Compania de Minas Buenaventura SAA (BVN) 2009 Q4 法說會逐字稿

My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Buenaventura fourth quarter 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).

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

Thank you, Brandy, and good morning everyone. Welcome to Buenaventura's fourth 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, Mr. Carlos Galvez, Chief Financial Officer, and Mr. Cesar Vidal, Chief Exploration Officer. They will be discussing Buenaventura's results for 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 statements made today by Buenaventura's management are subject to various conditions and may differ materially. These conditions are outlined in the Company's press release in a 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 and thank you for attending the Compania de Minas Buenaventura conference call. Our net income during the fourth quarter totaled $210 million, a significant improvement when compared to the loss reported in the fourth quarter '08. EBITDA from Buenaventura's direct operations was $816 million, 295% higher than the figure reported in the fourth quarter '08, while EBITDA including Yanacocha and Cerro Verde, increased 392% from $73 million in the fourth quarter '08, to $359 million in the fourth quarter '09. These positive results were mainly driven by higher revenues due to the increases in metal prices as well as Yanacocha and Cerro Verde contributions. Our operation revenue, we had increases in terms of revenues and royalties during the fourth quarter '09, compared to the fourth quarter '08.

Net sales for 2009 were $820 million, a 7% increase compared to 2008 while royalty income was $62 million, 27% increase when compared to $48 million we posted in 2008. In terms of our production and operating costs, our equity production for the 12 months 2009 period was 424,000 ounces of gold, and 14.8 million ounces of silver. This represented stable gold production, and 6% decrease in silver production compared to 2008. For Orcopampa, our accumulated total gold production for 2009 was 315,000 ounces, an 11% increase when compared to 2008.

Our cash operating costs for 2009 was $290 per ounce, 19% higher than the figure reported in 2008. At Poracota, we have reached an accumulated gold production for the 12 months 2009 of 52,000 ounces, 12% higher than the figure reported in 2008. At Uchucchacua, our accumulated production for 2009 was 10,500,000 ounces of silver, 8% lower than in 2008. 8,200 metric tons of zinc, a decrease of 27% when compared to 2008, and 8,500,000 metric tons of lead, 23% lower than the figure reported in 2008.

Our cash operating cost in the fourth quarter '09 was $11.61 per ounce of silver, 60% increase compared to $7.25 in the fourth quarter '08. This was essentially best explained by a 28% lower by-product contribution due to a decrease in zinc and lead production, and 82% rise explained by 19% increase in diamond drilling, and 12% increase in drifting work. The decrease in silver ounces recovered was due to our previously mentioned decline in silver grade, while controlling a manganese recovery and content.

At Antapite, the accumulated gold production for 2009 was 31,000 ounces, 28% decrease when compared to 2008. Our cash operating cost was $784 per ounce at Antapite.

At Colquijirca for 2009 our total zinc production was 67,600 metric tons a 17% decrease when compared to 81,600 metric tons in fourth quarter '08. In the case of silver, total production reported in the fourth quarter '08. In the case of silver, total production decreased 19%, from 4,493,000 ounces in 2008 to 3,651,000 ounces in 2009. Lead production for the 12 month 2009 period was 20,000 metric tons, 19% lower than the same period '08. Zinc cash costs in Colquijirca increased from $626 per metric ton in fourth quarter '08, to $1,083 per metric ton in fourth quarter '09. This was due to a higher stripping ratio, despite the higher zinc and lead contributions due to an increase in prices.

In terms of our operating expenses, general and administrative expenses for the 12 month period 2009 total $88 million, 154% increase when compared to $34 million, or $35 million reported in 2008, due to $16.8 million in doubtful accounts related to Doe Run, as well as the reverse adjustment of the long-term compensation provision reported in 2008. In terms of our exploration costs in non-operational mining sites, we are here, of course, with Cesar Vidal that will - - could expand on exploration later on in the question and answer part of this conference, but the main efforts were focused at Breapampa, Trapiche, Marcapunta, and Mallay. Exploration costs at non-operating mine sites during 2009 were $30 million, a 46% decrease when compared to 2008.

We have had important results in the first stage of diamond drilling at Chucapaca, where we have drilled 24,000 meters and we have important results that we have been reporting at Canahuire and we are also exploring in the surroundings of this area.

At Cerro Castrejon, which is a new discovery for Buenaventura in the brownfield exploration of La Zanja, we have also drilled in various stages - - in the early stages with 2,500 meters of diamond drill that have been completed. At Breapampa, Buenaventura has exercised during the year its $15 million option to buy out Newmont. Buenaventura is in the process of analyzing the feasibility of completing the environmental impact study and construction permits by the end of 2009. We count with 93,000 hectares in mining rights, and the deposit of Parcca Orcco count with reserves of 4.7 million-tons at a grade of 1.3 grams per ton of gold, and 22.2 grams per ton of silver.

At Trapiche, which is this copper product - - project, we have been able to report 552 metric million tons in total resources, with 0.46% copper and 0.013% molybdenum.

A new project which is a smaller one, but we are quite excited is Tuyumina, and it within the Cedimin company, where we control 100% property, and it is 20 kilometers east of the Paula mine, and we have reported there the Olivia vein with 100 meters in the central zone, with 6 grams per ton to 30 grams per ton gold, and 4 ounces to 25 ounces of silver. The Company is currently evaluating depth potential with two diamond drill rigs.

Our operating income we have an accumulated operating income for 2009 was $287 million in-line with the figure reported in 2008. At Yanacocha, gold production for the 12 months 2009 period was 2,058,000 ounces an increase of 14% compared to 2008. For 2009, the cash applicable to sales was $325 per ounce, a 9% decrease when compared to the figure of 2008. The accumulated net income in 2009 was $727 million, 53% higher than 2008 and the CapEx was $146 million for 2009.

At Cerro Verde copper production in 2009 totaled 300,000 metric tons, 5% lower than the figure reported in 2008. The CapEx for the fourth quarter 2009 in Cerro Verde was $17 million and $92 million for the whole of 2009.

In terms of net income this quarter Buenaventura net income was 209 - - is $210 million, representing $0.83 per share, compared to negative $6.1 million in the fourth quarter '08. This was mainly explained by the 590% increase in contributions from Yanacocha and Cerro Verde. Net income in 2009 was $593 million, compared to $153 million reported in 2008.

In terms of our projects, we have been developing the mines at Orcopampa and Uchucchacua, and those are developing very well. In terms of Colquijirca, the expansion of metallurgical facilities to increase plant capacity from 6,000- tons per day to 18,000-tons per day, which considers the construction of our new tailing dam with a CapEx of $200 million is under construction. The Huanza hydroelectric plant which we reported will require $145 million in CapEx, and it already in the preliminary works, and we should be in full construction in the course of the year.

At La Zanja that has started construction of leach pads and the Bramadero dam on July 1st, 2009, it is expected to initiate operations by July 2010, with a CapEx of $55.5 million. At Cerro Verde it is important that they are pursuing the debottlenecking project, and to increase capacity from 108,000 tons to 120,000-tons per day, with a total investment in the order of $50 million in this year.

We had our Board of Directors meeting yesterday, and the Board passed the following resolutions, to approve the financial statement as of December 31, 2009, to approve the 2009 Annual Report, and to approve a cash dividend of $0.30 per share to be paid in US currency.

With that, we are open to any questions that you may have. And, of course, sorry, and we are also calling for an Annual Shareholders Meeting to be held on March 26th, 2010 in Lima.

With that, we are open to any questions and answers.

(Operator Instructions). We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of John Bridges with JPMorgan.

Good morning, Roque and Carlos. I hope it is warmer down there than it is up here in the Northeast.

By far.

We have seen in your reserves you have had a big increase in many of your metals. It seems to be an increase in your holding of El Brocal. Could you talk to us a little bit about that transaction?

Transaction? What do you mean by transaction? You are saying the agreement we - -?

The reserves are a lot higher.

We have reach an agreement which was reported that at that time with Teck Cominco that own essentially a 10% economic interest in Brocal to Colquijirca and we pay for that at that point it was $40 million, if I recall correctly, it was a good transaction, Teck Cominco had a minority interest, we had already acquired a controlling interest through Colquijirca, and they were prepared to sell, and we were prepared to buy.

So that, we believe, was a good transaction for the Company, it has expanded our reserve base in that respect, and has of course, increased our economic interest in Brocal, that we believe has a deposit, Colquijirca and Marcapunta and even San Gregorio that have substantial potential for production and for exploration.

So you are adding ounces through the drill bit and through the check book?

Well, mining companies have to add ounces. Which way it is irrelevant in some respects.

You spoke about buying out Newmont's stake. Sorry, I only half heard that. Which project was that?

That was Breapampa. Breapampa was a small exploration that we had jointly with Newmont. It was a smaller project than what Newmont was expecting. And one of the efficiencies if I may say that Buenaventura can have, compared to other of the larger companies is that we can develop the smaller projects. And we at the time we thought that we could exercise an option to buy out Newmont, and we decided to go ahead regardless of the fact that it is essentially 300,000 ounces resource but we think we can explore further, and make a good business on developing this smaller mine.

Is this a second heap leach project for you?

This will be a second - - well, if you consider Tantahuatay it would be the third one, but for - - after La Zanja, it will be the second one if you would.

Okay, that is great. Well done, guys. Congratulations. Thank you.

Thank you very much.

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

Thank you very much, and good morning, everyone. I had three - - two questions. First, if you can talk a little bit about the guidance for your gold production at the direct operations, and maybe the cash costs for this year?

The second one would be if you can give us any update on Tantahuatay, if plans are on track and you still expect to commence production in 2011?

And then if everything goes well in Chucapaca, do you have any sense of the timing as to when that project could start producing metal? Thank you.

Our own direct operations gold production will be in-line in 2010 with our production in 2009. We don't expect a substantial increase. We expect to reach 430,000 ounces in 2010 of our own direct operations. And the cash costs should be in line with the cash costs reported in 2009. So we don't expect any surprises in that front.

At Tantahuatay, we continue developing the project mainly on the social front. We have been able to buy some surface rights. We are getting into more into better relations with the local communities, we are working, of course, with authorities and with the government, in terms of permitting, in terms of pursuing the project. And we expect to be in construction by 2011, and hopefully by the end of 2011 we will be in production as well.

So there is more or less twin projects to La Zanja it will be in the order of 100,000 ounces of gold per year production, and we are looking forward to it. We are having some additional exploration results that are giving us some excitement, and we are very pleased with Tantahuatay.

At Chucapaca, as you know, this is a joint venture with Gold Fields. It is always difficult to give additional information, we do not coordinate properly with our very good partners of Gold Fields. But what I can tell you is that exploration continues, that we are having very good results, that both Gold Fields and ourselves are very pleased with this new project and it will take time.

The problem is to define the geometry of the deposit, we were discussing a few days ago whether we should go for a smaller project now, or if we should have the full dimension of the deposit. It is a typical discussion of a project, and of an important project as we see it at Chucapaca.

It is early days to say when are we going be in production. You may smile if I say that I would not be surprised that in the next five years we will have a mine. But this is a very general statement, and the fact of the matter is that this is an important discovery that our geologists and explorers of Buenaventura were fundamental for the exploration, and of course, the geologists and explorers of Gold Fields are doing a great job in expanding these results.

Thank you.

The next question from the line of Imaru Casanova with BJM.

Hi everyone. I had a question regarding production guidance as well. I was hoping you could give us an idea on what silver production is expected in 2010? And particularly I am looking at Colquijirca and I am looking at silver grades there. Current silver grades as reported this quarter versus reserve grades. Particularly because I know we are going to have an increase in throughput there, with the expansion in capacity I am trying to figure out what is going to happen to reserves in the next year, and maybe in the following?

Like I said, Q4 grades I think were reported at 2.8 grams per ton versus reserve grades of about 1.24 for silver, and similarly for zinc, I think reserve grade was 2.6 versus the Q4 5.3, so it is significantly higher grades now compared to reserve. And I am trying to get an idea of what that profile is going to look like going forward?

Good morning, Imaru. It is Carlos Galvez. The guidance for the silver production for year 2010 is 15.5 million ounces. You are right when mentioning the impact of the throughput the (inaudible) throughput of Brocal's production.

You know that we are in the middle of the expansion project by going in two steps, initially from 6,000 tons to 10,000 tons. In the middle we are going to beginning April we will have interim throughput of 7,500 tons until June. From June (inaudible) it will be 10,000 tons per day, and at the end of the first quarter of year 2011, we will complete the 18,000 tons per day.

We decided to go ahead with the expansion plant in Brocal, just because there was no other way to operate economically Tajo Norte on the aerial flank (inaudible) with the lower grades we knew we had. And this is why. Basically we are downgrading the operation due to the deposit, but we are expanding the throughput just to keep on producing almost the same level of silver. And likewise has happened with zinc and lead.

Okay. So, would you say for 2010 at least would you expect the grades that were reported for this quarter for the next year?

No, no, no, no, no.

The lower grades will be --?

We are going to produce the average grade but our reserves in [projects discovered] those that I reported. But are low grades. From time to time you could get some higher grades depending on the area of you are in the open pit.

If I may add, you have to bear in mind that this is a lead zinc silver deposit.

Correct.

And grades vary. And (inaudible) in 2008 we had very high silver grades, but that was only for a time, and in 2009 it will be more of a normal type of grade that usually they expect towards the future.

Excellent. Thank you very much.

(Operator Instructions). Your next question comes from the line of Luisa Moreno with Lusight Research.

Hi. Some of my questions have been answered. I just wanted to go back again on volumes. You mentioned the volume for gold and silver. Can you give us an idea how much is going to be for lead as well as zinc, please?

Lead and zinc in our operations are complementary ones so basically those come from Brocal, would be in the case of zinc basically 75,000 tons of zinc and metal content. In the case of lead, it could be something similar.

In addition to that, Brocal will add 25,000 tons of copper metal content, which is the other part of the operation which is Marcapunta. That will add to our total production.

Thank you. My other question is regarding your CapEx. What is your estimated total CapEx for 2010 and what percentage (inaudible) that will (inaudible) maintenance?

Well, we have a total CapEx, let me see my figures, please. In our direct controlling the projects on sustaining capital, our [Antapite] CapEx is $184 million this year. And we have to add to our (inaudible) [participation] on the CapEx of Yanacocha that would be on the order of $92 million (inaudible) and Cerro Verde of [$19 million]. Of course, from Yanacocha and Cerro Verde we didn't have to put any because this internal - - is financed by internal cash generation.

Okay. I just have one last question regarding the recent strikes. Do you think that is going to affect your quarter production in any ways? And by - -?

The what?

I'm talking about the recent strikes.

Strikes.

Yes.

Well, actually we having a strike now from our contractors, you have to bear in mind that we manage at least 18 unions. Among them were different operators - - operating units. And this is the time for the negotiations with our different unions. Today we having a strike of some contractors of Antapite.

Our other operations are working on a regular basis, and we believe that we are going to have our traditional negotiation with them. And we believe that we are going to have no problem. Being in this earlier stages during the year beginning the year, always we have a plan to catch up with targets for our production, our objectives.

So to answer your question, we expect to be in-line with the production objectives that we have planned.

All right. Thank you so very much and congratulations.

Your next question comes from the line of Victoria Santaella with Santander.

Hi, good morning, gentlemen. Most of my questions have been answered, but I would like to know whether there is any revision on how are you going to be using the cash? I see quarter-over-quarter you are accumulating cash. Is there any ideas of --?

Hello? Okay. The thing is we, yes, we have a substantial amount of cash and our balance sheet is very strong. We are planning on prepaying the debt that we have and that we acquire for paying back the hedge book, and that is one. Certainly that would require the amount of --.

$205 million.

$205 million we will be prepaying on Monday next week. And then we will continue looking for opportunities of investments, both in Peru and abroad in the Latin American region, and of course investing in exploration and new equipment, and of course, improving the profile of our own people in our operations, and investing in the best possible way the cash with which we count at this point in time. There is nothing worse than investing it fast and not properly, and we will do it properly at the pace that requires our approach.

If I may add the rationality behind that is that we could if we need to get in a very fast track, the debt we would like a certain point in time, and eventually cheaper than the one that we got during this time. So there is no reason to continue holding this high level of debt. Victoria?

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

Hi, again, I am sorry I meant to ask this earlier and it slipped off my mind. I was looking at your income statement for the quarter and I was surprised at the low income tax and workers profit sharing expense, which was only about, it was less than $5 million. Can you go over why especially the tax expense was so low this quarter?

Yes, well two things there. The main contribution come as you observe from our [active] participation from the affiliates, and the income taxes paid on the source, so Yanacocha and Cerro Verde, not in the Company. Just a reminder that after losing money due to the unwinding hedge book, we have some rollover tax benefit from these losses, so we are applying 50% of this loss to - - from year-to-year. So we pay only on basis of the 50% of the income derived by our operations.

Okay. On the other question I had if you may, do you have a figure for your 2010 exploration budget?

Cesar Vidal will answer that.

Good morning, we do have a budget in place but it's only a draft budget, close to $19 million for Greenfield exploration, both generative and advanced. But we have to go in the next months through the process of approving the individual projects and we will confirm in the next quarterly phone call or conference call.

Okay. Thank you very much.

Your next question is a follow-up question from the line of Victoria Santaella with Santander.

Gentlemen, can you hear me now?

Better - - a little better, yes.

Thank you, Carlos. Just following up is what can we expect in terms of effective tax rate for 2010?

Well, the income tax rate is 30%, and we are applying 50% of the losses, the rollover is the effective tax rate will be 15%.

Thank you very much.

You are welcome.

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

Thank you very much for taking the time and joining us in this conference call of Compania de Minas Buenaventura. As always, we want to report that we will be attending as of Monday, the Bank of Montreal Nesbitt Burns conference in Miami. I personally will be attending that conference, and then we will be hosting a luncheon for investors and the financial community at the New York Stock Exchange on Friday March 5 and we hope to see you there. So we will be in New York, and we will be visiting some investors in Boston on Thursday next week and, of course, we will keep you posted of any other conference that we will be attending.

We are always open to any further questions that you may have. You can call us or e-mail us any time. Thank you for your attention, and for those of you that are under this snow protect yourselves, we are here in summer time in Lima. Thank you very much, bye bye.

This concludes today's Buenaventura fourth quarter conference call. You may now disconnect.