Compania de Minas Buenaventura SAA (BVN) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to the Buenaventura conference call. (OPERATOR INSTRUCTIONS)

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

Thank you, Bree, and good morning, everyone. Welcome to the Compania de Minas Buenaventura first quarter 2008 conference call. Joining us today from Lima are Mr. Roque Benavides, Chief Executive Officer, and Mr. Carlos Galvez, Chief Financial Officer, in addition to other members of Buenaventura's senior management. They will be discussing Buenaventura's results per the press release distributed April 30th. If you've not yet 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, and we ask that you refer it to for guidance. It's now my pleasure to turn the call over to Roque Benavides. Mr. Benavides, you may begin.

Good morning to all, thank you for attending this conference call. This quarter, Buenaventura direct operation and affiliates both performed very well in terms of production, cost and value creation. Our EBITDA from our direct operations was $130 million, 52% higher than the figure reported in the first quarter '07.

Total EBITDA increased 91% from $192 million in the first quarter '07 to $368 million in the first quarter '08. Our operating income was $102 million, 31% higher than the figure reached in the first quarter '07, mainly due to higher revenues from our own direct operations.

However, and this is a major aspect of this quarter, as was announced in February, the one-time effect from the unwinding, the total unwinding of our hedge book negatively impacted Buenaventura results by $267 million, thus contributing to a net loss of $63 million, or $0.49 per ADS for the first quarter of '08. If not for this one-time impact, we would have reported $200 million of profit for this quarter, the first quarter '08.

I [pretend] not to go through all the specifics of this press release, which I hope all of you have read. Just to let you know that we have visited the Orcopampa mine in this quarter. We were there a week ago. This is in the operations. The operations are doing very well. Poracota is essentially producing 450 tons of ore per day and generating 40,000 ounces of gold for the year. We are in budget, in line with what we stated in the past. Orcopampa will be producing in the order of 280,000 ounces of gold this year. So, all together, we will be in the order of 320,000 to 330,000 ounces of gold from the area of Orcopampa. And that is of course very good news for us at very competitive cash costs.

At Uchucchacua, we are also operating quite normally and we are producing at a rate of 1 million ounces per month and we expect to reach 12 million ounces this year, with all the additional processing facilities that we have invested on and essentially we expect very good results from Uchucchacua.

In Brocal, we continue producing in a very good way. We continued producing some copper and producing, of course, at budget in terms of zinc, lead and silver. That is something that we cannot control. We are essentially producing at normal levels.

Also, a very, very important issue that happened during this quarter and this was only last week, Yanacocha inaugurated the San Jose Reservoir, which is very, very important for the public image of Yanacocha. This is a reservoir that has been built on the basis of the old San Jose open pit. This open pit has been reclaimed, has been covered by a geo-membrane and has been filled up with 6 million cubic -- sorry, cubic meters of water, which will enable Yanacocha to give us a sustainable amount of water to the irrigation canal in the area of Yanacocha, contributing to the wellbeing of in excess of 10,000 families in the area.

This has been called an environmental asset, rather than environmental liability. The mining sector, and specifically Yanacocha, are starting to talk of environmental assets, and this is very good. Mr. Alan Garcia was present at the inauguration and it was very well taken by the local press, and I would say by the international press. We are working in that respect and I think this will contribute towards the future to develop other areas of the mine.

Cerro Verde is at full speed. This will be the first full year of expanded capacity. We are processing well in excess of 100,000 tons of ore per day, and as we understand, there are no issues there and we expect to reach 300,000 tons of copper in 2008.

Essentially, the operations of Buenaventura have been in very good condition and we continue with our effort of exploring. We are expanding some of our areas in Uchucchacua to maintain the level of reserves, and essentially we have got a very good copper. And, with that, I will essentially pass to the questions and answers for any questions that you may have. Please go ahead.

(OPERATOR INSTRUCTIONS)

Thank you. Our first question comes from Alonso Aramburu with Santander. Please proceed.

Thank you, good morning. I was wondering if you can comment a little bit on the Antapite production. It was down this quarter, 20% year on year. I believe the guidance for the year is flat production, so I was wondering if you expect the production to recover in the next few quarters.

The Antapite production will be probably on the order of 70,000 ounces this year. We do not expect it to go over that figure. We continue exploring, we are finding some additional areas. We are quite excited about the -- what's the name of it, vein, that we are exploring? [Quana solitaria] vein, but essentially we do not want to force the production of Antapite. We need to expand our reserve base before thinking of going back to 100,000 ounces.

At this point in time, we continue with the projection of 70,000 ounces for this year in Antapite. Now let me use also the opportunity, I meant to mention that the dividend for the $4 million dividend payout was delivered on April the 12th for all of those of you that are shareholders of ours.

Yes, thank you, Roque. The same question regarding Colquijirca. It seems like the silver production was down also, significantly this quarter, roughly 40%. Is that something that we should see in the next quarter, or should that level off?

Sorry, can you repeat the question? Excuse me, can you repeat the question, please?

Yes, sorry, it was regarding Colquijirca and the silver production at Colquijirca.

Silver production at Colquijirca is difficult to project, essentially because this is a lead-zinc, or zinc-lead open pit, and the ores are related to those methods and the grade of silver varies, depending on the open pit. I think last year was an exceptional year. The normal level of production is what we are having at this point in time.

Okay, great. I guess finally, if you can comment on your view on the outlook for gold, what do you think for the rest of the year?

We have to clarify again, the dividend payout was on April 29, just in case. I was mistaken on the date of the 12th. In terms of the projection of gold, of course -- may I share with all of you that here internally in Buenaventura, we made the difficult decision of unwinding all of our hedge book at an average of $890. When the price of gold went over $1,000, we thought we had made a great decision. Today that it's at $850, we feel that we may have not done it.

If I can share with you the conversation that we have here, we probably would have not done it at $890, when the price reached $1,000, we probably would have been forced to do it. So in that respect, we believe at the end of the day it is the right decision. We think that the weakness of the dollar is not over and that we may see gold prices going higher than what they are today and, in any event, you all have the assurance that of course we have no hedge at this point and that full benefits of the price of gold going up will benefit all shareholders.

We believe that the gold price should not go lower than what it is now, but it's difficult to say.

Okay, Roque, thank you very much.

Thank you. Our next question is coming from Oscar Cabrera with Goldman Sachs.

Hi, guys. Can you hear me?

Yes.

Good morning. To start with, your partner in Cerro Verde has said that there is the potential for basically doubling the output in that mine and wanted to hear your perspective in terms of the -- how do you see the permitting process happening there and it sounds like a very exciting project. So how would you see the process, one, and time schedules? I know it's early in the process right now, but love to hear your perspective on that.

We are very satisfied, having first (inaudible) and then Freeport as a partner in that mine. I think they are excellent operators. Freeport has big pockets and they are prepared to go ahead with bigger projects and that is very good and I think this is the case of a merger that has worked. This is very positive for us and we are very pleased with all the situation.

Certainly, the reserves at Cerro Verde are huge and it's obvious that you want to recover your investment and realize your investment as soon as possible. In this respect, some preliminary conversations have been in the sense that the expansion of this mine in terms of the [sale] price could go at double the capacity, the current capacity, which is 200,000 tons of copper per year. Going to 400,000 tons of copper is a possibility and we will be very supportive of that sort of expansion. Having said that, there are some limitations. Water is one, of course, and we have to look for the source of water for the first expansion to 300,000 tons. The [Peones] reservoir was built, and we will need to check on how much water the additional expansion will require.

The very good news is that only two days ago the concession to build a new power line going to the south, to Arequipa, was granted to a Spanish consortium of companies and the limitations, the energy limitation in Peru is transmission. So by building this new power line, it will give the needed power, energy that any expansion will require. So there are a number of good news and some limitations. Permitting will not be a problem, essentially because it is a current operation. We will need to look for an additional tailing dam, but I don't think there will be a major limitation in terms of permitting.

Time will -- well, in terms of costs, we have about, I don't know -- our guesstimate is that it will cost in the order of $1 billion, so it will cost somewhat more than the first expansion, but it is within normal figures for the Company. Time schedule, I would say that if we could be in production -- I don't know, if the feasibility study is ready in 2009 or 2010, we could in production 2011 or 2012. But this is too early to say. I don't want you to take this as a must.

We are working, we are very satisfied with the operation, the resources are there. The water has to be evaluated. The energy is not a restriction with this new concession and permitting wise, I think things will be quite easy.

It does sound like an exciting project, Roque. If it's $1 billion for 200,000, that's like $5,000 ton, and you're seeing stuff being developed for over $12,000 a ton right now, so indeed an exciting project. And if I may, just a quick follow-up on that, in a different mine.

In terms of the mill in Yanacocha, what are you seeing there and we're looking forward to seeing you guys later on in July.

Yanacocha is doing very well. The gold mill started operation in April. We are up to speed and we should be at full capacity in this quarter, in the second quarter, and the operation is working fine. We don't see any major problems. I hope the San Jose Reservoir will get into the minds of all these anti-mining guys in South America and understand that there are more opportunities with the mine developing other areas than risks.

I think the fact of a mining company worrying about water and supplying water for the farmers is a very, very strong message, which we believe will help us to increase or to improve the relationship with the local communities and to convince people that we can do other things. But, of course, we have to maintain and even increase somewhat our production.

Thanks, Roque. Thank you very much for all the insights.

Thank you. Our next question is coming from Victor Flores with HSBC.

Thank you. Good morning. My first question goes to Poracota and the cost that you reported for the first quarter. Are those the costs that we should expect going forward from the mine, or was this perhaps an unusual quarter because you were just getting started?

The thing is, always we start up taking into account additional costs. The fact of the matter is that we are building this tunnel, this lower tunnel, that will probably enable us to have a more "normal" operation. I don't think Poracorta will be the lowest-cost operation, but we will be reducing the cost of Poracota in the next months. That is obvious.

I don't know, Carlos Galvez, can you comment on that?

Well, I believe that the cash cost in Poracorta will be on the order of $450 to $500, due to the exploration works that we have carried out in this deposit. On the other hand, you have to bear in mind that you are just floating the dollar with a reduced concentration, so that adds a lot of sales expenses to this operation. So meanwhile and until a final solution for our operation, metallurgical operation in Poracorta, I believe that the cash cost will be on the order of what we have already reported.

The thing is we are essentially working very hard on the metallurgical solutions to Poracorta. We have two mantles, one that is essentially refractory and we are discussing whether we could go to autoclaves or some other procedure, and then there is the other mantle that we go to a floatation process, but there are still some improvements in recovery that we believe that we can essentially obtain in the future.

Great. Thank you. If I could add a follow-up question, and I certainly don't want to put words in your mouth, but it sounds like you have high expectations that this reservoir at San Jose is going to help you maybe in the near term or maybe further down the line to solve some of the issues that you've had in the Yanacocha region, as far as some of those reserves that had been, I guess, sterilized because of community concerns.

Well, you take it perfectly, Victor. I have nothing to add to your statement.

Okay, fine, then. And then maybe if I could ask a final question, there wasn't really much in the quarterly release regarding exploration and perhaps if you could make a couple of comments on some of the activities on that side?

I know that you all analysts want great news in the quarter, but we try -- whenever we meet, we try to give you additional information. There is nothing much. We are very pleased with Mallay. We are pleased with Pozo Rico, both of them in the area of Uchucchacua. We are very pleased with the Poracota development, and that is in the area of Orcopampa, and we continue finding additional ores in depths in the Nazareno and Prometida range in Orcopampa. In Antapite, as I said, we are quite excited about new veins that have been intersected and that we are essentially developing as we speak.

In terms of the area of El Milagro, we are drilling in the [Pitiminas] area of that prospect. We don't have major results to report at this point in time. We continue working at [Cratiche], of course, and that essentially is to expand the resource base. And certainly we are working at the two or three prospects that we have in the San Juan province in Argentina, with some interesting results. But these are preliminary ones that we are essentially not in a position to report at this point in time

In terms of [La Sanca], we have a date for the audience with the local community and that is, if I recall correctly, July the 3rd, and we are working on community relations. We have had very heavy rains in the area of La Sanca and Yanacocha. The good news is that the San Jose Reservoir, we were able to fill it up because of the rains.

The bad news is that the roads in the area of La Sanca were essentially destroyed because of some landslides. And as La Sanca continues to reopen these roads -- and that was also a strong message for the area of La Sanca and hope that people understand that we are in the area to contribute and not to destroy anything. On the contrary, we want to add value to the community, generate jobs, generate taxes and, of course, in the case of emergencies, as the landslides with the roads to the Santa Cruz town, we contribute to open these roads.

So essentially we continue working with all enthusiasm and we hope to report to you on these results probably at the second quarter conference call.

Great, thank you very much.

Thank you. Our next question is coming from [Bruno Montineri] from Morgan Stanley.

Good morning, gentlemen. Could you comment on the development of Marcapunta and what kind of production levels you expect from this mine in the year?

Marcapunta, we still continue exploring. We are producing 1,000 tons of ore per month of copper and from the northern part of Marcapunta. We don't intend to expand that production at this point in time.

In terms of annual production of copper, Carlos, do you have this figure? Well, it's about 1,000 tons of ore per day --

We produce on the order of 5,000 tons of copper per year.

5,000 tons of copper per year. That's the level of production at this point in time. It is a small production. It's a pilot operation, but we hope to -- whenever we develop properly, the whole are of Marcapunta, that has some arsenical coppers, and that is a problem. Because how do we sell this production. It's always a problem.

We are now shipping most of the production to Namibia, which is a very exotic place to send that. Anyway, it is smelted at [Can Precis] production. Some of the production is going to Oroya, but because of the high arsenic content, it's a substantial limitation.

We are working on two fronts. One, developing the resource to see whether there is more non-arsenical coppers and then, of course, how to treat the arsenic, if we deal with arsenic, and finally where to sell this production? So, again, it's early stages, but we are working on this front as well.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS)

Our next question is coming from John Bridges of JPMorgan.

Hi, Roque, everybody. Congratulations on the results and thanks for closing out the hedge book. It makes my model a whole lot simpler.

You're most welcome. It makes me sleep better at night.

It makes me sleep better, too. I see with this quarter you've been doing more exploration at the mines, in particular at Antapite. Is this a phase that you're going through which is going to get to an end at some stage, or is this going to carry on?

It's obvious that we are short of reserves at Antapite and we have been saying this every single quarter, every single conference that we have been talking about Antapite. So we needed to expand the reserve base. We are paid as a mining company to maintain the level of reserves, and if we are short of reserves, we have to explore more, and this is what we are doing. This is part of our responsibility and we will continue developing as much as we can.

We are finding new fronts to develop additional reserves and hopefully we will be lucky. If we don't work on this front, we will never be lucky. So let us -- give us some time in order to expand this reserve base.

Okay, that's great. Thanks a lot, guys. Good luck.

(OPERATOR INSTRUCTIONS)

Sir, there appear to be no further questions.

Well, thank you very much to all of you for attending this conference. I just want to tell you, for those of you based in New York, I'll be in New York next Tuesday and Wednesday, attending the Silver Institute Annual Conference. I'm a Board Member of the Silver Institute. So if any of you want to have additional conversations, I will be somewhat available, and hope to see you soon. Thank you very much and have a good day.

Thank you. That does conclude today's conference call. You may now disconnect your lines at this time, and have a wonderful day.

Thank you very much.

You're welcome.