Compania de Minas Buenaventura SAA (BVN) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Buenaventura third quarter 2011 earnings 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 would now like to turn the conference over to Mr. Pete Majeski of i-advize Corporate Communications. Sir, you may begin your conference.

Thank you, Paula, and good morning, everyone. Welcome to Buenaventura's Third Quarter 2011 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, chairman and chief executive officer, Mr. Carlos Galvez, chief financial officer, Mr. Cesar Vidal, chief explorations officer, as well as other members of the Company's senior management. We will be discussing Buenaventura's results per the press release distributed Friday evening. 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 different 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.

Thank you, and welcome to Buenaventura's conference call. Our net income in the third quarter reached $208 million, 19% increase when compared to the figure reported in the third quarter of '10. EBITDA from Buenaventura's direct operations was $248 million, 87% higher than the figure reported in the third quarter '10, while EBITDA including Yanacocha and Cerro Verde increased 31% from $340 million in the third quarter '10 to $444 million in the third quarter '11.

As a consequence and in accordance with the Company's dividend policy, the board has approved a cash dividend of $0.23 per share, which represents an increase of 44% compared to interim dividend paid in the fourth quarter '10.

During the third quarter '11, net sales were $418 million, a 57% increase when compared to the $266 million reported in the third quarter '10. This was explained by an increase in the volume of gold and copper sold, as well as higher realized price across all metal.

The accumulated net sales in 2011 were $1.109 billion, a 67% increase compared to the same period '10, while royalty income was $45 million, a 9% increase when compared to the $41 million reported in the comparable period in 2010.

Buenaventura's equity production in the third quarter '11 was 107,000 ounces of gold, 10% lower than the 118,000 ounces reported in the third quarter '10 due to decrease in Orcopampa's production.

Silver production in the third quarter '11 was 4.2 million ounces, a 15% increase when compared to the figures reported in the third quarter '10 due to higher production from Uchucchacua and El Brocal. Equity production in the first nine months period 2011 was 344,700 ounces of gold and 11.2 million ounces of silver. This represented a 6% increase in gold production and 12% increase in silver production compared to 2010.

At Orcopampa, our production from the Chipmo mine in the third quarter '11 was 52,000 ounces, 31% lower than the 76,000 ounces reported in the third quarter '10 due to a lower ore grade and a decrease in the recovery rate. At Poracota, our gold production in the third quarter 2011 was 12,500 ounces, a decrease of 22% when compared to the third quarter 2010 due to lower ore grade and decrease in the recovery rate.

At Uchucchacua, total silver production in the third quarter of 2011 was 2.8 million ounces, a 12% increase when compared to 2.5 million ounces in the third quarter '10 due to higher tonnage treated and higher silver grade.

At La Zanja, total production for the third quarter of 2011 was 39,000 ounces of gold, a 268% increase when compared to the third quarter of 2010. Accumulated gold production in 2011 was 101,000 ounces, which compares to 10,000 ounces in the same period 2010.

Tantahuatay we started production in August, so in this quarter, and total production up to now in the third quarter 2011 is 16,000 ounces of gold. And the operating cost in the third quarter 2011 was $462 per ounce.

At Colquijirca, total zinc production was 14,000 metric tons in the third quarter 2011, 2% higher than the figure reported in the third quarter of 2010. Total silver production in the third quarter of 2011 was 962,800 ounces, a 26% increase when compared to the same period in the third quarter of 2010.

General and administrative expenses in the third quarter 2011 were $22 million, 23% lower than the figure reported in the third quarter of 2010 due to lower long-term compensation provision.

Exploration costs at non-operational mine sites, which include care and maintenance, in the third quarter of 2011 were $12.8 million, a 65% increase compared to $7.8 million reported in the third quarter '10.

Buenaventura's main exploration efforts were focused at the Marcapunta in Peru, Pachuca in Mexico, Colquemayo in Mallay projects. Exploration costs at non-operational mine sites in the 2011 accumulated period were $35.5 million, 37% higher than the same period of 2010.

Operating income in the third quarter 2011 was $210 million, a 129% increase compared to $91.8 million reported in the third quarter '10. During the third quarter 2011, Buenaventura's share in associated companies was $106.5 million, 10% lower than the $118.4 million reported in the third quarter '10.

Yanacocha's contribution to these results increased 28% from $62.4 million in third quarter '10 to $79.8 million in third quarter 2011, while Cerro Verde's contribution decreased 46% from $58.5 million in the third quarter '10 to $31.5 million in the third quarter of 2011.

For the accumulated 2011 period, Buenaventura's shares in associated companies was $341.8 million, 8% higher than the $316.8 million reported in 2010. This quarter, Buenaventura's net income was $208 million, $0.82 per share, 19% higher compared to $174.1 million reported in the third quarter 2010.

This increase was mainly due to a 118% increase in operating income, partially offset by 10% decrease in income from associated companies. Accumulated net income for 2011 was $630.5 million, 43% higher when compared to 2010.

We have continued with the project development at La Zanja expansion at the Pampa Verde project. We have continued the construction of the Rio Seco Manganese Sulfate Plant to treat the ores coming from Uchucchacua. And we have also continued with the construction of the Huanza Hydroelectric Plant, and we expect this to be concluded by late next year.

We had a board meeting on October 28, that means on Friday last week that passed a resolution to declare a cash dividend of $0.23 per share or ADS to be paid in US dollars on November 30th, 2011, to shareholders of record as of November 14, 2011.

With this, we are open to any questions that you may have for the management of Buenaventura. Thank you.

(Operator Instructions). Your first question comes from the line of [Isabella Serra Grande] of [Southern Capital].

Yes, good morning. And congratulations on the results in the third quarter. My question -- I have a few questions. My first question is regarding the contribution from associate companies.

I was wondering if you could explain a bit more why the results at Cerro Verde were so much slower, 46% down year-over-year, and if that was related to the issue of provisional pricing on the concentrates and revenue adjustments from prior periods given that production year-over-year was only down 5% and average copper prices for the period were also down single digits. Thank you.

The main impact has been the copper price, no? We have had a drop on copper prices. And obviously we have a negative impact on liquidation from that. And that represents $205 million. So that is the main impact.

Okay. But average copper price since quarter-over-quarter -- actually average copper price year-over-year did not decrease. So is it -- is the impact due to the provisional pricing from the prior quarter and the revenue adjustment in part?

That's the case. That's the case. Yes.

Okay. Great. And also I was wondering if you could comment on how the negotiations are progressing with the labor unions at Cerro Verde, and also if you could comment on the conversations with the local community at Yanacocha regarding Conga, the Conga project, given that there was a protest there recently.

We have received information on the labor situation with the labor unions that we may have a positive outcome in the course of this week. We expect that the conversations will continue, but there's not much more we can say. The people -- the management at Cerro Verde are quite positive in that respect. We'll see. It is always the negotiation with labor unions that you never know what -- when is it going to be finalized, no?

In the case of Yanacocha, we are operating normally and Conga continues the construction of the project. And we have a working table, as we have called it, that it has -- was installed on Friday. And it was quite positive, the attitude of all the stakeholders that were represented in this working table. We believe that while we can maintain the dialog with all the stakeholders and the community, we will be able to continue developing the project. And we do not foresee any major setbacks.

Perfect. And finally, if I could ask one last question, are you providing guidance regarding 2012 production or CapEx at this point?

Not the thing is -- not really. We prefer not to give guidance in that respect because the Securities and Exchange Commission and the stock exchange does not consider that.

We currently at -- in the weeks' time we are going to hold our planned meetings. So we are going to review these in details our different operating units. And then we are going to come up with a guidance.

Okay. Perfect. Thank you.

(Operator Instructions). Your next question comes from the line of Sergio Matsumoto of Santander.

Hi. Good morning, Roque. Thank you for the question. My question -- I have two questions. One is on silver production at Colquijirca and El Brocal. They -- it seems to be pretty high for the last two quarters. I'm wondering if we can expect this level of silver production at this mine in the coming quarter. So is it something that sort of adjusts depending on what's going on with the other metals? And the second question --

The thing is it is not a fixed grade. It depends on the area of the open pit that we operate. This has been a question that we have had many, many times in the past. Grades of silver are quite [valuable], and we cannot assure you that we will maintain this level of silver production.

If I may add, the question is that we are working on the different mix of production from the Colquijirca area and Marcapunta area. That means that we are going to make decisions during this time if processing higher volumes of polymetallic ores or copper ores. So that depends that Marcapunta's copper ores don't have any silver content. So -- or very few. So this is an issue that we are just adjusting on basis of the copper market behavior.

Yes. My understanding was that the copper -- on the copper ores you were going to sort of wind those down and focus more on the polymetallic side of the mine. Is that correct?

We are going to produce and to treat in the area of 6,000 tons per day copper ore from Marcapunta and 4,000 tons per day at the polymetallic ores.

Okay. That's helpful. And my other question is Yanacocha. Given that the production sort of came down a little bit compared to the last quarter, from the second quarter that is, do you still expect 1.5 million ounces next year in 2012 or is that looking a little more difficult than this time?

The guidance that we are using is something between 1.3 million to 1.4 million ounces.

For 2012. Not for this year.

This is exactly what I am saying. Regarding 2012, we are thinking of something between 1.3 million to 1.4 million.

Okay. Thank you.

You're welcome.

(Operator Instructions). Your next question comes from the line of John Bridges of JPMorgan.

Morning, Roque, Carlos.

Morning.

I see the Uchucchacua concentrate plant now has a name. I just wondered if you had any sort of guidance you could give us as to the potential increase in resources to Uchucchacua once you're able to get that plant operating.

You mean the manganese sulfate plant?

Correct, yes.

Well, the thing is we -- in our advance exploration of Uchucchacua we are finding substantial resources with very high manganese. And we believe that this sulfate plant will enable us to put all of these resources in value. And we think all of this area has a lot of limestone obviously, and it seems that the geology of the whole area is quite similar.

So this new plant will enable us to treat all those ores. Even in the area where we are currently working exploring, there are areas with higher manganese content. And all of this will be in a better position to have an economic value in the market. So the thing is, to answer your question, we will put in value a lot of resources that we are currently discovering in the surroundings of Uchucchacua and within the Uchucchacua mine.

Those resources, are those represented in your resources as you reported at the end of last year, or is this additional?

No, this is additional. We haven't reported any of these materials that Roque is mentioning, due to the fact that we considered that we couldn't treat exploit and [improve] today. And we are going to incorporate in our reserve and resources [report] by this year end after considering the impact of the manganese sulfate plant.

Okay. So we can look forward to an upgrade there?

Yes.

Thank you very much.

Please standby for your next question. Your next question comes from the line of Alfonso Salazar of Morgan Stanley.

Hi. Hello, and thank you for the call. I have two questions. The first is regarding the Huanza hydro plant. How do you expect this will help costs going forward? And the second question is regarding taxes. I don't know if you can elaborate, because we see taxes going up in the quarter. Thank you.

Yes. Well, in terms of the impact of the economics of the Huanza, Huanza will sell the energy at the market price [unlimits]. It's not something that is going to provide any subsidy to our [that] operations. However, this will mean an impact on the profit generated by hydroelectric plant. You know that if the -- this is something that is powerful over a business model.

Regarding the impact of this income tax reported, it is important you to look at the balance sheet. And in the assets we report a deferred income tax, which was created when we [had won] our hedge book.

This is the right that the Company has to take when generating the profits this time by selling at the market price. When reporting these, we can see that about 30% of the income tax we reported mainly is explained by the deferred income tax.

So you have to calculate the income tax, some of the financial expenses, P&L to introduce the adjustments of those expenses that are not considered as an expense for the income tax purposes. And then we are going to pay part with this result, but part is by allocating this deferred income tax.

Thank you.

At this time we have no further questions. I would now like to turn the floor back over to Mr. Benavides for any closing remarks.

Well, thank you very much for attending this conference call. We are obviously open to any additional questions you may have directly through telephone conversations or email.

And obviously we look forward to seeing you in the coming conferences that we will be attending. I will be attending a conference of the Scotia Bank in Toronto. And Carlos doesn't have a conference in the short term. But in any event, we are open to any questions that you may have afterwards. Thank you very much for attending this conference. Bye-bye.

Thank you. This concludes your conference. You may now disconnect.