Compania de Minas Buenaventura SAA (BVN) 2003 Q2 法說會逐字稿

Welcome to the Compania de Minas Buenaventura second quarter 2003 Company conference call. (CALLER INSTRUCTIONS ). At this time I'd like to turn the conference over to the President and Chief Executive Officer, Mr. Roque Benavides. Please go ahead, sir.

Thank you. Good morning to all. For the first -- for the three-month period ended June 30th, 2003, our net income was S/89.4 million or $25.8 million. This represents 64 percent increase over the net income of S/54.5 million in the corresponding quarter of 2002. The net income reported in the second quarter of 2003 includes a loss of S/31 million or $8.0 million due to marked to market value variation in this quarter, while there was no variation reported in 2002. The company's operating income was S/36 million or $10.4 million during second quarter, 2003, representing a 62 percent increase over the S/22 million operating income in the corresponding quarter of 2002.

Buenaventura Iviancida (ph) in the second quarter of 2003 was $75.6 million, which represents a 72 percent increase over ivita (ph) of $43.9 million the same quarter of 2002.

During the second quarter of 2003, Buenaventura reported total sales of S/167 million compared S/127 million during the same period in 2002. The Company attributes this increase of 31 percent to the higher volume of gold sold from Orcopampa, the higher volume of silver sold from Uchucchacua, respectively, as shown in the chart that you have in our press release. We have produced, during this quarter, 75,600 ounces of gold, which represents a 32 percent increase; 3.3 million ounces of silver, representing a 26 percent increase; 7500 metric tons of lead, representing 38 percent increase; and 12,500 metric tons of zinc, representing 8 percent increase.

In the second quarter of 2003, Buenaventura improved operations at the Orcopampa mine. Orcopampa increased 10 percent its production to 43,400 ounces of gold during the second quarter of 2003. The cash operating cost of Orcopampa during this second quarter was $178 per ounce of gold. In Uchucchacua, our production was 2,374,000 ounces of silver, which is similar to the production of the second quarter of 2002. While its operating cash cost was cut by 5 percent during the second quarter of 2003, to $2.99 per ounce of silver.

In Antapite, we increased production in this quarter by 3 percent to 18,900 ounces of gold, at a cash operating cost of $166 per ounce. This mining unit finished during the quarter its project to increase capacity from 300 tons per day to 500 tons per day. The increased cash operating cost is due to the testing of the new mill, the fine-tuning of the process and higher development and preparation volumes to feed the new plant (ph) capacity.

Buenaventura total production during the second quarter 2003, not including Buenacocha (ph), was essentially 2.8 million ounces of silver, representing 1.57 percent variation; 69,000 ounces representing 8 percent variation; zinc, 6,300 tons, with a reduction of 2.56 percent; and lead, 3,300 tons, representing 7 percent increase.

Earnings per ADS (ph) for the three months ended June 30th, 2003 were 40 cents of dollar (ph) compared to 25 cents of dollar in the corresponding period of 2002.

In terms of our exploration, highlights of this year's exploration campaign are the infill-drilling of the Lasamfa (ph) Pamparell (ph) off-site (ph) gold deposit and the drill indicated extension of the Mancapunta (ph) gold in the goldberry (ph) massive sulfite deposit. Sefa Diar (ph), our Chief Exploration Vice President is here, and will be glad to answer any specific questions later.

May I just say that we have recently signed a joint venture agreement with (indiscernible) de Peru to address precious metals mineral potential in the Puca (ph) region. Gold fills (ph) will assume management of this venture.

In terms of our nonconsolidated (indiscernible), Buenaventura's income from nonconsolidated affiliates (indiscernible) achieved mainly through Yanacocha was S/107 million in the second quarter of 2003, representing 161 percent increase when compared to S/41 million in the corresponding quarter of 2002. This increase was due mainly to higher gold prices -- sorry -- higher gold production at a lower cash cost, and also to higher prices. In fact, during the second quarter of 2003, Yanacocha's production increased 42 percent to 682,000 ounces of gold to 197,000 ounces, which represents Buenaventura's share, from 479,000 ounces -- 209,000 ounces of which represent Buenaventura's share in the corresponding quarter of 2002.

On the other hand, there was a decrease in cash operating cost, to $127 per ounce of gold during the second quarter of 2003, from $148 per ounce of gold during the second quarter of 2002. The price of gold sold increased also by 11 percent to $342 per ounce of gold, compared to $312 per ounce of gold in the same period of 2002.

In view of the current cash position, on July 31st, 2003, yesterday, Buenaventura's Board of Directors decided to pay an extraordinary cash dividend of $31.4 cents of dollar (technical difficulty), which will be paid on November 25th, 2003 to shareholders who purchase shares until August 14, 2003 (technical difficulty) August 21, 2003 as a record date. With this, we are prepared for any questions you may have.

(CALLER INSTRUCTIONS). Manuel Salaside (ph) with Santande (ph).

Good morning, gentlemen. Just a quick question. I feel that the order rates (ph) at Yanacocha are higher this quarter than they were previously. And I was wondering if you could tell us what the order rates (ph) are right now, and is it sustainable for the rest of the year?

Well, certainly, the projection for Yanacocha this year has been higher to 2.7 million ounces as the (indiscernible) conference call mentioned. And certainly, we do expect to reach that figure by the end of the year. The reserves at Yanacocha are currently at a level of 32 million ounces. And, as you know, we report reserves every end of the year; we don't report interim reserves during the year.

The grades have been up to our expectations, and are essentially at the levels we expected to have during the year.

Okay. Thank you.

Angela (ph) Weinberg with Goldman Sachs.

Good morning. I have three quick questions. First, on increasing the administrative expenses. It seems to -- you have increased in the first -- in the second quarter -- and I wonder if you could give us any guidance about the full-year -- what you're expecting for 2003? The second question is the, in terms of the estimated business from Yanacocha -- if Yanacocha paid already any dividend this year, and what you're expecting for the full year, 2003? And quickly, on Antapite, when you expect the problems in Antapite for the extension to be solved, and when you expect the cash cost to go back to normal levels at Antapite?

My answer the third question on Antapite. We expect this quarter the cash costs will come down. The plant is already in operation. And we don't expect any major differences.

May I ask Carlos Galvez, our Chief Financial Officer, to answer the question on the administrative expenses and the dividend of Yanacocha.

(indiscernible) expenses increased due to legal expenses (indiscernible). Secondly, because of certain compensation included for the management, due to these relation to the price of the stock. So, we adjusted that during the quarter, and due to the higher levels of the (indiscernible) achieved, at least, (indiscernible) expenses increased.

When the dividend of (indiscernible) -- we will receive the first cash dividend from Yanacocha (indiscernible) -- the amount was $26 million and it was included in this financial statement.

And what do you expect for the year (technical difficulty)?

(indiscernible) is Yanacocha to pay in the order of --

Yanacocha will paying $290 million in dividends -- 100 percent for the year. That is the estimation.

(technical difficulty) with J.P. Morgan.

I wondered if you could give us a bit of the philosophy behind the special dividend? And then, if maybe Cesar could talk a little bit about what you're seeing at Lozacca (ph) that gets you excited.

Well, the philosophy -- the thing is, the cash position of Buenaventura is very strong cash position, due to our own operations but also due to an important dividend flow coming from Yanacocha. We have the philosophy, if I may say, that cash that we cannot spend in better ventures or explorations or new projects, that may leave a better return to our shareholders has to be distributed. So, in view of the strong cash position, we have decided to distribute an extraordinary dividend, which hopefully will not be the case in the future, but, in this opportunity -- (multiple speakers) --

Hopefully.

Carlos is saying hopefully will not distribute. But really, in fact we believe that a company has to be in a position of investing properly the money that we receive. In this case, we have an important cash position, and we thought that it was pertinent to distribute to our dividends and give the money back. (indiscernible) to answer the question.

Good morning. (indiscernible) has been around for a long time, over ten years now Buenaventura, but has changed its management over (indiscernible), and we have diluted (indiscernible) to 46 percent up from minus position (indiscernible). Buenaventura (indiscernible) are excited about the large position, with multiple centers of (indiscernible), similar geological setting at Yanacocha, and the hope of being able to succeed, not just in generating new targets, (indiscernible) deposits, at best, but also the fact that we're drilling for them and hoping to find deposits like Choqucocha (ph) using the Yanacocha analog (ph). (indiscernible) offer. However, having said that, we think is only the hope of (indiscernible) program that we are carrying out enthusiastically and using new tools like airborne (ph) and electromagnetics (indiscernible ) will be flying. And we are still pursuing the smaller projects of Pamperosoon (ph), and Pamparelle (ph), which are low-grade oxide gold (indiscernible) from the surface. And for that, we are doing infill-drilling of Pamparelle, which is two months ahead of us -- of drilling to substantiate the construction or not of the (indiscernible).

So, are you hoping for a tangible reserve increase at the end of the year?

Well that's what we're all betting (ph). I can tell you, though, that we have already drilled six holes in two different prospects in (indiscernible). In (indiscernible) sum up with any significant (indiscernible) in them. (indiscernible) strong (indiscernible) a lot of geochemical signatures -- a lot of smoke, but nothing new in terms of (indiscernible).

Okay. Roque, if he's still there -- if you are receiving your share of 19 million from Yanacocha in dividends this year, and presumably that will be similar or better than next year, then, you know, dividends like the one you're paying really aren't extraordinary, and you should be paying a much bigger dividend next year.

Well, we are all for having shareholders; value, and we believe in Buenaventura that it's in the best interest of our investors that we invest whatever cash flow we have in excess in projects that may give better returns on the interest rate that (indiscernible) some people are receiving. So essentially, the philosophy is whatever money we cannot invest, we should give it back to shareholders. As I said, we hope to have much better projects and invest this as properly as possible, no?

Congratulations on the results.

Nick de Flores (ph) of HSBC (ph) Investment Bank.

Thank you. Good morning. I have a quick question for Carlos Galvez, and that's the marked to market (technical difficulty)?

The marked to market value this quarter is $170 million negative. (multiple speakers) this quarter. This is the balance.

At the end of the quarter?

Yes.

Thank you. A follow-up question for Cesar on (indiscernible) (technical difficulty) drilling is telling you you have a gold-rich oxide cap on top of, I guess, a copper-rich sulfide system, which may not be (indiscernible) because it would an argite. But what is the drilling telling you about the nature of this deposit? How large do you think it's going to get? Have you recalculated the resource? And if not, when will you give us a new resource?

Well, (indiscernible) this morning -- currently, we are starting the drilling results of this year's extension of Marcopulta (ph) (indiscernible). As you know, Marcopulta has been drilled in the past on the northern flank of the mountain; and Brockalos (ph) has been dragging a resource of 49 million tons at 1.9 percent copper with .3 (indiscernible) of gold (indiscernible). The result of this, last year, this last round of (indiscernible) drilling, is showing us that the west flank of the Marcopulta volcano -- we've got a little bit more of a complicated situation with higher grade gold at the top, is an oxide layer, now reach 20 meters, 72 low-grade at 200 meters (indiscernible) to be open pick mines, we think. But immediately underneath that, we have more (indiscernible). We have a preliminary inventory of an additional 40 million tons, at 1.6 percent copper, but with one gram per ton growth (ph), which is three times higher than the Northern Marcopulta gold project. And in addition to that second central layer, we have the lower portion, which is relatively small. We have a resource in the order of 5 million tons at 2.1 percent copper with no arsenic, and half a gram per ton of gold, which is in the form of chalkosite (ph). That is why we included, in the press release, (indiscernible) intercepts (ph) for this (indiscernible) type of material. We are, at the moment, drilling the east flank. We have two holes to finish our drilling campaign this year. The first one on the east flank, two kilometers away from the Marcopulta West results; but also intercepted 75 meters of 1.8 grams per ton gold, which (indiscernible) us 1.5 to 2 percent copper. And this is completely open. So I think the (indiscernible) potential of Marcopulta is to double the resource, bearing in mind that Norte (ph) has been drilled (indiscernible). The West Bank has been drilled, although not completely, but it's showing extensions. And we're just poking into mineralized zones on the east flank. The South flank is also open, so, extension; this could grow at least 100 percent in size. However, the resource needs to be (indiscernible) metallurgically; and that's what we are doing also -- our exploration, no? We're doing a lot of metallurgical (indiscernible) work, of flotation, of the various copper sulfite variants (ph), and also some cyanide test for the oxide gold (ph). You will have a resource calculated by the end of the year, included the (indiscernible) annual report.

Thank you. Is it too early to start talking about development, here? Or do you have some ideas?

No, we do have some ideas. In fact, (indiscernible) we should be already starting a decline to get into that new zone on the West Bank, to try to better understand the distribution of grade and take full (ph) samples and do all that. But this is a position that has been presented to the board of (indiscernible) over the last week, and that we need more capital to be developed. So it's a decision that's not quite in place yet. We will be doing more drilling, for sure.

Excellent. Thank you, very much, Cesar. And good luck.

(CALLER INSTRUCTIONS). John Tomases with Prudential.

Good morning. Can you give us an update on some of the other exploration programs, in addition to Lazanha (ph), particularly Minisconga (ph), your various other large ventures?

John, we really don't have Minisconga as an exploration venture any more. It's part of the Unitide (ph) ground of Minas (ph) Yanacocha. So that last part of your question, no? We have basically finished the regional joint ventures with Newman (ph). Last year, we decided to finish both the(indiscernible) joint venture and the Alacucha (ph) joint venture. All we're doing in terms of regional exploration, generative (ph) exploration is basically Guenatura (ph), with the one exception of the new joint venture with Gulpla (ph). We think the exploration program is more focused on specific prospects.

Is there anything that you could describe in terms of the specific prospects?

Well, we have at least eight holes with good intercepts (ph ) for gold in the Poroconta (ph) joint venture, which is 35 kilometers west of Orcopampa. We have cut a deal with Southwest Gold, and we have an option to buy the 50 percent interest. And we have another deal with Tecomico (ph) Ltd., to option buy an additional 25 percent. We just started. One of our explorations has shown that they are (indiscernible) with top five (indiscernible) gold intercepts that are open, south, and southwest, and we will continue drilling them. That's one of the highlights that we have this year that was not mentioned in the press release, no? The press release, I will also mention that some of our smaller projects, like Bowlai (ph) and Nicolaslatai (ph) (indiscernible) are giving us a mix of results, no? For example, (indiscernible). We are drilling along the (technical difficulty) Mercedes (ph) vein, and we already have 60 meters, with an average width of 1 .3 meters and 15 grounds (ph) per ton gold, and 10 ounces per ton of silver. So, we are very internally very happy about that finding. Although in terms of tons, it's only a small addition. But the program, as you know, has to be visualized (ph) on an annual basis rather than on a monthly or a selectual (ph) basis. Keep your fingers crossed. And by the end of the year, you'll have confirmation of this, not only in Catanorco (ph) but Poroconta (ph) too.

If I may add, John, you asked about Minaconta (ph) and certainly (indiscernible) answer this question more than that. But, we know that they are -- we are already exploring in the Minaconta area, and we are finding some interesting indications in addition -- in addition to what we knew about the Minaconta area. It seems to be larger than we expected initially. This is due to the very good work that drillers of Buenacocha (ph) are doing in the area. We don't have a specific grade or tonnage that we can report to you at this time. But, exploration is being done, and we are finding good indications that we will (indiscernible) assure the future of Buenacocha (ph) after the (indiscernible) we think, very, very long-term, no?

Anything further Mr. Tomases?

No, thank you.

Roberto Ellinghaus (ph) with Bear Stearns.

Good morning. I have a couple of questions. The first one is, what do you expect the cash costs at Orcopampa to finish the year? And the second one is, are you looking to reduce your hedge book going forward? Thank you.

The hedge book is an ongoing discussion in the market and in Buenaventura. We keep elevating our hedge book. We believe that the marked to market may be negative at this point in time. But, reducing the hedge book means cash today versus the possibility of a loss in the future. We, at this point in time, have decided not to hedge more. But, we have also decided not to pay for reducing the hedge book. We think that is in the best benefit of the company, the shareholders and our cash flow. What we need to do is to increase our production and (indiscernible) term essentially, reduce the relative importance of the hedge book for our production. So, what we are going to work, is in developing new projects, but, reduce, relatively, the hedge book. Now I'll pass to Carlos to tell about the cash (technical difficulty).

(indiscernible) we expect to continue (indiscernible) of $170 per ounce in the Orcopampa (indiscernible). We are working on the exploration and development of Orcopampa. We are beginning to ramp faster than normally we would build --basically, one-third of the time it normally takes. So, that is the reason to have these higher costs.

As soon as we start producing (indiscernible) plant salinization (ph), by increasing the recovery, we are going to reduce this cash costs. And, after finishing the ramp, for sure, which should be in 12 months from now, we should reduce this cash cost to 150, which is basically our expectation.

Thank you, very much.

Mr. Benavides, it appears we have no further questions at this time. I will turn the conference back over to you for any additional or closing remarks.

Well, I would like to thank you for your attention, for your time, and hopefully, for your support to Buenaventura. We expect to continue delivering good results, and hope to add to shareholders' value. Thank you, very much, and good morning.

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

(CONFERENCE CALL CONCLUDED)