Compania de Minas Buenaventura SAA (BVN) 2003 Q3 法說會逐字稿

Good day, everyone, and welcome to the Minas Buenaventura Third Quarter Earnings Release Conference Call. Just a reminder, today's call is being recorded. Now, at this time for opening remarks and introductions, I would like to turn the conference over to Mr. Peter Majeski, with i-advise Corporate Communications. Mr. Majeski, please go ahead, sir.

Thank you, Melissa. Good morning, everyone. Welcome to Compania des Minas Buenaventura's Third Quarter 2003 Conference Call. Joining us today from Lima are Mr. Roque Benavides President and CEO, and Mr. Carlos Gálvez, CFO of Compania de Minas Buenaventura. They will be discussing the Company's results that were distributed yesterday. If you have not received a copy of the release, call us at 212.406.3690. Again, that's 212.406.3690, and we can email you a copy immediately.

We would like to remind you that any forward-looking statements made today by Compania de Minas Buenaventura's management are subject to various conditions, and may differ materially. These conditions are outlined in the disclaimer in Compania de Minas Buenaventura's press release. We ask that you refer to it for guidance.

At this time, I would like to turn over the conference to Mr. Benavides. Mr. Benavides, you may begin.

Thank you, Peter. Good morning to all of you. Buenaventura is very pleased to report excellent operating and financial results. Yanacocha had a record quarter, and Nocofalta and Antapite and Uchucchacua had excellent results.

We continue to have very interesting results in our explorations, which we expect to report at the end of the year. In any event, César Vidal is here with us to answer any questions that you may have.

In terms of the results, the actual net income for the quarter was $53.2 million-an increase of 49% over the third quarter of 2002. However, due to a charge of $100,500,000# recorded in the first quarter of 2003, the final result is a net loss of $47.4 million*. I have to mention that market-to-market is not a cash item. Certainly, all of our hedging has no margin cost.

In terms of our operating income, we are reporting $14.7 million, 27% above last year's same quarter. The EBITDA* up-it rose 66%, to $112.7 million, compared to the third quarter of 2002. Essentially, our operating revenues increased 27%, our EBITDA* is up, Buenaventura's direct operations increased by 59% for the first 9 months of the year. Our EBITDA*, including Yanacocha increased 83%, and our earnings-per-share, without market-to-market increased 76.5%.

We have also increased our gold production, compared to last year's first 9 months, by 14%. That is due somewhat to Orcopampa and Antapiti and certainly to Yanacocha. We have had essentially the same silver production as last year.

Our net income, excluding this market-to-market value variation charge was $53.2 million* for the third quarter of 2003, which represents a 49% increase over net income in the third quarter of 2002. Our earnings per ADS, excluding market-to-market value variation for the third quarter of 2003 were $0.84 of ADS, compared to $0.56 in the same quarter of 2002. If you check in our balance sheet, we have accounted for $207 million* for the market-to-market total charge.

May I just refer for a few minutes to our project development? In Uchucchacua, the new mine shaft blues began operation in August in this quarter. The shaft goes from a level of 450 to a level of 120. So we had an excess of 300 meters. We'll have to continue to take the extraction and development of the lower levels of the mine.

The total development is progressing according to schedule, with less than 600 meters* remaining in the distance, and is expected to be concluded in December. This total will help to drain, and the draining process will reduce the cost of pumping water from the lower levels. We expect to have it finished before the rainy season, which starts in late December.

In Orcopampa, the sanitation plant will start operations in December, increasing total recovery from 86.5% to at least 92%. This will allow recovery of up to 200,000 ounces per year, at the same tonnage mine level. As part of the new cyanidation circuit, Ocopampa is building a new tailing dump, of which the first stage will be finished by the end of November, and completed during the year 2004.

In terms of some highlights of the company, on August 28th, 2003, the company announced the appointment of Mr. Felipe Ortiz-de-Zevallos, 56 years old, as a new board member. Replacing Mr. Victor de la Torre, who unfortunately passed away on August 7th. Mr. Peter Savalio will be serving also as a member of both the Compensation and Audit committees.

Mr. Ortiz is an industrial engineer from the National Engineering University in Peru, with a Master of Science in Administration and Information Technology from the University of Rochester. He completed the Owner/President management program at Harvard Business School. Among his various academic and entrepreneurial achievements, he is the founder and chairman of Grupa Apoyo, a prestigious think tank in Peru. He is a very decent and very well-regarded person in the local community.

We had a couple of board resolutions yesterday, at the meeting of the board of directors. On October 28th, 2003, the board of directors passed the following resolutions. First, to declare a cash dividend of 0.3282 sole per share, which equals $0.94 per share, to be paid on November 27th, 2003, to shareholders who purchased shares until November 17th, 2003, with a record date of November 20th, 2003.

Another decision of the board of directors was to go ahead with a split of our ADR program, from two common shares per ADS to one common per ADS. The new ratio of one common share per ADS will be applicable from November 12th, 2003, onward. We believe that this decision is very good, as we will have the same quote in Lima and in New York, and of course one dollar to one *sole. Essentially, it will be the same amount-which certainly helps for currency and clarification.

We are open to any questions that you may have. I'm here with Mr. Alberto Benavides, our Chairman of the Board, Mr. Fernando Espa, in charge of all the commercial aspects of the business. And Carlos Gálvez--at our introductory message, I mentioned that he was here-our CFO. César Vidal is our VP for Exploration, and Mr. Humberto Rodríguez, who is our Controller.

Please go ahead with any questions that you may have. Thank you.

Our question-and-answer session will be conducted electronically. For those of you that have a questions today, please press the * key, followed by the digit 1 on your touchtone telephone at this time. We will proceed in the order that you signal us, and take as many questions as time permits. If you are using a speakerphone, please ensure your mute function is turned off, to allow your signal to reach our equipment.

Once again, if you do have a question, please press *1 now. We'll pause for just a moment.

We will take our first question from John Bridges, with JP Morgan.

Good morning, Roque and everybody. I just wondered if after this large hedge appropriation, whether you'd changed your attitude toward hedging--what the current strategy was of Buenaventura?

The hedging strategy continues as we stated some months ago. The Board of Directors of Buenaventura approved that we would not hedge any more toward the future, and their decision was made already probably 9 or 12 months ago. We decided that we didn't need to hedge, and that we would not hedge more.

Having said this, we've increased in production from a [role] mine in Yanacocha. Essentially, we are reducing our dependence on the hedge book. In addition to that, we are even rating on an approximate basis to buy back this hedge book.

We are not prepared to use the moneys of the company to buy back the whole hedge book, because this is a 9-year hedge book, which be maturing on its due date. Our policy is not to hedge more. In turn, we are using our hedge book, and we will continue to do so in the future.

You'd be looking for any weakness in the gold price to buy back positions, or cap them, or something like that?

As I said, in an opportunistic way, we are looking to the market permanently. If there is some weakness which we do not expect, we hope to buy back some of this hedge book.

To check where the savings from pumping and that sort of thing-do you have a number, in terms of cents-per-ounce, as to what that's going to save?

[Carlos], do you have that?

Carlos E. Gálvez Pinillos: We don't have an actual line for it, but basically what we're going to do is take the opportunity not only of reducing the cost of pumping, but also using this water for generating our own hydroelectrical plant.

Our target, in terms of cash cost and debt-wise, is $2.75 per ounce of silver. We are almost reaching this cost.

If I may add, the cash cost (inaudible), you check the month of September-it was $2.75.

Carlos E. Gálvez Pinillos: Yes.

That's given that some light as to how much we're going to be able to reduce, in terms of cost. In addition to the pumping, I must say that the waters are coming out of the tunnel, essentially thinking that the waters from the Atlantic basin to the Pacific basin, which will enable us to produce more energy from our hydroelectric plants. That would be an additional benefit from this 4.5 kilometer tunnel, which we expect to conclude by December.

May I add something?

Sure!

Alberto Benavides.

Hi, John. How are you?

I'm fine-yourself?

I just wanted to add that for the ventilation of the mine, this tunnel will also be a very important contribution. We have a number of regulators working there, and consuming power. We have to stipulate* all this air through the deep mines.

When we have the tunnel in, the air will just go through that and up the raises and [inaudible]. The ventilation system will be much different. We think that we can save a few pennies per ounce. I cannot tell you how much, but I'm very hopeful that we will.

In addition to that, I should say that in the terms of the tunnel, we have found some evidence that the mineralization goes down through this tunnel, which is quite a ways, and has opened up the possibilities in the mine. So I am very, very happy that we [closed] the tunnel. In fact, the only thing that I regret is that we didn't do it before. But it's done. All the work is done, now. I think that my Christmas, we'll be there and we'll be connected.

Okay. That's great. Well done on the* operating results, and we'll look forward to the next quarter. Thank you.

Thank you.

We'll move next to Victor Flores, with HSBC Securities.

Thank you. Good morning. First, a financial question, and then a technical question.

Could you tell us the actual amount of gold that was delivered into the hedge book during the quarter, and what the price received was?

The amount of hedges that we delivered in the hedge book, during the quarter? Fernando Espa* will answer that question.

Hello, Victor. During the quarter, we drove up to 83,000 ounces of gold. Those are deleted ounces at the end of September, accounting for [3.216] ounces, of around $3.57 per ounce, which compares with 3.67 ounces, which we had at the end of September, 2002.

And the real-life price on those 83,000 ounces?

We've got to look at [inaudible] around that. The real-life price of our ounces, to be [inaudible] were around $3.43 per ounce.

Right. Thank you. Than a second question, which is a technical one. If we could perhaps get this, to get a bit of an exploration date.

César Vidal: Victor, good morning.

Hello, César Vidal.

César Vidal: We met in Denver.

I know we just got an update, but I figure, hey, I might as well take advantage and get more information, if you have it.

César Vidal: Thank you very much for the question, then. We have had some highlights in our exploration program in [Antaupnta], basically from the metallurgical test work site. We've had some encouragement from historic [inaudible] bleaching of some of the non-[inaudible] copper ore. Ninety-percent extraction in 90 days. It's a good indicator of more test work warranted.

We also have some new test work locations for major composites-not individual [inaudible]. Composites of the [orsanical] and non-[orsanical] work sites. We've had very good copper concentrate* of 10-12% copper, with 95% recovery, and we're in the process of upgrading this through regrinding-multiple regrinding in two and three stages of regrinding, to minus ten micros* to get 24% to 30% copper concentrate, with no arsenic. I'm talking about 5-6% arsenic.

Finally, the concentrate [inaudible] cleaner, and behaved well during autoclavings. We did some test work with new metallurgical services. We have opened three avenues for further metallurgical test work, with encouraging results.

You also know that we have submitted to drill the next 10,000 meters for basically infilling the essential [inaudible] of [inaudible] waste. To *explore the sudden anomalies that may give us added tons of resource which is possible* and certainly* complex. But you know, it also gives geotechnical support to a two-kilometer decline that we hope to start in early 2004, to act as the ore results were recently discovered, and make both [inaudible] and further large-scale metallurgical tests*.

In the [inaudible], we are confirming our original guess of 20 million pounds of one gram per ton gold- offsite*, and we are refining the engineering side of the project, which will need a decision by December 2003. This is a small *marginal project,*a five year project that will produce 600,000 ounces, with an operating cost of $210# or $212 per ounce of gold. But it should pay for its own rate, and it should give us time to find other deposits in the area.

I should say that [inaudible] 47% is well aware of the details, and they're in full support of our activities.

[inaudible] the other commercial project that we have been presenting to you with good results, we have added two more intersects* to the Southwest expansion of this [inaudible]. In fact, results *for hole number 12 have been the best so far, with two *intercects of 15.8 meters and 13 grams *per ton gold, which includes 6 meters of 34 grams per ton* gold. A second intersect in the same hole further down is 8 meters of ten grams, which includes 2 meters of 72 grams.

These are encouraging results for our three projects that are at front. We will need to further our investigations to bring this exploration, and it has new profitable mines for the future.

Excellent. Thank you very much for that update.

As a reminder, if you do have a question, please press *1 on your touchtone telephone at this time. We'll take our next question from Roberto Ellinghaus, with Bear Stearns.

Good morning. Congratulations on the results. I have a question on the dividend* flow from Yanacocha. Do you still expect about $290 million in dividends from Yanacocha, overall? That brings about $1.25# for you for this year?

Second is, I see that you've been paying dividends to shareholders on a quarterly basis, lately. Do you expect to continue to do that over the next year as your dividend policy changes*?

As of the end of September, we had a cash position of $54 million*, which was a very solid one. Our net income for the effect of distributing dividends, certainly permits us to continue distributing dividends. We have been following a policy for the last seven years of at least 20% of net profits to be distributed to our shareholders. This year, we have had an extraordinary dividend of $24 million* in August. And we are distributing a higher dividend than what we have been paying this time. Yanacocha continues to deliver, in terms of dividends. We expect to receive from them $45 million* -100% for the last three months of the year. So our cash position at the end of the year will be a very solid one.

Toward the future, the board of directors has discussed this matter, and we will continue doing so. The thing is that the policy at Yanacocha is whatever is not reinvested will be distributed. We would like to also have some cash to distribute to the regulatory, to develop all these projects* that Cesar Vidal mentioned in relation to others that we have.

We expect to continue having a very solid cash position, and we will see what we will do in terms of dividend policy at the shareholders meeting in March, this year. That is all I can report at this point in time.

Thank you.

As a final reminder, if you do have a question, please press *1 at this time. We'll pause for just a moment. It appears there are no further questions. Mr. Benavides, I will turn the conference back over to you for any further comments.

Thank you again for your attention, and for taking interest in Buenaventura. I must just add to what César said, that we expect to have [inaudible] in production by 2005 and that things in Buenaventura are doing very well. We are very happy with our operations and with Yanacocha, and we expect to continue delivery to the market. Thank you for your attention, and have a good day.

Once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.