Compania de Minas Buenaventura SAA (BVN) 2009 Q2 法說會逐字稿

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Buenaventura second quarter 2009 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. I will now turn the call over to Pete Majeski of i-advize Corporate Communications. Mr. Majeski, you may begin.

Thank you, Melissa. And good morning, everyone. Welcome to the Compania de Minas Buenaventura second 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 have 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 statement made today by Buenaventura's management are subject to various conditions and may differ materially. These conditions are outlined on 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.

Good morning to all. And welcome to Compania de Buenaventura conference call. The net income in the second quarter was $134 million, 10% higher than the figure reported in the second quarter '08, while our EBITDA, including Yanacocha and Cerro Verde, decreased 7% from $282 million in the second quarter '08 to $264 million in the second quarter '09.

The increase in net income is explained by the 58% increase in contributions from Yanacocha, which positively offset lower results from the Company's direct operations and the lower contribution from Cerro Verde.

During the second quarter '09, our net sales were $198 million, a 3% decrease when compared to $204 million reported in the second quarter '08. The higher volume sold and higher realized price of gold were offset by the decrease in the realized prices of silver and base metals, as well as lower volumes of zinc sold.

Our royalty income during the second quarter '09 totaled $14.6 million, a 20% increase when compared to $12 million reported in second quarter '08, due to higher sales at Yanacocha. In terms of our production and operating cost, in Orcopampa, we had a flood in the lower -- sorry -- we had a 12-days work stoppage with a road blockade to access the mine in June in the Orcopampa mine that meant that our production totaled 71,923 ounces, a 3% increase when compared to second quarter '08, despite of the fact of this confrontation with the local community that made this road blockade. So we have been able to offset the lower days that we have not been able to work with an additional production.

In Uchucchacua, we also had some problems with a flood that flooded the lower levels of the mine. And this has reported a 45% increase in contractor expenses that explained by a 14% increase in tonnage exploited to offset the 16% decline due to the flood that we had in the area.

We -- in Antapite, we have totaled 7,900 ounces of gold in the second quarter '09, a decrease of 17% compared to second quarter '08, mainly due to a 31% decrease in the ore milled despite a 19% increase in the grade and a 3% lower recovery rate. We continue working and exploring additional areas at Antapite in order to get back to levels that were part of the normal focus in the past.

At Colquijirca, total zinc production was 18,800 metric tons in the second quarter '09, a 21% decrease when compared to 23,845 metric tons reported in the second quarter '08, due to a 22% decrease in the ore grade and a decrease in the recovery rate. Total silver production during the second quarter '09 was 844,000 ounces, a 28% decrease when compared to 1.172 million ounces reported in the second quarter '08, due to 28% decline in silver grades despite the 6% higher recovery rate.

In terms of our exploration cost in nonoperational mining side, we are very pleased to report that environmental impact studies were approved by the Ministry of Energy and Mines for La Zanja on April 24th. In La Zanja, we control 53% of the property. 47% is owned by Newmont.

And on June 22, 2009, the environmental impact study for Tantahuatay was approved. This adds two emblematic factors that we would like to highlight, essentially because this project has been in our portfolio for a number of years. And we have the feeling that things are advancing. And we will go ahead with these two projects. We expect to be in production at La Zanja by first half of 2010. And in the case of Tantahuatay, we expect to be in production by 2011. In terms of Trapiche -- and we are here with Cesar Vidal -- we have new figures for resources. And he can expand on that on the question and answers side of this conference call.

At Chucapaca, the project where we are associated with Gold Fields, we finished our role as operator. And we have exercised our option to acquire initially 100% of the Company by paying $2 million. And of course, Gold Fields was the original owner of the current plains and had invited us into this joint venture, had a claw-back clause to get back to 51% after investing three times as much as we have invested in these last two years. That means that they will have to invest in the order of $7.5 million. And this will put in value this property. We are very pleased that we will end having 49% of a substantial property in Southern Peru.

At Breapampa in Ayacucho, we have also continued exploring. And we have added some additional ounces into resources. And this could also be expanded by Cesar Vidal later on. In terms of our affiliated companies, at Yanacocha, where we own 43%, the second quarter '09 gold production was 516,000 ounces of gold, an increase of 23% compared to second quarter '08.

Gold production for the six-month 2009 period was 1 million ounces, 1.015 million ounces, an increase of 8% compared to 942,000 ounces reported in the same period 2008. At this point in time, we expect to be very close to 2 million ounces for year end 2009 at Yanacocha. The costs applicable to sales at Yanacocha during the second quarter '09 was $336 per ounce, 13% lower than the figure reported in second quarter '08.

At Cerro Verde, where we own 19.26%, the second quarter '09 copper production was 76,800 metric tons, a 5% decrease when compared to the second quarter '08. Copper production in the first half of 2009 totaled 152,500 metric tons, 2% lower than the figure reported in the same period 2008. We are in line with the 300,000 tons of copper production for the year. And Cerro Verde operation is doing very well.

In the second quarter '09, Cerro Verde reported net income of $159 million, a 47% decrease compared to $301 million reported in the second quarter '08, best explained by lower sales revenues, which decreased from $687 million in the second quarter '08 to $408 million in the second quarter '09 due to lower realized copper prices.

This quarter, Buenaventura's net income was $134 million, representing $0.53 per share, an 11% increase compared to $121 million in second quarter '08. Our net income for the six-month period 2009 was $234 million, $0.92 per share, compared to $58.8 million reported in the same period 2008.

We have continued with a number of projects at Uchucchacua and Orcopampa and making this couple of very important operations for us more efficient. We are deepening shafts and building more infrastructure for both mines.

At La Zanja, we started production of leach pads and the Bramadero Dam on July 1, 2009. And it is expected to initiate operations in the third quarter '10. We expect to have it in the first half of 2010. But we are giving as of today indication that certainly we will be in operation in the second half 2010.

Total investment for the project will be $55.5 million, of which $37.8 million will be spent in 2009. We will have to put up for 51%, which is our share in La Zanja. During 2009, the second quarter '09, project expenditures have been totaled $3 million. As a result, the mine construction progress is summarized in the chart that you can read by yourself. We are very pleased with the results of our operations and our explorations. And with that, we are open to any questions that you may have for our management team present in this conference call. Thank you.

(Operator Instructions)

Our first question comes from John Bridges with JPMorgan.

Morning, Roque, everybody. Just wondered -- the flood, what was that? How quickly will you recover from it? And then I recall the lower grades. How quickly can you get that back to normal?

The thing is that these lower levels that are below the drainage tunnel that we built some years ago were due to the fact that there were very heavy rains. And we have some limitations on tons, which we sold essentially in a very short period of time. And those were levels that had some of the ore that we have in reserve and that we were planning on mining.

They have been sold with the reduction of rains. Of course, the rainy season is over. And we were able to find some additional tons in the market locally and with the help of some other mining companies. So that was all.

The question of the grades has to do with the process of the mining industry in general. And it's that, as you well know, we have some areas of the mine that have higher grades of lead and zinc potentially and in some areas of oxide. We concentrated while the process of base metals were higher on developing some areas of higher zinc.

And that has had an impact on the preparation of other areas that have higher silver grades. We have some of these areas that are within our reserves and that we are very quickly preparing in order to exploit those areas. But the fact that we concentrated on the base metals have made that the grade of silver essentially went down slightly in Uchucchacua. We believe that this situation will be over in the next couple of months.

If I may add, John, the area where we had the flood was the area that we had already reserved for exploitation with higher grades. Secondly, the expense, the extraordinary expense that we incurred to turn around this problem was less than $300,000. And we solved the problem in three weeks. So basically, the area is ready. We could move to different areas for exploitation, but of course with the lower grades that Roque mentioned.

Okay. You're tracking about 42% of the silver production that you planned for the year. Do you think you're going to be able to make it up in the second half? Or will you give more guidance on the silver?

Well, in terms of the total silver production at the Company, we're going to be affected no longer by this situation in Uchucchacua but also because we are reducing our guidance in Brocal. Brocal initially was considering to exploit and to treat some stockpile that we had with higher grades of silver with ores of lead with copper content. We have decided to postpone this additional improvement while we test our improvement in the flotation facilities we [count in] Brocal. So we are going to reduce some of our guidance of silver production.

Okay. And then maybe a question for Cesar -- the Chucapaca project, it sounds as if Gold Fields are very intrigued by it. What sort of size of the mineralization are you seeing at the moment? Can you put any numbers to what you're seeing?

John, this is a delicate time. Gold Fields is not only intrigued; they are hands-on drilling three rigs at the moment. There is more indication of ore in the core that we are pulling out. And we're working as a team, geologists from Buenaventura and geologists from Gold Fields [make sure] everyday is for numbers in the public domain. I did put some numbers in the press release [that our project will first] have them in April 2010 when they finish their 20,000 meters of drilling. So I do apologize, but we don't have numbers for that inferred resource at the moment for you.

I think we can add that we all are quite excited about the project. And we are prepared for the best.

Congratulations. And keep up the good work, guys.

(Operator Instructions)

Our next question comes from Victor Flores with HSBC.

Thank you. Good morning. I also have a few project-related questions. My first question goes to Tantahuatay. You've now received the environmental permit or the approval of the EIS. Can you give us a sense of what you think the next steps in the development of Tantahuatay will be and whether Southern Peru has committed to go ahead with the development of the project along with you?

Southern Peru have indicated that they are committed to continue with that. It is a project that you well know has an oxide gold-bearing ores on the surface, across the surface, and of course some copper underneath. So Southern Peru is quite interested.

The next steps in Tantahuatay essentially will be to continue buying some surface land and of course continue with the special work that we have been doing. We have to get to terms with the local community, with the local owners. And this is a time-consuming process but a process that today in mining is a must. And we are working on that. Our General Manager Mr. Amado Yataco is a very sensible person that knows how to deal with this situation and the whole team that is working in Tantahuatay. We are all very pleased with what they are doing.

The fact of the matter is that for all of you old timers following Buenaventura, we are seeing some advance in this project. And we were quite frustrated. And probably you share with us our frustration that things were not moving that fast. Now we are going ahead. And we expect to show some results in Tantahuatay.

If I may add to that, Victor, in addition to the 25 million tons of 0.82 grams per ton gold outcropping with a very low strip and with all the engineering done, we have drilled out a third deposit with an additional 10 million tons of 0.5 gram gold, which we are doing the engineering. So it's not still in the figures, which will add more ounces. And we have two additional targets that will see drilling in due time called Tantahuatay 4 and Senorita. So this is a reserve now, a portion. But it's a growing resource, too. The exploration continues.

Great. Thank you. My second question, which is for Cesar, is the progress going on at Trapiche. I see you've put out a new resource there. And I was hoping you could perhaps give us a sense of where you see this project going, how much money you're spending on it, and what the next steps are at Trapiche.

Sure. Trapiche, as you know, is a porphyry copper and moly occurrence. We have so far spent close to ten years. We're in our tenth year. And $12.6 million has been spent. I was addressing the board of Buenaventura yesterday recommending that we continue spending money in drilling, an additional hopefully 30% more tons of the same grade that we see is still open to be tapped (inaudible) resource and at the same time infill drilling the leachable copper zone, which would call for 25,000 meters of additional drilling in 2010.

If we do that and if we get the environmental impact study and thirdly, most importantly maybe, the agreement with the communities and the authorities, we would have a much more valuable project to carry into production by ourselves or with a strategic partner if that turns out to be the best way for us.

So it's your feeling, Cesar, that this project still has -- is open sufficiently, that it has upside as far as the size of the resource.

As I expressed before, we think at the moment -- and I hope I'm wrong -- but we think we have a 25% to 30% chance to grow the resource, which is very close to 500 million tons at 0.5% copper. However, I'm stressing that we should push onto the better portion of the deposit, which is a good 100 million to 120 million tons at 0.7% copper leachable and with a low strip.

We're doing metallurgical test work and we will be floating a cone with this recent 10,000 meters of drilling to have an economic appraisal of the Trapiche number one project. It would be acid leachable in a solvent extraction electrowinning [style] copper project.

I think that it's pertinent to say that Trapiche is one of those projects that being copper and we having a focus on precious metals will require some evaluation from a strategic standpoint. And we will keep you posted on that factor.

Great. Thanks. And then if I could perhaps press a bit more on Chucapaca, Cesar, could you perhaps give us a bit more discussion on the geology of the project without telling us some of the details that you and your partner wish to keep confidential but just to try to understand what it is that you're working on.

Well, both Gold Fields and Buenaventura have released to the public some information that you may be aware of, both in our 20-F report and also in the last exploration roundup in San Francisco in June. Carlos Galvez showed some sections and some grades. What we did with (inaudible) breccia hosted deposit. It's a diatreme. It's a volcanic net. And mineralization is acidic. It's auriferous pyrite and native gold. And we have long stretches, 100, 200 meters with 1, 2, 3 grams per ton gold in sulfide.

And on the one hand because the deposit is open ended to the west and to the north at depth, on the west end, we have two intersects that are fairly high grades. [I quote two] that are in the public domain, 27 meters at 7.3 grams and 44 meters at 8.9 grams. Those are the higher grade portions of the deposits. They are fairly good metallurgically, conventional, so gravity, gravimetrics, flotation and CIL. And at the moment, as I said before, Gold Fields is drilling the west end of the deposit looking for extensions of this higher grade portion. That's what I can say for the moment.

Okay. A quick follow up -- that 800 by 200 meters that you describe as the dimensions of the diatreme, has that been sort of confined? Do you know that's the extent of the diatreme? And what is the deepest drilling that you've done?

The 800 by 200 meters is the drill portion of the diatreme. It's still open. So we don't have the final dimensions. And the deepest we have drilled is a recent hole by Gold Fields, which is 600 meters. The previous drilling by Buenaventura is down to 300 meters.

And that encountered mineralization at 600 meters?

A good portion of it, yes. We don't have offers yet. But it looks good.

Okay. Thank you. I've asked many questions. I'll let someone else ask. Thank you.

(Operator Instructions)

You do have a follow up from John Bridges, JPMorgan.

Hi, Roque, again. I'm glad Victor was there to ask questions on the projects with difficult names. On Antapite, just wondered the reserves under pressure there, just wondered how much longer you have left in your mining plant.

Well, we continue replacing reserves with this lower level of production. As you have heard before, we have had some difficulties in getting into some areas of some of the local communities where some of our claims are located. We continue to work with these communities in order to get the permission to explore in their areas. We haven't been all that successful yet. But the last thing that we are going to do is lose our (inaudible) and optimism on this area.

We think it still has some potential and that we will be able to get returns with the communities. It is a typical case where we are not able to observe as we would like. And that's the reason for the current situation. But I have to stress that we are replacing reserves at this point in time.

That's very helpful. Thanks, Roque. And thanks for setting up the call.

Our next question comes from Carlos de Alba with Morgan Stanley.

Good morning, gentlemen. Thank you for taking the question. Just wondered if, Carlos, could you explain a little bit on what are you seeing in interest cost? We saw that the cost per ton or cost per ounce that you provided in the press release went up. However, the cost as a total came below what we were expecting and a very positive surprise. So I wonder if you can help me reconcile those two trends. Thank you.

Yes, Carlos. (inaudible) in Orcopampa, we have approved at higher cost due to this road blockade in spite of the fact that we could comply our -- well, we could produce only the same that we produced the same quarter last year. But it was due to the treatment of the old tailings. Unfortunately, our production from Chipmo was in the order of 10,000 ounces lower than we expected.

We have a plan to resume our production and to fit and to reach our final objective for the year in the case of Orcopampa. So we believe that we will get back to the guidance of cash cost in Orcopampa being lower than 260, of course.

In the case of Uchucchachua, we are going to maintain a pretty high cost. It's not going to be the level of in excess of $9 that we got during this second quarter. But the problem that we had with the flood, well, we expect not to repeat this problem. And so we believe that we are going to get lower than $9 per ounce during the rest of the year. We have to work in the preparation of the new areas.

It is important to share with you that we are working again in a new effort in the metallurgical facilities we have in Uchucchachua. We are notifying the flow shape. We are using new reagents. And so we are working on reducing the manganese contained in our concentrate, increasing the silver content in our concentrate, and reducing the weight by about 15% to 20%.

By doing so, we are going to increase dramatically the values paid for our silver content. So this is going to be a good way to reduce the cash cost. In the rest of our operations, we are basically in line. And of course, in our affiliates, like Yanacocha and Cerro Verde, well, we are in line with the objectives we had.

Okay. Thank you. And just a follow up on cost -- could you give us a breakdown of the special or nonrecurring cost that you faced during the quarter? Obviously, the provision for doubtful accounts was about $8 million. Uchucchachua, I think you mentioned $300,000. What was the cost associated with the blockade in Orchopampa?

The cost of the road blockade was not [special]. Problem is that we could not produce what we forecast. So we have a lot of fixed cost that we couldn't dilute during this quarter. This road blockade was in June. Our cash cost in June in Orchopampa got to $450 easily, and that was the result of that. As I mentioned, by resuming following the plan we have to produce the 10,000 ounces that we were not able to produce during the second quarter, we are going to dilute the cost again.

Fair enough. And you mentioned earlier in the call that you are changing the silver production guidance. Where do you see it now for the year?

Well, we believe that we are going to produce 2 million ounces of silver less than we expected as the total guidance.

Okay. Thank you very much.

You're welcome.

(Operator Instructions)

Our next question comes from Alonso Aramburu with Santander.

Hi. Thank you. Good morning. Just a follow up to the previous question, Carlos, if you -- the $8 million provision, can you explain to us what was that related to, whether there's a possibility for more provisions of that kind going forward? And if you can remind us also on what was your gold guidance for the year.

Yes, well, as you know, we report this in a consolidated way. This has to do with a Doe Run issue. Doe Run has a debt with Buenaventura for $12.6 million and with El Brocal $4 million. We have already provisioned during the first half of the year $9.1 million. So we still have $5 million or $6 million remainder that we have to provision during the rest of the year if we do not solve this problem with Doe Run.

We decided to make this provision during this second quarter and not before because Doe Run had already signed an agreement with the government and with mining suppliers. But well, they came. And we consider that at this point in time we have only 50% probability to collect these accounts.

Great. Thank you. And just remind us what your gold production guidance is, please, here.

Yes, our gold production guidance is still the same that we mentioned at the beginning of the year. It is 450,000 ounces from our entire operation and of course our stake of Yanacocha's production.

Thank you.

At this time, there are no further questions. I will now turn the call back to Roque Benavides for closing remarks.

Thank you, again, for attending our conference call. And of course, if you have any additional questions, we are open to answer those directly. And we hope to see you in the next conferences that we will be attending. If I recall correctly, the next one will be in Denver, the Denver Gold Conference in mid-September. And we will be presenting there. And in London, almost the same date, Carlos Galvez will be attending the Morgan Stanley conference. With this, again, our thanks for attending our conference call. And have a great day.

Thank you for participating in today's conference call. You may now disconnect.