Hochschild Mining PLC (OTCQX:HCHDF) Q2 2022 Earnings Conference Call August 17, 2022 9:00 AM ET
Company Participants
Ignacio Bustamante – CEO & Director
Eduardo Noriega – CFO
Conference Call Participants
Jason Fairclough – Bank of America
Daniel Major – UBS
Tim Huff – Peel Hunt
Ian Rossouw – Barclays
Operator
Good day and welcome to the Hochschild Mining 2022 Interim Results Conference Call. At this time, I would like to turn the conference over to Ignacio Bustamante, CEO. Please go ahead.
Ignacio Bustamante
Thank you, Elaine. Good afternoon, everyone. I’m Ignacio Bustamante, CEO of Hochschild Mining. And with me, Eduardo Noriega in Lima, our CFO, and in London we have Charlie Gordon our Head of Investor Relations.
So we can please move to the following — the next one, please. So as you know, today we released our H1 2022 financial results. So let me start with a quick summary of the financial highlights. So revenue is at $348 million, EBITDA is at $131 million, EPS is at $0.01 per share, cash balance is at $204 million, and we have declared a dividend of $1.95 per share for a total of $10 million.
On the operational front, as we had already guided, our production for the first half of the year was at 156,000 ounces. And we continue maintaining our full year production target of between 360,000 to 375,000 gold equivalent ounces.
Regarding all-in sustaining cash cost, our all-in sustaining cash cost for the first half of the year was a $1,371 per ounce of gold. And we continue maintaining our full year all-in sustaining cash cost target of between $1,330 and $1,370, which is something that we’re very proud of, particularly taking into account the current challenging environment that we are all seeing.
And finally on the exploration and business development front, Mara Rosa, our most important work project right now is on schedule and things are starting to move ahead very quickly now that the construction permit has been granted. The Snip pre-feasibility study continues moving along very well and we continue to target into finish it by the end of 2022. And finally, Pallancata drilling is delivering very exciting medium term results. We can talk a little bit more about that later on during the presentation.
So please move to the next slide. On sustainability, let’s start with safety. In safety also we have our frequency ratio of 1.28, which is close to our historical low. Same with Accident Severity Index of 72 and we have successfully continued the implementation of our Safety 2.0 program which is basically a program that allows us to continue working on creating the strongest possible safety culture in all our [indiscernible].
Moving to environment, our ECO Score was 5.35 out of 6, also very positive score. And we continue working on developing our carbon strategy to be net zero and of course also working on our environmental cultural transformation plan. Regarding people and culture, we continue promoting diversity through our many different programs, both at the operating units and at our central offices. We right now have 50% of our workforce coming from local communities and we continue working on trying to increase that number even more.
Moving to communities. We also continue working very closely with our communities. In 2021, we invested $5.4 million directly in the communities, and also built with goods and services with the communities for around $16.8 million. I want to continue working on that trend to continue increasing those numbers and working on other initiatives such as connectivity, education, scholarship, and health related products.
So let me move to the next slide please. And now I’d like to hand it over to our CFO, Eduardo Noriega, to discuss in more detail our interim results. And then I will continue with the presentation. So please, Eduardo.
Eduardo Noriega
Thank you, Ignacio. Could we please — yes, thank you. So on the profit and loss statement, our revenue was — for 8/1/2022, our revenue was $347.8 million. Our total net profit at the bottom of the chart was $7.2 million and our adjusted EBITDA was $130.5 million. The main variances versus the previous period 8/1/2021, I would just — I would like to highlight the revenue, it was about 12% lower and this is a result of our guided lower production, mainly in Pallancata on grades and tonnage as well as we had lower production in San Jose that we expect to recover in the second half of the year. So sales volume were lower versus the previous period, and gold prices were higher by 6%, but silver prices were lower 10%.
Our cost of sales rise versus 2021, it mainly as a result of higher proportion with conventional mining methods mainly in Pallancata where we move from having more mechanized methods to more a conventional mining method. We have also OpEx Inmaculada to access new mine areas. And we had inflation mainly in Argentina, that impacted our production cost. These impacts were partially offset by efficiencies and cost reduction plan that we have in place.
In terms of explorations, our exploration expenses increased by $6.9 million by — $6.4 million mainly explained by expenses that we had in Snip, $6.9 million in the period that we did not have in 8/1/2021. In other expenses, we had an increase of $10.2 million mainly resulted from changes in our mine closure provisions mainly associated to our unit Ares.
The effective tax rate was 38% and here we have — we included non-recognized tax losses mainly in Snip. Those are expenses that we have in jurisdictions where we cannot use the tax — the expense for tax benefit purposes. I mean these number will also include the royalties and special mining taxes that we have in Peru. And these number was a benefit by a local currency revaluation in Peru during the first half of the year.
In the exceptional items, we had $9.9 million of an impairment on Aclara investment that has to do with the reduction in market price, but more importantly, due to a expected delay of 2 years in the construction of the main project, Penco project as a result of the decision to delay the permitting — to withdraw the permitted — the permit to reinstate it in the next 2 years.
If you could please go to the following page. Thank you. So our cash balance ended — by at the end of June 2020 at $204 million. The cash evolution shows the important investment that we’re doing in Mara Rosa and in Snip, as well as temporary items that impacted us in the first half of the year. So if we look at the left hand side of the chart, Inmaculada generating $96 million. San Jose $8 million, and in Pallancata we had a net outflow of $9 million, which we expect to recover in the second half of the year.
Our exploration plan represented $60 million of cash disbursement. And our corporate expenses were $25 million. In addition, the tax paid in 8/1/2022 was $38 million from these numbers — from this $38 million, $50 million are 2021 taxes that were paid in the first quarter of 2022. We also had $70 million of 2021 [indiscernible] payments that are paid in — again in the first half of 2022 correspond to the previous year. We had $11 million of 2021 legal workers’ profit sharing that was also paid in the first quarter of 2022.
We had a care and maintenance and closure expenses of $12 million. We had expenses related to our temporary property in San Jose and some minor remaining COVID-related expenses of $6 million. We paid $3 million of net interest. We increased our working capital base in Argentina by $12 million, but we also paid $12 million of dividends to our shareholders.
And again, we had a temporary effect in working capital of $6 million. In addition to those items, we had investment in Mara Rosa, which in total represented $136 million. $124 million was a net transaction cost and $12 million for CapEx and administrative expenses we are already paying in Brazil. On Snip we invested $8 million. So, with that our ending cash balance despite the strong investments and these temporary impact remain very strong at $204 million by the end of the period.
If we could move to the next slide, please. In terms of cost, we are on track to meet our 2022 guidance. We have varied the mix, the individual guidance for Inmaculada, b Pallancata and San Jose, but overall we’re on track to meet our 2022 guidance. Compared to H1 in the second half of the year, we expect greater Inmaculada to rise. We also expect higher production in San Jose in the second half.
We also have cost optimization program in place to mitigate inflationary pressure already providing very good results. And these effects will be offset by lower grades in Pallancata and higher execution of CapEx in H2 2022. These are again a temporary effect. As Ignacio mentioned, we have also realized our production split, but overall we are maintaining our production cost items at 360,000 — sorry, 360 — between 360,000 and 375,000 ounces of gold for the year equivalent ounces.
If we can move to the following page, on capital expenditures. So we’re showing a slight reduction in 2022 CapEx guidance. In Inmaculada, we’re maintaining our guidance and there is a higher capital located to H2 versus H1 to develop resources from increasing life of mine and complete efficiency projects. In San Jose, there’s a slight increase. It’s also $2 million due to inflation — inflationary pressure. Inflation is slightly higher than devaluation versus what we expected.
In Pallancata, we have lower CapEx as a result of our revised mine plan. Mara Rosa is on track with key outstanding environmental permits now received. Our CapEx guidance is slightly lower between $90 million and $110 million for 2022.
On the following slide, please. Thank you. We maintain a strong position to keep growing the business with strong balance sheet to finance our near-term growth, including our brownfield operation plan, and more importantly, the investment that we’re doing in Mara Rosa to complete the construction of the project.
In terms of capital management, we have low net debt even after the acquisition of Mara Rosa. No near-term debt maturities. Our next maturities will be at the end of 2023 as you can see on the charts on the on the right hand side. And we have good relationship with our relationship banks and we have credit lines in place for us.
We have a good history of capital return through dividends, and now we are announcing a dividend of $10 — of $10 million. We’re maintaining our cost guidance despite inflation. And we have as you recall, hedges in place for Pallancata for 2022 and 2023.
With that, I’ve covered the interim results section, Ignacio. Back to you.
Ignacio Bustamante
Thank you very much, Eduardo. So let’s continue with the presentation. Before we go into this slide, let me just remind everybody that we have also released our 2021 sustainability report. It’s already in our — on our website. We’re very proud with the work that has been done. So I would really encourage you to take a look at it and give us any feedback that you may have.
So, talking about growth, we continue with our growth strategy focus on four pillars. We have brownfield development projects, strategic alliances and M&A and Greenfield. From Brownfield, of course, our most important, our flagship asset, which is Inmaculada, we continue making very good progress, continue capturing the geological opportunities that are in place there. And we stay to continue adding life of mine to this fantastic asset going forward.
In addition to that, we continue adding resources as well in San Jose. And in the case of Pallancata, as you know, we have our short-term challenge, but the medium to long-term is looking really encouraging on that particular asset as we speak to update the market as soon on that front. On the development project, we have the construction of Mara Rosa project in Brazil, our most important development project as it stands and it’s also making very good progress and we talk a little bit more about that.
On our strategic alliances, also the most important that we have now in place is Snip and we continue to advance Snip to a finish pre-feasibility this year, and then hopefully moving to opportunities. And we will continue looking at potential opportunities on the M&A and Greenfield fronts with the goal of trying to add further projects in the Americas.
So if we please move to the next slide. Talking about Inmaculada. Inmaculada has been always our flagship asset, the high-grade underground mine that has started operating in 2015. We have managed to beat production guidance every year. As Eduardo mentioned, we have revised upwards our guidance. So now we are estimated that we will produce between 233,000 and 239,000 gold equivalent ounces at an all-in sustaining cash costs of between $1,070 and $1,100, all-in sustaining cash costs. The EIA modification isn’t scheduled for an H2 decision and we cover and we’re very specific about the large regional land package that Inmaculada has and this is still to be explored.
Moving to next slide, please. We can see there in the map very positive results that we obtain in our 2021 drilling campaign with 850,000 ounces discovered between the Angela North, Angela Connection and Juliana South Plains. We have our 2022 drill program subject to permits, but we will be focused on Inmaculada North. So again Josefa & South Juliana that area. The West of the Inmaculada area, the Minascucho that you can see there is extreme left of the chart and also Melissa and Anomalia 5 & Jimena veins. We also are doing some surface potential drilling at Puca Puca and Lia Norte veins. So all you know this is [indiscernible] having tremendous potential that we continue stating to capture in the upcoming years.
Moving to next slide, please. We have also our other operating mines in Peru and Argentina, which are Pallancata with our revised guidance of 3.4 million to 3.6 in required [ph] ounces. We have the strategy right now of adding economic ounces close to current operations. As you know the short life of mine I discussed now, it creates challenges from a production standpoint, but we’re currently working on all different geological alternatives to continue expanding those resources that we can put into production in the short-term. So, we continue targeting those and we will continue updating the market in the upcoming presentations.
However, the part that has already given us very positive results is a medium term program which is delivering already strong shows from Laura-Demian, Royropata, Miriam and Marco West vein, I will say in particular Royropata and Marco. And we will speak to give more color to market in the upcoming weeks or months. So — but I can say that it is looking really encouraging.
Regarding San Jose, as you know we own 51%. We have also revised guidance to 80,000 to 85,000 gold equivalent ounces and we have a program that is focused on a high-grade area in our operating permit and Northwest of the current mine and the Saavedra West areas. So those are all the areas that are located in the mine itself but also in the close surrounding [indiscernible]. We also have another project which is the Ciclon project for instance and all the properties in the Santa Cruz area that we are also exploring for potential growth of resources. We — again, we will update the market as we continue having results.
Moving to next slide, please. Okay, so getting into Mara Rosa, as you know Mara Rosa is an high quality development asset. Its located in the very friendly jurisdiction of Goiás, Brazil, together with many other provision and project — provision assets and projects in the area. The detailed engineering is already at 80% with construction underway. We have very robust economics as you can see there in the chart, and we are targeting for production in the first half of 2024.
And in parallel, we continue working on ways in which we can optimize our exploration or operational opportunities with the goal of extending the life of mine and improving our project economy. You can see there also in the reserves and resources chart that we have reserves for about 900,000 ounces of gold at an average rate of 1.2 grams per ton. And also with very strong local and regional exploration potential, we are talking there about the targets of Pastinho, Campos Verdes, Morro Redando, Filo Zorongo, which are the most encouraging ones and we have actually started already to do the Brownfield work on those. So, we also expect to give some updates to the market as weeks and months pass by.
Next slide, please. As you know and we disclose that last week, we — on August 10, we obtain the final, a site clearance permit which was very important. And with that we are now already at full speed with the work for the processing plant earthworks and civil works. Its starting the mine pre-stripping and studying the work for the — a water reservoir. The current process or progress of the project is at 9%. As I mentioned, detailed engineering is at 80%. The long lead time equipment such as ball mills and filters [indiscernible] already been purchased.
The Metso 3-stage crusher is we delivered to site soon. The construction earthworks are already ongoing. The mining pre-stripping contracts are progressing, and the project powerline construction is already ongoing. So we’re very excited with the progress that we have and we believe that it’s going to be able to — to be completed in the date and in the timing that we have initially guided to Marco [ph]. So everything is — so far moving along to plan.
Next slide, please. The next slide shows you the importance that Mara Rosa has in our portfolio. So taking into account our 2021 reserves for Hochschild Mario or Mara Rosa, project is now going to represent an increase of 56% in our total reserves, so it’s a very material amount. It’s also going to represent taking into account our 2022 guidance. It’s going to represent 27% growth in production. And as you can see, there also is going to represent a very important improvement in our all-in sustaining cash cost profile. So very excited for this project. And we will continue updating you on the progress as we move along.
Next slide please. The next one is Snip. Snip as you know, we’re also very excited about this project. It’s a past producing property in the Golden Triangle. Its located in Tahltan Territory. It used to be an operation and that during the time that we produce about 10 years, it produce 1.1 million ounces of gold at an average rate of 27.5 grams per ton, very high-grade operation. On October of last year, we exercised the option to start earning in our 50% from Skeena Resources. In order to do that we need to invest CAD$100 million over the next 3 years. And we have the option to extend it for an additional fourth year. And we have to spend a minimum of CAD$7.5 million per year, in which we’re going to do for sure this year.
You can see also in the reserves and resources chart there, we have in total when we take into account indicated and inferred resource, we are looking at a total of 1.6 million ounces of gold with an average rate of around 10.4 grams per ton. So it’s already looking like a very attractive resource and really significant potential as well.
Moving to next slide, please. We have a updated resource, as I mentioned or announced a in 2022, the table that you saw in the previous chart and compared to the previous one that shows an increase of more than 3x on indicated resources and an increase of 2x times in inferred resources. So we believe that this has — it has a lot of potential and we want to continue with our brilliant work to continue expanding the amount of resources and the life of mine of this project.
Pre-feasibility studies are underway and we still try to complete those by the end of the year. We have done some — have achieved certain interesting milestones in Q2. We have completed the metallurgical test work, which is looking good by the way. We have also a complete evaluation of ARD potential in waste samples, and flowsheet trade-off study. For Q3 deliverables, we are targeting to complete the processing plant designs. To complete the update of the resource model, and also to complete the TSF and waste storage facility design.
We have — since the project is looking very good, better than we anticipated, and it is very likely that we will continue ahead. We have increased the budget for the year. So now it’s about $19 million. And the reason for that is basically that we are doing more than we anticipated and also we have started some of the work that was contemplated for 2023 this year in order to advance the project quicker. It’s something important that we have done for instance is we have already started the environmental baseline study. We continue to be fully engaged with the Tahltan First Nation and the Provincial Government. And we are looking forward to continue progressing in this project and making final release of our PFS by the end of the year.
Moving to the next slide, please. Okay, Volcan. So as you know, Volcan is part of a new company called Tiernan Gold. It’s located in the Maricunga Belt in Chile with several other operating and [indiscernible] operating assets and projects that are being developed in the region. The significant support infrastructure for mining in the area. This is a project that has the potential to be a large scale mine. As a reminder, we are part of the project about 10 years ago, always with a goal of it being a very long-term asset for us. At that time, the PFS had a production estimated in 4.3 million gold equivalent ounces over 15 years at an [indiscernible] all-in sustaining cash cost of $1,025 per ton per ounce — sorry, program.
The large resource base that we have is about 9 million ounces with an average grade of 0.7 — roughly 0.7 grants per ton. And we have done important progress this year in the assets. We hired as you may recall, Greg McCunn, as the CEO of Volcan now of Tiernan Gold. We are in the process of completing technical work to optimize the business case of the project and — and again it has been restructured into Canadian subsidiary Tiernan Gold. So, we are in the process of validating all — of completing all this work and evaluating all the different strategic alternatives that we have with the asset with a goal of maximizing the value for a [indiscernible] shareholders.
Moving to the next slide, please. We believe that the company is currently significantly undervalued and you can see there by these two metrics EV to EBITDA we are at 1.5x compared to our gold peers that are at 3.7x and our silver peers that are at 7x. And in terms of price to NAV we are at .7x, compared to our gold peers of 0.8x and silver peers of 1.2x. We believe that there are going to be many valuation catalysts coming along now in the upcoming weeks and months. One is going to be Inmaculada decision. The other one is going to be the Mara Rosa, a project progress but as I mentioned is moving along very well. Also [indiscernible] of milestones as I mentioned, the PFS, a more geological resource et cetera. The solid cash flow from Inmaculada, and the brownfield potential that we have at all our mines, including also Mara Rosa in Brazil. Additional M&A in the Americas, a medium term production increase, a medium term cost reductions as well and further capital return potential.
So if we move to final slide, please. In summary, so the business in our [indiscernible] has been transformed with all the growth options that we have been able to advance. Inmaculada cash flow underpin with extensive brownfield opportunities. The Mara Rosa construction commenced and as I mentioned is moving along according to expectations. We’re very excited with that. Snip pre-feasibility underway and expecting to finish it in the upcoming months. Continued M&A focus and our very strong robust balance sheet that are underpin by a highly compelling valuation.
So this finishes the presentation. Let me stop there and open up to any questions that you may have.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from the line of Jason Fairclough from Bank of America. Please go ahead.
Jason Fairclough
Yes. Thanks, guys for the presentation. Just a little bit of a question about the portfolio. Once upon a time, you were very much focused on Peru. And if I look at you now you’ve got the Inmaculada. The legacy asset seem to be kind of winding down. But everything else seems to be outside of Peru. And I guess the question is, are you done with Peru? Or is there just no more opportunity there?
Ignacio Bustamante
Thank you. Thank you, Jason. No, we’re far from done with Peru. No [technical difficulty] our most important country and we continue having several opportunities in Peru. But I will say though, that what has probably not changed, but has been able to materialize lately is the fact that, as you know, we have been looking to grow and diversify in other countries in the region for many years. We have more [indiscernible] in Mexico, we have Argentina with Minera Santa Cruz or the San Jose assay. [Indiscernible] we have been looking for a long time. But fortunately, that we were able to capture on those opportunities, which is something that hadn’t happened in the past because we can — we were not able to see the right opportunities. And now we believe that with Mara Rosa in Brazil and Snip in Canada, we have found those two that are looking very, very attractive.
Going forward, we’re going to continue looking at opportunities in Peru and we’re going to continue looking at opportunities outside of Peru. And if they do — just one comment, even though Pallancata short-term is facing challenges, obviously, the medium to long-term is beginning to look very, very attractive. So those are — those medium term opportunities are something that are going to be for the next 3 to 4 years. No, not short-term, but they are looking that they could be very attractive medium to long-term opportunities as well. Understanding we are going to be continue pushing with all our strength, so we’re far from done. Peru continues to be a very important country for us. And — but we’re adding more countries to our side [ph].
Jason Fairclough
Okay. Thank you.
Ignacio Bustamante
Thank you, Jason.
Operator
[Operator Instructions] We will take our next question from Daniel Major from UBS. Please go ahead.
Daniel Major
Hi, can you hear me okay?
Ignacio Bustamante
Yes, very well, Dan. Hi.
Daniel Major
Great. Thanks. Yes, a couple of questions. Yes first one on the cash flow statement. I think $74 million working capital build during the periods very substantial for a company of the size. Can you give us any indication of how you expect the working capital movements to progress in the second half of the year? What the key variables are there? Thanks. That’s the first one.
Ignacio Bustamante
Absolutely, Dan. So let me pass it over to our CFO, Eduardo Noriega, please.
Eduardo Noriega
Thank you, Dan. Yes, the working capital increasing in the first half of the year in part due to temporary impact. For the second half of the year, we expect payables to go up because of — because the — there are payments that have to be done mainly in Peru like the workers’ profit sharing as well as the viable salaries that are provisioned for the year, but pay in the first half of the financial year. So for that, those — I mean that item of our working capital will improve our working capital position. We also expect that our inventories for end products will also come down. So those are the main drivers for the working capital to be reduced.
Daniel Major
Okay. Can you give us any guidance on the magnitude? I mean, what is it going to be all reversed or half reversed? Or I mean, can you give us a sense of what we should be thinking out of the 70 working capital build second half?
Eduardo Noriega
Yes. So, if you look at the cash flow, you identify close to $50 million of payments that belong to the previous period of ’21 and that will not occur in the second half. So, that is the amount of [indiscernible] working capital will be reduced in the second half.
Daniel Major
To 50 million, very clear. Thanks. Then next couple of questions follow on the portfolio. I mean, Inmaculada is doing well and it’s the core asset in your portfolio and you got kind of Mara Rosa. When we look at San Jose guidance for all-in sustaining costs north of 20 bucks an ounce silver, you’re losing about 40% of the cash flow that you generate from the asset on FX translation. Is this really something you want to keep in the portfolio? I don’t think you’ve got any other growth options outside of Argentina — in Argentina. I mean, it feels pretty marginal at this stage unless you can substantially reduce the cost that doesn’t seem that obvious into 2023. How are you thinking about it in the context of the portfolio?
Ignacio Bustamante
Yes, so San Jose is a very important asset [indiscernible]. And it’s an asset that we have already more than recovered our investments. So it has been a very profitable investment for the company. And I will say that the way we see this at this point is that we’re facing hopefully temporary situation in which there’s a very huge gap between the inflation that we’re seeing in the country, and the valuation that is keeping — being kept under control. So that has for [indiscernible] that operate in pesos, Argentinean pesos and selling dollars, that has created a reduction in margins, that is very important. And you can see that in the earnings cash flow profile. So in our view, that’s something that is not sustainable, because the entire group of companies that [indiscernible] if that continues, , they’re not going to continue to be in profit going forward. And that’s something that cannot happen. So in our view, that’s something that needs to be corrected, at some point in time that evaluation will need to catch up with inflation, hopefully sooner rather than later, and we expect that once that materializes, the margins of San Jose change — change for the better and we’re going to start making significant amounts of profits the way that we have seen in the past. So the short answer is we continue very focused and interested in San Jose. Right now we’re facing challenges that are temporary, but it continues being an asset that is very important to us in the long-term in our view with still plenty of opportunities to continue delivering value.
Daniel Major
Okay, thanks. I guess I could follow-up on the San Jose. You think that we should be modeling sub 20 all-in sustaining costs for 2023?
Ignacio Bustamante
Well, it’s very dependent on your views on efficient devaluation. That’s not really the main metric. But what I can tell you from the things that we can control the asset continues looking very encouraging, because finding [indiscernible] ounces, we are continuing to see lot of geological potential. So for us is an asset that is going to be with us for the long-term.
Daniel Major
Okay, thanks. And then …
Eduardo Noriega
With a few that are …
Daniel Major
Okay, that’s fine. And then just last one on Pallancata. I mean, obviously spoken about the long-term potential, but it seems unavoidable the asset is going to have to close in the near-term. Can you give us any more indication on the timeline there? Is it end of this year? You expect it to contribute much next year? How should we be thinking about the short-term profile of Pallancata?
Ignacio Bustamante
Yes, so what I can tell you is, Dan, its additional provision that we have now is an asset that will produce this year and probably some of 2023 with the resources that we have. But I also can say that we are working very hard on finding other targets and we have some very valid targets that we’re going to be exploring — that we are exploring and will continue exploring in the next few weeks. So we are not giving any guidance to the market yet. And we are able to complete that plan.
Daniel Major
All right. Thank you. I’ll let someone else have a go. Thanks.
Ignacio Bustamante
Thank you.
Operator
[Operator Instructions] We will take our next question from Tim Huff from Peel Hunt. Please go ahead.
Tim Huff
Yes, thank you. I just had two quick follow ups. The first was also on Pallancata, but not near-term. You guys have said that in coming weeks, months, you will outline what you think the medium to longer term opportunity is. And Ignacio, you mentioned 3 to 4 years in there. I guess. I didn’t know if you could maybe give us an idea of what would be the biggest hurdles towards getting Pallancata back online by the end of call it ’25 or so. What would be the biggest hurdles in your view in terms of what it would take to get back into production medium term? And then the second question was actually on the dev. So year-on-year, just looking where your EBITDA and bottom line profitability came in, I thought that there was a chance of a lower interim dividend. And it was directly in line with what I was expecting. I was just wondering if you could give us an idea of how you guys are thinking about that dividend through 2022 given that you’ve got lower profitability, higher CapEx and its stayed relatively stable.
Ignacio Bustamante
Tim, thank you very much for your questions. So let me start with the second one first with the dividend question. So if you take a look at our historical E&P, many has been relatively stable. There was one difference in one year, there was a temporary difference, because it was in 2020 with COVID, that we just had to suspend and we paid back again in 2021. So [indiscernible] I think, very stable. We have not had a policy in place for several reasons. But we believe that going forward, we should have something in place that we present to the market. So we’re working on that to try to see if we can put something that creates some predictability on that. We — even though that results of the first half of the year were lower than last years, we still believe that the fundamentals of the business are very strong. And the company has a very strong balance sheet and we believe that the future is looking very, very encouraging. So we decided to maintain paying the similar amount of dividends that we have paid in the past. Going forward, I will say we’re working on the dividend and we expect to give an update by the end of the year on that. But I would say that our goal is to try to not to continue the pay dividends to our shareholders in similar amounts. And that’s an important part of our of value that we believe that returning money to our shareholders is something that is very important for everybody. So shorter answer is yes, we expect to continue to be in a similar path. But we should give an updated indication by the end of this year.
Regarding Pallancata, I would say that the biggest hurdle is going to be the permitting time, because it’s in an area that is very close to our current operation, very close. And unfortunately, outside of our operating area, permitted area by a little margin. But so — the CapEx and the mining developments that are going to be required to access that area are going to be relatively low, okay? The plant has been already built and permitted and everything. We have been operating in that area for a long time for over 15 years. So we know the area, we know the communities. So the key challenge is going to be — to deal with the time to complete the permit requirements and applications and go through the baseline studies during the dry season, during the rainy season. Go through all the different reviews of the different governmental authorities. So it’s more a question of timing and go through the process than anything else. I would say, which puts in every part very special and attractive situation because if we’re to find, for instance, a Greenfield project, we need to build with — building relationships with communities, building a plant, getting all the permits, huge investments to develop the mine to build a plant. In this case, the mine is already developed. We just need to build some accesses. The plant is built, the relationships are made. So it’s looking good. Ideally it would have been great to have it in the short-term, but I will say that still having it for the mid to long-term should be something that delivers a lot of value for the company.
Tim Huff
Okay. That’s — both answers very clear. Appreciate it.
Ignacio Bustamante
Thank you, Tim.
Operator
We will take our next question from Jason Fairclough from Bank of America. Please go ahead.
Jason Fairclough
Guys just to follow-up a little bit on the project in Chile, and I realized this was a long time ago 2011 PFS, so it’s 11 years ago. And at the time you were indicating cash costs of about $1,000 an ounce, which for the grades seems quite hopeful. So I’m just wondering, have you gotten any feel for where we are with CapEx and OpEx, if this were to be updated today? Again, I’m just looking at 0.7 gram per ton gold, doesn’t look like a dripping roast?
Ignacio Bustamante
Thank you, Jason. We are precisely in the process of updating that. We — our goal is to try to finish the PA by the end of this year. And as soon it is ready, we’re going to be sharing with the market. It’s still not completed. We’re working on many different areas to continue optimizing it. So we expect to disclose all that information on all those figures that you just mentioned, Jason, before the year ends.
Jason Fairclough
And do you have a partner here? Or is it 100% owned?
Ignacio Bustamante
100%.
Jason Fairclough
Okay, thank you.
Ignacio Bustamante
Thank you.
Operator
We will take our next question from Ian Rossouw from Barclays. Please go ahead.
Ian Rossouw
Thank you. Just a follow-up on the, I guess the balance sheet. Obviously, you are spending quite a bit on the Mara Rosa project this year and next year because potentially need to shut down Pallancata, presumably that will also have some cash outflow costs associated with, I guess, the workforce et cetera, like you’ve had a few years ago at Arcata. And then just wondering how the Snip and Volcan, those projects sort of fits in dovetail with the spinning at Mara Rosa. Just, I guess, sort of conceptually thinking around the balance sheet, presumably that will mean you’re going to gear up quite a bit further over the next couple of years. Do you feel there’s enough sort of headroom there to raise more debt? Obviously, your debt maturity profile is a $100 million I think you show in 2023. Do you expect to stay extend that further? I guess as time goes by just trying to get a sort of an idea of what you’re thinking around the capital structure over the medium term?
Ignacio Bustamante
Let me pass it to Eduardo Noriega, our CFO, Ian.
Eduardo Noriega
Thank you, Ian. So, yes — so with the cash that we have in hand, the cash generation that we expect for the company in the second half and also in the following years, which would have sufficient cash to build Mara Rosa and also to invest in Snip. However, we are confident that we need to be prepared for unforeseen events and we are already — we do have credit lines approved with our relationship banks, that we can use if that is the case, and we are particularly right now working with our banks to secure a committed lines, in case we need them. So we have strong balance sheet to keep growing the company. We have sufficient cash balance and cash generation. But we’re prepared with a capacity to increase our [indiscernible] if that is needed.
Ian Rossouw
Okay. And just on the Snip project, has the [indiscernible] study being done? Could you give us an idea of the sort of [indiscernible] on Volcan maybe for Snip?
Ignacio Bustamante
When are they going to be released? We expect that the PFS data is going to be finished by year-end. And that’s the timing which we’re going to be releasing that to the market as well, Ian. So by the end of the year, by December, that should be completed and released.
Ian Rossouw
Okay, thanks. And then just one question on San Jose, a follow-up from Dan’s question on the cash flows there. What was the reason for injecting $12 million into the asset there? And I guess, just wanted to get a sense, if you put that into the asset, can you actually take that debt out at the same value or do you also lose 40% cash after you, I guess, recoup those funds?
Eduardo Noriega
Yes, the — so the day that [indiscernible] mainly to handle temporary working capital needs, that we have a short-term stoppage in San Jose at the beginning of the year, and therefore we had some working capital needs. So we increase that — for that reason, and we expect to pay that in the coming year. In the case of San Jose, we do have access to [indiscernible] to pay dividends at a high cost, but we will have access to do that. But the date taken in San Jose, it was mainly to manage working capital needs.
Ian Rossouw
Okay. But I saw the assets still paid dividends, so it’s just all that you would pay dividends, lose 40% of the cash and then inject more cash into the business. Was it just a timing issue? It happened at different occasions, or different times? And just around the repayment of this debt over the next year, you said, can you recoup that full $12 million back? Or do you lose also money from the exchange?
Eduardo Noriega
No, we recoup it. It’s — I mean, the data we take is not impacted by the FX cost is taken locally, that we pay back locally with cash [indiscernible] by operation. So it’s not impacted by the FX costs.
Ian Rossouw
Okay, okay. That’s clear. Thank you. All right. Thank you.
Ignacio Bustamante
Thank you, Ian. We’ll take our next question from Daniel Major from UBS. Please go ahead.
Daniel Major
Hi, yes, just a follow-up on the EIA, Inmaculada. I guess you’re progressing towards hopefully getting this approved, but obviously pretty critical to the investment case. What’s some — what’s the key items on the critical path? And what’s your degree of confidence on the EIA being granted in the short — in the second half of this year?
Ignacio Bustamante
Yes, thank you, Dan. So, the way it stands is that we have already presented our answers to all the observations presented in the last round. We are in the process of waiting for the comments or responses from the different governmental authorities. Once that happens, then we have 2 weeks to comply with the final round of observations and then after that the decision is made. So we believe that we’re in the last round of that and we believe that as we mentioned this is something that is going to be sold in the second half of this year — during the second half. And we — so far we have seen nothing that will prevent us from getting that license. So we are optimistic about it.
Daniel Major
Okay. Thanks.
Ignacio Bustamante
Thank you.
Operator
It appears we have no further questions at this time. I would now like to turn the call back over to you, Ignacio for any additional or closing remarks.
Ignacio Bustamante
Thank you. Thank you, Elaine, and thank you very much to everybody for your participation today. Again, let me remind you to take a look at our sustainability report in our website. That is a fantastic piece of work done by our team and we’re very proud of it. If you have any additional questions, please feel free to contact Charlie Gordon directly at our London office. Thank you very much and have a great day.
Operator
That will conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
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