – we are going to be about 94%, 92% debt in relation with the target.

So the gold production for Segovia for the first quarter is going to be around 50,000 ounces of gold.

Okay, thank you.

Okay. Thanks Dered.

Thanks. Hey, guys.

Just a follow-up question on CapEx, so if base case CapEx was similar to last year, what’s the minimum level that we should look at assuming we are operating for the whole year and like I think that’s as I said little hard to predict at the moment not knowing exactly how long this situation may go on and what the impact is going to be?

So we are prioritizing the CapEx sales within the mines certainly we are focused in all the maintenance CapEx about current time but some of the expansion or growth CapEx is going to be delayed at least for a few months while we get through the situation. So I wouldn't venture, I guess, on what the minimum would be this year until we know a little more about the situation/

Okay. And then in terms we are doing this debt buyback here in the first quarter can we do another one of those year from now or is that the only one we can do until those mature?

Now, there is no restriction in the number of partial redemptions we can do early so we could do them again if we can build up some additional cash that we feel we got an opportunity to use that cash to take out some more of the gold notes early obviously you have abide by the agreements and pay the make whole premium as to find them with the agreement to the holders to make sure this payment was about 10% to a $1.9 million but with that $1.9 million of make whole premium that we are paying today we will generate about $6 million or so of savings this year between the gold note repayments the interest and if gold stays where it is about 1550 the gold premium certainly we will save on that. So it's a function ultimately of determining that we have some surplus cash that we feel best to use for type of endeavor.

Okay. And then how do you look at your overall cash position and I understand is lot of moving parts right now but what are after we do this debt pay down what are your priorities in terms of how you look at what you do with additional cash?

Well, we did raise $30 million in the first quarter so we added net of the repayment that we have made this morning on the debt additional $8 million so we are currently sitting with still after suspending $11 million in the first quarter as our follow-up private placement that was promised into Caldas Gold. So we so we are currently sitting at a cash balance this morning after the redemption is about $80 million I think as we go forward our priority has obviously leading our financial obligations as they come due over the next number of months while this situation moves forward as Lombardo said the operations are continuing to operate so we will continue to be generating cash flow from the mines perhaps not quite at the rate that we typically do but we feel comfortable that between the cash balances and continuing cash flow from operations much like beside 2017 we won't miss a beat in terms of carrying forward on the agenda we are just prioritize how we spend the money at the projects in the meantime.

Okay. And so given the savings on the return on debt buyback would you consider doing another one of those this year?

As I said it will really come down to an assessment of surplus cash. I cannot make that assessment right now in the current situation, but definitely that remains one of the levers that we have at our disposal as we get further in the year and we can see where we are.

Okay, great. Thanks very much.

You are welcome.

Alright. Well it sounds as if there is no more questions at this point.

So with that, we would like to thank you for taking the time to join us this morning. Stay safe.

And if you have any follow-up questions afterwards, please reach out to us. Thanks.