Compania de Minas Buenaventura SAA (BVN) 2003 Q1 法說會逐字稿

Please stand by. Good day everyone and welcome to the Compania de Minas Buenaventura first quarter 2003 financial conference call. Today's call is being recorded.

Copies of the financial results have been sent to you for your reference throughout the call. If you have not received a copy please call Evelyn Bernow at Citigate Financial Intelligence at 212-840-0008 in order to be added to the company's list.

At this time I would like to turn the call over to the President and Chief Executive Officer Mr. Roque Benavidas. Please go ahead, sir.

Thank you, Susan. Good morning and welcome all to this first quarter conference call of Compania de Minas Buenaventura first quarter of 2003, an anniversary year for Buenaventura. We are celebrating our 50th anniversary. And we are pleased to announce that the company had in this first quarter a net income of $186 million representing 53 consec (ph) million dollars for the three-month period ended March 31st. This represents 313 percent over the net income for the five million solid in the corresponding quarter of 2002.

The company's operating profit was $53 million soles (ph) or $15 million during the first quarter of 2003, representing 125 percent increase when compared to 23 million soles (ph) recorded in the responding quarter of 2002. Buena Ventures EBITDA in the first quarter of 2003 was $78 million, which represents 85 percent increase when compared to $42 million in the same quarter of 2002.

During the first quarter of 2003 Buenaventura recorded total sales of 153 million soles (ph) compared to 126 million soles (ph) during the same period of 2002. The higher sales revenue this quarter was due mainly to a 22 percent increase in the volume of gold salt as shown below in the press release and 22 percent increase in gold ...

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Hello. Can I go ahead, Susan?

Sir. Please go ahead.

Sorry for the inconvenience. We are speaking currently from New York City. This interruption has never happened where we have spoken from Lima, so I suppose that technology fails any place in the world. With our excuses we will continue with our report.

In terms of our sales for the first quarter of 2003 Buenaventura reported 153 million soles (ph) compared to 126 million soles (ph) during the same period of 2002. The higher sales revenue this quarter was due mainly to 22 percent increase in the volume of gold salt and is shown in the chart in our press release and 22 percent increase in gold price, $349 compared to $287 in the first quarter of 2002.

In terms of our operations in the first quarter of 2003 Oko Conti (ph) increased its gold production by 18.4 percent for the 3,600 ounces of gold for the first quarter of 2003, which compares to 36,800 ounces in the first quarter of 2002 and reduced each task cost by seven percent from 117 to $159 dollars in 2003. Oochochequa (ph) decreased its production of silver by three percent in this first quarter of 2003 compared to 2002. The cash operating cost of Oochochequa (ph) during the first quarter of was $3, $10, 3.1 dollar per ounce of silver compared to $2.71 per ounce in the same period of 2003. This increase is mainly due to higher labor and supply costs to prepare future areas of production and lower by-product credit.

Antepeete (ph) our new operating andu del mine (ph) produced 18,000 ounces of gold during the first quarter of 2003, which compares to at 17,800 ounces in the same period of 2002. The cash costs of Antepeete (ph) was $163 compared to 148 in the first quarter of 2002. We have to mention that Antepeete's (ph) treatment plant expansion is in process and the mine is expanding its preparation to increase production from April onward. We're finding substantial ore reserves in a number of different veins in the Antepeete (ph) area and we are quite excited about this property.

Buenaventura's total production, which includes 100 percent of its operating units and 78 percent of the production of Eechewinda (ph) and Antepeete (ph) and 32 percent of the production of ElBrocale (ph) and 100 percent of Selemine (ph) and it's subsidiaries, increased total it's total gold production by 15 percent. It would compare to the first quarter of 2002, producing 67,000 ounces of gold during the first quarter of 2003.

Earnings for ADS for this three-month period ended March 31st were 84 cents a dollar compared to 20 cents a dollar during the corresponding 2002 period. It is important to mention that as little has been disclosed, the company adjusted its financial statement to conform to the NIC Nick 39, equivalent to a FAS 133 to report the relative results. And due to these 41 cents a dollar per ADS of the above mentioned earnings their ADS correspond to the Ariba (ph) case. This is important to mention so that you can have a fair idea of our earnings per ADS.

In terms of our non-consolidated affiliates, Buenaventura's income from unaffiliated appears attributably mainly to Yanacocha was 64.9 million soles (ph) or $18.7 million during the first quarter of 2003, compared to 30 million soles (ph) in the corresponding period of 2002.

According to mining plan Yanacocha's production increased 36 percent to 639,000 ounces of gold, 279,000 ounces being Buenaventura's equity ounces in the first quarter of 2003 from 471,000 ounces of gold or 205,000 ounces bringing Buenaventura's equity ounces in the same period of 2002.

The cash cost was $134 per ounce in the first quarter of 2003 compared to $146 in the first quarter of 2002. In the first quarter of 2003 Yanacocha changed accounting principles related to FAS 143, reclamation costs. And the cumulative affect of the change was $36 million in expenses in this period, but $60 million soles (ph) or $50 million Buenaventura's share.

May I say that here we're in New York and we have the full management team of Buenaventura and of course our chairman is Argeto Anavedes Asoso (ph) in this conference call.

And with this we are open for questions and answers. Please go ahead, Susan.

Thank you. Today's question and answer session will be conducted electronically. If you would like to ask a question please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you are using a speakerphone please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us and we'll take as many questions as time permits.

Once again please press star one on your touch-tone telephone to ask a question. We'll pause a moment to assemble the roster. And we'll take our first question from Alberto Arias with Goldman Sachs.

Yes. Good morning gentlemen. Congratulations on the anniversary. And a couple of questions; this first one is on the accounting of the hedge book gains for the quarter. We see two impacts in your financial statements. You have this gain of $26 million, which is 41 cents per ADS. However when we look at the balance sheet there is a charge that affected retained earnings of around $96 million negative. Could you explain why retained earnings actually declined as a consequence of the hedge book and why this charge did not go through the income statement?

Federal Galuas (ph) our chief financial officer will answer that question please.

Yes. Good morning Alberto. As it was explained we are incorporating into our financial statement report this new accounting principles. And as of December 2002 the market value of our derivatives were $123 million, net asset. Due to the change in the price of gold today we can report 28, close to 28 relative dollars to market value, $20 million. And this means that we have to report as part of our P&L an extra profit of $26 million. If you included according these principles reducing their ability reported, we have to compute to the total amount of the $98 million you can find there.

And that the $123 million negative charge was not - did not go through the income statement.

Well that was accounted again as cumulative results in earnings.

All right. OK.

That is the way it has to be accounted.

OK. And any of your friends with U.S. gap accounting, how will this be zoned under U.S. gap, these two charges?

At this point in time we have a - regarding the value of this issuance, no different with USAP (ph).

OK. Second question, with regards to the cash cost at the Yanacocha, cost were $134 per ounce in the first quarter versus 120 during the prior quarter. What is the reason of increase? We thought that we were going to see Yanacocha around 125 to 120 from now on.

I think year round it's going to get to that figure. The problem we have had some minor operation problems in Yanacocha during the first quarter, some having to do with the shuttle, but we expect that to come down by year-end being the order of 120 to $125 per ounce.

If I may add basic differences are due to higher prices of gold. We have $5, down additional work of participation. And around two dollars of it in royalties. So that, say then dollar per ounce, which up to the average person.

Right. OK. All right. Thank you.

Our next question is from John Bridges with J.P. Morgan.

Good morning everybody. I guess we're going to see an ongoing number coming through from your hedge book, perhaps a little bit larger than we're used to from some of the other operations. I wonder if you can give us some guidance as to how we should treat that and, you know, is there a sort of delta on the hedge book that we can apply a change in gold price to and get a rough estimate of what, you know, what the volatility's going to be here going forward.

Well you need to - We're going in (inaudible). We are reporting in two parts these areas of the results. One is the delta of their mark to market value, which is shown on their table of gain from changing fair value of their relative instruments.

Right.

This $26 million. And on the other hand you'll have the actual result of this operations, which is sorry, yes realized gain arose in the relative instruments. We reported $341,000.

Right. Right.

Either way we are going to continue reporting them.

OK. Now I was just thinking if you could give us a sort of delta in terms of ounces then perhaps we could just simply apply the gold price in over the new quarter compared to the old quarter and get a very quick idea of what the volatility's going to be.

So you are one if any asks you. And the questions is for every $10 or every $25 that the price increases or decreases, how much we'll have to account for.

Yes. It's just a question of simplifying it because ...

Maybe in match, sort of an understudy, if he can answer for Nina the questions. Fernando (ph)?

We can talk about it at lunchtime.

Right. Right.

And then I wonder if you can give us an idea with the expansion and to BT, what sort of great profile, emphasis profile we can look forward to this year.

We are - occasionally what we're doing is putting a new mill occasionally to improve the grinding of the ore. But of course you know the temptation is always to increase capacity and especially if we are finding substantial amounts of gold. The capacity of the plant will be in a position of treating probably 50 percent additional funds at the same grade. So this would take a profit. We are not in a position of saying that we are going to be producing 50 percent more ounces immediately but the trend will be to increase the capacity of Antepeete (ph) in that sort of amount.

OK. And that's great. And many happy returns to Buenaventura.

Thank you. Yes.

And moving on we'll take our next question from Manuel Salazar with Santander.

Yes. Good morning gentlemen. And congratulations. I'm sorry I'm not going to be able to be with you in New York. My questions is, has there been any changes of the ore grade of mined ores at Yanacocha. And in the current mine plan are you expecting any changes?

No. The old great Divinie (ph) has gone a little bit higher. We don't expect - It seems that the operation of Yanacocha is doing fine and that we will have no negative surprises as of the end of this year. So things are on budget as forecasted earlier this year.

OK. Thanks.

We'll now hear from Jeff Stanley with BMO Nesbitt Burns.

Good morning gentlemen. I may have one question. A couple of mine have been answered already. I was wondering if you could give me some thoughts on the cyclicity of production at Yanacocha. I mean typically in the past we have seen either depicted seasonally. And generally the first quarter is a relatively slow quarter. And it appears as though you're operating at close to 2-1/2 million ounce for atom rate. I'm wondering if there's a possibility that, you know, if it picks up in the second, third and fourth quarter. You may actually exceed the 2.5 million ounce target.

Well we are preferred to be surprised. But the thing is you have to bear in mind that the first three months of the year are the rainy seasons in the area of Latin America, which has an impact on the (inaudible) solution and on the recovery at the end of the day. So yes, you're right that there is a question of the first three months. It starts slow and we expect to continue with normal operations and I personally would not be surprised that we exceed the 2-1/2 million ounces.

OK. Very good. Thank you very much.

And now we'll hear from Victor Flores with HSPC.

Thank you very much. One very simple question, first regarding the hedge book. You gave us a number of negative 28 million. I assume that is as of the end of the quarter or is that at present?

This is at the end of the quarter, Victor.

Great. Thank you. And then perhaps if we could get, say something to give us an exploration update please.

Yes. Please Susan we are live here also in New York. Go ahead.

Good morning, Victor.

Hi, Galuas (ph).

We are very pleased to report an expansion in reserves in both, you know Depontine (ph) and Antepeete (ph), which are our main gold producing operations. We have seen in the case of Orville Tonti (ph) a significant increment because of the discovery of deep but high-grade ores from Atia (ph) vein. And as we come to our luncheon meeting you'll be seeing some slides about it.

In the case of Antepeete (ph) we are moving out of the one vein only reserves, which used to be Sororocho (ph), that now carry 50 percent of the reserves into a situation where we had four veins that are giving us good high grades of which the Prometea (ph), the Pampanita (ph) vein is the most important. Not to underestimate the Antepeete (ph) vein and the Veina (ph) vein. So we are seeing a total reserve resource in the case of Antepeete (ph) of 1.4 million tons. At .45 ounces per ton that's a significant growth rate. And in the case of Orthopanta (ph) just to give you the other side of the coin is 1.8 million tons of reserves plus resources. And it's a very similar grade of 0.45 ounces per ton.

However those are the operations and in terms of project, you know we have a large expiration portfolio and the three most important ones that I would like to mention, Latanca (ph), Tantalichi (ph) and Markapulta (ph). In the case of the first two, we are going ahead with our Internet reading ad ports for small resources. But we've seen possibly viable resources of 600,000 ounces in Latanca (ph) and Cose (ph) with 700,000 ounces in Tantalakia (ph).

And in the first case of Latanca (ph) we are also acquiring from Circus lab (ph), which is a slow process, it's a delicate social issue. But we intend to have at least the efficient to build Latanca (ph) sometime this year. In Markapulta (ph), which is part of our broker participation we are finding considerable extensions to the energize, gold bearing ores of Markapulta (ph). And although where our ratios reading at the moment as we speak we have Teresa (ph) there. We had an important increment. We believe we have a resource to indicate a resource of 100 million tons of just over a gram of gold per ton versus 1-1/2 percent copper and .3 percent arsenic though.

There are metallurgical issues regarding these mineralized material out of reserve. But we are quite enthusiastic about finding the limits of the animal. I don't want to underestimate other projects but of those others we should mention DeLes Tercos (ph) project, which is a joint venture with Meridian (ph). We had a successful first drilling company that finished last year that indicated the resources in the order of 200,000 tons of over a half an ounce per ton. And we'll be continuing the drilling this year under the management of Meridian Gold.

Excellent Sussive (ph) thank you very much.

As a reminder if you would like to ask a question today please press star one on your touch-tone telephone. We'll now hear from Roberto Ellinghauf with Bear Stearns.

Good morning and congratulations on your anniversary. And I have one question. On the accounting changes at Sienna Cocha (ph) is any of this cash? And secondly would it affect any dividend payment from Yanacocha to Buenaventura?

Good morning, Roberto. No. This is just you have the question of the reclamation provision. You know that Yanacocha has been making a provisional three dollars per ounce of produced for reclamation purposes. And according to FAS 143 we have to outweigh on the account a provisional of the total value of this event at this point in time. This is not cash. This won't affect dividends for received and even has no tax input.

So this is just a provision as whichever ...

Thank you.

And again we'll hear with Jeff Stanley with BMO Nesbitt Burns.

Thank you gentlemen. Just one quick follow-up question to that; can you give us some indication of what impact it will have on an ongoing basis. Is it going to be one or two dollars an ounce or something like that going forward?

On Yanacocha you mean?

Correct.

I think this adjustment is one shot on and then after it will continue as it has been in the past. No.

Well basically this adjustment means to have six dollars per ounce instead of three. But this is just a one-time shot.

OK. So the, you know, the $36 million is a one time charge. But going forward we should be using something like three dollars an ounce higher reclamation provision.

With your provisions, yes.

OK. Good. Thank you very much.

You're welcome.

It appears there are no further questions at this time. Mr. Benavidas, I'd like to turn the conference back to you for any additional or closing remarks.

Thank you. Just to mention that for all of you that are in the New York area we are hosting a lunch, a presentation at the New York Stock Exchange and whoever has not received an invitation please let us know and we will be very happy to have you there.

As I mentioned earlier we're celebrating this 50th anniversary and we were invited to come to the New York Stock Exchange, which we are doing. But in addition to that and being a Peruvian founded company we will be making the presentation at the Lima Stock Exchange in a few days time. And then you will be receiving an invitation. We believe that we have to be very clear. Our roots are Duluth and of course a Peruvian founded company has also to report in (inaudible).

With this and with our appreciation for your time I can tell you that Buenaventura continues to prepare itself for the next 50 years and hope to continue giving the returns that our investors are expecting. Thank you very much and see you soon. Bye, bye.

That concludes today's conference. Thank you for your participation.

Thank you, Susan.