Compania de Minas Buenaventura SAA (BVN) 2007 Q3 法說會逐字稿

Good day, everyone and welcome to the Buenaventura's Conference Call. My name is Henry, and I'll be conference operator. All lines have been placed on mute to prevent any background noise.

At this time, I'll turn the call over to Melanie Carpenter of i-advize for opening remarks and introductions. Please go ahead.

Thank you, Henry and good morning, everyone. Welcome to the Compania de Minas Buenaventura Third Quarter 2007 Earnings Conference Call on this 29th of October of 2007.

Joining us today from Lima are Mr. Roque Benavides, the Chief Executive Officer, and Mr. Carlos Galvez, Chief Financial Officer and then the other members of Buenaventura's senior management. They will be discussing Buenaventura's results for the press release distributed on Friday. If you didn't receive a copy or you need any help today, please call us in New York at 212-406-3694.

Before we begin, I just want to remind everyone that 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 the disclaimer and we ask that you refer to it for guidance.

It is now my pleasure to turn the call over to Mr. Roque Benavides for his presentation. Please go ahead.

Good morning to all. Thank you for attending Buenaventura's conference call. This quarter's net income was $100 million, $0.79 per ADS, which represented an increase of 23% when compared to the third quarter '06. While EBITDA reached $240 million, 31% higher than the third quarter '06 due to a strong contribution from Buenaventura's direct operations.

In this regard, the operating income in the third quarter '07 was $88 million, 35% higher than the $66 million obtained in the third quarter '06, while EBITDA from Buenaventura's direct operations totaled $109 million, 62% higher than the figure achieved in third quarter '06. We have number of figures on the operating side and you have the chart in our press release that you can check by yourself.

In terms of our production and operating cost, Buenaventura's equity production during the third quarter '07 was 103,000 ounces of gold, 3% higher than the 99,600 ounces reported in third quarter '06 and 3,900,000 ounces of silver, a 1% increase when compared to the third quarter -- to the 3,888,000 ounces reported in third quarter '06.

The equity production for the accumulated nine-month period was 295,000 ounces of gold and 10.5 million ounces of silver, which represented a 3% decrease in gold and a 5% decrease in silver production compared to the same quarter -- the first nine month of '06.

We have number of highlights of our production unit in Orcopampa, Uchucchacua and Antapite as well as in Colquijirca.

Now, I will call your attention to the fact that in Antapite that we have been exploring intensively in looking for a wider vein. We have intersected in this quarter a couple of veins which are -- deserves to be mentioned, which are the [inaudible] and [Castellana] vein, which are wider than the normal veins in this area and higher grade. We have intersected grades up to 30 grams per ton, which is giving us a lot of enthusiasm to continue the explorations at Antapite.

In terms of our guidance in Colquijirca, it is important to mention that as of October 1st, we've started the plant to process the copper ores from Marcapunta and we are at full capacity of 1,000 tons per day. But in addition to that we have increased the capacity of the lead, zinc, silver ores from 4,000 tons per day to 5,500 tons per day. All of these had represented in very good results for El Brocal in Colquijirca in this quarter.

In terms of our operating expenses, general and administration expenses for the third quarter '07 were $13.7 million, a 63% increase compared to $8.4 million reported in the third quarter '06 due to a non-cash $7.2 million provision for Long-Term Compensation provision.

In terms of our exploration costs -- and we are here also with Cesar Vidal in the case any you have any questions on our exploration front. Exploration costs at non-operational mining sites during the third quarter '07 were $10.7 million, a 27% increase compared to $8.6 million reported in the third quarter '06. The main efforts were focused on Marcapunta, Breapampa, El Milagro, Trapiche, Mallay and the projects in Argentina that we have been following.

In terms of our shares in affiliated companies -- hello --

Sir, this is the operator. You may resume your conference.

Hello.

Sir, this is the operator. You may resume your conference.

Okay, thank you. In terms of our share in affiliated companies -- and will you excuse for this technical problem, during the third quarter of '07, Buenaventura's income from non-consolidated affiliates was $67.8 million, an increase of 4% when compared to $65 million reported in the third quarter '06. This increase is explained by 121% increase in contributions from Cerro Verde, which was offset -- which offsets the 60% decrease in the Yanacocha's contribution.

It is important to mention that at Cerro Verde, this quarter has been essentially at full capacity and we are getting excellent results from Cerro Verde. In the case of Yanacocha, the quarter -- this last quarter of the year should be better than the previous quarters and we expect to show those results as of the end of the year.

In terms of our net income, this quarter, Buenaventura's net income was $100 million representing $0.79 per ADS, a 23% increase when compared to $81.2 million reported in the third quarter '06. This increase was explained by the higher contribution from Buenaventura's direct operations, in addition to contributions from Cerro Verde, which completely offset the decreased contribution from Yanacocha in the last quarter.

We have a number of -- some information on the project development in our own direct operations, and if I may call your attention to the sites at Uchucchacua, we have increased our recovery rate in this processing plant in this last quarter. The adjustments of this plant are being -- are dealing with the adequate results showing the increase in the recovery rate. That is very good news for us.

And at Orcopampa, the operations have been very, very good in this quarter and the results have been really on the upper side.

We had our Board meeting on Thursday and we essentially -- Thursday -- Friday, sorry, on Friday. That's the reason why we are having our conference call today. And at the Board of Director's meeting, held on October 26th, the Board passed the resolution to declare a cash dividend of $0.18 per share or ADS to be paid in US dollars on November 29th to shareholders of record as of November 15th. The ex-dividend date is November 13th, '07.

With this, may I pass to any questions that you may have, we are here open to any of those.

Thank you. [OPERATOR INSTRUCTIONS]. Thank you. Our first question is coming from Felipe Hirai of Merrill Lynch. Please go ahead.

Hi. Good morning, everyone. Good morning, Roque. I have a question regarding your project development. We have seen your gold production, your direct operation practically flat over the last 18 months. How do you expect this to change for the next few years? So, this is my first question. And the second question is regarding Uchucchacua. So, should we expect your recovery rate to be in the same range as it was in this quarter for the next quarters or should we expect some improvement on top of that? Thank you.

I am going for the second question first. We should expect better recoveries towards the future. I think we have now [got] -- to have a feel of how to control this processing plant and what we can expect is improvement and not necessarily a flat recovery rate. I think we will see some improvement at the Uchucchacua processing plants.

In terms of our own direct operations, if I got right your question, we -- at Orcopampa, we are increasing the number of ounces produced and we will have additions from Poracota next year. And in the case of Uchucchacua, we should have some additional ores from [Puerto] Rico next year.

So, in any event, our own direct operations -- and on top of that you consider that in Antapite, we have intercepted higher grade and wider range. We may expect to have also back to 100,000 ounces sometime in the next year from Antapite. So altogether, our own operations should be performing better towards the future.

Roque, could you give us a guidance of how much should you be producing your own operations for the next two years?

If I recall correctly, [adding] all the different pieces, by 2009, we should be producing in excess of 450,000 ounces of gold and -- including our participation in Yanacocha, which is producing also silver. We should be producing in excess of 16 million to 17 million ounces of silver. When I say in excess of 450,000 ounces of gold, it's only our own direct operations.

[If I may] add, Felipe, perhaps your question regarding the Uchucchacua's production. Our focus for this year in Uchucchacua was [10] million ounces and we expect that after getting these good results in the metallurgical process and the grades in our production, Uchucchacua could produce about 11.5 million ounces next year.

Okay. Thank you, Carlos. Thank you, Roque.

Thank you. Our next question is coming from Victor Flores of HSBC. Please, go ahead. Mr. Flores, your line is live. Please, go ahead.

Sorry about that. I was on mute, apologies. Good morning. First question goes to Yanacocha. You are still expecting about 1.6 million ounces for this year, which implies a very good fourth quarter. Can you tell us something about the grades that have been put on the pad in the past few months in order to achieve that production rate?

It is clear, we had a meeting with our partners of -- Newmont on Tuesday last week and yes, the fourth quarter should be the best quarter of all and that will take both cash costs lower and higher grades. If I recall correctly, we have been putting in the last few months about [a gram per ton] and that should give us this higher production in the fourth quarter of '07.

Excellent. And then also in the press release, you indicated the oxide mill will be finished by the end of this year. And do you expect full ramp up in the first quarter or second quarter of next year?

I would say, on the safe side, it will be in second quarter. This is a very important achievement. We think that we will expand our reserve base. It will give time to -- geologists to explore further in the area and essentially pulling value from the ore in Yanacocha.

Great, thanks. And then just turning to Poracota, what kind of expectation do you have for the production there next year?

We expect in the order of 40,000 ounces of gold for next year.

Excellent. And then if I can just ask one quick question of -- Cesar, if you could just give us a bit more color on the new discoveries at Antapite?

Victor, good morning.

Good morning.

It's a real pleasure to talk to you and to give you some insight into the new veins that are being discovered in Antapite. Antapite to start with, Roque has mentioned, it is located to the southwest of [inaudible]. It's a complete new vein. It's really a short distance from [Castellana] and Colquijirca reserves with high grades, got an [ounce per ton] and 1.6 meters wide. And we are drifting along that one and starting a second level.

So, we are going to fast track with discovery in a piece. In the case of Castellana, Castellana is a new settled vein. It's really one out of three veins to the northeast of [Colquijirca] and has been drill tested before with not much success. But this year, we have two [good intersects] and we are driving our cross cuts just close to 400 meters so that will take at least another two months to get there. For the moment, we have new set of veins and we have two [good intersects] and [cross cut moving]. So, when we are there sometimes towards the year end, sure, it's a final test for continuity and the third generation.

So, these are the immediate opportunities to catch up with the third generation through discovery of new veins in the mine areas of Antapite. Certainly, we have other prospects in the region. That we are also trying to [add some]. For that we need to work with the community around the mines and we don't have anything firm in mind at the moment. But Antapite is narrow vein, gold-rich district that we'll have [new reserve] sometime by the end of the next year.

So, just a follow up, it's not likely that you will have reserves on these two discoveries this year, but you might have some resources when you redo the resource at year end?

Yeah. The reserves for both Antapite and Castellana will be significant by the end of next year. Now, by the end of this year, you'll have [only a small tonnage] [inaudible] which is very important [view of] certain veins and in Castellana, it's not going to be -- it's not going to have any impact by the end of this year.

Very good. Thank you very much and congratulations on the discovery.

Thank you.

Thank you, Victor.

Thank you. Our next question is coming from Katie Blacklock of Nevsky Capital. Please, go ahead.

Hello. I just have a question on the tax rate, which has been very volatile on a quarterly basis this year. Could you give us some guidance on what we should expect for the full year this year? And then what you expect your normalized tax rate to be going forward? And could you also just let me know if the tax is of generally, all cash taxes or if there is a proportionate to this? Thank you.

(technical difficulties) Our tax rate is 30%. We assume this to be where you found some volatility in the income tax reported is due to the fact of -- we worked on the buyback of our hedge book and there was some impact on the deferred income tax. But this was just an accounting issue due to the fact that we -- certainly, we accounted some of those. So, the income tax for our direct operations is 30%.

Okay. But there was no impact from the buyback of the hedge book this quarter in terms of your tax rate?

No. We have already accounted whatever we have to account for this buyback at the end of the second quarter. So, if we do not buyback anything else, it's not going to have any impact in the income tax.

Okay. Thank you.

Thank you. Our next question is coming from Jorge Rodriguez of Centura. Please, go ahead.

Good morning. I was wondering if you could provide some guidance on the cash costs at Marcapunta and Colquijirca.

In the case of Marcapunta, we explained in terms of the project, we are basically working on an innovative area. This is a pilot plant. We are basically happy by finding information about how to manage this ore mineralization. Of course, we are making money right now and we've just begun this operation on October the 1st. So, we have no actual information only projected information.

In the case of Colquijirca's production, you can find the report in terms of the cash cost per ton of zinc and this quarter was [inaudible] dollars negative due to [the by-product] rates of silver and lead. So, this is the way we are controlling our operations.

Okay. Thank you.

Thank you. Our next question is coming from John Bridges of JP Morgan. Please, go ahead.

Good morning, Roque and everybody, Carlos. Congratulations on sort of results coming out very nicely. And I just wondered there is a molybdenum moly component to that, now. I am just wondering if there will be well, what molybdenum amounts are coming out at the mine at the moment? And where there's still sort of fine tuning to be done there, which could give us some improvements in profitability in the second half -- sorry, in the final quarter and into next year?

Well, in fact, we also had a meeting with people of Cerro Verde there. The man in-charge is John Broderick who was the man in-charge is leaving Cerro Verde and John [Brock] is taking over the operation. And they came here to bid to that. And essentially, what they told us is that the molybdenum recovery is on track and that we can expect additional contributions from molybdenum. And what are the figures Carlos?

The recovery of molybdenum is about 53%, 54% and content of molybdenum [last month] was about 240 tons of molybdenum. But Cerro Verde is -- continue working on improving [inaudible] -- of molybdenum in that degree.

200.

Okay and that 240 tons, is that 100% or ore share?

100%.

Okay. Congratulations and good luck for the final quarter.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS]. Thank you. Our next question is coming from Alonso Aramburu of Santander. Please, go ahead.

Yes. Good morning, Roque, Carlos and everybody, just a couple of questions. The first one, you had a -- for the second quarter in a row a Long-Term Compensation provision expense, is that over with this quarter or will we see that again in the fourth Q?

Well, the Long-Term Compensation has to do with the price of the stock. We -- our compensation scheme is in line with what we believe is what the shareholders expect which is shareholders value. So, if the price of the share goes up, we have to make a provision. If the price of the share goes down, we have a gain which I don't think many shareholders are happy with. So, no, it has -- it is being adjusted with the price of the stock.

Okay. Roque, thank you, and the second question is on Cerro Verde production this quarter seems to have a round rate of above 300,000 tons. Is that you think sustainable for next few quarters or can you track them down a little bit?

That is sustainable and we are at a rate of the 300,000 tons per year. We will not be surprised to have good surprises from Cerro Verde in the future.

Great. Thank you.

Thank you. Our next question is coming from John Bridges of JP Morgan. Please, go ahead.

Hi, again, Roque and everybody. Just a quick follow up on Uchucchacua. You have made progress with the recoveries. I was just trying to get clear in my own minds the -- where the project can go to, because you are preparing to retreat the tailings or how is that project developing?

There were a number of aspects that we took into consideration when expanding the plant, one that we had different type of cause in the mind. We had ores with higher grades of silver, ores with higher grades of zinc. There were offsite areas and of course, there were the tailing and in addition to that the ores that will come from [Puerto] Rico. And what we wanted is to have a versatile plant and what we wanted is to seek for the offsite and then of course check on the tailings. And the time will come, but today, we have a plant that can deal with all of those different types of ore and that is an addition to the value of the mine.

(inaudible)

I have been corrected here that we have already treated some of the tailing -- sorry, the [current] tailings, yes. Well, that's another issue. The tailings from the current operations are being treated. I was talking about the old tailings, but this plant -- this processing plant permits us to treat the current tailings and by doing that increasing the recovery rate of the overall operation.

It sounds it could cause -- hello.

(inaudible)

[Sorry.]

Hello?

Yes.

It sounds as if your father has been up to the mine more recently than you have been up there?

Yeah. That's the type of comment we like.

So, this $11.5 million for next year for Uchucchacua is that then a stable run rate or do you have further development plans beyond that?

Well, especially Puerto Rico is at further development and I would not be surprised that we can adjust further the metallurgy and have a better recovery. And what always the processing plants will enable us is to treat the different type of ores and of course, since there are additional [base metals in depth, the mine], looks like the grades of zinc increasing therefore.

Okay. Sounds like a very exciting project. Congratulations everybody.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS]. Thank you. There appears to be no further questions as this time. I'll now turn it back over to Mr. Benavides.

Thank you very much for attending this conference call. May I finalize by telling you that I personally will be in New York next week for the Silver Institute Annual Meeting and for those of you who are based in New York, if needed, we can get together. And Mr. Carlos Galvez will be attending the -- two conferences in New York. The Bear Stearns on November 29th and the UBS on December the 3rd. So, for those of you that may like to continue discussing our projects and our future, we will certainly welcome those.

With this, we thank you again for attending this conference call and hope to see you soon. Bye, bye.

Thank you. This concludes today's conference call. You may now disconnect.

Thank you. Bye, bye.