Compania de Minas Buenaventura SAA (BVN) 2009 Q1 法說會逐字稿

Good morning. My name is Lorie and I will be your conference operator. At this time, I would like to welcome everyone to the Buenaventura first-quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I will now turn the call over to Pete Majeski of i-advize Corporate Communications. Please go ahead, sir.

Thank you, Lorie, and good morning everyone. Welcome to the Compania de Minas Buenaventura first-quarter 2009 conference call. Today's call is for investors and analysts only and questions from the media will not be taken.

Joining us today from the Company 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 yesterday. 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 to it for guidance.

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

Thank you, Pete. Welcome to Compania de Minas Buenaventura quarterly conference call.

Our net income in the first quarter was $100 million compared to a negative $63 million figure reported in the first quarter '08. While EBITDA from Buenaventura's direct operations totaled $83 million, 35% lower than the figure achieved in the first quarter '08. EBITDA including Yanacocha and Cerro Verde participations decreased 38% from $365 million in the first quarter '08 to $225 million in this first quarter '09. These results are mainly obtained by lower metal prices.

In terms of our operating revenues, our revenues mainly due to significant decreases in prices of silver, lead, zinc and copper have decreased from $212 million to $163 million in this quarter. Prices of metals have impacted of course the operations and the revenues of Buenaventura.

In terms of our production and operating cost, at Orcopampa, the total gold production in this first quarter was 73,000 ounces, a 17% increase when compared to 62,000 ounces reported in the first quarter '08. This production includes 7,700 gold ounces from our old tailings treatment. Gold grade at Orcopampa's conventional operation increased 3% during the first quarter '09.

Uchucchacua was essentially in line in terms of production. We had an increase in terms of cash costs, mainly due to lower zinc and lead byproduct contributions and also grade in those methods.

At Antapite, in the first quarter '09, our production was 7,200 ounces of gold, which means a decrease of 51% compared to the first quarter '08. Certainly in Antapite, we continue doing substantial efforts in exploration but we continue to reduce the production at this mine. We have some indications that the local communities are becoming more open to discussions with the Company and we expect to get into some new areas in the near future.

In Colquijirca, owned by Sociedad Minera El Brocal where we own 56% of economic interest, the total zinc production was 15,000 metric tons, 28% decrease when compared to 21,000 metric tons in the first quarter '08. Total silver production during the first quarter '09 was 1 million ounces, 17% decrease when compared to the first quarter '08.

In terms of our operating expenses, general and administrative expenses for the first quarter '09 were $16 million, 39% lower than the figure reported in the first quarter '08 due to lower long-term compensation and doubtful account provisions reported in the first quarter '08.

In terms of exploration costs in non-operational mining sites, exploration costs were in the first quarter '09 $7.2 million, a 36% decrease compared to the $11 million reported in the first quarter of '08. The main efforts were focused at Mallay $1.4 million, Marcapunta $0.8 million, Chucapaca $0.5 million and La Zanja $1 million.

Essentially these are not only exploration but also development projects. And may I report in this conference call that last week we received the approval of the environmental impact study at La Zanja which is a positive step towards the development of this project which we expect to be in production by the first half of next year.

In terms of operating income, the operating income in the first quarter '09 was $59 million compared to a negative $312 million in first quarter '08. Without considering the effect of the net loss on the fixed price component on gold commercial contracts, $415 million reported in the first quarter '08, operating income would have decreased 43%. This result was mainly explained by lower sales due to a decrease in silver and base metal prices, as well as volume sold despite gold's performance.

Our share in affiliated companies, we've had a decrease of 45% in terms of the income from non-consolidated affiliates that are essentially Yanacocha and Cerro Verde. You have the figures of course on Yanacocha and Cerro Verde which do not require much explanation.

Our net income this quarter, Buenaventura's net income was $100 million, representing $0.39 per share compared to $63 million net loss in the first quarter '08. This was explained by the following. The 43% decrease in operating income without considering the hedge book unwinding in the first quarter '08, and a 45% decrease in contributions from affiliates.

In terms of project development, we continue to build infrastructure in both our Uchucchacua silver mine and Orcopampa gold mine. Mainly in the deepening of shaft that will enable us to develop these two important operations of the Company. We continue investing and this will enable us to continue in terms of reducing cost in these mines.

With this, may I pass to any questions that you may have and we are happy to answer those with Mr. Cesar Vidal, our Vice President for Exploration; and Carlos Galvez, our Chief Financial Officer. Thank you.

(Operator Instructions). Your first question comes from the line of Victor Flores of HSBC.

Thank you. Good morning. I have two or three hopefully quick questions. Could you give us the update on the status of Tantahuatay, when you think you will be getting the environmental approvals there and moving forward with actual construction?

We expect to continue with the purchases of land to develop the project. We have suggested that this project should be in operation in 2011. We continue with those dates. We expect that this project could be in operation by 2011.

Great, thank you. Second question goes to Cerro Verde. During their conference call Freeport indicated that -- I guess would be -- the improvement in copper prices. They were once again considering potentially what they might do with some of the development projects that they put on hold when copper prices fell last year.

Could you give us your sense of where you see Cerro Verde going and whether you have any sense that perhaps a decision to revisit that project might be made within this year?

We are supportive of our partners Freeport-McMoRan at Cerro Verde. We believe and we have stated that an expansion project with prices below $2.00 would be very difficult. Certainly, we are getting to that level of prices and we will continue to evaluate the possibility of going to the second expansion of Cerro Verde.

As I say, we will be supportive of that decision, but you have to bear in mind that Freeport is the controlling partner and we are expecting to get together with them to see what happens.

If I may add, Victor, perhaps this is a decision that has to do with the industry. Of course we have to consider that we have to take advantage of the fact that copper industry is a pretty consolidated one and doesn't make sense to us [that we must offer] supply for the copper industry when the prices are [slowing] or moving along to dollars.

Fair enough. Thank you. And then perhaps, if I could just ask one final question. You mentioned an expenditure I believe of $0.5 million for Chucapaca. Could you detail what those expenditures are for? Is this still for generative work or is it actually for drilling?

Good morning, Victor, this is Cesar Vidal.

Hi, Cesar.

It's my pleasure to report that that money went into drilling. We expanded -- extended our drillings until March, despite the rainy season, because we had a contractual commitment with our partner there, Gold Fields. We have completed the 7,800 meters of [service pipe] drilling. And as Roque has already presented in the Nesbitt Burns conference, we are encouraged by some significant intercept at plus 5 grams per tonne gold over (inaudible) meters. Gold Fields and Buenaventura are working at the moment for a joint press release where you will get some of those interception details.

May I just add that the agreement in Chucapaca was that we were investing the initial monies and then Gold Fields has a claw-back clause by which if they invest the amounts that were required, they will get back to 51%.

But we continue to be excited with the property, it is an exploration bet and we are essentially working. There has been a visit of the senior geologist of Gold Fields with Cesar Vidal just last week and we continue to be excited about the project.

Great. Thank you so much.

(Operator Instructions). Next question comes from the line of Imaru Casanova of BJM.

Hi, everyone this is Ima from BJM. Actually, Victor stole our question on Chucapaca, but I have a couple of other questions. Regarding the expansion at Colquijirca at El Brocal, can you update us on what the progress there is in this quarter and what we can expect for the rest of the year?

Yes, well the expansion project of Colquijirca and Brocal is in phases, that is going ahead. This expansion consisting of several steps. The first one is to [adequate] the metallurgical facilities to be able to separate the copper concentrates from the traditional ores that we are just treating, lead and zinc. But we are not able to separate copper content from the lead concentrates. So these should be completed in a month or so.

Then we have the second step that is to expand the current facility that we have to treat the copper ores that come from Marcapunta from 1,000 tonnes to 3,000 tonnes per day throughput. This should be completed at this year end to be in operation from January onwards.

And finally, we have the third step, which is the expansion of the polymetallic metallurgical facilities that today are able to treat 5,000 tonnes per day to 15,000 tonnes per day throughput. This will take close to three years.

Parallelly we have to work in the expansion of the tailing dam, and we are working on that and we expect to complete this in two years time.

The total investment, the budget -- the initial budget is on the order of $150 million to $160 million, but we are evaluating the CapEx for the expansion of the tailing dam considering not only the facilities we need for the Colquijirca area, but bearing in mind the future projects like the expansion for the operation of Marcapunta and the potential if -- it is possible -- San Gregorio project.

Excellent. Thank you. Just to clarify, the expansion of the Marcapunta plant. That capacity there is not going to be used to develop Marcapunta if I understand correctly. It will be dedicated for Colquijirca, unless I guess gold prices improve considerably. Is that correct?

In the case of the facility that we devote today for Marcapunta all of this is basically a pilot plant. Well, we are working on the final solution for the arsenic content. But depending on the final solution that we can get or not, there is a possibility to use this capacity for the polymetallic ore. So at the very end, we will count on that 18,000 tonnes per day capacity metallurgical facility and filtration plant.

Okay. Excellent. Thank you very much.

You're welcome.

Your next question comes from the line of Alonso Aramburu of Santander.

Hi, good morning. Two questions, the first one on costs. If you can comment whether the decline in cash costs has continued to second quarter or what expectations you have there?

And my second question will be on guidance, if you can just give us again your guidance for the year on gold and silver production?

In terms of our cost, well we are working hard on reducing some cash cost basically from the consumables side. We are pushing our suppliers in order to reduce the prices.

By the way we have to report the [run]. We are pleased to report that we reduced between 40% to 50% the prices of the steel that we use for support of the mines, which is a very important step. We are basically reducing about 40% the gold mills' prices which is good as well. We are pushing to reduce the prices of the [priority] in the order of 30%.

So we believe that we will be able to achieve the objectives we fixed during this first quarter to have an average reduction of 20% of the prices of our consumables.

You have to bear in mind that we do not control the prices of crude oil in Peru because there is a tax [collective vehicle]. So that's why we put this objective. Of course, we continue working on productivity and we believe that we could be able to reduce our cash costs in the order of 10% in general.

Regarding the guidance of production, we believe that we will continue looking for an equity share production of close to 1.3 million ounces of gold, and we are aiming to on equity basis in the order of 19.5 million ounces of silver.

And how much of that will come from Yanacocha on the gold and the silver?

Well the objective for Yanacocha this year is between 1.9 million to 2 million ounces.

100%.

100%, of course.

Okay. Thank you.

(Operator Instructions). Your next question comes from the line of Michael Holme of Altima Partners.

Actually, Alonso has asked my questions. Could you please just comment a little bit on the relationships with the local communities, if you could just expand on that point? Thank you.

The relationships with the local communities in our view are improving substantially, and they are improving substantially because there is some sort of a trend of point of view. In the sense that there is a big difference between informal mining and formal mining.

There has been a lot of information on informal mining in the local press recently, showing that that is the sector of mining that is polluting and that is not behaving properly. That, of course puts us in a position that the local press supports as a formal way of doing mining.

On the other hand, of course, when communities see that prices are coming down, they start worrying about resources going to the regions and for good or for bad start being more supportive of new projects in order to maintain the level of resources going into the regions.

We have the feeling that the things are getting to terms in the sense of the relationship between the mining companies and the local communities. We have a number of call it signs in that respect and we are facing less and less programs, and of course, we are getting as well support from the local and the national government.

(Operator Instructions). At this time, there are no further questions. I will now return the call to Mr. Roque Benavides for final remarks.

Thank you very much. Just to report that we will be attending in the next couple of weeks a few conferences. The Merrill Lynch conference in Barcelona and then the Merrill Lynch conference in San Francisco. Mr. Carlos, sorry -- in June. Mr. Carlos Galvez will be attending that one. And to thank you all for attending this conference call and be sure that we continue working very hard with the team of people working in Buenaventura, Yanacocha, Cerro Verde giving our best in performing and we expect to deliver value to the market. Thank you very much for attending this conference.

Thank you. That does conclude today's Buenaventura first-quarter 2009 earnings conference call. You may now disconnect.