Why Aura Minerals is betting on Brazil

Canadian gold miner Aura Minerals plans to scale up its Latin American operations, aiming to increase production capacity and attract large global investment funds.

This month, the company will conclude the purchase of a controlling stake of Australia's Big River Gold, involving another Brazilian gold project.

Brazil is set to become more important to Aura, CEO Rodrigo Barbosa tells BNamericas in this interview. He also evaluates the global scenario and details the company’s M&A strategy.

BNamericas: How much will Aura spend on Big River?

Barbosa: This acquisition will [demand] US$51.6mn. We are buying 80% of Big River and the other 20% stake will go to Dundee Resources, a renowned Canadian mining project developer.

The financial settlement of this operation will take place on September 20 and this will represent the delisting of Big River shares from the Australian stock market.

BNamericas: Will you take over the Borborema project in Brazil as part of the acquisition? What plans do you have for ongoing projects?

Barbosa: Our [Brazilian] Almas project is on track, on schedule, and within budget. Almas is due to start operation in April 2023.

Regarding the Matupa project and now the Borborema project, we will assess where construction will start first.

Originally we expected to start construction at Matupa in the first half of 2023, but now with the purchase of Big River we will evaluate which one will start first, Matupa or Borborema.

BNamericas: What’s the key factor when making the decision?

Barbosa: This will be decided after evaluating project engineering, the logistical facilities and the licensing stages.

Matupa is in the final stages of obtaining environmental licensing, while Borborema has the necessary licenses already. We are going to evaluate all these aspects, but we don't want to start both projects at the same time. Although we have cash to finance both, we want to create a space of a few months between one and the other.

BNamericas: Is the company interested in more acquisitions?

Barbosa: Currently, we are balanced in terms of operations between Brazil, Honduras and Mexico.

Our growth strategy is to expand across the Americas, especially in countries where we already operate. I could tell you that we look at Brazil with great interest, because the regulations in the mining sector make us very comfortable, compared to other countries in the region.

As mentioned, we have two projects under development in Brazil right now and looking at the medium term, the trend is that Brazil will have greater relevance in our operations.

BNamericas: What keeps Aura interested in more acquisitions?

Barbosa: Since we did the IPO, we had plans to reach production of 400,000oz/y of gold [from 2024], but with Borborema, this figure will likely be surpassed.

After evaluating the market, we realized that gold companies that produce more, above 500,000oz/y, 600,000oz/y, trade on stock markets with higher multiples.

In meetings with large investment funds, I realize many funds like Aura's investment thesis, but most can invest only in larger companies, so it makes sense for us to gain scale and have access to a greater number of international investors.

But it is important to say that we want to look at M&As that have high profitability, return. Our Almas project, for example, has an internal rate of return of 100%, Matupa currently has an estimated internal rate of return of 60%.

BNamericas: At what stages are the projects you’re interested in?

Barbosa: We had projects in pre-operational stages on our radar. Now we are going to look at projects in other stages, or projects that are in the early stages of production or in less advanced stages, with production start in three years.

BNamericas: How will you finance the projects?

Barbosa: Although we have cash, we are going to seek at least 50% of the necessary investments in the capital market, both for the Matupa project and for Borborema, and we are going to seek this financing as early as next year.

The idea is to evaluate both the international debt market and the domestic market. Although our revenue is in US dollars, we are able to raise funds in the Brazilian debt market by carrying out swap operations.

The Brazilian capital market has emerged as a financing alternative for mining companies, due to advances in regulation and in guarantee models. There is local investor appetite for mining assets.

BNamericas: What is the perspective of the gold segment considering the global scenario?

Barbosa: We see mixed signs. On the one hand, gold benefits from moments with inflationary pressure, because investors see gold as an asset that means protection. On the other hand, higher real interest rates lead investors to invest in assets other than gold.

BNamericas: Do you think that inflation has peaked?

Barbosa: I still don't know if the worst is over. In Brazil, we see some signs of inflation deceleration, while in Mexico and Honduras pressure remains high.

But what we have been doing is keeping our team focused on balanced budgets for projects. We have negotiated with suppliers; we have reviewed mine operation contracts, always aiming at cost control.

BNamericas: What is your perception of the mining sector in Latin America?

Barbosa: What I'm seeing in the mining sector in Brazil is that, compared to other Latin American countries, Brazil is evolving its legal mechanisms, increasing legal certainty, compared to Chile, Peru and Colombia.

Brazil is strengthening the national mining agency, digitizing process, passing laws that facilitate funding. The country has taken very important steps to develop mining.

Even with the election scenario, I do not expect changes in the positive scenario, regardless of the government in 2023. Brazil is a country that is legally shielded from attempts at government intervention.