Compania de Minas Buenaventura SAA (BVN) 2004 Q3 法說會逐字稿

Good day, everyone. Welcome to the Minas Buenaventura third quarter earning's release conference call. Just a reminder, today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Pete Majeski with I-Advize Corporate Communications. Mr. Majeski, please go ahead, sir.

Good morning, everyone. Welcome to Compania de Minas Buenaventura third quarter 2004 earnings conference call. With us today from Lima are Mr. Roque Benavides, Chief Executive Officer, and Mr. Carlos Galvez, Chief Financial Officer. They will be discussing Buenaventura's results for the press release distributed yesterday, October 28th. If you've not received a copy, please call us in New York at 202-406-3690 and we will e-mail it to you immediately.

Before we begin, I would like to remind that you any forward-looking statements made today by Buenaventura's management are subject to various conditions and may differ materially. These conditions are outlined in the last page of the company's press release in a disclaimer. We ask that you refer to it for guidance.

It is now my pleasure to turn the call over to Mr. Benavides. Mr. Benavides, you may begin.

Good morning.

This quarter Buenaventura's net income was $28.8 million including a net effect of derivative instrument of $9.3 million. Without continuing this effect, net income for the third quarter of 2004 would have been $38.1 million. Operating income this quarter was $14 million while total EBITDA was $95.1 million. EBITDA from Buenaventura's direct operations was $19.1 million.

In terms of our operating revenue in the third quarter of 2004, operating revenue was $69.5 million. Accumulated operating revenue for the first nine months of 2004 was $218.4 million. Referring to our production in operating costs, Buenaventura's production during the third quarter of 2004 was 84793 ounces of gold and 3,221,000 ounces of silver.

This production includes only the operations where Buenaventura controls 100%, 78.04% of Ishihuinca and Antapite, 32.78% of Brocal, and 100% of Cedimin. This does not include Yanacocha. This production is taken to the first nine months of 2004 was 237,592 ounces of gold and 9,400,000 ounces of silver. In Orcopampa, total production for the third quarter was 56,500 ounces and for the first nine months of 2004, total gold production from Orcopampa was 153,300 ounces of gold. In Uchucchacua, our total silver production for the third quarter was 2.5 million ounces and for the first nine months of 2004, our silver production was 7,350,000 ounces of silver.

Our operating cost in Uchucchacua was $2.97 per ounce of silver. In Antapite, the total production for the third quarter of 2004 was 25,000 ounces of gold. For the first nine months of 2004, total production was 71,431 ounces of gold. In terms of our operating income, it was for the first quarter, $14 million and for the first nine months of 2004 was $61.7 million. Buenaventura's income from non-consolidated affiliates in the third quarter was $36.2 million. And for the first nine months of 2004, income from non-consolidated affiliates was $115.5 million.

In Yanacocha, the third quarter production was 754,000 ounces of gold. Gold production for the first nine months of 2004 was 2,174,000 ounces of gold. [Indiscernible] cost in Yanacocha was $150 per ounce of gold. As a consequence of this cash cost, net income for the third quarter of 2004 was $83.4 million, a 28% decrease when compared to third quarter 2003. However, for the first nine months of 2004, net income was $257.7 million, an increase of 11% when compared to $232.7 dollars reported for the same period of 2003.

This quarter EBITDA was $174 million and for the first nine months of 2004, EBITDA was $514 million. In terms of the net income of the company, this quarter's Buenaventura net income was $28.8 million, representing 23 cents of dollar per share of Buenaventura.

May I just take a few minutes to talk about the project development in Buenaventura. In Orcopampa, the run Mario, construction to connect the Nazareno and Prometida area, has been completed with 2,060 meters of ramps and galleries. The total investment was $6.6. million from August 2003 till August 2004. Regarding the deepening of the declines of the Nazareno-Prometida areas, the project is 25% completed. This will allow access to 700,000 ounces of gold at the lower levels of Prosperidad, Lucy Piso, Prometida, and Nazareno vein.

In Uchucchacua, the deepening of the master shaft to level 3,900 with a total investment of $2.7 million for the construction period of 12 months beginning on January 2004. The construction of the cyanidation plant to treat detailings is expected to begin in the fourth quarter 2004. This project will add approximately 1 million ounces of silver per year in terms of production. The budget for this project is in the order of $8.8 million.

Regarding the Brown field exploration, as of September 30, 2004, the Puerto Rico project, which began in May 2002, has a total accumulated investment of $3.3 million while the Juanta Jiya(ph) project which is started in March, 2003 has a total accumulated investment of $2.4 million.

In Antapite, the tailing dam expansion to permit higher treatment rates is 80% completed. The total expected investment is $3 million with a duration of nine months ending in December 2004.

In Colquijirca, within the Brocal Company, taking advantage of the already existing crashing and grinding facilities, the Colquijirca treatment plant will increase its capacity from 3,600 metric tons per day to 4,000 metric tons per day by adding new flotation cells during the fourth quarter of 2004. Full operation is expected to begin in the first quarter of 2005. This project total investment is approximately $1.6 million.

In Marcapunta, the corporate deposit within Brocal, the construction of the decline to access the copper body began in September. After overcoming initial difficulties, which limited the progress at 54 meters during the first month, the construction is expected to continue at a rate of hundred meters per month during the next 18 months.

Yesterday, September 28, the board of directors of Buenaventura passed following resolutions - - to approve the financial statements ended December 30, 2004, and, secondly, to declare cash dividend of 16 cents per share or ADS to be paid in U.S. currency on November 29, 2004 to shareholders who purchase shares until November 15, 2004 with a record date of November 18, 2004.

With this, may I turn to question and answers, please. Hello?

Thank you. The question and answer session will be conducted electronically today. To ask a question, simply press your star key followed by the digit one on your Touch-Tone telephone. Once again that is star one at this time if you do have any questions or comments.

Please keep in mind if your mute button is turned on, please turn that off so your signal can reach us. Again that is star one. We'll first hear from Alberto Arisa of Goldman Sachs. Please go ahead.

Good morning, gentlemen. The first question is with regards to some accounting changes that I think took place with the consolidation of La Zanja That might have impacted your exploration costs. If you could please explain a little bit why that event happened and what was the impact on the exploration costs for the quarter?

Alberto, good morning. It's Carlos Galvez. Well, you know that La Zanja was created as a company during the third quarter of the year, and expended explorations during the first half of this year, requesting cash calls to the partners of the original partners. So Newmont and Buenaventura. These expenses amounted to 19.8 million soles. When creating the company, La Zanja had to expend these liabilities, graded temporarily. Then La Zanja is consolidated by Buenaventura, so Buenaventura has to recognize as an expense this additional 19.8 million soles in reparations. These have a counterpart in the minority interests which amount 7.6 million dollars -- million soles, without a positive result, this is as income and not a loss. So the net effect of that is an additional [indiscernible] net income of 12.2 million soles or the equivalent to $3.6 million. This has distortion of 3 cents per share.

Okay. Great. If also you could provide some kind of an update on the exploration front on La Zanja. I remember Cesar doing the Denver gold show, talking about very exciting developments and expansions and so on. Is there any news on that front? That would be great.

Well, the thing is, Cesar Vidal is not with us, essentially because he is the President of the organizing committee of the Geology National Congress which is being held in Lima, a very important event for the country and he is doing his job as President of the organizing committee. Essentially, we have continue -- we don't have any other are resource to report into Malina, which is the area we had very high grade intersects. And exploration in La Zanja continues normally. We are looking for, of course, being in better conditions with the local communities which is always a problem, but essentially, we continue exploring and we have no new intersects to report at this point in time.

All right. Thank you.

And we'll now take a question from Victor Flores with HSBC.

Thank you very much and good morning. I have a couple questions with respect to the development projects. You noted in the press release that work is 35% complete on the decline at Orcopampa. Could you give us a sense of when that project will be finally completed?

I would say that it's by year end next year should be ready with all the services and all the additional work that may have to be done.

Great. And then a similar question on the new plant at Uchucchacua. If you start building in the fourth quarter of this year, when will that be commissioned?

Well, the thing is, we don't have an exact schedule at this point in time. We have to do some testing, additional testing before this last quarter, but I would say that they will not take that long. It is not a very complex plant if we continue with the same ideas as we have at this point in time. But in any event, I would say that it will take at least a year or so to be constructed, no?

By the end of the year.

By the end of the year next year probably, the same as the previous questioner.

Great. And then finally with respect to Yanacocha, can you give us an estimate of your expectations of dividends coming from Yanacocha in the final quarter of the year?

$120 million.

For the remaining of the year.

It is 100% of the remaining of the year.

Excellent. Great. Thank you very much.

And once again, it is star one if you'd like to ask a question or comment. We'll hear from Katie Blacklock of Thames River Capital.

Hello. I just wanted to just clarify on the exploration expenses. So the accounting change at La Zanja? Is that what boosted the exploration cost for the non-operating mining sites? If that is the case? What kind of a run rate can we assume going forward for the exploration costs?

It changes only because of the creation of the La Zanja as a company. So we have to recognize some liability and this is a known recurrent expense. This is just an accounting adjustment to take.

And from now on, we will expand the exploration expenses, and that will be 53% Buenaventura, 47% Newmont.

Okay. But if I look at the exploration costs in the non-operational mining areas and I look at the second quarter of this year and we're running at about a million, I think, and then we're up 11.3 million in the third quarter, I'm just trying to get a sense of how much of that increase is due to this accounting change and what level we can expect going forward.

Basically, the exploration expenses in La Zanja are almost completed. We have 80% of our exploration firm, so basically what we are working on the pre-building of the project.

On the permit.

On the permit. That's it.

So do we go back to the second quarter run rate on exploration costs in non-operational mining areas or are we at a higher level going forward?

We are not going to have higher levels of exploration in La Zanja.

Okay. Thank you. Just one more question in terms of your CapEx for 2005. Can you give me an idea of where you would expect that to be?

In Yanacocha?

Yes .

Just a second. The CapEx in Yanacocha for 2005 should be in the order of $260 million, around.

Okay. Thank you.

Once again that is star one if you do have any questions or comments. We'll now hear from Paul Rosenberg with Bear Stearns.

Hi, thank you. Regarding Cerro Verde, when do you plan to make your first payment?

Thank you for the question. I was tempted to make mention that in this conference call, but as we had our press release delivered some weeks ago. Essentially, the processing in Cerro Verde, hard to follow all of the legal aspects, no? They had to call for a shareholders meeting of Cerro Verde as a corporation. And then there's timing for given the preferential rights to subscribe to the current shareholders, and then after it will come the increasing capital from the third party. We expect to be putting our moneys into the company by early next year.

Okay, great. And one more question. What's your expectation for Yanacocha volumes next year? Do you expect cash costs to remain stable?

The cash costs will stay stable and we may maintain the level of production probably slightly down from what we are producing for 2004.

Let me get back to Cerro Verde. We are excited about this investment. We visited the mine. We have a feeling there is a substantial reserve base in Cerro Verde. It's probably the largest copper mine not exploited in the world at this point in time, meaning the sulfides. We are happy to participate together with Saf Touch(ph), which is a first class copper company. And this of course will not tarnish our precious metals image because this will take us to the amount in the order of 15% of our revenue's coming from copper while the rest would be essentially gold and silver.

Great. Thank you very much.

Once again that is star one if you do have any questions or comments. We'll pause for just a moment. Again, star one . And there are no further questions. Mr. Benavides, I'll turn the conference back over to you for closing remarks.

Again, thank you to all of you for your attention for attending this conference call. We -- I can assure that you we continue working very, very hard in trying to deliver as much value as possible to all of our shareholders. And regardless of the political situation that sometimes may make a little bit too much noise in Peru, we are essentially working on very high speed, if I may say, and we will continue doing this with all of the organization. Thank you again for attending this conference.

And that concludes today's conference. We do appreciate your participation. You may now disconnect and have a great day.