Rodrigo Barbosa had had virtually no mining experience when he took over as CEO of Aura Minerals (AURA33) in January 2017. Mechanical engineer by training, the closest he came to the segment during his career was when he served as a consultant to two producers of phosphate fertilizers.
It may seem like a primary mistake for shareholders to choose someone with no experience in the area, but what interested in their curriculum was the experience in restructuring companies, the so-called turnaround, in the jargon of the market.
For 13 years, Barbosa worked in one of the main conglomerates in the country, the Camargo Corrêa Group. While there, he helped develop CCR (CCRO3) and CPFL Energia (CPFE3), which were beginning to take their first steps and are now big names in their sectors, with a market value of R $ 26 billion and R $ 35 billion , respectively. He even managed to reach the position of financial director of the group, a position he held from 2010 to 2014.
His fame as a turnaround specialist was consolidated with the work he did at Santista, a textile company at Camargo Corrêa that faced serious financial problems. The restructuring he promoted even received an award from an association that is dedicated to promoting the best management practices, restructuring and recovery of companies in crisis.
This expertise in recovering companies was exactly what Aura’s shareholders, eager to turn the company around, looked for a new CEO and found it in Barbosa.
“I came up with a very clear agenda to restructure the company and put it back on the pace of growth and recovery of margins,” he said, in an interview with Seu Dinheiro. “But different from debt reduction, here it was to prepare the company for growth.”
Since arriving at the company, shareholders have received the results they expected – the mining company has sanitized its finances, seen a significant increase in revenue and its shares have had an increase in trading volume.
And now, even registering negative net debt, Aura is embarking on an ambitious plan: to double its production by 2024, keeping the payment of dividends at a high level. All of this with you, individual investor, as a partner in this journey.
From microcap to name to keep an eye
Aura’s transformation began just before Barbosa’s arrival, although he is responsible for a good part of it.
The company has been listed on the Toronto Stock Exchange (TSX), in Canada, since 2006, and operated in the mining of copper and gold, with large and ambitious projects of the greenfield type, classification of the market for projects still premature. Everything was going well until 2008, when the crisis came and she started to face financial problems to make operations feasible.
Barbosa said that she managed the situation until 2013, until the Brazilian investment fund Northwestern, owned by businessman Paulo Carlos de Brito, specializing in mining, started to increase its participation in the share capital, until it reached more than 50% of the shares and take charge.
As of 2016, the fund began to conduct a process of reformulation of the company, which culminated in the choice of Barbosa. “We started the turnaround project here at Aura in 2017, and we had clear ways to recover value and cash generation. Is it over there [reestruturação] it was anchored in super trivial issues, but we do the trivial well-done ”, he said.
The first step was to ensure the financial sustainability of Aura, and this involved cutting costs and expenses, with rational choices in relation to operations. On this front, one of the most important decisions was to sell the main asset that the company had until then, the Serrote da Laje project. Located in the interior of Alagoas, it consisted of the development of an open pit mine and the implantation of an ore processing and copper production plant, which Aura also extracts, but represents little in relation to gold.
Barbosa has no doubts about the quality of the asset, but said it was very costly for the company, so he decided to sell it to the private equity fund Appian, in 2017, for US $ 40 million. “The project is spectacular, but the investment was US $ 350 million, and at the time we had US $ 20 million in cash generation, from Ebitda, it was absolutely incompatible,” he said.
The episode illustrates another pillar of the restructuring: the choice and focus on good assets and projects capable of allowing the company to grow, without resulting in high costs or indebtedness. Aura’s principle is to look for projects that allow quick conversion of cash from investments. “We like to enter projects that are close to starting construction, or that we optimize,” said the CEO of Aura.
He cites as an example Almas, a gold project located in the state of Tocantins, added to the portfolio in 2018 and which started to be developed this year. It is expected that it will start operations in the second half of 2022, with a total investment of approximately US $ 73 million. Assuming a gold price of US $ 1,800.00 per ounce, the company calculates an internal rate of return after tax (IRR) of 57%, a very high level for such a project, with a net present value after tax (NPV) ) of US $ 260 million.
“This allows us to continue investing, without jeopardizing leverage, because in a year, a year and a half, we will already be producing and generating cash, and we will already be deleveraging that project,” said Barbosa.
With these changes, plus the implementation of a new work culture, Aura began to see results in late 2019, which ended up consolidated in 2020. The company recorded record production in the fourth quarter (with revenue in the period being record) last year, closing 2020 with 6.5 times the value of the 2019 net profit (R $ 385 million), with an increase of 74.8% of revenue, to R $ 1.5 billion.
Returning to the market
During this entire period, Barbosa did nothing but work on restructuring Aura. “I did not participate in events with analysts, with investors, nothing like that, I was 100% focused on homework,” he said.
With the results starting to show, the company understood that it was time to go back to the capital market, talk to investors. And at the end of 2019, the idea came up to do a re-IPO of the company. The operation had two objectives: to attract new investors and to allow part of the shareholders to sell participation (the offer was secondary).
Aura’s shares did not move a large volume of resources. To give you an idea, in the first half of 2020, the daily amount traded on the Toronto stock exchange was just about $ 173,000.
Decided by the re-IPO, the company started looking at several markets, the United States, London and Canada itself. But with the help of her advisers, she concluded that it would be a good idea to carry out the offer in Brazil.
“Due to a combination of factors, be it the size, the DNA of us, of shareholders, of Brazilian executives, and also the moment in Brazil, of everyone looking for investments with a little more risk, in the face of the drop in the CDI, we were caused by banks that Brazil could indeed provide a favorable market for going public, ”said the executive.
As it is listed and headquartered abroad, Aura issued receipts for shares in B3, the famous BDRs, at R $ 820.00, generating a total collection of R $ 790.1 million. She pioneered the so-called restricted efforts model. This form of listing, inaugurated in Brazil by the gold producer, only allows the entry of investment funds in the IPO.
With the re-IPO, Aura was able to expand the financial turnover of its shares to a range of US $ 2 million to US $ 5 million, taking into account the shares traded in Brazil and Canada. But it is still little, considering the company’s claims.
“It’s an ok size, it’s not bad, we’re talking about [giro] R $ 10 million, R $ 15 million per day, but to attract large institutional investors, in the USA, in Canada, who invest in mining, the goal is to be between US $ 5 million and US $ 10 million per day, because that’s where it ends bringing a much wider range of institutional investors, ”said Barbosa.
What comes from now on
Everything that Barbosa and the Aura team have done so far has the objective of creating sustainable bases for the company to be known and to grow. Now, the order is precisely to expand, in operational terms and in the investors’ portfolios, including even individual shareholders in its base.
On the operational side, the plans are outlined and are already being put into practice. The goal is to double gold production by 2024, to a range of 400,000 to 480,000 equivalent ounces, with the mines it already has in its portfolio. New assets are always on the board’s radar, but a purchase depends on the fulfillment of the two principles that guided Aura’s restructuring: projects with quick cash conversion and reduced implementation complexity, along with capital discipline.
“We are not going to make acquisitions just to grow. Our growth is our priority, and acquisitions is something that we follow, that we want to do, but it is not the company’s main strategy. This is not why we are going to double in size, we are going to double in size with internal projects ”, said Barbosa.
Among the current assets, there are those that need to move a little further on the infrastructure side before starting operations, as is the case with the Matupa project in Mato Grosso, whose measured and indicated reserves total 332,400 ounces of gold, and have the assets already in operation whose capacity is being expanded, like Aranzazu, an underground gold, silver and copper mine in Mexico, which last year extracted 891,699 tonnes of ore.
Even though the goals are for 2024, Aura expects to present results of the initiatives this year. “This year alone, we will grow between 22% and 42% in production,” stated Barbosa.
On the shareholder side, Aura’s idea is to dedicate more time to approach individual investors, so that the company is considered an alternative for portfolio composition.
One way to achieve this goal is to explain the differences between investing in the company and other mining companies. In the case of Aura, according to the executive, operations are smaller, because there is no need to extract large volumes in order to have a return. “Vale, for example, sells a ton of iron ore, now at US $ 150.00. We sell 30 grams of gold, which is an ounce, for US $ 1,800. And our production flies, it goes by helicopter, plane, we don’t need transportation infrastructure ”, said Barbosa.
Another way is to show that investing in the company is equivalent to investing in gold, a traditional protective asset. Barbosa believes in the strength of this thesis considering the current circumstances, in which inflation is showing signs of returning. In addition to protecting himself in gold, says the CEO of Aura, the investor is exposed to a company with great growth potential and that intends to pay high dividends.
In March, the company announced the payment of US $ 60 million in dividends, equivalent to US $ 0.83 per share (R $ 4.68 per BDR). At the time, Credit Suisse informed that the value represented a return (dividend yield) of 8.3%, above the minimum, based on the results of 2020 (2.5%).
And showing that the intention to have more shareholders is something serious, Aura split its shares in August, in the proportion of one to 15 shares. Now, the papers are well below the R $ 820.00 in which they were sold at the IPO – they closed at R $ 57.77 on Thursday (1st).
“There is still a huge field for us to explore in Brazil. I think that with institutional funds we did a good job, it is well known. Now, it is very new for retail, we can dedicate a lot of energy and invest a lot of time to explain about the company, so that they understand the risks and opportunities to invest in gold ”, said Barbosa.
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