Compania de Minas Buenaventura SAA (BVN) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to today's Buenaventura Fourth Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be ample time for questions and answers. Thank you. I'll now turn the call over to Pete Majeski of i-advize Corporate Communications. Please go ahead.

Thank you, [Maria], and good morning, everyone. Welcome to Buenaventura's fourth quarter 2011 conference call on this, the 29th the February 2012. 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 team. We 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 212-406-3695.

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.

Thank you and welcome to our conference call. Net income in the fourth quarter reached $231 million which was similar to the figure reported in the fourth quarter 2010. EBITDA from Buenaventura's direct operations was $198 million, 15% lower than the figure reported in the fourth quarter 2010. While EBITDA, including Yanacocha and Cerro Verde decreased 9% from $457 million in the fourth quarter 2010 to $415.6 million in the fourth quarter 2011.

During the fourth quarter 2011, our net sales were $385 million, similar to the $382 million reported in the fourth quarter 2010. This was explained by an increase in silver volumes sold as well as higher gold and silver realized prices which offset lower gold volumes sold.

Royalty income increased 20% for $14.4 million reported in the fourth quarter 2010 to $17.4 million in this quarter, due to higher revenues at Yanacocha. The two related net sales in 2011 were $1,494 million, a 43% increase compared to the same period in 2010, while royalty income was $62.7 million, a 12% increase when compared to $55.9 million reported in 2010.

Our equity production in 2011 was 475,770 ounces of gold and 15.3 million ounces of silver. This represented a 4% increase in gold production and a 14% increase in silver production compared to 2010. The accumulated total gold production from Orcopampa in 2011 was 285,201 ounces of gold. The accumulated gold production for Poracota, the Brownfield operation of Orcopampa, was 49,200 ounces, 18% lower than the figure reported in 2010.

At Uchucchacua in full year 2011, our silver production was 10.090 million ounces of gold, which is in line with our budget. At Antapite, our wholly-owned subsidiary or operation of Buenaventura, our accumulated gold production for 2011 was 28,588 ounces of gold. The two new operations of Buenaventura, La Zanja and Tantahuatay, are important to mention. The total production at La Zanja for the fourth quarter 2011 was 32,800 ounces of gold, 3% decrease when compared to the fourth quarter 2010.

Our accumulated gold production in 2011 was 134,190 ounces of gold. This was the first full year of production. The cash operating cost in the fourth quarter 2011 was $463 per ounce. The gold cash cost in 2011 was $367 per ounce, 8% higher than the same figure for 2010. At Tantahuatay, our total production in this first year of production, it was only a few months of production, in the fourth quarter 2011, was 29,895 ounces of gold. In full year 2011, our gold production was 46,164 ounces. The cash operating costs for the fourth quarter 2011 was $466 per ounce.

At El Brocal, where we have a controlling interest, our accumulated copper production in 2011 was 23,796 metric tons. And in the case of zinc, our total production for 2011 was 23,675 metric tons of zinc. And in the case of silver, we produced 2.5 million ounces of silver. The project at El Brocal continues on schedule. We expect to be finished by the end of this year with a planned capacity in full capacity of 18,000 tons, which will enable us to process copper and zinc production. The budget has increased somewhat to -- in the order of $330 million, but we expect to finish the project by the end of the year.

In terms of our exploration -- and you know that we are focused on organic growth, exploration costs at non-operational mine sites, which include care and maintenance in the fourth quarter 2011, was $14.1 million, 38% increase compared to the $10.2 million reported in the fourth quarter 2010.

Buenaventura's main exploration efforts were focused at Trapiche, Marcapunta, San Gregorio, Colquemayo, Mallay, and other projects. Exploration costs at non-operational mining sites in 2011 were $49.6 million, a substantial effort in exploring other areas in different parts of the world.

Our operating income in the fourth quarter 2011 was $170 million, an 18% decrease compared to $208 million reported in the fourth quarter 2010. The decrease was mainly due to 20% increase in cost of operations, while revenues increased 1%. Accumulated 2011 operating income was $705 million versus $417 million in 2010, an increase of 69%.

Our share in associated companies during the fourth quarter 2011, Buenaventura's share in associated companies, was $125 million, 10% higher than the $114 million reported in the fourth quarter 2010. Yanacocha's contribution to these results increased 42% from $61 million in the fourth quarter 2010 to $86 million -- $87 million in the fourth quarter 2011. While Cerro Verde contribution decreased 46% from $73 million in the fourth quarter 2010 to $40 million in the fourth quarter 2011, mainly due to the strike that we suffered in that quarter.

For 2011, Buenaventura's share in associated companies was $467 million, 8% higher than the $431 million reported in 2010. Buenaventura's net income for the fourth quarter 2011 was $231 million or $0.91 per share, a 1% increase compared to the $228 million reported in the fourth quarter 2010. The accumulated net income in the -- in 2011 was $861 million, 29% higher than the same figure compared for the same -- for 2010.

In terms of our project, which is the future of the Company, we have been developing the Pampa Verde project at La Zanja that will allow us the development of a new open pit, expand the current leach pad, and improve the road access to the operation. Construction began in the second quarter 2011 and, as of December 31st, 2011, total project expenditures have been $24 million. We expect it to be concluded by the third quarter 2012.

Tantahuatay expansion -- the Cienaga Norte project includes the second stage of the leach pad, development of the Cienaga Norte pit and road access. Total CapEx is in the order of $30 million and the project construction will begin in the second quarter 2012, after the approval o the environmental impact assessment.

Mallay, which is a development of the Brownfield exploration development of Uchucchacua, should be in production by March this year, so next month. We have already invested all the money required and we expect to start production in March. Currently, Mallay holds also a Brownfield exploration in the Chancas area where we have acquired this concession in the surrounding of Mallay.

The Rio Seco Manganese Sulfate plant, that is a very important technological advance for Buenaventura to process the concentrate coming from Uchucchacua and the surrounding of Uchucchacua, with very high manganese content. We have continued with the construction with a total budget of $76 million. As of December 31st, 2011, total expenditures were $33 million and the project includes a leaching facility, a sulfuric acid plant, and a manganese sulfate plant.

The leaching processing facilities are expected to be completed by the end of the second quarter 2012. The detailed engineering of the sulfuric acid and manganese sulfate plant is expected to be ready in the second quarter 2012. Erection and start-up tests at both plants are scheduled at the end of 2012.

Breapampa, as of December 31st, 2011, Buenaventura's total investment at the Breapampa project was $23.4 million, representing 48% of the entire budget. We expect to be in production at this mine by the third quarter 2012 at a rate of 60,000 ounces of gold per year. For 2012, we expect to produce 25,000 ounces.

Our hydroelectric plant of Huanza, we have continued developing this important project. And as of December 2011, Buenaventura's total disbursement at Huanza project was $132 million, which includes $18.7 million in advanced payments, representing 90% of the entire budget. $105 million of the total amount investment was financed via a leasing agreement totaling $119 million. The construction progress at the Huanza project includes the water conduction tunnel, the power plant, and the Pallca Dam.

Yesterday we had our board of directors meeting and we have approved the following resolutions. Call for an annual shareholders meeting to be held on Monday, March 26, 11.00 am to approve the financial statements as of December 31st, 2011, approve the 2011 Annual Report, and to approve a cash dividend of $0.40 per share or ADS to be paid in US currency, following our dividend policy. As an information, the Company has completed the IFRS financial statements for the year 2011, which is shown in the appendix that you have received previously. With this, we are open to any questions that you may have. Thank you.

Thank you. (Operator Instructions). Our first question comes from the line of Carlos de Alba of Morgan Stanley. Please go ahead.

Yes. Good morning, gentlemen. Thank you for taking my question. I would like to know and understand what happened with the gold shipments in the fourth quarter? Because we saw a big decline year on year and quarter on quarter, despite the fact that the production, both at the direct operations and including Yanacocha, increase quarter on quarter. And the decline was much smaller on a year-to-year basis than the gold shipments showed. And also, my second question, if I may, is regarding the dividends expected for this year. How much do you expect to pay in 2012 in terms of dividends? Thank you.

The dividend policy -- we continue to be the same. It's essentially not less than 20% of net income of the year, each year. So all will depend on the profit of the Company in 2012. It will be in the order of 20% of the net income. In terms of the shipment, I don't know, Carlos Galvez may have a --

Yes, hello. In terms of the shipment, there was a slight -- small delay. But the question is, as you know, that Mallay or Orcopampa production that come from our operations in the mine, there has been a refined over here in Lima and the year end normally would try to clean our inventory up. But it was not possible and we held in the order of -- I cannot confirm the exact figure but it was in the order of 13,000 to 15,000 ounces in the inventory that normally we would have delivered.

All right. Thank you, Carlos. Thank you, Roque.

(Operator Instructions). Our next question comes from the line of John Bridges of JPMorgan. Please go ahead.

Good morning, Roque, Carlos. I just wondered -- the tax rate this year was quite a bit lower than we were expecting. I just wondered if you could comment on that, please.

Well, the thing is the notification of the tax regime, in the case of Buenaventura, it hasn't had a major impact because we do not have tax stability contract. Those that were more impacted by the change in the tax regime were those companies that do -- or that did have a tax stabilization contract. So that may be the reason for not showing a big change. But I don't know, Carlos, do you have any additional comments?

Yes, well, the only thing that you have to bear in mind is that we continue using the tax -- well, the rollover of -- the carry forwards of the losses for tax purposes. So we are deducting 50% of our -- up to 50% of our profit to amortize the old losses that we incurred when widening our hedge book. So that's why we are mainly paying only half of what it was considered the regular tax rate.

The use of the hedge book credits, is that something new? I thought that was inaccessible.

Well, when we [on one] our hedge book, you remember we encountered deferred asset that was the tax benefit that we could use in the future. We have been using annually and the year 2012 will the last year to complete these benefits.

Okay. So what tax rate should we expect for the rest of the year?

Well, mainly in terms of income tax, it is for 15% or applying the regular income tax, which is 30% to the 50% of the net income of the Company.

Well, that should help your cash flow and help with dividends.

Say again, please?

That should be nice in helping you with your dividend.

Well, we are going to continue calculating the 20% of the net income after taxes. So if we pay less taxes, we will pay higher dividend.

Okay. Excellent. Many, many thanks, guys. Well done.

(Operator Instructions). Our next question comes from the line of Isabel Darrigrandi of Celfin Capital. Please go ahead.

Yes. Good morning. Yes, I had a follow-up question with regards to the taxes. As I understand it, the new royalty and tax regime went into effect in October of 2012. And you royalty expense was much lower than I was expecting. I believe at fourth quarter you reported $8.3 million compared to $20.6 million in the third quarter of 2011. I was just wondering if you could help me understand. The royalty expense that you report there is just the royalty. It doesn't include the [Gravan] Especial or the Impuesto Especial, de Mineria?

No. No, the question is that, according to the way to account and to report the royalty now that is on the basis of the operating income, we are putting together with the income tax. It is considered a sort of income -- additional income tax. We used to report separately as a deduction of sales expenses. But now we have to report together with the income tax. And --

So the three -- sorry, so the three royalties -- the new royalty, the Impuesto Especial, de Mineria, and the Gravan Especial de Mineria are all included in the income tax line.

Yes. This is included in the income tax line.

And therefore they are you are able to use the deferred tax asset to reduce those taxes?

Yes, well, this is exactly what we are reporting in the -- as a royalty is a commercial royalty to the owners of the mine plant.

Oh, I understand.

Different than the royalty to the government.

Okay. I understand. Okay. Great. And also, could I ask another question? I was -- I wanted to know if you will be providing guidance regarding 2012 production and costs?

Well, in terms of -- the guidance, in terms of our production, globally, at (inaudible) Buenaventura, we expect to produce in the order of 1.050 million ounces of gold. Mainly, what we are going to do is to repeat the production of gold, except by Orcopampa, the spread of the division, 300,000 ounces of gold we will produce in the overall 270,000 ounces of gold.

In the case of Uchucchacua, we are going to increase some -- the production and we are going to be able to -- in consolidated [rate] of Buenaventura, will be in the area of 17 million to 18 million ounces of silver, especially because of the incorporation of the new production of Mallay.

In terms of our production from -- of base metals, copper and zinc, we have to review this finance figure because once we complete the expansion of Brocal, we are going to use -- or during the year, we are going to use one-fourth of our capacity to trade copper ores while two-thirds of the capacity of Brocal metallurgical facility will be devoted the polymetalic ores.

What is your expectations with regards to cost escalation in 2012?

In terms of cash cost for gold, it should be -- let me see. As compared with our current operations, we'll be in the order of $150 per ounce to $600 per ounce of gold. In the case of silver, we -- in average, we should achieve a total of $14 per ounce, including our different operations. Yes, this is the main logic. Yes.

Okay. Thank you very much.

Our next question comes from the line of Carlos de Alba of Morgan Stanley. Please go ahead.

Yes, thank you. Just a follow-up on the prior questions. Carlos, you mentioned that you ended up with some inventories -- gold inventories at the end of the year. Why couldn't the Company sell those -- that material? And also, if you can give us the expectation -- the expected production for Mallay this year as well as Tantahuatay expansion, I would appreciate that. Thanks.

Yes, well, with the inventory, normally, we can have up and downs in term of the inventory because you have to bear in mind that the year end is not a busy time to have flights and to deliver that. So we will resume the level of inventory beginning the year. That's what we did. In regards to Mallay --

Sorry, can I --

Sorry?

There was no -- there is no weakening in demand or anything like -- any issues with the postponement?

No. Not at all. Not at all. This is just a physical capacity to deliver. We have the flights for not and it is a suitable time to send to the refinery. And that's it.

Right.

In the case of our guidance of the silver production in the case of Mallay, beginning this year, our total silver production was in the order of 900,000 ounces of silver, while, for the future, we aim to 1.5 million ounces of silver. And then, regarding the Tantahuatay production, the guidance is in the order of 100,000 ounces of gold per year. This, in the year 2012, the future year, we expect it to [grow].

Right. But the expansion in terms of Tantahuatay, would it increase the annual production or would it just increase the life of the mine?

The expansion is the typical case of heap-leach operation where we continue to rebuild leach pad. So the expansion is to develop a new open pit, but to have additional leach capacity. It is not an increase in volume produced.

All right. Thank you, Roque. Thank you, Carlos.

(Operator Instructions). Our next question comes from the line of [Carl Luketic] of Merrill Lynch. Please go ahead.

Hi, Roque. Hi, Carlos. Thanks for your question. My first question would be if you could provide an update on how negotiations are at Minas Conga. And my second question, also kind of related with this, is we have seen defining reserves over the last years, especially if you remove Minas Conga from the reserves. What is the Company doing in terms of increase gold reserves going forward to increase gold production in the future? Thank you.

Thank you. You have read probably that Richard O'Brien has mentioned that we have really very important support from the central government and we continue to receive this support to develop the Conga project. It is still to be seen the relationship and the competencies of the regional government and the national government. We continue monitoring the situation. The experts are already in the ground today and they will start evaluating the water aspects of the environmental impact study.

And we are confident that they will come up with suggestions that we will be able to manage. And after the 40 days that the government has given, we expect to resume construction. It is to be seen what will be the reaction of the regional government, but we expect to convince the population and we believe that we are, in that way, progressing, that this project is positive for the region.

In terms of the decline in reserves, it is obvious that the off sight returns in Yanacocha are declining. And this is essentially due to the fact that we have not been able to get into some areas that we do have information that there is additional resources. We continue working and trying to get to terms with the local communities in order to develop different areas. It is obvious that each ounces of Yanacocha, the low-cost ounces are almost exhausted and we need to look for additional reserves.

We insist that Yanacocha continues to be a huge mining district, world-class mining district and that, in elephant land there is more than one elephant. So we are confident that we will be able to find additional reserves. Obviously, we are working in other projects such as Chucapaca and other projects that will permit us to maintain the level of production at Buenaventura.

Perfect. Thank you, Roque. Thank you, Carlos.

(Operator Instructions). I'm showing no further questions at this time. I would like to turn the floor back to Mr. Benavides for any closing remarks.

Thank you again for taking the time to listen to our presentation. What we can assure you is that we continue working very hard every single day, heading for the 60th -- 6-0 anniversary of Buenaventura next year. This has been an effort of many, many people that have developed this company and that have shown the capabilities of finding new deposits, new reserves, building new mines.

And, as a matter of fact, as we speak, we are finishing Mallay. We are building Breapampa. We are building Huanza. We have just finished with Tantahuatay and La Zanja. So this is a company on the move. We are working on Conga. We are optimistic that we are going to be able to develop Conga in the benefit of the local communities, in the benefit of Peru as a country, in the benefit of new [motel] Buenaventura as companies.

I wanted just to finish saying that we will be presenting our results at the New York Stock Exchange on Friday at lunchtime. Those of you that have attended this conference and that have received an invitation for any reason, please feel free to contact us and please join us on Friday at noon for this presentation. And then we will be attending the prospectors and developers conference in Toronto next week and we will be there Monday, Tuesday, and Wednesday.

So hope to -- I hope to see you there. In addition to that, Carlos Galvez and Daniel Dominguez will be visiting some of you on our annual road show in North America. And there we can expand on many questions that you may have. Thank you very much for attending this conference and see you soon. Bye-bye.

This concludes today's Buenaventura's Fourth Quarter 2011 Earnings Conference Call. You may now disconnect.