Compania de Minas Buenaventura SAA (BVN) 2012 Q4 法說會逐字稿

Good morning. My name is Jeff and I will be your conference operator today. At this time I'd like to welcome everyone to the Buenaventura fourth-quarter 2012 earnings conference 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. I would now like to turn the call over to Pete Majeski, of i-advize corporate communications. Sir, please go ahead.

Thank you, Jeff, and good morning, everyone. Welcome to Buenaventura's fourth-quarter 2012 earnings conference call on this, 1 March, 2013. 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, as well as other members of the Company's senior management team. They will be discussing Buenaventura's results per the press release distributed yesterday evening. If you have not yet received a copy or wish to join the mailing list, please call us in New York at 212-406-3694.

Before we begin, I'd like to remind everyone that any forward-looking statements made today by Buenaventura's management is subject to various conditions and may differ materially. These conditions are outlined in the Company's press release in the disclaimer. We ask that you refer to it for guidance.

It is now my pleasure to call over to Mr. Roque Benavides. Mr. Benavides, you may begin.

Good morning to all and thank you for joining this conference call of Compania de Minas Buenaventura. As every quarter, and this is the end of the year, we would like to report on the results of the Company for 2012.

Net income for the fourth quarter 2012 was $139 million, 39% lower than the figure reported in fourth-quarter 2011. EBITDA from Buenaventura's direct operations was $130 million while EBITDA including affiliates was $421 million compared to $281 million in the -- sorry, $281 million in the fourth quarter 2012 compared to $421 million in the fourth quarter of 2011.

During the fourth quarter 2012 our net sales were $411 million compared to $385 million in the fourth quarter of 2011, whereas the income decreased 28% to $12.6 million in the fourth quarter 2012. In terms of our production and operating costs, Buenaventura's equity production, which includes all of our operations in the fourth quarter 2012, was 108,000 ounces of gold. Mainly this was a reduction compared to the fourth quarter 2011, mainly due to the decrease in the Orcopampa production.

Silver production, including affiliates, in fourth-quarter 2012 was 4.6 million ounces at 12% increase compared to the figure of fourth-quarter 2011. Equity production in 2012 was 446,000 ounces of gold and 18.3 million ounces of silver.

At Orcopampa, our total production in the fourth quarter 2012 was 60,000 ounces, 16% lower than the fourth quarter of 2011. Production from the Chipmo mine during the fourth quarter 2012 was 55,600 ounces, 15% lower from third to the fourth quarter 2011 because operating cost in the first quarter 2012 was $714. And this is due mainly to lower gold production data and higher contractor expenses due to greater exploration effort that we are doing in order to replace and to increase our reserve in this very important mine for Buenaventura.

At Uchucchacua, total silver production for the fourth quarter 2012 was [3.3 million] ounces, 8% higher when compared to the fourth quarter 2011. The cash operating costs in the fourth quarter 2012 was $16.57, in line with what we reported in the fourth quarter of 2011.

At the emblematic Julcani mine, the one that we started with, total production in the fourth quarter 2012 was 615,000 ounces of silver, 1% higher when compared to the fourth quarter 2011. And the cash operating cost of this mine was $14.38 per ounce.

In -- during the last two years, we have opened four new mines in Peru. And the recent mine that we have opened is Breapampa that commenced operations in November last year, and had a small production of close to 10,000 ounces of gold. And we expect to produce in excess of 60,000 ounces of gold from Breapampa located in the Ayacucho department of Peru in 2012 -- in 2013, sorry.

At La Zanja, which we started production in October of 2010, we produced in the fourth quarter of 2012 28,600 ounces of gold, 13% decrease compared to the fourth quarter 2011. The cash operating costs at this mine was $753 per ounce due to an increase in supply costs, mainly explained by an increase in reagent consumption and price. Cash costs during 2012 full year was $622.

At Tantahuatay, where we started in 2011, total production for the fourth quarter 2012 was 35,000 ounces. During 2012, gold production was 141,000 ounces of gold. The cash operating costs in the fourth quarter of 2012 was $393 per ounce.

At El Brocal total plant capacity was developed to treat copper ores during the fourth quarter 2012. The copper production was 13,000 metric tons, 68% higher than the fourth quarter 2011. Silver production due to the old grades reduced from 420,000 ounces to 185,000 ounces.

General and administrative expenses in the fourth quarter 2012 were $21.6 million. And this figure includes $6 million in metallurgical research studies, essentially oriented to find a solution to [arsenic or] copper that we are finding in different operations.

Operating income in the fourth quarter 2012 was $86 million, a 47% decrease compared to the fourth quarter of 2011. This decrease was mainly due to 53% increase in operating costs and exploration expenses. We are insisting that we ought to explore more and this obviously has an impact on our cost. For 2012, operating income was $418 million in the year.

During the fourth quarter 2012, Buenaventura's share -- its share in associated companies was $90 million, 28% lower than the -- reported in the fourth quarter 2011. Yanacocha's contribution to this result decreased 63% from $86 million to $32 million in the fourth quarter 2012. As I said already, this contribution also decreased from $40 million to $28.6 million in the fourth quarter 2012.

Coimolache, the Tantahuatay mine, results partially offset the decrease with a 44% higher contribution, $8.8 million in the fourth quarter of 2012 compared to $6.1 million in the fourth quarter 2011. For 2012, Buenaventura's share in associated companies was $464 million, in line with the figure reported in 2012.

At Yanacocha, in the fourth quarter 2012, gold production was 235,800 ounces of gold. The accumulated gold production in 2012 was 1,345,000 ounces, 4% higher than 2011.

In Cerro Verde, the fourth quarter 2012 copper production was 69,000 metric tons, 4% increase compared to the fourth quarter 2011. And the accumulated total production for 2012 was 270,000 tons of copper. At Coimolache, attributable contribution was $8.8 million, and for whole year 2012, this figure was $40.2 million.

Canteras del Hallazgo, the joint venture that we have with Gold Fields, our value engineering phase was initiated to improve the project's economic return. In this respect, we would like to inform all of you that the fact is that we went for our feasibility study and we were very enthusiastic, probably too much. And this feasibility showed negative, and that has made us to revisit the feasibility in two ways.

One is to reduce the CapEx for the open pit alternative, and the other is to evaluate the alternative of going underground and going to higher grades, which will mean also reducing CapEx. So Chucapaca is not over. Chucapaca is still a great discovery; 8 million ounces of resources is a very important discovery and we will continue.

And I can share with you that I have, during the Nesbitt Burns conference, I was able to talk to Nick Holland, CEO of Gold Fields, and we two, the two companies Buenaventura and Gold Fields are committed to go ahead with this project. In 2012, Buenaventura total disbursement at Chucapaca was $32.4 million.

Buenaventura's net income in the fourth quarter 2012 was $139 million. The accumulated net income in 2012 was $685 million. We have continued working in a number of projects, and this shows the energy that our organization continues to have.

In La Zanja, we have continued with our development program of the Pampaverde project. We allowed to develop a new open pit and expansion of the current leach pad and improvement to the operations road access. Construction began in 2012 and the project total investment is $74 million and we expect to be completed in the third quarter of 2013.

Engineering for slope stability was developed also during the fourth quarter of 2012. The Rio Seco manganese sulfate plant, very important technology for our throughput for Buenaventura. Buenaventura continued with the construction at the manganese sulfate plant, and the project total budget is $90 million. We expect to have this facility ready by May this year, which will add value to our silver production from Uchucchacua, and essentially will add value to all of the exploration we are doing in the surrounding of Uchucchacua.

Also, we would like to report that the Huanza hydroelectric plant has continued its construction with very good results. We expect to have this plant before midyear, at least with half of the installed capacity, meaning 45 megawatts in production. And probably after that we will reach the 90 megawatts total capacity.

Yesterday we had a board meeting of Buenaventura and we had all of our board members here, including the two that live abroad. And we have approved to call for a shareholders meeting for March 26 this year to approve a financial statement as of December 31, 2012 to approve the Annual Report of 2012, to approve a cash dividend of $0.30 per share or ADS to be paid in US currency, and to approve a simplification corporate structure by absorbing two wholly-owned subsidiaries, CEDIMIN and Inversiones Colquijirca. So this is a minor simplification of corporate structure and we hope we will receive the support of all of you.

May I just only finalize by insisting that Buenaventura has been able to open four new mines in the last two years, and that we have continued growing organically. Buenaventura has delivered value to our shareholders and certainly we expect to continue doing so.

With that, we are open to any questions that you may have. I am here with Cesar Vidal, Vice President for Exploration, Mr. Francois Muths, Vice President for Operations, and Mr. Carlos Galvez, Vice President Finance and Administration, and myself, to answer any questions that you may have. Thank you.

(Operator Instructions) Carlos de Alba, Morgan Stanley.

Good morning, everyone. The question that I have -- well, I have several questions. The first one is if you can share with us in the outlook on production by metal and your key mines, your bigger mines, if possible.

The second one, if you can talk a little bit about the trends that you are seeing for 2013 in terms of cost -- mining costs which have been escalating recently. But also, on SG&A, also increased a percentage of revenues and the exploration expenses, if you can share with us the budget for 2013.

On dividends, I saw that it was announced at $0.30 per share dividend in the fourth quarter. It is lower than what we have seen in the last two years in announcing the fourth quarter. If you could talk a little bit about what the expectations are going forward, that would be appreciated.

And then, finally, and excuse me for putting all these questions at once, but I think that would be better. On Cerro Verde, I think this is a very large development, a very profitable operation. How confident are you that we won't see some of the other problems that we have seen in Peru lately in this project. Do you feel quite confident that this probably will start on schedule? And if you can comment on the budget as well, I would appreciate it. Thank you very much.

Thank you for all your questions, Carlos. We can report that production at Orcopampa and Uchucchacua, which are the two largest and direct operations, is going to increase in 2013. We expect to produce 20,000 ounces more from Orcopampa compared to 2012.

2012 production was 260,000 ounces. We expect to produce 280,000 ounces from Orcopampa. But more important than that, we have been investing heavily in exploration in order to find additional reserves. We had to -- during the year 2012 have to do our cross-cut, very long one, which essentially doesn't generate reserves, but we expect reserves to start increasing substantially during the course of 2013. So Orcopampa continues to be very, very important operation for us.

In the case of Uchucchacua, we produced 11.3 million ounces of silver in 2012 and expect to produce 11.5 million ounces in 2013. In addition to having been able to increase reserves in Uchucchacua, and with the manganese sulfate plant, we are going to add value to all of these assets. Also very, very important asset for us and we are very, very excited about the future of this mine.

In terms of the trend of costs, I think 2012 has not been a good year for the industry as a whole, but we feel that that is the impact of higher cost or industrial inflation is coming down. And I would say that -- and this is only a guesstimate -- but that the cost in 2013 will be similar to the cost in 2013 -- or 2012.

In terms of the dividend payout, the policy of Buenaventura for the last 15 years has been to pay 20% of net income of the year per year and we have followed this in this time as well. So if the dividend is lower it's because the profits of the Company have been lower than 2012.

It is difficult to change the policy, and we do not want to change the policy. But the market has to understand that mining is all about reinvesting and adding value for shareholders. And if we want to do that, we need to have the resources to invest in exploration, in new projects, in technology, and this is what we are doing.

In terms of Cerro Verde, and I appreciate very much that part because we should always stress that Cerro Verde has been a great investment for Buenaventura, we feel very well working hand in hand with Freeport and supporting them. We are heading for an expansion -- substantial expansion of the Cerro Verde mine to triple the processing facility and to duplicate the production all the way to 600,000 tons per year of copper.

And if you ask me about the problems, the social problems that have happened in other parts of Peru, our impression is that Cerro Verde has managed it very, very well with two emblematic contributions. Water for the Arequipa and sewage -- the treatment -- the sewage treatment plant for Arequipa. These have been two things that have been very well received by the community and the relationship of Cerro Verde with Arequipa that it's so close to the mine is excellent.

Really, the work that our colleagues in Cerro Verde have done should be praised by all of us and we feel very well about that.

Thank you.

(Operator Instructions) Santiago Perez, Credit Suisse.

Hi, Roque, Carlos and of the rest of the team. Thanks a lot for taking our questions. I wanted to please ask you if you could comment deeper on the drivers and behind the 50% cash [cost interest] in both Orcopampa and La Zanja.

And also if you could tell us what do you expect of dividends from your associates in the following years, it would be great if you could give us some color on that. Thank you.

Regarding the increase in the cash cost in our (technical difficulty) operations, mainly you have the application of currency, first of all.

Secondly, we had the strike -- we suffered on the strike in Orcopampa in October and this reduced not only the production during this mine, but also there was a lack of preparation of the mine for this month. So we exploited at lower grades during in October and this impacted the cost as well. Independently of the other difficulties that we had [past], the exploration after that Roque has mentioned.

In the case of La Zanja we are exploring the heart. We have interesting reports not only in the surface, but also we continue working and we expect in the future a delivery -- additional information of the results of our exploration underground. So this is what we need -- that impacted our cash cost because, as you know, we expand vertically our exploration efforts.

Regarding the dividends from our affiliates, for sure while building we Cerro Verde are not going to receive any cash dividend. We have to support the effort of Cerro Verde for the construction as fast as possible.

In the case of Yanacocha, we do not foresee cash dividends obviously because we continue working on expanding the operations with a [laid-back]. And in addition we have not only through a push for the project that we have in our portfolio, the Conga project, but also other facilities that we have underground like the case of Chaquicocha that perhaps will Roque would like to expand. So we do not foresee cash dividends from this affiliate.

In any event, what we have to do is to just receiving the cash dividend from Coimolache that is a small operation and that the subsidiary La Zanja.

Roque Benavides And Brocal.

And Brocal, yes.

Thank you so much, Carlos. And just as a follow-up to Roque's statement, do you expect cash cost to be similar to the average 2012 (inaudible)?

Yes. (inaudible) the year cost, not the last quarter.

Perfect. Thanks a lot, everyone.

Thank you for the clarification.

(Operator Instructions) James Bender, Scotiabank.

Hi. Good morning. I just have two questions; firstly, on Breapampa. My question is whether the production that is coming out of there is commercial as of the end of 2012 and, if not, when in 2013 that's going to become commercial. And for Poracota, how the activities are going on there; are we still in line to be back up and running at midyear? And that's it.

Thank you. Thank you for your question. Breapampa started commercial production as of the end of last year and we expect a full calendar year this year, with production in excess of 60,000 ounces during in the year. We believe we are going to make a nice profit from this small operation.

But more important than that is that this operation is located in an area that has not been properly explored. And maybe, as I mentioned, the world doesn't understand how important it is to expand in terms of exploration. But having that tech in the area permits us to explore easily in the surroundings of Breapampa, and that is what we are doing.

So there are two profits, if I may say. One is certainly producing the ounces of gold that we would produce, but in addition to that, we are looking for additional resources in the area. So it is commercial and it is working and we are very pleased with the results in Breapampa.

In Poracota, we stopped production and we expect to resume production by May, June this year. We are almost finished with installing the fine grinding mills and grinders in the Orcopampa facility to treat the refractory ores coming from Poracota. So starting June, we will have some production coming from Poracota with better metallurgical recovery and, obviously, by doing all of that, adding value to Poracota.

Okay. And from Breapampa, would you be able to provide some guidance in terms of cash costs for the year? Is it safe to assume the average of the overall or would it be higher, or lower?

We expect to be producing in Poracota because of economies of scale at our cash cost below $1000. It is not the most profitable, but it will make a profit which will continue to bottom-line contribute of Buenaventura.

And do you see that going down going forward or is that (multiple speakers)

The thing is, this is going to be the first calendar year and we can adjust this. And probably it will come down to the order of $800 per ounce, but we don't think that it's going to be far below that.

Okay. Thank you very much.

(Operator Instructions) [Carel Zocetic], Bank of America.

Hi. Good morning, everyone. I have two quick questions on -- and an update on projects here. If you could please provide us, when would you expect to provide the new plans for Chucapaca? And also, if possible, if there's any update on the Conga project. Those are my questions. Thank you.

Easy questions. Thank you. Well, the thing is, Chucapaca, as I mentioned, we were early this week at the bank of (inaudible) conference and we had the opportunity to talk to the management of Gold Fields. We expect to have a new feasibility study probably before the end of this year.

As I said, we are working very hard and obviously we are very frustrated that the first feasibility showed negative. But a resource of this quality has to fly. And we expect to have visibility or some guidance at least by year end. You can be sure from our experience that this is a project that will generate substantial resources for Buenaventura and for Gold Fields.

In terms of Conga, we continued building the reservoirs. We should be ready with the [Chalwagon] reservoir in April and then the other -- what is its name? The [Perrol] reservoir should be ready by the end of this year and at that point, we will have better idea of how to go forward.

I understand from also having had a meeting with Gary Goldberg, the CEO of Newmont in Miami, that we both organizations are committed to work hard in order to make Conga possible. And there has been a change in management and the attitude of the company, meaning Yanacocha has improved. And I think that the [Canamarca] community is perceiving that, and we are working very hard together with the central government in order to make this project go ahead. This is all that we can say at this point in time.

That's great. Thank you very much.

(Operator Instructions) Lali Merino, Inteligo.

Hi. I'm sorry. Could you provide us some guidance on [Palmo Maya] and Trapiche projects?

Just to follow-up on the previous question, Chucapaca is not only the specific project, but there's also some additional exploration in the surroundings of the ore body that has already been found. And in addition to that, obviously, and it is not up to me to say, but Gold Fields is exploring in their own concessions. And we are exploring in our own concessions in addition to the area of interest that is the joint venture.

In terms of [Tambo Mayo] we are really very, very excited about Tambo Mayo. It is a substantial discovery. We compare it to some of our important operations that we currently operate. It is early stages.

We have 1.2 million tons of ore, running 10 ounces of silver and 10 grams of grand gold. And we continue finding in-depth very, very high grade and we think, as I said, that we are just starting.

We are already working on the feasibility of travel by no, we have put us a target to have 1000 tons per day flotation plant in place and we are working on the feasibility of the whole project. So we are very active in Tambo Mayo.

In Trapiche we continue to find resources and low-cost resources, meaning leachable material. As of today we have close to 600 million tons of ores there in copper. And of that, half of that is leachable material.

We are working on the engineering or the feasibility or the prefeasibility, essentially, of this project. At this point in time we are working with different scoping alternatives and hope to come back to the market with information that will contribute to all of you to follow with your evaluation of the company.

(Operator Instructions) [Eder Castro, Calpo Saab].

Good morning to everybody. I have two questions. The first one is about the cash flows for 2013 for La Zanja and Tantahuatay, if you can share that information with us, and projected production by metal for 2013. Thank you.

The cash costs for this year for La Zanja and Tantahuatay, or in the case of Tantahuatay is about $450 per ounce. This is -- we have reported less than $450 for year 2012 and now our expectation is to continue producing at the range I mentioned.

In the case of La Zanja, that will depend on the effort of explorations. We are committed because we have these -- the cash cost is in the order of $500 per ounce. But when adding the exploration effort, we can get the levels of $700 per ounce that we have already reported during the fourth quarter this year.

In terms of production, in La Zanja we are going to produce slightly higher than 100,000 ounces year 2013. And in Tantahuatay [total it] will be 120,000 ounces for the year.

Thank you. Can you give us the production estimated [by the middle of] Buenaventura as a whole?

Well, Buenaventura as a whole, we are going to produce -- actually we [are going to do in] Buenaventura between 950,000 ounces to perhaps 1 million, including the report of our affiliates. In terms of silver, the attributable production will be in the order of 19 million ounces.

We expect to continue reporting in the order of 75,000 tons of copper, of course including the total participation of Buenaventura from Cerro Verde. And in terms of zinc, it should be something about 45,000 to 50,000 tons of zinc.

Okay. Thank you for your answer.

Carel Zocetic, Bank of America.

Sorry. The line was got off in the outlook for 2013. You said 750 ounces to 1 million ounces of attributable gold production?

950,000 to 1,000,000 ounces.

Perfect. Thank you very much. Sorry about that.

(Operator Instructions) Everyone, there are no further questions in the queue. I would like to turn the call back over to Mr. Benavides.

Thank you to all of you for attending this conference. Just to insist that that this Company has grown because of organic growth and that is what we are doing now, investing more in exploration, and that may have an impact -- a negative impact on cost in the short term. But in the long run, this is going to be very positive for the Company.

We are exploring in all of our mines. We are exploring outside of our mines. We have had very important results.

In the case of Trapiche, we have increased our reserves in copper in 20% from 2012 to 2013. We have increased reserves in Orcopampa. We have been able -- and I insist -- to open four mines in the last couple of years, and we are a Company that looks and works long term.

Long-term is really important for investors. It is very important for those that work -- of us that work in Buenaventura and to contribute to society, obviously. So you can be sure that we will always be working in order to add value to our stock by organic growth.

And that is the message I would like to leave with you this morning. Thank you for attending and hope to see you in the future.

Thank you. Everyone, this does conclude our teleconference for the day. You may now disconnect.