Compania de Minas Buenaventura SAA (BVN) 2013 Q4 法說會逐字稿

Good morning and welcome to Compania de Minas Buenaventura's fourth-quarter and full-year 2013 conference call. All lines have been placed on mute to prevent any background noise.

After the presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question.

It is now my pleasure to turn the call over to Mr. Bryan Caulkins of i-advize Corporate Communications. Sir, you may begin.

Thank you, David. Thank you and good morning to everyone. Welcome to Compania de Minas Buenaventura's fourth-quarter and full-year 2013 earnings conference call on this February 28, 2014. Today's call is for investors and analysts only, therefore questions from the media will not be taken.

Joining us from Lima, Peru, 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 issued yesterday. If you did not receive a copy of the report, or you wish to join the mailing list, please contact i-advize in New York at 212-406-3693.

Before we begin, I would 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 press release 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, Chairman and Chief Executive Officer of Buenaventura. Mr. Benavides, please proceed.

Good morning all and thank you for attending this quarterly end-of-the-year conference call. During the fourth quarter, Buenaventura's operations income was $13.8 million, 84% lower than the fourth-quarter 2012.

Net income was negative $288 million including $453 million non-cash impairment from Yanacocha. It means that if not for that impairment, we would have done a profit on our statement. EBITDA from direct operations was $67 million, 48% lower than the fourth-quarter 2012.

During fourth-quarter 2013, net sales were $292 million, a 29% decrease compared to $411 million reported in the fourth-quarter 2012. This was explained by lower metal prices as well as reduction in silver and copper volumes sold.

Net sales for the 12 months of 2013 were $1,241 million, 17% lower than in 2012 while royalty income was $44 million in 2013, 34% decrease compared to $67 million reported in the same period 2012.

Buenaventura's equity production in the fourth-quarter 2013 was 103,000 ounces of gold, 4% lower than the 108,489 ounces reported in the fourth quarter of 2012, mainly due to lower production from Orcopampa that had a strike and silver production including affiliated companies during the fourth-quarter 2013 was 4.8 million ounces, 5% higher compared to the figures reported in same quarter 2012.

At Orcopampa, as it was mentioned, we had 17 days strike in October, which has impacted the figures of the fourth quarter and of the whole of the year. The cost applicable to sales -- and we are using this term from now on, the cost applicable to sales for Orcopampa in the fourth-quarter 2013 was $830 per ounce, 7% higher compared to the fourth-quarter 2012.

The higher cost was mainly explained by the lower production due to the strike. Cost applicable to sales for the full-year 2013 was $802 per ounce compared to $604 per ounce in 2012.

At Uchucchacua, we -- total silver production for the fourth-quarter 2013 was 2.9 million ounces, in line with the 3 million ounces produced in the same quarter 2012.

Cost applicable to sales in Uchucchacua in the fourth-quarter 2013 was $12.86 per ounce, 8% lower than the figure reported in the fourth-quarter 2012. For the full-year 2013, cost applicable to sales was $13 compared to $13.58 in 2012.

This essentially has to do with the cost reduction and obtaining efficiency that we have been working in the course of the year. In the case of Uchucchacua, we have reduced our costs and we are looking forward to additional reductions.

At Julcani, total production in the fourth-quarter 2013 771,000 ounces of silver, 25% higher compared to the fourth-quarter 2012, due to higher ore treated explained by the increase in plant capacity from 400 tons to 500 tons per day.

Cost applicable to sales in the fourth-quarter 2013 was $8.33, 28% lower than the fourth-quarter 2012, mainly explained by the reduction in exploration activities, concentrating our exploration within the mines, and cost applicable to sales for the total year 2013 was $10.32 per ounce compared to $12.10 in 2012.

At Breapampa, we have been able to produce 81,882 ounces of gold in excess of the 65,000 ounces that we had targeted, and the cash applicable to sales in this mine was $601 per ounce.

At La Zanja, total production in the fourth-quarter 2013 33,451 ounces of gold, a 17% increase compared to the fourth quarter of 2012, and was due to an increase in ore grade. And for the full-year 2013 gold production was 137,395 ounces, 22% higher than for the full-year 2012.

The cash applicable to sales -- the cost applicable to sales in the fourth-quarter 2013 was $617 per ounce, 29% lower than the same quarter of 2012. For the full-year 2013, cost applicable to sales was $643 per ounce.

At Tantahuatay, total production in the fourth-quarter 2013 was 33,417 ounces of gold, 5% lower than the figure reported in same quarter 2012. Cost applicable to sales in the fourth-quarter 2013 was $375 per ounce, 40% lower than the fourth-quarter 2012.

In terms of exploration in non-operating areas, the exploration investment or expense for full year of 2013 in non-operating areas was $32.8 million compared to $95.5 million in the same period or for the full year of 2012, representing 66% decrease in the investment in exploration outside of our direct operations.

In this case, we must say that we are focused on brownfield exploration, reducing our greenfield exploration in line with the new policy that we want to reduce our expenses in areas that could wait. We are essentially focusing on brownfield exploration and exploration within our mines.

Our share in affiliated companies during the fourth-quarter 2013, Buenaventura's share in affiliated companies was negative $282 million compared to $105 million reported in the fourth-quarter 2012. Yanacocha's contribution towards this result was a negative $322 million due to an impairment of $453 million.

Cerro Verde's contribution increased 12% from $31 million in the fourth-quarter 2012 to $34 million in the fourth-quarter 2013. Coimolache's contribution decreased 35% in this period.

During the full-year 2013, Buenaventura's share in affiliated companies was negative $108 million compared to $481 million reported in 2012. Buenaventura's fourth-quarter 2013 net income was negative $288 million including $453 million non-cash impairment provision from Yanacocha compared to $154 million reported in the fourth-quarter 2012.

Accumulated net income in full-year 2013 was a negative $101 million compared to $703 million in the full-year 2012.

2013 has been a year where we have developed a number of projects and I would like to take a few minutes in detailing this. The Rio Seco plant is in ramp-up stage and the facility will allow mining from accessible areas with high silver and high manganese contents from Uchucchacua mine, improving the quality of lead-silver concentrate from Uchucchacua and resultant manganese sulfate concentrate with commercial value that we will [sell] to agriculture within Peru and elsewhere.

The Huanza hydroelectric plant, the unit 2 started generating 46.3 megawatts while unit 1 will start its commissioning in March. This plant will assure energy supply for direct operations and can sell to the open market.

El Brocal expansion from 6,000 tons per day to 18,000 tons per day was completed. Production will start in March to treat 11,000 tons of polymetallic ore from Colquijirca and 7,000 tons of copper ore from Marcapunta daily.

Tambomayo is an advanced exploration including drilling of new structures. Mine development and engineering studies are in progress. Environmental impact assessment and permitting are expected in 2014 to initiate production in early 2016.

During the course of 2014, in addition to the Mirtha veins, we have discovered a very important (inaudible) vein with very high grade and as of the end of the year, the returns or resources on this mine have increased both in volumes and in grades.

Yesterday we had our Board Meeting and there we have a number of resolutions and the first one is to accept the resignation of Mr. Aubrey Paverd as Board Member due to age limit.

He was 75 years in January and that is the limit we have put for Board Members. We would like to wish him, Aubrey, a special thanks for 12 years that he served and contributed to Buenaventura's growth with great advice on the geological front and may I just say that he was the man that led the discovery of Yanacocha in the 1980s when he was working for Newmont.

He has given a lot to Buenaventura and we are very grateful to him. And the Board appointed Mr. Igor Gonzales as a new Board Member to complete the current period. Mr. Igor Gonzales was Chief Operating Officer of Barrick until July last year. He is a Peruvian. He is from Cusco and he's a metallurgist and I'm sure he will contribute a lot to Buenaventura as well.

The second resolution is to modify the following requirement to qualify as independent Board Member; when the Board Member is an officer of the company that maintains commercial relationship with Buenaventura, previous requirement, the company's billing to Buenaventura should be less than $1 million represented than 2% of such company revenues.

The new requirement will be that the company billing to Buenaventura should be less than a $1 million and represent less than 5% of such company's revenues.

This is done essentially for smaller companies that we sometimes use their services and this is a minor change in the Board policy.

The third was to approve Buenaventura's compliance policy in anti-money laundering and counter-terrorism financing, and anti-bribery policy, and this has to do with the Foreign Corrupt Practices Act.

And the fourth resolution to call for an annual shareholder meeting to be held on March 27, 2014, to approve the annual report as of the end of the year, the financial statement as of the end of the year; appoint Ernst & Young as our external auditors; ratify the dividend policy amendment which has been proposed by the Board of Directors; approve a payment in line with -- a payment of a dividend in line with our policy; and elect the new members of the Board for the period 2014-2016.

With this, we are open the any questions that you may have. Thank you.

(Operator Instructions) John Bridges, JP Morgan.

I'd just like to express condolences on your recent -- yours and Raul's recent loss. Just wondered if you could give us a little bit of detail on the outlook for likely production overall in 2014 and in particular for Brocal and Orcopampa.

John, good morning, it's Carlos Galvez. Regarding our production in Orcopampa, we expect to get the level of production that we had in the year 2013. That means [to grow] to 20,000-30,000 ounces of gold.

And our expectation is to have some similar production in Orcopampa as well admittedly going to be (inaudible). The main efforts to keep on to this in the same levels, or to increase will come from our other operations like La Zanja, Tantahuatay, and even completing the year with Breapampa.

Thank you John for the condolences we have received. And on behalf of my family, my mother, my brothers and sisters, I would like to thank all of those of you that have expressed these condolences for the passing away of my father, who passed away close to 20 days ago at 93 years old. He was the founder of the Company. He was very active. He was very bright and till the end.

And for those of you that met him, I'm sure that you will remember him and we will continue working in Buenaventura to follow his lessons and to make Buenaventura even bigger for the benefit of all of our shareholders. So thank you very much for that, John.

Thank you, Roque, and best of luck. Just following up on Orcopampa, I thought you were going to be getting into better grades at Orcopampa about now and that would have lifted your production?

Well, the question, John, is that we continue reviewing the geology of Orcopampa, exploring towards the (inaudible) from [Nazareno]. And we continue the story and doing things in the area of Pucay.

Those are the areas where we have important institutions. But we wouldn't like to give and I would hope that we have not (inaudible). So this is what we have as of today.

In 2013, we have been essentially working on a long tunnel to integrate the area of Pucay which is an important target.

Last week we were -- reached at -- we have finally got there and we have already intersect with tunneling some of the areas that we were looking for and we will be reporting obviously the good results at some point in time, but we are very optimistic about the exploration in the area of Pucay.

And then, sorry Roque, I missed your comment in your introduction you were talking about a new discovery, a very important new vein that you discovered. Which vein is that at?

In Tambomayo. In Tambomayo, in the focus of developing the mine we had essentially one vein which is the Mirtha vein and we had -- it has intersected the (inaudible) vein. We were visiting that in mid-January and it is an impressive vein with very high grades. And all of this has made that as of the end of the year the reserves and resources at Tambomayo have increased both in volumes and in grades and that is a very important factor for the feasibility of the project.

And do you expect to have permits from the EIS in hand by the end of the year? That's amazing.

Well, we expect to be in production. I keep teasing Mr. Francois Muths that I would like to have this mining operation in 2015, but he thinks that -- wants to have more time to make it. But we will be in production by the end of 2015, early 2016.

(Operator Instructions) Carlos de Alba, Morgan Stanley.

And we're sorry for your loss, Roque, but certainly Alberto we will remembered with admiration. I wonder if you just could please give us some comments on the overall guidance for gold and silver production in 2014 as well as the cash cost of those two main products.

And finally the CapEx outlook for the year given that a lot of projects were completed already and we should start to see CapEx coming now I believe. And by the way, I just want to congratulate the Company for the very good release on exhibit 6, much more transparency which I think it will enhance the level of understanding of the Company amongst investors.

Carlos, well, the guidance of production that we have is to keep on producing for the next two or three years at the level of (inaudible) 850,000 ounces to 900,000 ounces of gold until Tambomayo begin to production in 2016. Our expectation, you know that we should incorporate about 110,000 ounces per year of gold in Tambomayo in beginning this year.

For sure this will replace perhaps the reduction of other small operations production.

In terms of the guidance for silver, the profile that we foresee for the future, it was less [view] -- we produced close to 19 million ounces in year 2014 (inaudible) 22 million ounces to 30.5 million ounces, and our expectation is as we can incorporate the high grades of surplus ores into production, we now want Rio Seco plant so fully producing or treating our concentrates which should include another 1 million ounces.

And then when Tambomayo begins production, we add close to 3 million ounces of silver per year. So we should achieve a volume of production of 24 million ounces about 2016.

And then you know that we are going to increase our copper and zinc production coming from not only the new level of production at Brocal, but also once Cerro Verde completes the expansion.

So we are going to grow from 65,000 tons of copper year 2013 to the level of 75,000 tons of copper due to a growth of copper production from Marcapunta in Brocal. And keep on producing 75,000 tons to reach 150,000 tons once the expansion of Cerro Verde is completed and for sure we expect to add additional copper production from the area of Marcapunta West in Brocal.

Regarding the zinc production, we are growing in production. We want to achieve this year a level of 50,000 tons of zinc or 55,000 tons, and this is a level we expect to maintain until we are able to develop the new zinc deposits that we still continue working with the communities.

In terms of the cost applicable to sales, well, you know that we've improved the performance in our Uchucchacua mine. We believe that we are going to reduce some [mid] cost applicable to sales to the level of about [$13 or $12, $15] cost applicable to sales for both.

We did know that good perhaps we are going to keep on producing at an average of [600] to [350] plus the impact of the attributable gold production coming from Yanacocha. But what I believe is that according to the profile that we should have a development of production so that then with the market we are going to produce in the order of 12,000 ounces to 900,000 ounces of gold, but perhaps these are arranged between 900,000 ounces to 980,000 ounces, 990,000 ounces of gold for year 2014.

But during the first half of the year, probably the profile would be similar to the last quarter of year 2013. So coupled the average cash cost, we tend to be (inaudible) $41, $45 per [pound] until (inaudible) completed the expansion of Cerro Verde that will impact with a lower rate, but higher volumes. So as of now, we don't have guidance of what is going to happen at this point in time.

Any comments on CapEx, Carlos?

Sorry. The CapEx growth to be in order of $280 million, you have to bear in mind that (inaudible) $380 million, $385 million during year 2013 including the completion of Brocal expansion. But this CapEx moved to the fourth quarter of 2014 and this is why we set off $250 million guidance that we gave is going to be $280 million this year.

The fact is that we have finished with a number of projects and we expect that from now on we will certainly look up to cash and we are not going to have this requirement of important project that we have concluded.

James Bender, Scotiabank.

Our condolences, Roque. My question is for Carlos on the quarter earnings. Can you help us get to your adjusted income of $0.55? I know that the big adjustment is the impairment at Yanacocha, and that would imply, if I've done my numbers correctly, your share of income from Yanacocha of about $130 million, is that a correct number?

Well, first of all, it is important to clarify that the impairment that we are accounting for Yanacocha is that because we applied IFRS reports. This impairment is not applicable for those that we report in (inaudible).

This is the first question that we have to clarify because all the Yanacocha will come under Buenaventura are incorporated in this (inaudible). Secondly, regarding the figure, yes, you are mainly in line. The amount taking away the (inaudible) the figures we reported is right.

And just to clarify from the previous question asked, I'm sorry, I didn't really hear it clearly, did you say that CapEx was $480 million or $280 million?

$280 million.

$280 million?

$280 million.

Tanya Jakusconek, Deutsche Bank.

Again, Roque, my condolences to you and your family. I just had a couple of follow-up questions, if I could. Just on the capital, of the $280 million, what is sustaining in that $280 million?

$150 million out of the $280 million is sustaining CapEx.

And then maybe just some other little questions. We didn't really get any of the lead guidance for 2014 or what your G&A is going to be or your exploration or your tax rate?

The tax rate is going to be 30%, that is for sure.

30%.

What is -- I'm here with Cesar Vidal, maybe he can tell us what is the budget in exploration.

The budget (inaudible) for greenfield activity in the order of $10 million and for brownfield in the order of $72 million, an aggregate of $47 million for 2014.

$47 million, is that four seven?

Four seven, four seven.

Okay, thank you. And then maybe your G&A and a little update on Chucapaca if possible.

G&A, what is G&A?

General and administrative.

General and administration, yes.

For Chucapaca?

No, no --

No, no, general and --

(Multiple speakers)

Yes, general and administration for the Company and then maybe separately an update on what's happening at Chucapaca?

Okay, okay. Well, that will be G&A we are just at where we could during the year, so the G&A will be for the year about $70 million to $75 million. This is where we (inaudible).

In the case of Chucapaca, we were attending this conference of Bank of Montreal in Miami and we had the opportunity to talk to Nick Holland and (inaudible) who is the manager (inaudible), talking about Chucapaca.

And during 2013 we decided to look after the possibility of developing Chucapaca underground and we are working in the engineering and (inaudible) visibilities scoping of that alternative. Having said that, we have to accept that we do not have the surface lines required to develop the project. And we have decided that we will work on that first and then afterwards decide what to do with the project.

The thing is that expectations of the communities can be very high, and we are not prepared to give more than what the cost of the land should be. So the thing is, what we have decided is to get to a standstill until we acquire the required land for the development of the project.

The project continues to be attractive. There is other areas in addition to the Canahuire ore body that can't be explored. Cesar Vidal is here with us, he is optimistic that there should be other opportunities and that's the situation of Chucapaca.

And then maybe just lastly, the lead guidance, would that be possible?

Can you repeat that please?

The lead --

Your lead production for this year?

Yes, well, you know that we do not target a typical (inaudible) because we target for our production and comparing our revenue with less than 3%, so we do not annotate it, but we pursue.

(Operator Instructions) [Hector De La Garza], Credit Suisse.

I've just got one follow-up question. I don't know if I didn't get it right. Could you tell us your cash flow guidance for Orcopampa please?

Production guidance?

Yes, cash flow guidance please.

Cash flow. No, sorry, I did not get it. Sorry, I cannot hear what --

Can you repeat your question please?

Yes, could you tell us your cash cost for Orcopampa for 2014?

Yes, the cash -- (inaudible) cost applicable to sales as we are reporting will be nearly in line what we achieved during the last quarter of the year. So if I'm not mistaken, the period would be in the order of $300 per ounce, $300.

Then we have to work with a figure of $800 cost applicable to sales.

(Operator Instructions) George Birch, Somerset Capital.

Can I just ask about the impairment charge and how that was calculated, and yes, how you are thinking about possibility of future impairment on that project?

Well, in the case of the impairment the way to calculate is projecting the CapEx, the production at a given price which is already [we did] and we used $1,300 per ounce of gold.

Considering the new expectations for cost adjusted for (inaudible) we consider the life of mine will be and this is the big difference in the calculation for the (inaudible) of improvement and the IFRS (inaudible) is that we have to calculate the present value of that as compared with our investment and what we had in the past.

And according to this, and due to the special value that we have to calculate with the rate of the income which in our case is 7.1% after tax effect means that we are consistent, which is $1 billion at the level of the Company 100% impacting on the Buenaventura our (inaudible) to 5%.

Both exercises relative to wealth reserves for Yanacocha's operation and we'll come back for it. So in both cases together make it $1 billion.

Jessica Bessa, Merrill Lynch.

Hi, actually this is (inaudible). Two follow-up questions here. First, just to clarify, you mentioned cost should return back to the $650 levels, I'm not sure I heard that right, you said for 2014 on a consolidated basis, if you could just clarify that?

And second on the projects, again just to clarify on Chucapaca, with the issues you mentioned in land acquisitions, do you think it will be -- will be able to see a final decision still in 2014 or it's going to be more towards maybe 2015? Those are my questions.

Regarding Chucapaca, we do not foresee anything happening, anything dramatic happening in 2014. These negotiations with the local communities have to be taken with great patience and we will continue working with them.

If any, hopefully in 2014, we will be able to reach an agreement on the surface land, and from there on decide where to go, that the thing is that we have people in the area working in different aspects, that generates expectations that we do not want to generate.

So the thing is we are going to work cautiously during 2014 and see if we are able to acquire which land that we need. The cost of $650, Carlos?

Yes, well, regarding the guidance of the costs we give you the mix of our full production. Of course we are calculating an average of Orcopampa, La Zanja, Breapampa, Tantahuatay which are (inaudible) rich region and low cost.

And we have reported certain operations in about 340, 350 drop downs, so when you combine the [global] guidance with those of 350 to 380.

And if I may, just could you provide an update on Conga, when can we expect the start-up of the project?

At Conga, we have been talking to a number of investors in the different (inaudible). Essentially we finished the Chailhuagon reservoir in 2013, but it showcased what the good things that Conga can bring to the local farmers and to the area of Conga.

The next step will be the (inaudible) reservoir, but the thing is in Cajamarca in Northern Peru we are running for election of regional president in October this year and so this is a political time which we do not want to get into discussions, and certainly that the subject of Conga be the subject of the election.

So essentially we -- in Conga we are in a standstill until the new authorities are elected, and then afterwards we will see how we proceed from there.

Again, this is something that we have to be extremely cautious. We do not want a confrontation with the local community. We want to show them that they are going to benefit from the project and that requires the socialization of the project.

(Operator Instructions) At this time, we have no other questioners. I'd like to turn it back to our speakers for closing comments.

Well, thank you again for joining us. We will continue in touch. We are committed to reporting to the market.

And I can tell you that the team of Buenaventura will continue working in order to make far more efficient our operations and growing the Company in the benefit of all of our stakeholders. Thank you very much for attending this conference. Bye-bye.

Ladies and gentlemen, that concludes our presentation today. You may disconnect your phone lines and have a wonderful weekend. Thank you.