Compania de Minas Buenaventura SAA (BVN) 2012 Q3 法說會逐字稿

Thank you, ladies and gentlemen, for joining us today. Welcome to Buenaventura's third-quarter 2012 conference call on this the 31st of October 2012. All lines have been placed on mute to prevent any background noise. Following the speakers' remarks, there will be a question-and-answer session. Instructions to participate will be given at that time. In the interim, I would like to remind the audience that any statements made today by management may include forward-looking statements. Such statements may differ materially than actual events and/or results. We ask that you please refer to the Company's disclaimer in the earnings release for guidance with regards to forward-looking statements.

And now, I would like to turn the call over to our speaker, Mr. Roque Benavides, Buenaventura's Chief Executive Officer, for his presentation. Mr. Benavides, you may begin.

Thank you and good morning. Good morning especially for the people living in the East Coast of the US, New York City, we are always worried about that you are suffering and obviously we accompany you in what you are living. We have to continue with our life and this is the third quarter report on Buenaventura results.

The net income in the third quarter was $185 million. Our EBITDA, our direct operations was $158 million, while our EBITDA including affiliated companies totaled $384 million in the third-quarter 2012.

These results were mainly explained by lower gold volume sold from Buenaventura's direct operations as well as lower silver and base metal prices. Higher costs also impacted results due to an increase in contractor expenses as well as higher supply cost.

During the third quarter of 2012, net sales were $394 million and this was explained essentially by lower metal prices and gold volume sold. Our royalty income increased 4% to $17.1 million reported in 2011 to $17.9 million in third-quarter 2012.

Buenaventura's equity production in the third-quarter 2012 were 112,750 ounces of gold, 5% higher than the 107,100 ounces reported in the third-quarter '11, mainly due to an increase in the Orcopampa and Tantahuatay production.

Silver production in the third-quarter 2012 was 4.7 million ounces, a 12% increase when compared to the figure reported in the third-quarter 2011.

At Orcopampa, our total production in the third quarter was 70,588 ounces, 17% higher than the 60,000 ounces reported in the third-quarter 2011. The cash operating cost in the third quarter of 2012 for Orcopampa was $537 per ounce, 3% lower than the same period in 2011.

At Uchucchacua, total silver production in the third quarter of 2012 was 2.79 million ounces of silver, a 1% increase when compared to 2.75 million ounces in the same quarter 2011.

Cash operating cost in the third quarter of 2011 was $16.8 per ounce, in-line with the $16.7 per ounce in the third quarter of 2011. Important to mention is the improvement in the efficiencies at the Uchucchacua mine. We hired a consultant company (inaudible) that is working in Uchucchacua in improving efficiencies and we are finding very interesting results in business [here]. We hope to continue doing that with the other mines that we operate.

At Julcani, the owned Julcani, the mine with which Buenaventura started 60 years ago, total production in the third-quarter 2012 was 589,000 ounces of silver, 3% lower than the third-quarter 2011. The cash operating cost at Julcani in the third-quarter 2012 was $14.6 per ounce.

At La Zanja, where we control 53%, total production in the third quarter of 2012 was 29,700 ounces of gold.

At Tantahuatay, its first full calendar year of production, where we own 40%, total production in the third quarter of 2012 was 39,000 ounces of gold doing very well, Tantahuatay, in its first year.

At El Brocal, where we control 53.76%, zinc production in the third quarter was 13,298 metric tons. Silver production increased 22% from 1 million ounces in the third-quarter 2011 to 1.2 million ounces in the third-quarter 2012. Zinc cash costs was $975 per metric ton in the third-quarter 2011 which compared to a negative $458 per metric ton in the third-quarter 2012. This is due to the credit on other metals.

Exploration costs at the non-operational mine sites, which includes care and maintenance, in the third-quarter 2012 was $27.4 million and 114% increase compared to the $12.8 million reported in the third-quarter 2011.

Buenaventura's main exploration efforts were focused at the Trapiche mine in the Apurimac region in Peru, $5.1 million; Tambomayo in the Arequipa region in -- it was --the investment was $4.4 million; San Gregorio in El Brocal, $4 million; Chancas/Focus $2.8 million which had to do with the Mallay mine; and Breapampa, the new mine that we expect to put into operation at the most on Monday next week, $2.1 million.

In terms of our affiliated associated companies, during the third-quarter 2012, Buenaventura's share in the associated companies was $116 million, 8% higher than the $107 million figure reported in the third-quarter 2011.

Yanacocha's contribution to these results decreased 18% from $79.8 million in the third-quarter 2011 to $65.1 million in the third-quarter 2012, while Cerro Verde's contribution increased 38% from $31.8 million in the third-quarter 2012 to $43.7 million in the third-quarter 2012.

At Yanacocha, where we control 43.65%, in the third-quarter 2012, gold production was 353,710 ounces of gold, 8% higher than the third-quarter 2011.

At Cerro Verde, where we control close to 20%, the third-quarter 2012 copper production was 69,150 metric tons, a 3% decrease compared to the figure in the third-quarter 2011.

All of this takes us to Buenaventura's third-quarter 2012 net income to $185.6 million which is a substantial amount and record $0.73 per share overall of Buenaventura.

In terms of our projects, we have been very, very active in the last few months in La Zanja. We have the Pampa Verde project, will allow the development of a new open pit, an expansion of the current leach pad and improvements to the operation's road access. Construction began in 2011 in the second-quarter 2011. The project's total investment is $70.4 million and completion is expected in the first-quarter 2013.

At Tantahuatay, the acid water dam was completed and the Cienaga Norte project, the Environmental Impact Assessment approval is expected by the end of the fourth-quarter 2012.

At Poracota next to our Orcopampa mine, the Poracota Ultrafine Milling project began in the first-quarter 2012, and the project total investment is $4.5 million. The objective of this project is to process materials from Manto Aguila and project completion is expected by the end of the first-quarter 2013.

Our Rio Seco manganese sulfate plant, a very important technologically advanced for Buenaventura, we continue with the construction and the project total budget is in the order of $90 million and we expect to be finished by the first-quarter 2013.

Breapampa, the new mine that we are putting in operation at the most on Monday, if not today, we are waiting for our final permit which was offered to be given to us today, but it could be on Monday because of a holiday here in Peru. This project has cost us $48 million, and we expect to produce in the order of 60,000 ounces of gold per year, starting whenever we are granted the permit.

The Huanza hydroelectric plant is very well advanced. We have finished with the conduction tunnel. We are working, 90% complete the powerplant, 97% complete the Pallca Dam, and we are fine-tuning a number of equipments and we expect to be in production by before the end of the first-quarter 2013.

We had a Board meeting yesterday and we have passed essentially a couple of resolutions, one approving the financial statement and obviously reporting this to the market, and declaring a cash dividend of $0.20 per share, or ADS to be paid in US dollars on November 30, 2012 to shareholders of record as of November 16, 2012.

With this, we are open to any questions that you may have. I am here with Cesar Vidal, our Vice President of Explorations, Carlos Galvez our Vice President, Finance and Administration and some other members of our team. Thank you.

Jennifer, can we take questions please?

Thank you, at this time we will open the floor for questions. (Operator Instructions). Felipe Hirai, Bank of America.

Thanks for the opportunity to make the questions. I have two questions. The first one is related to your exploration expenses that we saw that the expenses are running closer to $30 million per quarter, so if you could just talk a little bit, if you expect this number to remain at the current levels or the trends here going forward. And the second question is related to the Poracota Ultrafine Milling project, so what should we expect in terms of impact of production in whenever day the project is finished? Thank you.

I'll start with the second question, and leave Cesar Vidal to answer the first question on exploration expenses. The Poracota fine mill is a very important project. You have to bear in mind that we have to deal with metallurgical problems. Poracota is -- has a hole that is sometimes difficult if we do not grind it very fine. And this will enable us to put in value, a number of refractory up to a certain point, refractory of Poracota. That's the reason why we have stopped producing from Poracota because the recovery that we were obtaining were not acceptable for us and we thought first to build this plant. This should be ready by early next year and we expect to be able to put in value, not only the reserves that we have in Poracota, but those that we believe we are going to find with our exploration effort. And live you Cesar Vidal to answer about the exploration expenses and how much money he's spending in all of this.

Good morning all of you. Thank you, Roque. The exploration expenses reflected in this conference call include the most advanced projects like the Trapiche, Tambomayo, San Gregorio, Chancas/Focus and Breapamba. I have to spell out that Trapiche is in the new zone full of oxides and we need to drill more to find out the resource that may change the perspective of the project in to an oxide leach project only. And we will be drilling most of next year at the same rate of this year. We are drilling with seven rigs. Our results are so far encouraging and we need do a lot of metallurgy, but we're drilling into new areas. So expect the same expenses for next year.

In Tambomayo, we have already measured and indicated resource over 1 million tons of ten ounces silver and ten grams gold. This is a vain deposit being developed not just explored, but developed before tunnel at the same time. And the expenses will continue. We need to do the permitting too to construct full independents in new mine there. So expenses will continue at this rate.

And Gregorio, Chancas really infilling and the infilling will take us to a decision about the feasibility of doing a mine there and giving more ore to the Colquijirca, Brocal. So I think that you can expect that next year we will have exploration cost of advanced project in the order of $100 million. Out of that, the generative for the new exploration in areas that are untouched or new for the Company are in the order of $25 million.

If I may add, really we believe in Buenaventura that the way to add value to shareholders is to invest in explorations, finding new mines, finding new ore. We certainly respect the mergers and acquisitions policy but we have a feeling that we're adding far more value by exploring and finding the process than by going shopping. So with that, any other question please?

Thanks Roque, thanks Cesar.

(Operator Instructions). Anat Anani, JPMorgan.

Hi, John Bridges. Just wanted to -- well, thank you for your thoughts about after the storm. I've lost power but otherwise intact. And then more seriously, just wondering if you could give us a bit of a breakdown of the different ore types in Brocal in Q3 and what do you think is going to happen in Q4, so we can sort of get a better fix on what's coming out of the mine.

John, are you talking about the guidance for the fourth quarter?

Yes. If you could -- how many tons and is it going to be zinc or copper focused?

Okay, okay. Well, in the case of Brocal, we moved from September onwards to the production of copper. So, 100% of production of Brocal will be copper, October November, December and January.

Okay, great. I see in Brocal's report that the silver component in the concentrate is going down. Is that something which is going to continue or is that just a one-off?

Well, in general terms, the reduction will come from this area of Brocal. In the case of Uchucchacua, we are going to improve our silver production mainly due to the efforts that will commission improving the proximity in the area and because while we expect to gradually to incorporate additional ores, so we have higher recovery as we have obtained lately.

Yes. Since you opened that one, could you give us a bit of an idea as to how we should think about Uchucchacua next year? Is it going to be more silver? Is it going to be lower cost, because you are able to go into more productive areas? What should we expect to see next year from Uchucchacua now that you are bringing on the manganese plant?

Absolutely, the question is that why had we have already achieved obtaining better recovery from the Uchucchacua gradually from July or August onwards and this trend we expect to keep.

Then, in year 2014, as Roque mentioned, we should complete the Rio Seco plant and we begin operation at the end of the third quarter. With this, we are going to be able to incorporate into production ores with higher grades that have been already report with wider structures that will permit us to reduce the mining cost.

On the other hand, maximizing the recovery and then taking this material to the Rio Seco plant with -- after increasing the recovery and eliminating the manganese in the manganese sulfate plant. So, lastly, our expectation is to add about 1 million ounces of production in Uchucchacua due to these reasons.

Finally, we are going to dilute our cash operating cost due to the benefits.

Okay. That's very, very helpful. And then in the introduction, you spoke about the profit study. What came out of that?

Well, the thing is, it is an ongoing advisory service and they are very much in the ground, and they are working on recovery rates in the concentration plant. They are working on efficiencies in the mines. They are working on efficiencies in the profits in general, and well, we are very well impressed, if I may say. I was a little bit doubtful of what would be the benefits from this discipline, if I may say, will come out. And we are very pleased to report that we are already seeing results that are very positive and that are showing that the costs are being under control, and we expect even further benefits from this advisory.

Okay.

If I may add, while we are doing -- John, eliminating leakings in the whole operations, not only wasting time from the people, wasting energy, controlling, wasting pressure in the compressed air, eliminating waste in the ventilation and so on. And these permit us to improve with the whole operation.

Okay. I'm impressed with your -- doing that and bringing these people onto the property. And on this anchor, you're bringing on the Pampa Verde property. What's that likely to do to the production next year? And what would the profile be going forward? Will that be included within those anchor or will it be a separate mine reporting?

No, it is -- this keep leaching properties is an going business and what we will be offering is to maintain the 100,000 ounces of gold per year minimum and to be more diverse in where we get the ores and that will help to the continuity of the operations.

Okay. That's great. I've got more stuff but I'll get out of the way. But please could you convey our best wishes to your father on his recent birthday. Thank you.

Thank you. He -- for all listening, he was 92 years old a week ago. And he's as sharp as ever. Thank you, John.

Congratulations.

(Operator Instructions). Tanya Jakusconek, Scotiabank.

Great. Good morning and thank you for the (technical difficulty).

Tanya, your line is a little fuzzy. You might need to repeat the question.

Can you hear me?

Hello?

The line is not good here. Mostly we understood. I want to tell you that I -- yes, sorry -- can the Operator repeat the question, please?

(Operator Instructions) Anat Anani, JPMorgan.

Sorry, while Tanya gets queued up again, maybe could you talk a little bit about San Gregorio? You spoke about it being oxide. Is that an oxide zinc deposit?

No, San Gregorio. No, San Gregorio is a huge sulfide deposit and it represent a huge resource. As we understand, is the largest resource, zinc resource known in the world that is not in operation, but obviously that will require a lot of engineering. It is in an area where we are going to find a lot of water, and we will continue drilling to expand the resource and to be in a position to go for a feasibility study at some point. We are working on that. I think it is an important resource and certainly the expansion of the plant will permit us to develop that easily.

Okay. Very roughly when would you expect to be able to develop that? In three, five years' time?

You said it. We are not sure. Really it is early days to say it.

Okay. Thank you.

Tanya Jakusconek, Scotiabank.

Okay. Can you hear me now?

Terrific.

Okay. First of all Roque, congratulations to your dad. I only hope to live to 92, so that's something I'm going aim to. I'm sorry I missed you in Denver. So I just have a few questions. I just wanted to make sure that I understood the guidance that was provided in Denver for gold, silver, copper and zinc in the CapEx, that's still intact for now?

Yes. We don't change our presentation that quickly.

Exactly. Okay, well, that's good to hear. It does mean then your Q4 for gold is going to be weaker and is that because of Poracota being down now until next year?

Well, to comply with the guidance of gold production, of course, we are going to reduce some of the gold production especially in Yanacocha. Because the initial guidance was in the order of 1.3 million ounces. We have only producing in excess of 1.1 million ounces. So I believe that the mining plants will adapt to be closer to the guidance because if we continue producing at hour's rate, of course, the expected production would be in excess of 1.4 million ounces. This is not the case.

Yes. Not the case. Yes, I know, I just -- we have that with the new model. I just wanted to make sure I understood that Poracota is down now until next year, until we can get that fine grind. Is that correct?

Yes, that's correct. The question is that do we reduce as Roque explained the recovery, and it was meaningless to wait this for without continuing the Ultrafine Milling that when available, will permit to recover in a clear way sufficient material.

Okay. No, no, that's fine. Yes, and it's a bit deficient. And just two other questions, maybe Roque an update on Conga which was my favorite asset to ask on and what is happening there? And then the second question would be just on your reserves and resources, how are those shaping up as we come towards year end? Are we looking at replacement of most of the assets? Thank you.

In terms of reserves and resources, I would way that we are replacing our reserves and resources, and we are doing a lot of work in that respect. Just as an example, in the case of Orcopampa, we are increasing the [initial] advance from 700 to 1,500 meters per month. That will enable us to certainly, not only replace but to increase our resources. So we're working on that very, very hard and we expect by the year end to report, certainly replace of our reserves.

That's good news.

In the case of Congo is that we are working on the water reservoirs. We are socializing, if I may say, the project. We have the feeling that the people in South America are now suffering from recession, if I may say. It's the only area of Peru that is suffering from recession and this is due to the fact that tourism is down, the commerce is down, certainly mining is down and this we believe is the hard way to understand that our project like Congo should go ahead. We are very careful and very tactful in when we talk about Congo, but we are complying with our offerings and our offer was to build the reservoirs and we are working on that.

Okay. Good. Okay. Thank you.

James Bender, Scotiabank.

Sorry, I have no further questions. All my questions have been answered. Thanks.

Thank you.

Thank you. At this time, I would like to turn the call back over to Mr. Roque Benavides for closing remarks.

Well, thank you very much for attending this conference call. It is not only the best news, but what I can tell you is for this Company, that will be 60 years old next year, has put into production four new mines in the last two years including Breapampa that we hope will start production today. So this is a team that is working very hard to add value to our stock and to the market capitalization and obviously to our shareholders. So thank you very much for attending and hope to see you soon.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.