Compania de Minas Buenaventura SAA (BVN) 2009 Q3 法說會逐字稿

Good morning. My name is Julianne and I will be your conference operator today. At this time, I'd like to welcome everyone to the Buenaventura Third 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'd now like to turn the conference over to Mr. Rafael Borja of i-advize Corporation Communications. Please go ahead sir.

Thank you, Julianne and good morning, everyone. Welcome to the Compania de Minas Buenaventura's Third 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 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 very much, and welcome to Compania de Minas Buenaventura third quarter 2009 conference call to give all of you the results of this quarter and of the first nine months of this year.

This quarter net income was $148 million, 48% higher than the figure reported in the third quarter '08. EBITDA from Buenaventura's direct operations was $102 million, an increase of 12% when compared to the figure reported in the third quarter '08, while EBITDA including Yanacocha and Cerro Verde increased 37%, from $229 million in the third quarter '08 to $314 million in the third quarter '09.

Higher gold sales revenues, in addition to 67% increase in contributions from Yanacocha and Cerro Verde, positively impacted Buenaventura's results.

During the third quarter '09, the net sales were $214 million, a 10% increase when compared to $195 million reported in the third quarter '08. This was explained by the higher realized price of gold despite a decrease in the volume of lead, silver and zinc sold.

Net sales for the nine-month period 2009 were $576 million, a 6% increase [sic - see press release] compared to the same period of 2008, while royalty income was $44 million, an increase of 16% when compared to the $38 million reported in the comparable period of 2008.

Buenaventura's equity production during the third quarter '09 was 108,736 ounces of gold, 2% higher than the 106,000 ounces reported in the third quarter '08. Silver production during the third quarter '09 was 3,518,000 ounces, a 4% decrease when compared to the 3,682,000 ounces reported in the third quarter '08.

Equity production for the nine-month period 2009 was 311,000 ounces of gold and 11,221,000 ounces of silver. This represented a stable gold production and a 3% decrease in silver production compared to 2008.

At Orcopampa, total production was 82,569 ounces, 13% higher than the third quarter '08 production. Production from the Chipmo mine in the third quarter '09 was 73,849 ounces, 5% higher than the 70,197 ounces reported in the third quarter '08, which was complemented by the old tailings treatment that produced 8,720 gold ounces.

Accumulated total gold production for the nine-month period 2009 was 227,500 ounces, an 11% increase when compared to 2008.

At Uchucchacua, the silver production during the third quarter '09 was 5% lower than the third quarter '08 due to 19% decline in ore treated and 12% lower silver grade. Zinc production decreased 40% while lead production decreased 39%. Accumulated production for the nine-month period 2009 was 8,058,000 ounces of silver, 4% lower than in 2008; 6,658 metric tons of zinc, a decrease of 21% when compared to 2008 and 7,100 metric tons of lead, 15% lower than the figure reported in 2008.

In terms of our operating expenses, general and administrative expenses in the third quarter '09 were $34.2 million, higher than the figure reported in the third quarter '08 due to $20.8 million long-term compensation provision, while in the third quarter '08, Buenaventura reported a $6.5 million decline in this provision.

General and administrative expenses for the nine-month period 2009 totaled $69.9 million, a 72% increase when compared to the $40.6 million reported in the same period of '08.

Exploration costs in non-operational mining sites that include care and maintenance, during the third quarter '09 were $7.1 million, a 50% decrease compared to the $14 million reported in the third quarter '08, showing that our exploration team is being more concentrated in terms of the investment in exploration and we are here Cesar Vidal, that could answer any questions later.

The main efforts were focused on La Zanja, Mallay, Marcapunta, Trapiche and Tantahuatay projects. Exploration costs at non-operating mining sites during the nine-month period 2009 were $24.3 million, a 41% decrease when compared to the same period of '08.

At Yanacocha, the third quarter '09 gold production was 543,800 ounces of gold, an increase of 21% compared to the third quarter '08. Gold production for the nine-month 2009 period was 1,559,000 ounces, an increase of 12% compared to the 1,391,000 ounces reported in the same period of '08.

Cost applicable to sales at Yanacocha in the third quarter '09 was $308 per ounce, 18% lower than the figure reported in the third quarter '08.

Net income at Yanacocha during the third quarter '09 was $202 million, a 102% increase when compared to the third quarter '08. Accumulated net income for 2009 was $498 million, 29% higher than in 2008.

At Cerro Verde, the third quarter '09 copper production was 73,000 metric tons, a 7% decrease when compared to the third quarter '08. Copper production for the nine-month period 2009 totaled 225,000 metric tons, 4% lower than the figured reported in the same period of 2008.

During the third quarter '09, Cerro Verde reported net income of $198 million, a 20% increase compared to $165 million reported in the third quarter '08, best explained by the 14% rise in sales revenue, which increased from $411 million in the third quarter '08 to $469 million in the third quarter '09.

As of September 30, accumulated net income was $464 million, a 43% decrease compared to the same period of '08, while sales totaled $1,198 million, a decrease of 34% compared to 2008.

This quarter, Buenaventura's net income was $148 million, representing $0.59 per share, a 48% increase compared to $100 million in the third quarter '08. This was mainly explained by 67% increase in contribution from Yanacocha and Cerro Verde.

Net income for the nine-month period 2009 was $383 million compared to $159 million reported in the same period of 2008.

In terms of our project development, in Uchucchacua, the deepening of the Carmen and Socorro mines has progressed as scheduled; completion is expected in the second quarter '010 to reach level 3,920. That means 3,920 meters over sea level. The installation of a pumping station at level 3,980 will be completed in first quarter '010.

At the Carmen mine, the deepening of the Master Shaft has already reached level 3,920. Likewise, Ramp 760 is currently at level 3,961 and will continue deepening to reach level 3,920 in the second quarter '010.

The deepening of the Luz Shaft at the Socorro mine reached level 4,058 and will continue until level 3,990. Completion is expected in the first quarter '010. The construction of Ramp 626 recently reached level 3,920.

At Orcopampa, as of September, the deepening of the Nazareno Shaft and Ramp 16 are at level 3,217 and 3,220, respectively. In both cases, they will continue deepening to reach level 3,170 in the second quarter '010. The installation of pumping station at level 3,220 will be completed in the first quarter '010.

The deepening of the Prometida Shaft reached level 3,298 in September 2009 and will continue to deepen to reach level 3,290 by the end of 2009.

The project also includes the purchasing of 1 hoist for mineral, waste and personnel to be installed in the third quarter '010.

At La Zanja, there we have recently visited, we started construction of the leach pads at the Bramadero Dam -- and the Bramadero Dam on July 1, 2009. It is expected to initiate operations in July 2010. Total investment for the project will be $55.5 million, of which $30 million will be spent in 2009.

Year-to-date, project expenditures have totaled $10.7 million. As you will know, this is a company that is owned 53% by Buenaventura and 47% by Newmont. And I'll also make a very personal comment that in the crux of La Zanja, the logo that this people have to take is for peace and for development and you have to bear in mind that this mine has to go through the burning of the camp in 2003. So we are back, we are working and we will be ready to produce in the second half of next year.

At the Board meeting, held on October 29, 2009, the Board passed the following resolution. Declaration of a cash dividend of $0.14 per share or ADS to be paid in U.S. dollars on November 27th to shareholders of record as of November 17th. The ex-dividend date is November 13, 2009.

With this, we're happy to answer any questions that you may have and with me we have the management of Buenaventura and as I said prepared to answer any questions that you may have. Thank you.

Thank you. (Operator Instructions). Your first question is from the line of John Bridges with JPMorgan.

Good morning everybody, I get the honor. Just wondered, Newmont has said that production at Yanacocha would be down a little bit in 2010, but I see your investment projects in La Zanja coming on, so I am just wondering to what extent you will be able to balance any pullback at Yanacocha? Any indications to what numbers you're expecting, gold, silver, for 2010?

The full year production at La Zanja when at full speed will be in the order of 100,000 ounces of gold per year. That of course, will not compensate substantial reduction at the one that we are expecting in Yanacocha that will be in the order of 1.5 million ounces for 2010. Having said that, we have older prospects, we are producing very, very well in Orcopampa. I think it's the crown -- the jewel crown and we are very pleased with Orcopampa. We continue finding ore in that. We have recently had a superb intersect in that but we, of course, have to build out the infrastructure to develop that.

And Poracota is doing fine. It is a property that is essentially producing, but it's an exploration, brownfield exploration for Orcopampa. The thing is Yanacocha is, let's say, have a million ounces reduction in production for 2010, will be partially compensated by all these projects. And if, in the future, we start the operation of Chucapaca, that will also contribute to the overall gold production for [2010].

That's helpful. But I see with all the shaft deepening projects you've got going on that you should be able to reverse some of these negative trends, particularly at Uchucchacua. What sort of pickup do you expect to see there next year?

Well, in Uchucchacua, we have to solve some additional metallurgical problems, which we are working very hard on. We essentially believe that Uchucchacua increases the grades of lead and zinc [index] and where we have to locate for additional resources and reserves laterally and find areas that have higher silver values that could compensate this, I would say, temporarily reduction in our silver production. We are working on infrastructure, we are working on metallurgical processes, and we hope that in 2010, we could reverse the situation.

Okay, great. Congratulations on the results, and let's hope Gold Fields drill up lots and lots of ounces at Chucapaca.

We also hope that.

Good luck guys.

Your next question is from the line of Carlos de Alba with Morgan Stanley.

Good morning. Thank you for taking the call -- or the question, sorry. What can you tell -- I mean, you accumulated a substantial amount of cash and now you're at record levels at $652 million, what could be the uses of this cash, Roque, if you could comment on that, please?

Someone said some time ago that this was a Hollywood problem and a [Belita] problem and we are essentially responsible and we certainly have discussed internally. Once in there, we are going to use it to reduce any debt that we may have but always keeping in mind the strength of our balance sheet and our cash position to be prepared for any opportunity that we may have. We have a number of projects that could come in the future, certainly Minas Conga that was reported yesterday by Newmont, the possible expansion at Cerro Verde, it's another investment and then, of course, we have a number of smaller investment in our own direct operations.

Plus the possibility as John, Bridges mentioned, the Chucapaca project being developed some time in the future, but we don't see the use of all these resources in 2010 and that is why we have decided to go ahead and reduce our debt and try to maximize our financials in that way.

Any possibility of higher dividends going forward. That will be a follow-up and then another question is could you talk about how is Tantahuatay progressing because if I recall correctly that's the next project that will come online most likely?

We, at the Board level of Buenaventura, we are not tempted to give higher dividends while we can say at this point in time is that we are going to continue with our policy. And as we did in the past, it could be the case of a next ordinary dividend sometime in the future, I cannot say that. But we have not discussed this matter and I don't think that will happen. But you can be sure that we are going to manage as well as we can this past position in the benefit of our shareholders.

In terms of Tantahuatay, we are progressing and we have mentioned that we could start the feasibility of this project into 2010 and maybe start construction in 2011 or late in 2010. We have been facing the normal problems with the local owners of the surface rights. But we are progressing and we are working and we have very good relationship with the surrounding communities and the owners that there are still some things that we have to solve.

We continue finding ore. Tantahuatay is similar in terms of gold resources at La Zanja, but in addition to that we had a substantial, substantial copper resource in that that certainly generates a lot of excitement in Buenaventura. We -- to answer more concretely, if any, Tantahuatay will be in production in 2011 is not somewhat later than that, but not more than that.

Thank you. And my final question would be, you recently -- there was an announcement in which Buenaventura was going to buy some shares that I think that were holded by Condesa. Could you talk a little bit more about what the rationale for this transaction was?

The thing is, as you know, Condesa is a wholly-owned subsidiary of Buenaventura, and we decided that it was easier to have these shares within Buenaventura. And the reason for that is that that gives us additional flexibility if we decide either to sell the shares or to reduce the -- or eliminate those shares by reducing essentially the capital of Buenaventura, and by doing that there is no benefit, specifically for shareholders, because this are not accounted for the market capitalization of the Company.

And essentially, I think you have to bear in mind that the Peruvian legislation does not permit the companies to hold their own shares for a period over two years, if I am correct. And that's the reason why we had it in Condesa. Now, we decided to transfer this to -- and of course, this is subject to Board decision to transfer this through Buenaventura for flexibility within the company. That's the rationale. We have not done it. We will have to make up our minds and take a Board resolution before the end of the year.

Thank you very much, Roque.

(Operator Instructions) Your next question is from the line of Imaru Casanova with BJM.

Hello, good morning everyone. I have some questions regarding copper and the assumptions that you guys internally are managing for long-term price for copper? And how this impact your expectations for the development of Minas Congo as well as for the expansion at Cerro Verde, if you could tell us a little bit about that.

Your question is a very difficult one. We will know -- we will refer only [not working]. There are many companies who will be working in the financial market, but it was a coincidence that we had the dinner last night with Red Conger, who is the Senior Vice President for Freeport-McMoRan in Latin America and we were asking him. And they know better than us about the copper market, and it seems that in their camp, people are very excited about copper price long-term. It seems that stocks are not high, but the demand is strong. [Totally] construction continues in China that is the -- disrupting or positive, if I may say, element in this metal consumption.

And essentially, reality is showing us that copper is strong and that project like Conga that has copper values and gold values and that has the social acceptance if I may say, it is a project that if we develop in the future as Newmont kind of stated it. We're excited with copper price. We're excited with copper price, we are excited certainly with gold price.

Any indications at this stage of when Minas Conga could start -- the development there could start up? And the second thing on timing for the Cerro Verde expansion?

We -- what we are talking is that we have gone through stage three completion by November 2009. We are hoping -- and this is not precise because there are number of elements that have to be taken into consideration. And we are hoping for 2014 to be in production. Certainly, we are doing all of our best in trying to reach that mark. But at this point in time it will depend on permitting, it will depend on the feasibility. We are working towards those objectives.

Excellent, thank you. And on the expansion of Cerro Verde, is there any solid plans on that or are not yet established?

As I mentioned now, I was having dinner last night with Mr. Conger and he was saying that (inaudible) has very, very important deposits worldwide that reserves are substantial. They are -- we're continuing finding additional reserves and the mine is a wonderful resource. The resource is there for an expansion. What Freeport that leads this [effort] is essentially doing, is monitoring the market and looking for the -- for the best time to go ahead. We are working on the engineering, we have not stopped on that, but we don't have a date for a start-up of the construction of this expansion.

Thank you. I'll just have a couple of more questions. Regarding Chucapaca, is there any sense on the timing on when more detailed results on the exploration will be available?

I think that in general terms we continue exploring. We have four diamond drilling machines on site. That means that we are drilling a lot and that Gold Fields should cope with their investment of $5.5 million before the end of the year, which means a lot of money into the ground and the exploration. And that probably by the end of the year, we will have a better figure -- a better view of the resource there.

I can tell you, we are very excited about the project and we understand that Gold Fields -- and they have stated that at the Denver Gold Conference, they are also very excited about the results of Chucapaca. This is what I can say at this point in time.

Thank you. And my last question is more housekeeping. On the administrative expenses there, you had a, like you mentioned, a pretty high long-term compensation provision. Can you give us any guidance on what we can expect going forward for this item?

You see, this long-term compensation has to do with bonus essentially to management and is very much related to the stock price. We wanted to align the objectives of shareholders and management when we put in place this scheme. And when we do a provision, it's because the price of the stock has gone up. In the previous quarter, the price of the stock had gone down and that had some impact on our statements, but that's the way to account these long-term competition is as we all want the price of the stock goes further up, we will have a higher figure in this respect. And if it goes down and which we will not like very much, it will go down. But it is something that we simply show and is part of the transparency of our savings.

If I may add only in the question that we had to reverse an important amount of disposition last year following the financial crisis. So this is not actually new, this is -- get back to the old provision.

That's fine. Thank you very much guys. That's very helpful. I appreciate it.

(Operator Instructions). There are no further questions at this time. I'll now turn the call back over to Mr. Benavides for any closing remarks.

Well, thank you very much to all of you for attending this conference call. Just to -- as we always do, we'll let you know that we will be attending the London Bullion Metal Association Conference in Edinburgh next week and that we will be available for any investors that may like to talk to us, and then after we will be certainly in touch of with all of your to answer any further questions.

With that, again, thank you very much for attending this conference and have a nice weekend. Bye-bye.

Excuse me sir, we do have another question. We have a follow-up question from the line of Carlos de Alba with Morgan Stanley.

Okay.

I am sorry. I was a little bit late on pushing the button. Just wanted to understand, if you have any gold inventories, Roque, at the end of the third quarter that you maybe used to sell, more than you could use in the fourth quarter as you close the year?

No. We don't retain inventories normally. We are a growing concern and we sell as we produce. We do not speculate and we don't have any inventories.

Perfect. Thank you very much.

Well, thank you again and have a good day. Bye-bye.

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