Compania de Minas Buenaventura SAA (BVN) 2013 Q2 法說會逐字稿

Excuse me, everyone. My name is Katie and I will be your conference operator today. At this time, I'd like to welcome everyone to the Buenaventura second-quarter 2013 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 Ms. Maria Barona on behalf of i-advize Corporate Communications. Ma'am, please begin.

Thank you and good morning everyone. Welcome to Compania de Minas Buenaventura's second-quarter 2013 earnings conference call on this July 31, 2013. Today's call is for investors and analysts only. Questions from the media will not be taken today.

Joining us 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 report issued yesterday. If you did not receive a copy of the report or you wish to join the mailing list, please contact us in New York at 212-406-3691.

Before we begin, I'd like to remind everyone 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 earnings report in the disclaimer. 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, please begin, sir.

Good morning, welcome, and thank you for attending this Buenaventura's conference call. This quarter had been difficult for the whole industry, and due to a number of factors metal prices declining significant -- that have significantly impacted our results and the industry results.

But in addition to that, in the case of Buenaventura, we have had lower production in Uchucchacua due to 10 days strike. We have lower revenues and quotation period adjustments in El Brocal and Cerro Verde. And in addition to that, we had an impairment and write-down adjustments at Yanacocha. All of this have impacted our quarterly results.

As a consequence, results were lower than expected. Net income in the second quarter was $19 million, 88% lower than the figure reported in the second-quarter 2012. EBITDA from Buenaventura's Direct Operations was $40 million, 65% lower than the figure reported in the second-quarter 2012, while EBITDA, including Associates, decreased 47%, from $351.8 million in the second-quarter 2012 to $187.5 million in the second-quarter 2013.

The Company has taken some steps and is focusing its activities on value creation. First, we are stopping production in non-profitable operations, Antapite, Poracota, Shila-Paula, that are smaller operations that were losing money and evaluating the performance of the other units obviously. Secondly, we are focusing mine exploration activities on high grade and accessible targets.

Thirdly, increasing mining operation efficiency at Orcopampa and Uchucchacua. We have continued working with advisors to improve efficiency in these two mining operations. Fourthly, focusing on brownfield explorations to reduce risk as opposed to greenfield operations. We are going to concentrate 80% of our effort in exploration brownfield compared to 20% in greenfield. And finally, capital expenditure control and concentrating on cash generation, cash position that is the name of the game these days.

During the second-quarter 2013, net sales were $273 million, an 18% decrease compared to $331 million reported in the second-quarter 2012. This was explained mainly due to lower metal prices. Our net sales for the six months of 2013 was $614 million, 11% lower than in the first six months of 2012.

Buenaventura's equity production in the second-quarter 2013 was 98,200 ounces of gold, 8% lower than the 107,168 ounces reported in the second-quarter 2012, mainly due to a production decline in Orcopampa and Poracota. This was offset by production increases in La Zanja and Breapampa.

Silver production, including associated companies, during the second-quarter 2013 was 4,420,000 ounces, a 2% decrease when compared to the figure of the second-quarter 2012. Our equity production in the six months of 2013 was 203,600 ounces of gold and 9.1 million ounces of silver.

At Orcopampa, our total production in the second-quarter 2013 was 54,988 ounces, 9% lower than the 60,700 ounces reported in the second-quarter 2012. Production from the Chipmo mine during the second-quarter 2013 was 50,196 ounces, 12% lower compared to the 56,700 ounces reported in the second-quarter 2012 due to lower ore grades. And the production from the old tailings treatment produced 4,791 ounces of gold that -- and total production in the second semester -- or the first semester, the first six months of the year, was 8,900 ounces, an 18% decrease when compared to the six months of 2012.

Essentially, in Orcopampa we are very optimistic that we have had some successful exploration at the Nazareno vein in depth, and we are finding additional ores. We were -- we have been successfully finding additional ores in -- going over an important fold, geological fold that we have in this area. And veins that we thought were exhausted we are finding additional resources on the other side of this fold. So we are very optimistic about Orcopampa and the possibility of going back to the higher production that we have had in the past.

At Uchucchacua total silver production in the second-quarter 2012 (sic - "2013") was 2.7 million ounces, in line with the second-quarter 2012. The lower ore treated, due to the 10-day strike in April, was offset by an increase in the recovery rate from 72% to 83%.

Zinc production in the second-quarter 2013 was 1,938 metric tons, 5% lower than we reported in the second-quarter 2012. Despite those 10 days of -- 10-day strike, cash operating cost in the second-quarter 2013 was $16.20 per ounce, 3% lower than the figure reported in the second-quarter 2012.

A better recovery rate, lower reagent consumption due to plant optimization and lower treatment charges due to lower prices was the reason why we were able to reduce our cash cost. We have been concentrating to improve efficiency at Uchucchacua and we are now seeing results of this effort, which makes us very pleased of the work done in this operation.

At Julcani, total production in the second-quarter 2013 was 548,890 ounces of silver, 9% lower than the second-quarter 2012, due to lower ore grade, a 20-day stoppage that was offset by the increase in plant capacity. During the semester, silver production was 1,160,000 ounces of silver, 6% lower than the figure of the same period in 2012. Silver cash operating cost in the second-quarter 2013 was $15.64 per ounce.

At Breapampa, total production in the second-quarter 2013 was 19,342 ounces of gold with a cash cost of $410 per ounce. At La Zanja, total production in the second-quarter 2013 was 37,000 ounces of gold, a 34% increase when compared to the second-quarter 2012 due to an increase in the ore grade. And for the full semester, gold production was 68,000 ounces, 26% higher than the semester in 2012.

Cash operating cost in the second-quarter 2013 was 579 ounces -- $529 per ounce, 5% lower than the second-quarter 2012.

At Tantahuatay, total production in the second-quarter 2013 was 35,000 ounces; 14,000 ounces attributable to Buenaventura, 10% lower than the figure reported in the second quarter of 2012.

During this semester of 2013, gold production was 69,600 ounces; 27,900 ounces attributable to Buenaventura. Cash operating cost in the second-quarter 2013 was $447 per ounce.

At El Brocal, copper production was 5,050 metric tons versus 496 metric tons reported in the second-quarter 2012. Essentially, in this mine we have a time when we were -- we are producing from the copper area and other times that we are producing from the zinc area. This quarter we have been producing from the copper area and that's the reason for the increase in copper production.

For the six months of 2013, copper production increased 57% and copper cash cost was $6,524 per metric ton, in-line with the figure of the second-quarter 2012.

Our general and administrative expenses in the second-quarter 2013 was $23.6 million, 6% lower than the figure reported in the second-quarter 2012. This expense included a $5.7 million charge related to the merger with our subsidiary CEDIMIN. For the six-month period of 2013, general and administrative expenses were $39.6 million versus $54.8 million in the same-period 2012, representing a decline of 28%.

Our operating income in the second-quarter 2013 was negative $4.3 million compared to $81.2 million reported in the second-quarter 2012. This decrease was mainly due to 18% lower revenues and 30% higher operating costs.

Our share in associated companies during the second-quarter 2013, Buenaventura's share in associated companies was $48.8 million, 60% lower than the $122 million reported in the second-quarter 2012.

Yanacocha's contribution towards this result decreased 73% from $86 million in the second-quarter 2012 to $24 million in the second-quarter 2013. Cerro Verde's contribution decreased 39% from $34 million in the second-quarter 2012 to $20.8 million in the second-quarter 2013. Coimolache, the Tantahuatay mine, contribution decreased 79% from one quarter to the other.

An update on the Canteras del Hallazgo project, which is important in that studies are currently being conducted towards evaluating a potential underground mining scenario, a review of capital expenditures, along with the construction of a decline towards the higher grade areas oriented to the high grade resource enhancement.

Buenaventura's second-quarter 2013 net income was $19 million, an 88% decrease compared to the same period in the second-quarter 2012. In terms of our projects, Pampa Verde project will allow -- in the case of La Zanja will allow the development of the new open pit, an expansion of the current leach pad and improvements to the operation's road access.

Construction began in the second-quarter 2011. Total investment in this project $78 million. Completion is expected for the third-quarter 2013 and additional geotechnical work was done for the slope stability during the first-quarter 2013.

In the case of La Zanja, we have also had very good result in the underground area that we expect to develop in the future in the Alejandra vein where we are finding a higher grade ores that we -- as I say, we expect to put into production in the next couple of years.

The Rio Seco manganese sulfate plant, Buenaventura has continued with the construction of the manganese sulphate plant. The total budget for this project is $90 million. At the conclusion of the second-quarter 2013, total expenditure had reached $84.8 million.

The project includes an acid leaching plant, a sulphuric acid production plant and a manganese sulphate crystallization plant. It also includes a warehouse to store low manganese, silver, lead concentrates and one to store the finished manganese sulphate crystals.

As of the second-quarter 2013, equipment commissioning for all three plants was being carried out and the project is expected to begin operation in the third-quarter 2013.

At Huanza Hydroelectric Plant, construction progress during the quarter has been in terms of water conduction tunnel. 10,000 meters of construction is 100% complete. The power plant civil work is 100% complete. The Pallca Dam, 100% complete. The penstock, 100% complete. The construction of Generator Number 2 is nearly complete and the Generator Number 1 is 50% completed.

Commissioning of the Pallca Dam has been completed. Final commissioning is almost completed. The penstock and the test running of Unit 2 is expected by August 15th.

As part of our -- yesterday we had a Board of Directors meeting and as part of one of the resolution was that -- one of the resolutions was as part of the cash control strategy, the Board of Director proposed the modification of the dividend policy. The new policy is Buenaventura will distribute an annual cash dividend of at least 20% of net income generated by majority-owned operations and subsidiaries.

In the case of Buenaventura's associates, Coimolache, Cerro Verde and Yanacocha and specifically Cerro Verde and Yanacocha where we are investing heavily in different projects in Cerro Verde and Yanacocha, 20% of attributable to Buenaventura's net income will be included in the distribution if they distribute cash dividends to Buenaventura.

The fact of the matter is that we have not been receiving dividends from Cerro Verde nor Yanacocha for the last two years and we believe that we should distribute depending on whether they distribute dividends to Buenaventura.

With this, we are open to any questions that you may have. At this time, I'm accompanied with Mr. Carlos Galvez and Mr. Leandro Garcia. And Cesar Vidal is not present because he has -- he is currently in Orcopampa in some field work, which is also very important. With this, we are open to any questions that you may have. Thank you.

(Operator Instructions).

Diego [Luferal], Merrill Lynch.

Good morning, everyone. This is actually [Karrel]. Thank you, Roque, for the questions. My first question is regarding costs. We have been seeing direct operations suffering from continued cost pressures over the past quarters, mainly when we look at Orcopampa. Could you help us understand what has been the main driver and what do you expect for the next quarters?

And my second question regarding project, if you could please provided an update on how the studies are going on the Chucapaca project and if there are any updates on the Yanacocha or Minas Conga? Thank you very much.

This is Carlos Galvez. Regarding the cash cost adjustment, it is important to mention that despite of the fact that the second quarter cash cost was pretty high, we have to share that, for instance, while in Uchucchacua the cash cost for the quarter was $16.20 per ounce, the cash cost in June was $14 per ounce and we expect to continue reducing this.

Likewise in Julcani, while in the quarter was $15.64 per ounce, in June it was $12 per ounce. So it was clear that it was impacted for the strike. In the case of [Mayai] while in the quarter we reported in excess of $20 cash cost per ounce, the cash cost in June was $15.82 per ounce and we expect to continue reducing that.

To do so, what we are doing is focusing on the operations fronts, not diluting their efforts, working on the exploration in the areas where we have a higher potential. And of course among the other operations what we are doing within our plan is on one the hand for the whole Company reducing in excess of 2,000 people, that we have already reduced at this point in time 1,700 people.

Secondly, we are reducing the [leaching] efforts, especially in the operating unit that Roque mentioned those that were losing money, Paula, Poracota and Recuperada, that together are reducing 2,200 meters per month together. And the drilling efforts in the different operating units are going to be reduced by 9,100 meters. All together drifting and drilling will mean savings for about $7 million per month.

Not -- or stopping production in the losing operations will mean savings in the order of $4 million per month and the improvements in the Julcani, Uchucchacua and even Orcopampa operations will mean savings in the order of $4 million per month. So this is the sort of efforts we are working on now.

On the Chucapaca project that you were asking, we expect to have a feasibility study reporting the alternatives that we have been evaluating by year end. As you know, we were not successful in the first try. We believe that there are different alternatives, underground alternatives or a mix of open pit and underground alternatives and we are working on that and we should report to the market as soon as we have those studies.

In the case of Conga, we are essentially -- we finished the [Chanwagon] reservoir, which was the third one to be finished. We have all the camp that we need for having our people working in the site. We are working on the internal roads for the project and we are essentially monitoring the social front. We have the feeling that things are improving, that we are socializing much better in the project. And as I understand Newmont's press release mentioned yesterday, we are heading for developing this project as much as we can. But we have to be as careful as we can as well.

In the case of the other very important project, which is the expansion of Cerro Verde, we continue working on that. As you know, both investments are very important, Conga and Cerro Verde expansion. And that is the reason why all the money that this very important asset of Buenaventura are reinvesting most of its profits and retaining all of its cash within the entities that they are managing.

That's perfect. Thank you.

(Operator's instructions).

John Bridges, JPMorgan.

Interesting set of results, interesting quarter. Just wondered on the timeline of these fixes and getting into the higher grades at Nazareno vein and so on, do you expect to see much improvement in Q4 or will it have to be Q1 next year?

I think these are explorations that are being done in three levels of the mine. We intersect the first indications of the continuation of these veins in the lower level and then we develop the upper level. So the thing is we can have production sooner than later, if I may say. I cannot assure you that it's going to be this quarter.

One thing that has to be mentioned at the case of Orcopampa is this is obviously a very important discovery. But the only one is that we have been working on a tunnel to get to the [Pucai] area and that we are also finding some resources in the Pucai area. And for a few months, we were not working in developing veins, but we were working on developing infrastructure in the mine. I have the impression that we are going to see much, much better times in Orcopampa going forward.

If I may add, we have two things to share with you. First of all is that we have acquired smaller equipment for narrow veins to produce, to exploit in the current operating areas, reducing sharply the dilution. You know that we had -- well, we have equipment, but was narrow to be used in the wider veins. And now we are facing these narrow structures, we need this smaller equipment that we --

Did we get cut off?

One moment, we are transferring the line in. The back-up speaker line is now in.

Please hold on, members of our audience, while we're connecting the speakers.

Okay, this is Maria. Mr. Benavides, you may continue.

Yes, okay. Well, the expansion was that we expect to count on this smaller equipment by November so we will be able to exploit in a more efficient way by December. Regarding the new areas of Nazareno that Roque was mentioning, well, it's right that we have to raise the funds and we are competing the formation in three levels. And the expectation is to prepare these areas to begin production from January onwards. Eventually, it could be the (inaudible) batch first quarter next year it will be.

Okay, that's very helpful. And then given the ups and downs in production base metals from Brocal, are you still comfortable with the guidance for the lead and zinc production in 2013?

Well, in Brocal what we are going to do is to produce 100% copper. Well, it began in June. From June until December we are going to produce 100% copper, not polymetallic ores. And we will resume polymetallic ores from January onwards.

Okay. So you are comfortable with your previous guidance on the precious metals. Are you comfortable with the base metals as well?

Well, in the case of base metals, it's pretty difficult to say because -- well, the contribution of lead and zinc from Brocal is going to be lower that what we expected. But copper will complete the (technical difficulty).

Okay. So what sort of tonnage and grades should we expect from Brocal for the rest of the year?

Let me tell you the production of Brocal should be above 5,000 tonnes -- sorry. Let me see. Yes, it should be in the order of 30,000 tonnes of copper metallic content.

Okay. And the gold content, silver content?

For the rest of the year, attributable to Buenaventura it should be in the order of 9.5 million ounces of silver and in the order of -- let me see. Let me review this --

Maybe while you are looking, I just wonder was there any reason why Cerro Verde's revenues were so much lower? You state the copper price, but was there anything else there? Was there a big concentrated adjustment or something, or is it just related to the expansion that they had some interference with production?

Well, there is no surprise that Cerro Verde is producing lower grades in the secondary sulfates and leachable material area, especially. And for sure there is an important effort devoted to the construction. But, which is one of the main impacts in terms of the volumes of copper produced.

Secondly, the impact in terms of the revenue, you know that Cerro Verde received lower prices. But also there were several adjustments, negative effect of the drop of copper price during the second quarter that materials that were sold in the first quarter. So this negative adjustment impacted the Cerro Verde.

How big an adjustment was that? Do you have that in front of you?

No, unfortunately, I don't have this on top of my mind and in front of me. But we can review this later on.

I'd be interested, it would be helpful in the model. Thank you. Did you have that gold number for Brocal? I suppose it's quite small.

No, I will prefer to give you this later on after reviewing my figures please.

Excellent. Many thanks. Best of luck guys.

Thanks.

Thank you again.

Sorry. If I may say, John, the word interesting quarter was something that made us think about it. Thank you.

(Operator Instructions).

Carlos De Alba, Morgan Stanley.

Carlos, I would love -- I would appreciate it if you can go back and just repeat the number of millions of dollars you expect to save by each one of these initiatives that you have highlighted. I mean I was a little bit concerned with the decline in cash flow generation and particularly in the cash balance of the Company.

So it would be interesting to see what do you see your CapEx and cash from ops in the second half of the year, considering already the benefit that you expect to get from these initiatives? But when you were going through them, I couldn't take note of all of them. So I would just like to make sure that I don't miss any of the numbers. So I would appreciate if you can go back and repeat what is the effect or the impact that you expect from the plan that management has put together.

Yes, for sure. No problem. The question is that between savings in drifting and drilling, we are going to save in the order of $7 million per month. You know that -- well, the detail was reducing the drifting by 2,200 meters per month and drilling by 9,100 meters per month in the different (technical difficulty) Paula, Poracota, Recuperada and even in, yes, Mayai. Then stopping short-term production in these losing operations, we will save in the order of $4 million per month. And improvements in Julcani, Uchucchacua, Mayai, Orcopampa will present in the order of $4 million per month.

So all together for eight (inaudible) and seven, $15 million per month, if I'm not wrong. On the other hand, we are focusing in our exploration efforts. As Roque mentioned, the strategy in exploration efforts is from now on not only to complete drifting and drilling program, but also and especially achieving objectives. So -- and in this regard I have to remark the fact that Cesar Vidal, our exploration expert, has the vocation to review and control the progress of every single objective and has the vocation to stop whichever exploration effort we were not achieving the goals.

This is important for us because it's going to be a much more selective exploration effort. And controlling brownfield by Cesar will add value to this operation effort because the operation effort until now was controlled by our operations. This is not wrong, but the main concentration of the -- of our geologist was the exploration within the mine, the operating area and secondary control in the brownfield exploration.

So this is going to be important. And that's it.

And in the $15 million per month that you mentioned, you are already including the benefit from the 2,200 people that would leave the Company?

Yes, when we reduce the drifting effort, the drilling effort, these are on to that, no. The people reduction, the consumer consumption reduction, energy and so on. This is by (inaudible), no.

Right. And the $15 million are also net of whatever payments or expenses, one-off expenses you may have to incur in order to reduce the cost, right?

Well, this is something that it should impact in our P&L, no. This is normally the excess of cash, investment or whatever, what is capitalized. But in terms of our P&L, the net impact should be of this order.

All right. And then my last question is assuming metal price is constant, when do you think you can be free cash flow positive? Do you think you can achieve that already in the third quarter or we are talking more something closer to the first quarter of next year?

We believe so. And the question is that the reaction of our operations unit or Vice Presidency was immediate reducing. As I mentioned, our objective was to reduce 2,200 people. We have already reduced 1,700. They were -- to stop drilling, we had to stop contracts and reduce drilling machines, and we have already retired this equipment. And we have already stopped purchasing supplies and we are transferring from one operating unit to another and reducing the cash flow in that regard. So the reaction was immediate. So we expect to have better -- much better results during the third quarter and for sure will be 100% impact in the last quarter on.

All right. And, Roque, if I may ask you a question on Minas Conga, we have seen a lot of companies taking impairment charges on balance and we all know the difficulties that unfortunately Yanacocha has faced with the project. And even now I think there is some social protest trying to avoid the water to use from the lake to fill in this reservoir that you are completing right now or you are constructing right now. Can you give a little bit more color as to what is exactly going on with the social protest around the lake? If it is still going on or it has been stopped?

And also, how did you see the impairment -- the possibility of an impairment in the Minas Conga investment given the new precious metals condition that we are seeing?

Certainly the reaction of very, very few people have made front pages and probably have made the news for people in New York and London. But as I insist, there have been very, very few people protesting. On the contrary, we are seeing more and more support.

I have personally been talking to Gary Goldberg and I think Gary, I can tell you, and we both companies are committed to take Minas Conga ahead. We don't intend to quit. We think that the project continues to be a profitable project, especially after $1.5 billion investment. If you go from senior onwards, the project even looks better, if you don't take into consideration sand cost. But even if you take into consideration sand cost, it's still a profitable project. So we are not planning on dropping this project.

If I may add, Carlos, it is important to mention that this current market situation is an opportunity to renew the CapEx of this project and to build it with an important cost control. So we have to review this CapEx and eventually it will be lower than it was initially expected.

And then if I may also add, there are not that many projects, copper/gold projects like Conga in the world. It is not easy to have a project, and that applies for certainly Buenaventura and also Newmont. So I think we have to fight it and we are prepared to do so.

Perfect. Thank you. Thank you very much.

Santiago Perez-Teuffer, Credit Suisse.

My first one is related to cash cost in Brocal and Yanacocha. I would like if you comment on how you expect these both to develop in the rest of year and in 2014?

And my second question is related to projects in general. Is there any level of IRR where you would feel uncomfortable on developing these projects? And with the new metal prices expectations we have seen IRRs in several mining projects go down significantly. Is there any specific level where you wouldn't develop a project? Thank you.

And your second question is -- are you asking on a specific project?

No, in any project whether Chucapaca, Conga where the IRR wouldn't be as high as you had initially expected, and what level wouldn't you develop that project?

Well, there are a number of variables -- and I will start with the second question. There are a number of variables to your question. In general terms, I would say that we are looking for projects that have an internal rate of return in the order of 10% to 20%. We are not going to get into lower than that.

But on the other side, there are expectations on prices. I think we are suffering from lower prices at this point in time. Our understanding is that copper prices, for instance, have in the mind of many people a bright future and we have to take that also into consideration. We believe that also the mining metals -- the height of the development of each of the mines has to be taken into consideration.

As Carlos mentioned, the opportunity to reduce cost of CapEx in different projects has also to be taken into consideration. But in general terms, we are still excited on the three main projects that we have, meaning Conga, Cerro Verde and Chucapaca.

Regarding your first question on the cash cost of -- or cost applicable to sales in the case of Yanacocha, we expect to keep within the guidance which is between 300 to 750. You have to bear in mind that during the second quarter, there was an adjustment, an impairment of the inventories on the leach pad due to this reduction of prices that impacted in the order of $162 per ounce. So this is an exceptional issue. We do not foresee additional reduction of gold prices in the short term. So we expect to continue reporting within guidance.

In the case of Brocal, it was mentioned that we are going to produce 100% copper, and copper is being produced at $6,500 per ton of copper. We are reviewing the methods of exploitation in the Marcapunta north, and eventually we could reduce this cash cost by improving and modifying the exploitation levels. But for the time being the only thing that we have is this $6,500 per ton.

Okay, great. Thank you, Carlos. Thanks, Roque.

(Operator Instruction).

Alexander Hacking, Citi.

The first question is with regards to costs at Uchucchacua. It was $16 per ounce this quarter. I think you mentioned it had fallen to $14 an ounce during the end of the quarter. Once the manganese plant is up and running, what kind of cost structure do you expect at this mining operation?

And then the second question relates to Yanacocha. The mine is well ahead of its annual guidance. But in the second quarter press release, Newmont did not increase production guidance for the year. So logically should we expect a lower level of production in the second half of the year or do you think that the annual guidance is a little conservative? Thank you.

Well, regarding the savings or the cash cost of Uchucchacua, you know that it was due to the improvements in the metallurgical processing, as Roque explained, mainly in the reagents and improving this recovery, silver recovery. So this diluted the cash cost ounce.

We expect that once we incorporate -- begin the treatment in Rio Seco manganese sulfate plant, we are going to be able to improve this cash cost in the operation because we are going to get back to areas with higher silver grade despite of the fact that they have higher manganese content. But we are going to be able to improve an additional percentage of the silver recovery and we are going to have savings in the commercial area because we are going to reduce the [canalization] of manganese. We are going to reduce the weight with a [jigsaw], so that means lower drilling charges due to the fact that we're going to have lower tonnage of concentrates.

In the case of Yanacocha, well, we are following the annual guidance. So the two first quarter, Yanacocha reported higher than the average if you consider the annual guidance. So no surprises if during the second half of the year we have slightly lower gold production with slightly higher than the guidance cost applicable to sale.

Okay, it's clear. Thank you.

You're welcome.

Lali Merino, Inteligo.

I just missed some of the guidance on El Brocal. I heard that you are focusing 100% on copper, is that right? So for the second half we will only see copper production or still a little bit of zinc? And if that is the case, so your full guidance for zinc output at El Brocal would be -- won't be met actually, right?

And in the case of Orcopampa, we've seen the first half production below what we have seen in 2012. So my guess is also that with guidance won't be met because your -- in your Company presentation you had that higher production of Orcopampa this year. So my concerns are regarding both operations.

Yes, this is right. In the case of Brocal, well, it was mentioned that Brocal will produce 100% copper during the second half of the year. However, the expansion of (inaudible) facilities will be completed about November. So eventually there will be a space to include -- to incorporate other ores production. But this is subject to the completion of the expansion plan.

Regarding Orcopampa, yes, this is -- this is absolutely right that we are producing lower grades in gold content. But we are obtaining higher production from La Zanja, Tantahuatay and Breapampa than expected, and this should compensate the attributable gold production for (inaudible).

Okay, thank you. And just one additional question. I'm sorry. In the current price environment, have you already considered some buying opportunities perhaps? We've seen some companies, junior companies which are stressed by the lower cash. So could you eventually consider them as a target opportunity?

We are not discarding that possibility, but in our strategic plan we believe that the main work is to focus on our operations. We have to upgrade our own operations, those that we are currently operating, and trying not to dilute the organization. But we don't discard the possibility of opportunities. It's obvious that your question is --

We are retransferring the main speaker line. One moment.

Thank you. Please hold on members of the audience. We'll be connecting the speakers again.

The line is now in.

Please hold on. We're connecting the speakers again.

Mr. Benavides, this is Maria again. Can you please -- this is Maria. Can you please continue your call?

Yes. Well, on this question of acquisitions of junior companies, yes, we are looking at opportunities. The name of the game is keeping as much as we can of our cash position and generating efficiencies in the operations. But as I say, we do not discard possibilities of acquisitions.

Okay, thank you. Thank you very much.

(Operator Instructions).

Tanya Jakusconek, Scotiabank.

I just have a question maybe for Carlos, just on the dividends from Yanacocha and Cerro Verde. Is it safe to assume that in this gold price that Yanacocha wouldn't pay dividends back up? And with Cerro Verde, with the expansion going on and capital outlay over the next few years, that likely won't pay dividends? Would that be a fair assumption?

Well, the assumption is that Cerro Verde and Yanacocha are not going to pay cash dividends until completing the expansion project in principle.

Okay.

However, this is an issue that we have to review, for instance. At this point in time, Cerro Verde is considering to raise only $1 billion debt. But this is a very conservative position. And as of today, after investing in dollar $1.3 billion CapEx, continues holding only $1 billion cash position and (inaudible). We have to await the market conditions and the future capacity to generate cash flow. That depends on prices.

So we are saying something now, but we have to -- this is the most conservative position for this operation. Eventually, the cash generation in Cerro Verde could be higher and the decision could be different. And so we are going to be subject to these final decisions.

Okay. And then just at Orcopampa, it's -- that's good news that you found these additional veins. Would you be having them into your reserves at year end given that you're going to start mining from them in Q1 of next year?

By all means, by all means. The thing is we will have those a bit partially by year-end within our reserves.

Okay, that's good news.

Just to complete the information, we are drifting and we are in front of the blocks. So this is the main conditions to report this as a reserve.

Okay. And then maybe just one last question. Just on looking at the Company overall and you've done all of these cost reductions which are well done in this lower gold price environment. The only thing we didn't touch on was just your sustaining capital and sort of your development capital that you see Buenaventura paying in the next couple of years. So just maybe what your sustaining capital is, maybe you can remind us?

Well, this is probably a review that we are working on. We are just completing the main projects we have, the manganese sulfate and the hydroelectrical plant that were the most important projects being developed. But then were we have is to work on Trapiche, which is the other project that we are -- we're weighing in and working on the pre-feasibility while developing the project. We are working on the pre-feasibility of (inaudible) Tambomayo. And now Trapiche, we are working on the power -- the integrating part in the metallurgical process and the design. We have to make a business decision in this case, which is -- well, is Buenaventura will develop this project on their own or we are going to share with anybody else or something related, because this is a copper deposit that it could be very important CapEx demand. So I don't know if Roque would like to add to this.

Well, the thing is -- there are two things, no. The sustaining capital will continue to have a target of investment of CapEx in general of -- in the order of $300 million, in which sustaining CapEx is about half of that. So we are trying to reduce costs and trying to reduce that sustaining CapEx as much as we can.

When you think of Trapiche, as you know, it's in a different entity. It is 100% owned by Buenaventura. And we may invite people to invest with us and acquire a minority stake or participation, and obviously by doing that, reducing our requirement of investment in the project, no.

Yes.

So that is the reason why this asset once stood in a different entity a few years ago. So those are alternatives that we are evaluating.

Okay. And then maybe, lastly, my question for Carlos. And the three -- that the mines that you put on care and maintenance now because they were losing money. Is that something that at year end we will have to look at in terms of writing-off, taking a write-down on these items?

Well, what I have to show here that we have to write-down the impairment in the different operating units as -- of the year of -- at the end of 2012. So there are no improving values to write-off.

Okay, so there is very little book value?

On the other hand, for sure those operations could be not amenable to be exploited by Buenaventura, but for anybody else. So we can sell those assets and this is part of our strategy. We have already showed this when a diluted (inaudible) of one operating unit that we had in southern part of Peru, mainly [Chikunka]. And we have already sold that.

Okay, perfect. Well, thank you very much and good luck.

Thank you.

Thank you.

Eder Castro, Calpo Saab.

I only have two questions. The first question is about your exploration expenses, differentiated it in greenfield and brownfield for this year and maybe a period for the following years?

And my second question is about El Brocal. I think the likely CapEx for this expansion project is around $200 million and the cash position of El Brocal is around $15 million. So I am wondering how you are going to finance this CapEx? Thank you.

Well, in the case Brocal, certain necessity of additional financing for this CapEx. What we believe is that we should invite shareholders to finance this eventually with a capital increase. This is the main option. But it could -- there could be another alternative if they consider that they could finance this with a subordinated quasi equity facility.

Okay, perfect. And then about -- and that about your exploration expenses please?

The exploration expenses, well, we are going to have in the order of $6 million budget approved for the second half of this year, but subject to results to be reviewed. We believe that this could be build by a couple of million dollars eventually according to the preliminary information of Cesar Vidal.

On the other hand, we have close to $20 million for the second half in brownfield, but again subject to results. So this is perhaps the main change in the exploration strategy, not to have a program that will be carried out anyway, but reviewing and to continue expanding according to the results. And if we achieved our preliminary objectives, we will continue. Otherwise we have to stop.

Okay, perfect. Can you please repeat the number per month differentiated by greenfield and brownfield please?

Well -- no, it's not per month. It's for the second half.

For both?

Second half will be -- yes, second half will be $6 million subject to approve -- subject to review, and this is greenfield. And in brownfield subject to results $20 million for the second half.

Okay, thank you very much.

You are welcome.

[Pedro Fluleneve, Laravel].

My first question is on the financing of Cerro Verde expansion. Considering the current prices, it is hard for the Company to keep financing this through cash generation as it was originally expected. So is it likely to see debt or even a capital increase there?

My second question is on El Brocal, with the current new guidance for the second half at 13,000 tonnes of copper and 1.5 -- that's on a 100% basis -- and 1.5 million ounces of silver in an [individual] basis. That looks a bit high for the grade. So are you considering to buy some silver concentrates to blend the copper concentrates there?

And my third question is on the Tambomayo project. If you can give us guidance on when it is expected to move to stability stage?

In the case of Cerro Verde, we have already spent in excess of $1 billion. Cerro Verde itself has in excess of $1 billion in cash in the Company. It's looking for a financing facility of somewhat in excess of $1 billion, and then we are going to continue generating cash. We understand that if prices of copper remain over $3 per pound, there will be no requirement of capital increases in Cerro Verde. We are quite comfortable in how Cerro Verde expansion is going to be financed.

In the case of Sociedad Minera El Brocal, we don't expect to buy any silver concentrates to add to the concentrates of -- copper concentrates or lead, zinc concentrates. We will continue operating, and the guidance that has been done is what we expect to achieve.

And finally, in the case of Tambomayo, we continue on the development of the project and we expect to have a cost of the total project in the order of $150 million to $200 million. We have to be more precise in the figures and we are working on that. But that's the order of magnitude for pulling into production Tambomayo.

[Ally Bria], AFP Horizonte.

This is [Jan Musio] from AFP Horizonte. I have three questions. The first one regarding El Brocal operations, are you expecting the second phase of the expansion project to be ready for the second half of the year?

Second, if there has been any change on the hedging policy? And third, if you can give us some guidance on your financing plans in terms of debt or equity issuance for the following years?

In the case of Brocal, we expect to be finish with the expansion -- with total expansion by the second -- the third quarter of this year -- by the end of the third quarter or certainly before the end of the year.

In the case of hedging, as you know, Buenaventura has no hedging and we will continue with that policy. In the case of Brocal, specifically they do have up to 25% of their total production that could be hedged, and that will continue as a policy within the Brocal entity. And finally in terms of financing, as we reported we requested authorization from the Board to issue bonds if needed. But at this point in time, we are looking at the market in order to see the best time to do this issuance for Buenaventura.

Okay, thank you.

James Bender, Scotiabank.

All my other questions have been answered. I just have a short one on Breapampa on the cost side. I have noticed that we've had some pretty good costs there. Are we expecting that to continue for the rest of the year?

Well, as you know, this is a small operation, very well run and we expect this same cash cost to continue for the rest of the year.

Okay, thank you.

Lali Merino, Inteligo.

I'm sorry, I just had one additional question regarding El Brocal. Since you said that the second half will be 100% copper, does it mean that your copper guidance will be surpassed or you are going to meet the 205,000 (inaudible) of copper expected for this year?

Well, as we mentioned, the true production of Brocal will be copper and in total will be in the order of 30,000 tons of copper metallic content. Nothing special to add.

Okay, thank you.

Thank you. At this time, we have no further questions. I now like to turn it back over to our speakers for closing remarks.

Well, thank you for attending this conference call. I know that these are not the best times for Buenaventura. But I can assure you that in our 60 years of existence we have had worse times and we have been able to succeed and we will continue working. We -- certainly the shareholders that were the founding shareholders continue to hold their stake, and we have a lot of confidence in the Company and in the future of mining and the future of Peru.

Thank you for attending this conference and hope to see you soon.

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