Aris Mining Corp. Q1 FY2024 earnings call

Key Points - Bill Zartler: Aris started 2024 strong with produced water volume growth and record operating margins, highlighting over 80% revenue from long-term contracts. - Amanda Brock: Volumetric growth of 6% sequentially and 19% year-over-year, adjusted EBITDA of $53 million, Water Solutions sales down seasonally but expected to ramp, record adjusted operating margin of $0.46 per barrel due to various factors including inflation escalators and cost improvements. Dividend increased 17% to $0.105 per share. Future plans include water technology development like desalination pilots and mineral extraction. - Stephan Tompsett: Q1 adjusted EBITDA $53.1 million, up 39% year-over-year and 8% sequentially. 2024 capital program front-end weighted, Q2 produced water volumes expected 1.02-1.05 million bbl/day, Water Solutions volumes 400-430k bbl/day, adjusted EBITDA $44-48 million for Q2, full-year adjusted EBITDA $185-200 million. Balance sheet healthy with 2.15x debt-to-adjusted EBITDA ratio and $345 million liquidity.

In the Water Solutions business, 364,000 barrels of water per day were sold in Q1, down seasonally but ahead of expectations. Adjusted EBITDA for the quarter was $53 million, up 8% sequentially and nearly 40% year-over-year. The Water Solutions segment achieved a record adjusted operating margin of $0.46 per barrel. Over 80% of revenue comes from long-term contracts with well-capitalized customers.

Forward-Looking Statements - Q2 produced water volumes expected between 1.02 billion and 1.05 million barrels per day. - Water Solutions business expected to average 400,000 to 430,000 barrels per day in Q2. - Adjusted EBITDA for Q2 forecasted between $44 million and $48 million. - Full-year adjusted EBITDA expected in the range of $185 million to $200 million. - Quarterly dividend increased to $0.105 per share.

Q: Maybe we'll start on the margin side, if you don't mind. You guys have made a lot of progress and kind of working through some of those OpEx issues. Maybe just can you break down for us, if you're backing out the $4 million of incremental gains this quarter? Just what underlying margin strength looked like? And then how we should think about that moving from here?

A: Thanks, John. Yes, happy to do that. As we've sort of discussed before and as we've talked about, we saw a high point of margins this quarter at the $0.46. We also have indicated that we saw a pull forward of about $4 million. So when you normalize that, we think this quarter was still an all-time high at about $0.43, which is what we've also guided to in Q2. But Steve, why don't you go ahead and break that down in terms of what we saw with increased flow backs and how we account for that $4 million pull forward.

Q: Maybe just to follow up on that prior question on buybacks. I guess the way I think about it is you're going to look to do M&A and to the extent you can't get deals done, it sounds like maybe you'll consider buybacks, but I don't want to put words in your mouth. So one, is that true?

A: I mean, I think all of that is on the table. And we're very patient with our capital. And if it means we continue to improve the balance sheet for a couple of quarters, we continue to improve the balance sheet for a couple of quarters. We're in no rush to do anything that doesn't make any sense.

Q: This is Noah Katz on for Jeremy. First, I wanted to touch on your line of sight into your customer needs and performance. I think you've previously said you receive a 6-month notice from customers. So if you could touch on any upside to volumes you're seeing in the second half of 2024 and what gives you guys confidence in providing your 2Q guidance?

A: Thanks, Noah. Yes, we do under our contracts have to get a 6-month notice. But we are talking to our customers constantly. And while that is a contractual provision, we do have visibility into more than 6 months longer dated. We know where they are. We run our own forecast. We talk to them every day. The commercial team is very embedded. It's a very sticky relationship. So we do have great visibility. And we do see total volumes trending into a ramp by the end of the year. So it does give us confidence. And I think we signaled that by the dividend increase. But we do see volumes ramping at the end of the year. But it's pretty steady.