Compania de Minas Buenaventura SAA (BVN) 2010 Q3 法說會逐字稿

Good morning. My name is Christy. I will be your Conference Operator today. At this time, I would like to welcome everyone to the Buenaventura Third Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. It is now my pleasure to turn the call over to Pete Majeski. Please go ahead, sir.

Thank you, Christy, and good morning, everyone. Welcome to Buenaventura's Third Quarter 2010 Conference Call. Today's call is for investors and analysts only. Questions from the media will not be taken. Joining us today from Lima are Mr. Roque Benavides, Chief Executive Officer, Mr. Carlos Galvez, Chief Financial Officer and other members of the Company's senior management team. They will be discussing Buenaventura's results per the press release, distributed yesterday. If you have not received a copy, please call us in New York at 212-406-3693.

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 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 thank you for attending today's conference call. The net income during the quarter was US$174 million, a 17% increase when compared to the figure reported in the third quarter '09, mainly due to 54% increase in operating income. EBITDA from Buenaventura's direct operations were US$117 million, 15% higher than the figure reported in the third quarter '09. While EBITDA, including Yanacocha and Cerro Verde increased 3% from US$313 million in the third quarter '09 to US$323 million in the third quarter of '10.

These results were mainly driven by higher metal prices and increase in silver, lead and gold sold, as well as the solid results from Cerro Verde. During the third quarter 2010, net sales were US$266 million, a 24% increase when compared to US$214 million reported in the third quarter '09. This was explained by a higher realized price in all metals and an increase in the volume of gold, silver and lead sold.

In terms of production and operating costs, Buenaventura's equity production in the third quarter 2010 was 118,000 ounces of gold, 9% higher than the 108,000 ounces reported in the third quarter '09. Silver production in the third quarter 2010 was 3.6 million ounces, a 3% increase when compared with 3.5 million ounces reported in the third quarter '010.

Going to our operations, at Orcopampa, total gross production was 81 -- 1,828 ounce -- 28,000 ounces, sorry, in line with third quarter '09 production. Production from Chipmo mine in the third quarter of 2010 was 76,000 ounces, 3% higher than the 73,800 ounces reported in the third quarter '09, which was complemented by the old tailing treatments, which produced 5,600 gold ounces. Accumulated total production in the nine-month period, 2010, was 234,000 ounces, a 3% increase when compared to 2009.

At Uchucchacua, our total silver production in the third quarter of 2010 was 2.5 million ounces, similar to the third quarter '09. Despite the 2% decrease in silver grade and a 5% decline in the recoveries, offset by an 8% increase in ore treated. Zinc production in the third quarter 2010 was 1,970 metric tons, also similar to the third quarter '09, while net production increased 14%. Accumulated production in the nine-month period 2010 was 6.9 million ounces of silver, 15% lower in the -- than in 2009.

At the Antapite, total production in the third quarter 2010 was 9,396 ounces of gold, an increase of 13% compared to the third quarter '09, mainly due to 16% increase in ore treated. Accumulated production of gold was 26,000 ounces and 11% increase when compared to 2009.

La Zanja, the new mine that entered into -- started production in this quarter, where Buenaventura controls 53% of the property, Newmont's holding the remaining 47%, started to leach ore in pads on August 6, 2010. The first gold bar was obtained on September 7th, 2010 and total production in the third quarter 2010 was 10,660 ounces of gold. We expect to maintain this level of production monthly and we will be producing in excess of 30,000 ounces of gold for the year 2010.

At Brocal, the first phase of the expansion project was completed. At Marcapunta, copper production for the third quarter 2010 was 1,672 metric tons, 28% lower than the third quarter '09. Accumulated copper production in the nine months of 2010 was 6,850 metric tons, an 8% increase when compared to 6,300 metric tons in the same period 2009. Cash costs at Marcapunta for the third quarter 2010 was US$5,940 per metric ton, which includes US$2,568 per metric ton of treatment charges and reductions, an 87% increase when compared to third quarter 2009.

Going to our share in affiliates -- affiliated companies. During the third quarter 2010, Buenaventura's income from non-consolidated affiliates was US$118 million, 6% lower than the US$125 million reported in the third quarter '09.

The Yanacocha's contribution to these results decreased 29% from US$88 million in the third quarter '09 to US$62 million in third quarter '010, partially offset by 56% increase in contribution from Cerro Verde, which rose from US$37 million in the third quarter '09 to US$58 million in the third quarter '010.

Accumulated income from non-consolidated affiliates in the nine months 2010 period was US$316 million, an increase of 4% compared to US$303 million reported in 2009.

At Yanacocha, the third quarter 2010 gold production was 355,000 ounces of gold, a decrease of 35% compared to third quarter '09. Gold production in the nine months of 2010 period was, according to guidance, 1-point -- 130,000 ounces, 1,130,000 of gold, but a decrease of 28% compared to 1,559,000 ounces reported in the same period of '09.

At Cerro Verde, in the third quarter '010, copper production was 74,000 metric tons, a 2% increase when compared to the third quarter '09. Accumulated copper production in the nine months of 2010 totaled 225,000 metric tons, in line with the same period of 2009. In terms of our net income, this quarter, Buenaventura's net income was US$174 million, representing US$0.68 of dollar per share, compared to US$148 million of the third quarter '09.

This was mainly explained by 54% increase in operating income, despite a plus of -- despite a 29% decrease in contributions from the Yanacocha. Net income for the nine-month period 2010 was US$440 million, a 15% increase when compared to US$383 million reported in the same period of 2009.

At Orcopampa, it is important to mention that the second stage of old tailings treatment to recover 38,000 ounces of gold and 1.1 million ounces of silver as of September 2010, all equipment was purchased, while the assembly of five thickeners was ongoing. This project will be completed in the fourth quarter '010 and total investments as of September 2010 was US$3.7 million out of a total budget of US$5.5 million.

The tailing dam, number four, expansion for an initial -- for an additional 1.8 years was completed. Only auxiliary work for security and environment remain pending. Total investment as of September 2010 was US$11 million out of a total budget of roughly the same amount.

At Uchucchacua, we continue working on the chemical plant project to clean manganese content from lead-silver concentrate to obtain better commercial terms and improve the mining process is in progress. Total investments as of September 2010 was US$1.6 million out of a total budget of US$33 million.

Tantahuatay, where we expect to invest up to US$72 million as of September 30th, 2010. The project expenditures totaled US$13.6 million. The construction permit was obtained on May 24th, 2010 and the duration of the construction phase will be approximately 10 months. We expect to be in production by the end of the first semester, the first half of 2011.

In terms of Board resolutions, we had a Board meeting yesterday. The Board of Directors meeting held on October 28th, 2010, passed the following resolutions, declared a cash dividend of US$0.16 of dollar per share or ADS to be paid in US dollars on November 30th, 2010, to shareholders of record as of November 16th, 2010.

The ex-dividend date is November 12th, 2010. This dividend is in line with the dividend policy of Compania de Minas Buenaventura. With this, we are open to any questions that you may have answered with Mr. Carlos Galvez, Mr. Cesar Vidal, Francois Muths, our Chief Operating Officer, and Humberto Rodriguez, our Controller, just in case. So any questions that you may have, we are open to answer. Thank you. Hello? Hello?

Thank you. (Operator Instructions). Your first question comes from the line of Felipe Hirai with Bank of America-Merrill Lynch.

Hi. Good afternoon, everyone. Good afternoon, Roque. So I have two questions. The first one is related to your gold production for next year. Could you give us an idea of how much gold you intend to produce next year, as you are going to have like the full ramp up of La Zanja. You also have the old tailings in Orcopampa. So we'd just like to understand better what would be those impacts in your production for next year. That's my first question.

We expect, all together, all together, including our equity participation in Yanacocha, to produce 1.2 million ounces of gold. This production will be similar in the case of Yanacocha for next year and a strong production from Orcopampa, probably an increase of 5% to 10% next year and certainly in excess of 100,000 ounces of gold from La Zanja, 100%. So we feel that we will be able to produce in the order 1.2 million ounces of gold. And of course, Tantahuatay will be contributing somewhat in the second semester of next year.

Roque, just to confirm here, that means that in your direct operations, you're going to produce something close to 600,000 ounces? Is that correct?

I --

Yes, basically, we're -- sorry. What we are going to produce in our various operations, all together, including Tantahuatay, will be closer to 100,000 ounces of gold.

0.5 million.

Okay. 0.5 million?

Yes.

Okay. And my second question is regarding to Brocal. Can you just remind us what you are expecting to produce in terms of copper for the fourth quarter and 2011? Because I thought the copper production level would be higher?

Yes, well, it is important to share with you that Brocal has decided to devote 100% of the metallurgical facilities, after the expansion, to copper treatment. So we are -- we began to treat 100% to the boat, 100% of the capacity since September 27th and our expectation, treating ores that will come from Marcapunta, first.

Secondly, from the copper area of the open pit. And thirdly, from a stockpile that we have counted on in the order of 4,500 tons of copper metally contained per month. Roughly. This will last until April, we expect. And then we will get back to our regular operations from the poly-metallic ores, coming from the pit, plus the copper from Marcapunta.

Okay. Thank you, Carlos.

Thank you. Your next question comes from the line of Carlos de Alba, Morgan Stanley.

Yes. Thank you very much for taking the question. Good results. I just wondered if you can give us a guidance in terms of your silver production for the fourth quarter and for next year. We saw a very strong increase in silver volumes sold. I don't know if it was some destocking or a purchase from third-parties. But if you can give a guidance on silver volumes, it would be great. And also, in terms of your costs from Yanacocha and your direct operations, where do you see those in 2010?

The silver production coming from Uchucchacua, basically, during the fourth quarter will be in the order of 2.5 million ounces, but will be held by certain production that comes from [Houcani], which is in the order of 300,000 ounces during the last quarter of this year. What's next --? Regarding the --?

The costs.

The costs, well, we'll keep high in the case of Uchucchacua, due to the fact that we continue working on avoiding the manganese area in the silver operation of Uchucchacua. In the case of the Yanacocha, we expect to continue producing at a cash cost that will vary between US$400 or US$450 per ounce during the last quarter of this year.

Case of Yanacocha?

Case of Yanacocha (inaudible). Yes, Carlos?

Thank you. Your next question comes from the line of Sergio Matsumoto with Santander.

Hi. My question is a follow-up on the previous one on the silver volumes sold, which increased over 40% since last quarter. Could you explain why that happened? And the second question is also your costs have increased, we have your cash costs increased in general, about 11% -- or 20% year-on-year. So could you explain if these levels of costs will continue by the next few quarters, please?

Yes, well, you can see in the appendix two of our press release that basically the increase in silver production, from which Uchucchacua came from, on a higher volumes exploited, while taking lower grades and lower recovery. And at the very end we got almost the same, silver production as compared with the same quarter of last year.

However, we increased some of our silver production when comparing with the second quarter of this year. And, well what our operating unit did was to push volumes production in the areas [mineral fort] the current metallurgical facilities we have. We expect to continue producing at the current levels of production during the year 2011, until turning around the manganese problem with -- when accounting on the manganese outside or their leaching plant, by the end of next year.

At a cost of 11%.

The thing is, we have had legal negotiations and this may have had an impact on costs in this quarter. We expect that this will dilute in the course of the next few months in terms of costs.

We have two issues in this, so that -- first of all, there was a 5% appreciation of the new [sold] that impacts our cost expressed into solids. And secondly, as a strategy to negotiate and to use the long-term commitments, in terms of salaries, what we did is to pay up the bonus, an extraordinary compensation, non-recurrent, at the end of the negotiation with the unions. So we paid this just one time and there is no commitment for the future.

Do you have a -- this is my third question. Do you have an idea of how much the cash costs will be at Conga?

The guidance that we have in our evaluation is that we will buy the minimum US$400 to US$450 per ounce, considering the buying total credit of copper.

Sure. Okay. Thank you.

Thank you. (Operator Instructions). I will turn it back over to the speakers for closing remarks.

Well, thank you very much for attending this conference call. We are very, very pleased that La Zanja is already in operation. Let me just give you a personal touch on this, and it's the fact of -- that La Zanja, we had a confrontation with the local communities back in 2004 and the camp was burnt. And we have been able to reverse this social situation and the people, our colleagues, are working with La Zanja, have done a great job in reversing this whole situation, developing the project and now we are in operation.

This is showing that social problems can be solved and we are very pleased that La Zanja is in operation. This will have a very positive impact, not only on our production, but also on operations in the surroundings of La Zanja. Peru is doing very well and we are very pleased that we are able to contribute to that situation. So with this, I want to thank you for attending this conference and I hope to see you soon. Good morning and good afternoon for those of you that are in Europe. Thank you very much.

Thank you. This concludes today's conference call. You may now disconnect.