Compania de Minas Buenaventura SAA (BVN) 2007 Q4 法說會逐字稿

Good day, everyone. And welcome to the Buenaventura conference call. My name is Rich, and I'll be your conference operator. All lines have been placed on mute to prevent any background noise.

At this time, I'll turn the floor over to Pete Majeski for opening remarks and introductions. Please go ahead.

Thank you, Rich. And good morning, everyone. Welcome to the Compania de Minas Buenaventura fourth quarter 2007 earnings conference call. Joining us today from Lima are Mr. Roque Benavides, Chief Executive Officer, and Mr. Carlos Galvez, Chief Financial Officer, as well as other members of Buenaventura's senior management.

They will be discussing Buenaventura's results per the press release distributed yesterday. If you've not received a copy, please call us in New York at (212) 406-3694.

Before we begin, I would like to remind you 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. We ask that you refer to it for guidance.

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

Good morning. Thank you for attending this conference call. In Buenaventura, we have had a net income for the fourth quarter '07 of $123 million, or $0.97 per ADS, which represents 54% increase when compared to the fourth quarter '06. This was driven by increased revenues from our direct operations as well as contributions from Cerro Verde and Yanacocha investments.

EBITDA from Buenaventura's direct operations was $136 million, 32% higher than the figures reported in fourth quarter '06. The operating income was $105 million, 3% lower than the figure reached in the fourth quarter '06. With this, our operating results fully reflect Buenaventura's de-hedging efforts, which have continued in the course of the month. And as you may know, in February, we have finalized all of our de-hedging. And Buenaventura is absolutely de-hedged.

In terms of our production, Buenaventura's equity production during the fourth quarter '07 was 109,000 ounces, 9% higher than the 100,000 ounces reported in the fourth quarter '06, and 4.2 million ounces of silver, a 1% increase when compared to 4.1 million in the fourth quarter '06.

For the accumulated 12-month period, our gold production was 404,000 ounces and 14.7 million ounces of silver. This represented a similar figure in gold and 4% decrease in our silver production compared to 2006.

At Orcopampa, total production for the fourth quarter '07 was 69,000 ounces, a 5% increase when compared to 65,600 ounces reported in the fourth quarter '06, mainly due to higher grades and ore mined. Accumulated gold production was 267,000 ounces, a 5% increase when compared to 2006.

It's worth to mention that this year we have produced 16,000 ounces from the Poracota mine. And we expect to produce 40,000 ounces in 2008, reaching a figure of 330,000 ounces for the whole area, including Orcopampa and Poracota.

At Uchucchacua, total silver production during the fourth quarter '07 was 2.986 million ounces, a 21% increase when compared to fourth quarter '06, mainly due to higher grades as well as higher ore mined and increased recovery rates. The expansion and the increased capacity and technology are already giving some results in this operation.

Accumulated silver production was 9.873 million ounces, a 2% increase when compared to 2006.

At Antapite, total production for the fourth quarter '07 was 18,600 ounces of gold, a decrease of 24% when compared to fourth quarter '06, mainly due to 23% decrease in the gold grade from 0.56 ounces per short ton to 0.43 ounces per ton. Accumulated gold production was 72,100 ounces, a 30% decrease when compared to 2006 production.

We are doing an extra effort in exploring this mine. We have good indications. But of course, we are finding some problems in Antapite, which we expect to reverse in the near future.

At Colquijirca, total zinc production was 24,400 metric tons in the fourth quarter, a 29% increase when compared to 18,900 metric tons reported in the fourth quarter '06, mainly due to an increase in the tonnage treated, as well as 24% increase in the zinc grade. Total silver production during the fourth quarter '07 was 1.77 million ounces, a 41% decrease when compared to 3.044 million ounces reported in the fourth quarter '06, mainly due to a significant decrease in ore grade based on the average grade of the mine despite a higher volume of ore treated.

You have to bear in mind that these are lead-zinc-silver ores. And the grade of ore is dependent on the area of the open pit that we are mining. This is not something that we can control on a specific basis.

In terms of our affiliated companies, Buenaventura's income from nonconsolidated affiliates was $78 million in the fourth quarter '07, an increase of 81% when compared to $43 million reported in the fourth quarter '06. This increase is explained by a higher contribution from Cerro Verde, $29.5 million, and Yanacocha, $47.4 million. For 2007, income from nonconsolidated affiliates was $249 million, a decrease of 20% compared to $313 million reported in 2006.

At Yanacocha, in the fourth quarter '07, gold production was 469,000 ounces of gold, an increase of 3% when compared to the fourth quarter '06. Gold production in 2007 was 1.563 million ounces, a decrease of 40% when compared to 2. 612 million ounces reported in 2006. This production of 2007 was on budget with what we have been reporting to the market.

At Cerro Verde, the fourth quarter '07 copper production was 76,500 metric tons, a 157% increase when compared to fourth quarter '06. For 2007, copper production totaled 269,000 metric tons, 168% higher than the figure reported in 2006. This is due mainly to the expansion project. And we expect that full year 2008 we will reach the 300,000 tons of copper that we have been reporting to the market.

As we mentioned earlier in terms of our hedging operations, we are filing with the Securities and Exchange Commission in February 2008. The company completely unwound its gold hedge book.

In terms of our projects, Uchucchacua and we have been working on the deepening of the Carmen and Socorro mines, including the deepening of the master shaft at the Carmen mine reached the level 3,990 during the fourth quarter '07 as scheduled, while the extension of the deepening program to reach the level 3,920 is currently in progress and expected to be completed in March '08. The development at level 3,990, which involves drifting 2,394 meters, is 34% complete and is expected to be completed by third quarter '08.

At the Socorro mine, the construction of the ramp 626 is currently 68% complete and is expected to be completed by third quarter '08. The development at level 3,990, which began in the third quarter '07, is 14% complete and is expected to be finished by the end of 2008. The deepening of the Luz Shaft to reach the level 3,990 is now scheduled to begin in third quarter '08 and completed in the fourth quarter '09.

During 2007, total investment was $3.7 million of a budget of $10.3 million.

The plant expansion from 2,500 short tons per day to 3,000 short tons per day to treat additional lead/zinc materials from lower levels of the mine includes the acquisition of a grinding mill 13 feet times 20 feet, floatation cells, a thickener, and two press filters for a total investment of $5.3 million. The expansion is expected to be ready in the third quarter '08.

At Orcopampa, by the end of 2007, the Nazareno Shaft reached level 3,290. During 2008, the deepening of the Nazareno Shaft is scheduled to reach the level 3,170 from level 3,290 for an estimated investment of $4.5 million.

As of December 2007, the Prometida Shaft reached level 3,440 from level 3,590 for a total investment of $1 million and is expected to reach level 3,290 by the second quarter '09.

The expansion of the tailing dam number four to increase the capacity to 1.3 million tons was completed in December for a total investment of $5.6 million. And the construction of the facilities to treat the old floatation tailings includes six 40-times-40-feet cyanidation tanks, a thickener and a holding tank. This project will permit the recovery of approximately 53,000 ounces of gold in 2008 and 2009 for a total investment of $9.2 million.

Yesterday, we had the board of directors meeting. And it was approved to call an annual shareholders meeting to be held on March 28, 2008, to approve the financial statements as of December 31, 2007; to approve the 2007 annual report; to approve a cash dividend of $0.22 per share or ADS to be paid in U.S. currency; and to capitalize accumulated income and modify the stock face value. This essentially is a local issue. But we have to do this face value at very little meaning in the market.

And finally, to approve a stock split, meaning that one share will be converted to two shares. This is being done at the request from some shareholders in Peru. But we believe that this will add volume to our stock. And this will be to the benefit of all shareholders.

Also, we want to report that on Monday, March the 3rd, we will be presenting at the New York Stock Exchange at lunch time. And all of you that are around are most welcome to come. Please coordinate i-advize, which are our representatives in New York.

With this, we are open to any questions that you may have. Thank you.

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from Felipe Hirai of Merrill Lynch.

Hi. Good morning, everyone. I have two questions, Roque, if you allow me. First, can you give me some guidance of what's going to be the prediction of your direct operations in 2008? And the second thing is regarding Tantahuatay. You're talking about the project in your press release. Can you give us a little more color on what's the current situation with the relationship and with the local communities? And also what's the size of the reserves that we're looking at, if there's still that 4 million ounces that you had announced in the past or if it's something more or less than that number? Thank you.

Thank you, Philippe. Our 2008 total production from our own direct operations will be in the order of 450,000 ounces, including the 40,000 ounces that we are going to produce from Poracota this year. And we will have essentially a similar silver production for 2008 as we had in 2007.

May I ask Cesar Vidal? He can give us some additional details on the Tantahuatay project. The fact of the matter is that we have been working on the social front. And we have been progressing. And that's the reason why we are moderately optimistic that we can go ahead. We are buying some of the surface land. And we are working very hard on this project. But I think Cesar can give us additional information in this respect. Cesar, please?

Thank you, Roque. The Compaa Minera Coimolache has been doing I think a sustained effort. It's finally panning out to get both the [Tingo] and the Chugur community on our side. This is to continue with the exploration work at Mirador, where an additional 200,000 ounces were found in a new prospect this last year, but essentially to acquire surface rights to make the construction of the project viable.

We have moved forward on acquisition of surface rights. But there are still 200 hectares that are critical and need to be acquired or leased on a long term from the Tingo community. This is a process that goes in parallel to the feasibility study that has been completed, and it shows positive numbers, and also with the environment impact study, which needs to be presented and approved this year.

Tantahuatay will see no more exploration in 2008. The company Coimolache is set and determined to approve the environmental impact study and start construction.

If I may add on this respect and another deposit that we have not mentioned in our press release is La Zanja. And La Zanja will have the audiences with the local communities in March this year. And we expect that La Zanja will also continue its profit. It is not an easy one. But we are also progressing both in La Zanja and Tantahuatay. You have to bear in mind that both projects are located in Cajamarca, not far away from the Yanacocha mine.

Okay. Thank you.

Thank you. Your next question comes from John Bridges of J.P. Morgan.

Hi, Roque, everybody. Could you give us a bit of guidance as to what we should expect to see from Uchucchacua going forward? It's a very important silver mine. And it's changed to be a significant zinc mine at the moment. But I believe you're going to go back into the silver zone. So what's it going to look like in its new form with these multiple operations?

Well, I think if we can start from the brownfield exploration, the Pozo Rico deposit continues to grow in terms of reserves. And that will contribute to overall production at Uchucchacua if not to become a new mine by itself.

But specifically on Uchucchacua, the adjustment of the very complex plan that we have because now we have the capabilities to treat all types of ores in the Uchucchacua mine, and I believe that that has been a very, very good investment for the company. Adjustments have not been easy. But now we are up and running. And essentially, we keep finding additional ores.

I don't think Uchucchacua itself will grow by 10% or 15% per year. But certainly, we'll maintain its production and will grow moderately in the next few years.

I don't know. Cesar, would you like to add something to that?

For me, the great news for a formidable silver-rich district is that we will start the production of high-grade zinc ores. There will be an additional floatation capacity of 500 tons a day for zinc ores that are in the order of 7% to 8%. We've never milled any of that in the past because the prior operation was only capable of milling 2% to 3% zinc at the maximum.

But this is a new addition to Uchucchacua, which I'm not an operations guy, but it will maintain the silver production and start a new zinc production.

Perhaps what we should add is when talking about maintaining silver production, it's in the order of 1 million ounces per month of silver, which is basically about 12 million ounces per year plus this allow lead and zinc production that has already increased in about 40%.

Will the increased zinc bring your cash cost down to low levels?

Well, this is why we achieved the $3.30 per ounce of silver during the last quarter.

Is that a reasonable level to look forward to going forwards?

Well, we prefer to be much more conservative. You know that we are having the appreciation of new sol that will impact on our labor cost and compactors and some increase in cost of certain consumables. So we believe that we will have a cash cost lower than $4. But $3.30 is pretty optimistic.

Okay. No, that's helpful. Roque, if I may just ask a second, we've not asked you much about the politics for awhile. We've seen benefits under the new President. But now we have the strike. I just wondered if you could comment on the political situation, especially as it relates to labor.

Well, the strike is a very peculiar strike and something that we cannot do much about. The thing is we are unable to give figures of our financials before reporting to the market. That's obvious. That is what we have been telling our workers, that they insisted that they wanted to have these payments to check on what was going to be the profit sharing for them. And they have gone to strike without having the financials.

So we were on a point that we were not able to do much. That shows, of course, that this is a very political strike that could bring some additional unrest in Peru I would say. But essentially, the unions have been very light in the last few years. It seems that they are becoming a little bit stronger. But it is a normal course of business. And we have to deal with those. And we are talking to them and trying to get to terms with them.

The political situation, of course, is that there is some opposition to Mr. Garcia. The problems in Cuzco, specifically dealing with the APEC Summit meeting is something that also has to do with politics and with the opposition. Some of the strikes have to do with internal politics. On the other hand, the country as a whole, the macroeconomic figures are very good. I think Peru is clearly a star in Latin America. And the government is saying the right things and doing the right things. We are attracting additional investment.

And the fact of the matter that we are going to have two international major summits as it is the European Union, Latin American, and the Caribbean Summit in May with 60 head of states coming to Peru and the APEC meeting in November gives the opposition the opportunity to show that they are opposition. And I think they are building something against the government. But I hope the government will be able to cope with the situation.

Helpful. Many thanks, Roque, Carlos, everybody. Good luck.

Thank you. Your next question comes from Victor Flores of HSBC.

Thank you very much. Good morning. I'd like to ask a question first about Poracota. As you've gotten into the ore body, can you share with us whether the mineralization is as expected in terms of grade and in terms of how it's behaving in the plant and whether there's any update there on the exploration side?

Victor, good morning. This is Cesar Vidal.

Hello, Cesar.

How are you? It's been 18 months since Poracota was turned over to the operation of Orcopampa. It's a mining unit within the Orcopampa District. And they've been very busy delineating in detail and also developing the ores at the 4,720 level. And there's been two ore chutes delineated. They are in the order of 300 meters long, each one of them with variable widths, from 2 meters up to 20 meters, average 6 meters. But the grade is in the order, as predicted, between 10 and 12 grams per ton. And this is produced or mined, I should say, gold. The grade is as predicted, 11 grams.

The metallurgy has been more or less at the moment quite stable, more or less fixed now. The floatation is 85% recovery and very close to 3 ounces per ton concentrate. So these are the figures I can give you. Of course, last year was only the beginning of Poracota. We only got our environmental impact study approved I think it was in June. We were doing some tests before that. But this is going to be the first full year of Poracota. And we're aiming for 10 to 12 grams per ton gold with reasonable floatation characteristics.

Just for your information, last year, we produced 16,000 ounces of gold from Poracota, which were trucked to the Orcopampa facilities. And this year, we expect to produce in excess of 40,000 ounces.

Thank you. Just a follow up on that -- do you see any scope for increasing the production from Poracota perhaps next year or the year after?

I think there is a lot of exploration to be done. We have to be always optimistic that we will be able to find additional ores. I think we are in early stages of exploration, exportation. And we may have nicer prices.

In addition to that, there is a mantle that has a very complex composition and has a complex metallurgy. And we are working on getting the technology to treat those mantles that are currently not being floatated. These are refractory ores that we are looking for metallurgical alternatives to treat those.

Great. Thank you, Roque. And if I could just turn to Trapiche for a moment, I think that the resource that you've quoted in the press release is the same resource that had been quoted to the market previously. Could you update us on how much additional work is being done or has been done since the last resource was provided to the market and what the aim of this year's 30,000-meter program is?

Before I pass to Cesar about Trapiche, just for your information, we are building a lower tunnel, long tunnel in Poracota that will enable us to certainly explore, but also to put in value some of the reserve that we have already identified. So Poracota is growing somewhat. We hope to give you better and more information in the future. Cesar, please about Trapiche.

Victor, Trapiche in 2007 has doubled figures for drilling, from 10,000 meters to 20,000 meters. And we have stepped out from the original (inaudible) to the actual [Pofri]. In fact, some of the holes--and you've seen some of those results in the past -- in Pofri have exceeded our expectation grade wise. And we need to continue drilling. 20,000 meters of diamond drilling (inaudible) copper is only the beginning.

It looks relatively small and relatively low grade for the copper [complex]. However, we have other targets, like the [bridge] at [Myocucho], which occurs 1 kilometer to the north. And we have a possible extension to the Pofri that we need to continue drilling.

However, as we are speaking here, we have six months of negotiations with the community of [Molubamba] to have a long-term agreement that will enable us to fully delineate the current and also construct a mine if the economics of the project look good.

The 315 million tons that you see in our press release look very much like the numbers we had last year. But these are done by an independent engineering company. It's called AMEC. And this is the first geostatistical resource assessment, which are in the first category because we have drilled holes in a grid 100 meters by 100 meters. There's much more that we need to do to confirm this and to measure the indicated category. And we will not be doing any of that in the near future. We need to find the size of the system and continue drilling at 100-meter centers.

Okay. Excellent. Thank you. And then, of course, you'd be surprised if I didn't ask you about Marcapunta.

Well, if you want my view on Marcapunta -- my sentiment I should say because this is Brocal operation -- and we're only watching it from Buenaventura -- is that for the first time in October last year, El Brocal started the pilot production, 1,000 tons a day with 2% copper, which mainly came from stockpiles. But these stockpiles came from a new area of Marcapunta Norte that was opened up and prepared for scoping. At the moment, we're mining new ground. And that has enabled Brocal to present a 7.5 million ton reserve of 2.4% copper. So for the first time, Brocal is presenting copper reserves, is producing on a pilot scale, and making some money on this (inaudible) concentrate.

Excellent. Thank you very much.

Thank you. Your next question comes from Carlos de Alba of Morgan Stanley.

Yes, good morning, Roque. I just had two brief questions. First one is if you could give us any guidance for Orcopampa and Antapite cash cost in 2008. And the second would have to do with what was the price that was used for the 2007 reserves calculation. If you could comment on that, I would appreciate it. Thank you.

Well, the prices for reserves are given essentially by the rules of the Securities and Exchange Commission. And it's the average price of the last three years. There, we have nothing to say really. We calculate this on, as I say, on the basis of the SEC regulations.

In terms of the guidance for the cash cost, may I ask Carlos Galvez if he can give us some idea.

Yes, Carlos. Well, in Orcopampa, we expect to keep on producing at a cash cost of $180, $190 per ounce due to the fact that this appreciation of the sol that is impacting our operations and our operating costs. Regarding Antapite, well, we are starting with a high cash cost, which is about $400 per ounce but depends on the exploration effort we continue with there. As you know, we are running with a couple of cross cuts that are being extended. And so this impacts our cash cost.

And of course, the lower production that has an impact on the cash cost in Antapite.

Thank you, Roque. Thank you, Carlos. Just a follow up, if I may -- any updates on the [Imperatrice] and [Crystalina] veins?

No, those are the ones that are being drifted into. But we don't have any news at the moment.

Thank you, Cesar.

Thank you. (OPERATOR INSTRUCTIONS) Your next question comes from Alonso Aramburu of Santander.

Yes, good morning, everybody. Roque, I just guess to follow up on the strike, now that the financials have been published, have you heard back from some of the labor force regarding this strike? And if not, how long do you think this may last?

Well, the strike was called for 72 hours. So as Roque explained, this is basically a political decision to go on strike. So beside the fact that they have the financial information today, they know and they pass the information that they will begin operations again this midnight. So that's it, nothing special.

Okay. So you expect them to start operations today.

Yes.

Okay.

Yes, so we expect to resume operations tomorrow.

Okay. Great, great, Roque and Carlos. Thank you. And just on my second last question, on Cerro Verde, if you calculate the volume sold and with the revenue, it seems that the entire price of copper for the quarter was below the market price. I was just wondering what kind of adjustments were there.

Well, the thing is that Cerro Verde has no gauging. And they should receive the market price.

Yes, but if you divide the revenues by the volume, you get like a $2.50 per pound price, which is lower than the market.

That may have to do with shipments. But I don't see any other reason.

Okay. Thanks.

Thank you. Your next question comes from Jorge Rodriguez of Centura. Jorge, please go ahead.

Hello. Good morning. My question is regarding El Brocal. I saw in the annual report that you're going to issue that there was a new flank called [Laigave] which has significant resources. Could you develop somewhat more about how these of this project to be developed? Are there any social risks involved? Or would it be easy to develop is the actual project is economically viable?

No, there is no social problem to develop Laigave. The fact of the matter is that we would have to move the current offices and the facilities, some of the constructions of the mine, which are already -- in fact, they are very, very old buildings. But the hotel is not that old. But we will have to demolish that one. So that will have no problem in being developed. It is within the property of Brocal. And there should be no major problem in its development.

Thank you.

If I may add to Roque, the grades are relatively lower than the current operation, 3.5% to 4.5%. So it's going to be a tricky decision. But Brocal, it needs to be (inaudible) out economically with a feasibility study to see at what scale it needs to be developed.

Certainly, the current scale of 5,000 tons a day seems small for that kind of grade. And Brocal is in the next six months or eight months, we'll complete the feasibility study to decide which is the next scale at which this new area can give solid reserves.

Okay. Thank you.

Thank you. (OPERATOR INSTRUCTIONS) There appears to be no further questions at this time. I will turn the floor back over to management for any closing remarks.

Well, thank you, again, for joining us in this conference call. We always appreciate your attention. And just to recognize that we will be in New York and Boston next week visiting some investors and at the New York Stock Exchange on Monday lunch time, those of you that can join us, please feel free to call on us. And we will welcome all of you. Thank you very much. And have a good day. Bye, bye.

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