Compania de Minas Buenaventura SAA (BVN) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Buenaventura First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I'll now turn the call over to Pete Majeski of i-advize Corporate Communications.

Thank you, [Beverly], and good morning, everyone. Welcome to Buenaventura's First Quarter 2012 conference call on this, the 30th of April, 2012. Today's call is for investors and analysts only. Questions from the media will not be taken.

Joining us today from Lima, Mr. Roque Benavides, Chairman and Chief Executive Officer, Mr. Carlos Galvez, Chief Financial Officer and Mr. Cesar Vidal, Chief Explorations Officer, as well as other members of the Company's senior-management team.

We will be discussion Buenaventura's results per the press release distributed Friday. 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 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.

Thanks, Pete, and thank you to all of you that are attending this conference call. This will have to do with the first-quarter 2012 results of Compania de Minas Buenaventura. The net income in this first quarter reached $207 million, and our EBITDA from Buenaventura's direct operations was $171 million, whilst EBITDA, including Yanacocha and Cerro Verde, was $396 million.

During the first quarter 2012, net sales were $359 million, similar to $363 million reported in the first quarter '011. Lower base net of prices, as well as a decrease in silver, copper, and zinc volume sold offset higher precious-metals prices. It is important to mention that due to logistic constraints at the Callao Port and warehouses, lead-silver concentrate inventories tripled when comparing first quarter 2012 with first-quarter 2011, representing a $31 million increase at market value.

Buenaventura's equity production in the first quarter 2012 was 117,800 ounces of gold, in line with the figures reported in the first quarter 2011. Similar production in the first quarter 2012 was 4 million ounces, a 14% increase when compared to the figure reported in the first quarter 2011, mainly due to higher production from Uchucchacua

Orcopampa, our production from the Chipmo mine in the first quarter 2012 was 62,358 ounces, 15% lower than the 73,570 ounces reported in the first quarter 2011 due to lower tonnage treated and ore grades decline.

At Uchucchacua, our total silver production in the first quarter 2012 was 2.7 million ounces, a 10% increase when compared to 2.5 million ounces in the first quarter 2011 due to higher tonnage treated and an increase in the silver grade and recovery rates.

At Julcani, the 100% owned of Buenaventura, the mine with which Buenaventura established 60 years ago, our total production in the first quarter 2012 was 631,600 ounces of silver, an increase of 4% compared to the first quarter 2011, mainly due to 3% increase in the tonnage treated.

At La Zanja, total production in the first quarter 2012 was 26,300 ounces of gold, a 5% increase when compared to the first quarter 2011. At Tantahuatay, total production in the first quarter 2012 was 27,600 ounces of gold, of which 40% is attributable to Buenaventura.

And at El Brocal, where we have 53.76% ownership, we produced 7,600 metric tons of zinc and 2,200 metric tons of lead. Silver production reduced 2% from 443,900 ounces in the first quarter of 2012 to 453,600 ounces in the first quarter 2011.

In our associate companies during the first quarter 2012, Buenaventura share in associated companies was $136 million, 20% higher than the $112 million reported in the first quarter 2011. Yanacocha's contribution to these results increased 83% from $48.2 million in the first quarter 2011 to $88.2 million in the first quarter 2012, while Cerro Verde's contribution decreased 37% from $71 million in the first quarter 2011 to $44.9 million in the first quarter 2012, due mainly to the rainy season that had impacted the Arequipa region in southern Peru.

In Yanacocha in the first quarter 2012, gold production was 366,400 ounces of gold, 27% higher than the figure reported in the first quarter 2011. At Cerro Verde in the first quarter 2012, copper production was 63,200 metric tons, a 20% decrease when compared to the first quarter 2011, due to the rainy season, as I mentioned earlier.

Buenaventura's net income in the first quarter of 2012 was $207 million, an 8% decrease compared to $224 million reported in the first quarter of 2011. This was mainly due to a 26% decline in operating income.

Buenaventura continues to be very active in developing projects, and we are very pleased to report that at La Zanja in the Pampa Verde project, will allowed the development of a new open pit, an expansion of the current leach pad, and improvements of the operations road access. Construction began in second quarter 2011. As of March 31st, 2012, total project expenditures were $25.5 million for a total investment of $32.5 million. Completion is expected in the third quarter 2012.

At Tantahuatay in the Cienaga Norte project, which includes the leach pad Stage II, an additional 10.5 hectares, development of the Cienaga Norte pit and an access road between the leach pad and the open pit. Total CapEx totaled $30 million. The project construction will begin in the third quarter 2012 after the approval of the Environmental Impact Study.

At Mallay, which is the brownfield exploration of Uchucchacua, the Mallay mine construction was completed in the first quarter 2012, essentially as of the end of March. The project has already received the mine operating license, which allows the mine to begin production. Total CapEx was $60 million. During the first year of operation, silver production for Mallay is expected to be 900,000 ounces of silver. Currently, Mallay holds brownfield exploration investment in the Chancas-Chiptaj area.

At the Rio Seco manganese sulfate plant, Buenaventura continues with the construction of this manganese sulfate plant with a total budget of $76 million. As of March 31st, 2012, total expenditure were $44.5 million. The project includes an acid leaching facility, a sulfuric-acid production plant and a manganese sulfate crystallization plant.

The leaching processing facilities are expected to be completed at the end of the second quarter 2012. The construction of the sulfuric acid and the manganese sulfate plant is expected to be ready in the second quarter 2012. Construction and startup test are at both plants are scheduled by the end of 2012.

At Breapampa, as of March 31st, 2012, Buenaventura's total investment was $30.1 million, representing 62% of the entire budget, which is expected to be $48 million. This project should be completed by the end of 2012 -- by the end of the second quarter 2012, and production will begin at the beginning of the third quarter 2012. Expected gold production in 2012 is expected to be 22,000 ounces.

At the Huanza hydroelectric plant, as or March 2012 Buenaventura's total disbursement at the Huanza project was $146 million, which included $14.5 million in advance payment, representing 92% of the entire budget. $160 million of the total amount investment was financed via leasing agreement totaling $190 million. This project should be concluded by the end of this year.

With this, we are open to any questions that you may have, and obviously we are here with Mr. Carlos Galvez and Mr. Cesar Vidal that can answer any questions that you may have. Thank you for your attention. Hello?

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

Morning, Roque, everybody. Just with Cerro Verde, there were rains apparently, which interfered with production. Will there be any catch-up possible there to get us back to target levels?

This year's rainy season has been especially strong in the southern part of Peru, but all over Peru we believe that there will be a catch-up of production, and we still are projecting the same amount for the full year 2012. This has been, as I say, exceptional rains in the area of Arequipa.

Well, I suppose that's good for the agricultural sector.

Yes.

The Mallay -- will you be reporting that separately with respect to Uchucchacua, or will it just be mixed in with there going forwards?

No. It will be separate. It is an operation -- we say that it's a brownfield exploration or a brownfield development of Uchucchacua, but really if you go by car, it will take you about two hours, two and a half hours, to get from Uchucchacua, which is 4,500 meters on one side of the basin, to Mallay, which is at 4,000 meters over sea level on the other side of the basin, because of the basin. So, the thing is it may be close as the bird flies, but not necessarily by car or anything like that. It is a separate operation.

What Mallay is going to include is the area of Chanca, which is an option that we have exercised from a union company called Focus. We have acquired Chanca 100%, and this is a known area for silver and gold that will add production to the lead-zinc, silver, copper production for Mallay. So, it will be different operations from Uchucchacua.

But it will fall under Uchucchacua's overhead structure?

No. It will be different operations, absolutely different. They will be accounted in a different way.

Okay. I saw DD&A was a bit higher this quarter, or maybe we just got our numbers wrong. What sort of DD&A should we expect for the year?

DD? What is that, depreciation?

Depreciation.

[Was it] higher. Well, there is nothing exceptional other than probably we are starting to depreciate the investment in Mallay, nothing exceptional that we can comment on.

Okay. And then finally, El Brocal, could you give us a bit of guidance as to the percentage of the lead-zinc versus the copper ore that you're going to treat this year so we can model it a little bit closer?

Well, El Brocal has a very peculiar situation, where we have the flexibility, no? There are a number of factors to your question. One is obviously that the expansion enables us to process more ore of both sites. The other factor, which is very important, is the selling of the copper concentrate.

As you know, these concentrates are going to Namibia at this point in time in a very peculiar contract, where we can stop sending production and they can stop receiving production. So, as you know, it is copper with arsenic and it is difficult to find a home for that concentrate, so it would depend on market conditions of how much copper and lead-zinc silver we essentially produce.

Any indication for this quarter, the percentage mix?

Well, we are going to produce some additional polymetallic ores. Bearing in mind that we have a count on a stock pile of material that we have already produced in the past, so this is a good news from the things revenue standpoint but from the cost of production, because it has been already accounted, the cost in the past, when produced.

Okay. So what tonnage of copper ore do you think you're going to do this quarter, compared to the tonnage of zinc ore?

Well, the level of production of copper ores in Brocal will be similar than we produce in the first quarter, but the additional production from the expansion will come from the polymetallic ores.

Okay. That's helpful. Well, best of luck clearing that lead-silver concentrate and look forward to next quarter. Well done, guys. Thanks.

Thanks.

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

Thank you. First could you comment about the Callao Port issues, and particularly do you expect this situation to improve going forward, or is it going to be a recurring issue, where perhaps one quarter you do clear your inventory but the next quarter you're going to suffer and it's going to be one off -- on and off, this situation going forward with your silver-lead concentrate?

And the second question is on Conga. Is there any changes in the story? When do you think we could have perhaps a response from Yanacocha to the recommendations that the experts suggested and that the president of Peru mentioned that would perhaps need to be done in order for the project to move forward? Thank you.

Well, in the case of the concern that we have in Callao, you know that fortunately we are not working with [Lorolia] (inaudible), which is we understand from the lead-silver production of Peruvian operations. On the other hand, the government has reduced the capacity of the port by using -- by building to -- form the Dock Number 5, which was the huge dock used for the miners to one smaller dock but not permit post-Panamax ships. So, there is an addition concern there.

And on top of that and due to these specific reason, the trailer privileging the concentrate -- the clean concentrate of lead concentrate with a small silver content. In the case of Uchucchacua, as you know, we have higher silver content and additionally we have these [that equal] to the manganese. So we have been requested by the trailer to delay [qualify] production and attention that we expect to deliver the rest of the year, which is a period that we'll need to catch up with our [recommend].

The problem with Callao and the whole infrastructure in Peru has to do with the growth of the Peruvian economy as well. The thing is Peru is doing very well, and infrastructure is good for a certain level of production, but then we're starting to find some limitations. This obviously speaks very highly about the Peruvian economy, but we have to face these problems, which we expect will be solved in the near future.

Regarding Conga, we are -- Yanacocha is discussing matters with the government. Essentially the minister of mines have come out, saying that they are preparing a document that will be presented to the Company, and we expect to reach an additional agreement. If I may say, the experts' report essentially contemplate that the Environmental Impact Study has been well done and that it is -- we all will follow that Environmental Impact Study, and that is very good news.

That this question of the [Carnicero Quintas] or the highlands and that you cannot develop in the [excess] waters, you cannot develop a mine, has been destroyed by the experts, and essentially they give some recommendations on how to improve the water management of the project, and the Company is essentially evaluating and doing our best to offer additional alternatives, which are being discussed by the Company with the government.

Thanks. So just to clarify, Carlos. How much do you expect your silver shipments for the year, then, to be, given the restrictions in the Callao Port?

Well, the first quarter and after -- mainly cleaning up our inventory for Uchucchacua as the year end. It is shocking to have this level of inventory, but we expect to reduce this gradually during the next three quarters.

And could you just reiterate, then, the Cerro Verde expected production all shipments for the year just -- as you catch up throughout the year? How much do you expect the total production or shipments in Cerro Verde for the year to be?

Well, thank you for asking the question again. The thing is the first quarter, essentially January and February, were difficult months, but the third month, in March, we had a record production, and we expect to catch up very, very quickly in the case of Cerro Verde. So, that probably will come in this second quarter.

Thank you.

(Operator Instructions). Your next question is coming from the line of [Carl Luketic] with Merrill Lynch.

Hi, thanks for the questions. I have two questions. My first is regarding guidance, if you could please provide a guidance for cash costs for the year in CapEx as well. And my second question is regarding M&A. Can we expect any type of M&A activity in the coming months, and what kind of assets will you be interested in? Thank you.

Thanks, I'll answer the part of M&A. Essentially, as you know, we are doing a substantial effort in exploring and looking for opportunities in countries like Chile, Mexico, Colombia, countries that we believe offer the best opportunities. As this point in time, we don't have anything to report specifically in that respect.

In addition to that, we have -- as I mentioned earlier, we have acquired essentially 100% of Focus, which is -- Focus property in the north of the Mallay project, and we are looking for different opportunities that make sense to our own operations. It may be smaller applications but are applications that we believe are good for the overall situation of the Company.

In terms of the cash cost, I don't know. Carlos wants to comment on that.

The cash cost in Uchucchacua has been impacted by the reimbursement to our contractors that normally happens at this part of the year. Last year we and the contractors reached an agreement -- the agreements in April. This year we were able to reach agreement in March, so we reimbursed the payments that normally run from January onwards, and this is what -- and while it was (inaudible) impacted the operations of Uchucchacua.

In the case of the Orcopampa, the reduction of the grades that led us to produce mainly 85% of what the gold produced in the same quarter of last year impacted these cash costs by increasing to the level we were paying.

The expectation of the future is that we should reduce some of our cash costs in the Uchucchacua mine immediately after we reach into an agreement with our labor unions, which should happen this month or at most next month. From the Orcopampa negotiation, we expect to conclude the negotiations in June. So, those are the effects the -- or the [limits] that can affect our cash cost publication.

Okay, thank you.

Your next question is a follow-up from the line of John Bridges with JPMorgan.

Hi, Roque, just a follow-up. You mentioned that the study was a very good one and spoke about the negligible or nothing impacts of mining in the headwaters of river systems. Would that have any relevance to [Cerro Verde]?

Cerro Verde is not an issue in the report of the experts. It is something that could be discussed at some point in time, but at this point in time, we are not discussing this matter.

Okay. Thanks, guys. Well done.

(Operator instructions). Your next question comes from [Michael Hong] of CQS.

Good morning. My question is in regard to Conga. My understanding is that the review suggests that two of the lakes no longer be used for material that was going to be place there, and I also understand that President Humala has requested a very significant increase in water capacity at the project. What I wanted to understand is if you have an opinion as to does this mean a higher cost for the project, and would the change in the mine design be significant as a result of these two requests? Thank you.

Thank you for your question. We have come out with a communiqué of Yanacocha, where we clarify this aspect. The thing is the report of the experts does not say that the lakes should not be used. What it says -- and I'm going to read the exact wording -- is to evaluate technically and economically alternatives to put the materials coming from [Perol] somewhere else and try to avoid using the Azul and Chica lakes without excluding alternatives of compensation, a water compensation that could be considered in the execution of the project.

So, the thing is -- and this may have been misinterpreted. The thing is, it does not say don't use these very low lakes. Today in the press in Peru the minister of mines has stated that these two lakes are so small that don't show up in the national maps, so the thing is we are not discussing major, major lakes. We are discussing lakes that will be in any event in the operations area, and it will be very, very difficult to keep or maintain the quality of waters, even if we do not touch these smaller lakes.

So, what the Company is doing and trying to develop is alternatives to increase the water supply for the areas where some of these farmers are located. In fact, the discussion is whether we can increase from 3.5 million cubic meters to 14 million cubic meters by doing artificial lakes or reservoirs that could enable us to offer more and better quality of water to the farmers in the surrounding of Conga. We believe that that is a technical alternative, and it will be certainly less costly for the project.

Good. Thank you, Roque. Appreciate the explanation.

(Operator Instructions). Your next question comes from Isabel Darrigrandi of Celfin Capital.

Hello. Good morning. My question is in regards to Yanacocha. The Yanacocha goldmine had a very strong quarter this quarter, with production up 20% year-over-year. My question is if you can give us some color on what was behind this increase in production, if it was higher ore grades, better recovery rates, better null throughput. And also, is this something that we can project going forward for the rest of the year, if we should expect these levels of production in the following quarters? Thank you.

Yes, hello. Well the production in Yanacocha, mainly in line with the guidance reported by Yanacocha is at the year end. You know that the expectation and the forecast production is 1.37 million, 1.38 million ounces of ore gold, so, well, this is in many [what] Yanacocha is producing right now, so nothing special.

So we should -- excuse me. We should expect -- this means really Yanacocha has stabilized, because in the last -- in 2011 production was down for the year 12% and 2010 it was down almost 30%. Should we take this as a sign that Yanacocha's production has stabilized?

Well, you have to bear in mind that this is part of the mining plan and that with first quarter last year was a pretty complicated operation due to the issue we had in the waters on Arequipa (inaudible), so this is our regular operation. We haven't had any problem, so we are working as usual.

Thank you.

Your next question is a follow-up from the line of John Bridges with JPMorgan.

Roque, just following up on the enhancement of the reservoir size. That would be a sort of serious investment in the local community. Would that be something that could be offset against your royalty payments, social payments, that sort of thing, and thus have a less impact on the capital cost of the project?

Essentially it will be a higher CapEx, but it will not be a substantial amount compared to the overall cost of the project. This is something that is being evaluated and that we will come up. We will report obviously whenever we make a final decision, but that is the sort of discussion we are having at this point in time.

Brilliant. Thanks, Roque.

(Operator Instructions). At this time there are no further questions. I will turn the floor back to Mr. Benavides for closing remarks.

Well, thank you to all of you. These are not easy times, certainly not easy for Yanacocha, Conga, but what you can be sure is that we continue developing projects and that we are continue growing our production, replacing reserves and replacing production. So, thank you for your support and look forward to seeing you in the near future. Thank you for attending this conference.

Thank you, everyone, for joining today's conference call. You may now disconnect.