Compania de Minas Buenaventura SAA (BVN) 2014 Q1 法說會逐字稿

Good morning and welcome to the Buenaventura first-quarter 2014 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, and good morning to everyone. Welcome to Compania de Minas Buenaventura's first-quarter 2014 earnings conference call on this May 1st, 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 results for 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 section. We ask that you refer to it for guidance on this matter.

It is now my pleasure to turn the call over to Roque Benavides, Chairman and Chief Executive Officer of Buenaventura. Mr. Benavides, please go ahead.

Thank you for attending this conference call on a holiday for Peru. This is a holiday in my country. This quarter has not been an easy one for us. There have been a number of factors that have impacted our results. We have had a strike in the Uchucchacua silver mine. We have had lower rates in some of our other operations, but we believe that looking forward in the course of the year, we will have much better results.

During this first quarter, Buenaventura operating income was $3.5 million, and our net income was a negative $16.1 million, and our EBITDA from our direct operations was $53.3 million. EBITDA including our affiliates was $104 million.

During the first quarter 2014 in terms of our operating revenues, net sales were $274 million, a 20% decrease compared to $340.9 million reported in the first quarter of 2013. This was explained by lower metal prices, as well as reduction in gold, lead, and zinc volumes sold.

In the first quarter of 2014, Buenaventura's equity production, including associates companies, was 191,000 ounces of gold, mainly due to lower production at Orcopampa and Yanacocha. Silver equity production, including associated companies during the first quarter of 2014 was 4.1 million ounces.

At Orcopampa, our total gold production in the first quarter was 44,900 ounces, with a cost applicable to sales of $860 per ounce of gold. At Uchucchacua, total silver production in the first quarter was 2.4 million ounces, mainly due to 7-day strike and community stoppages. The cost applicable to sales in the first quarter of 2014 was $17.51 per ounce of silver.

At Mallay, total production in the first quarter, 297,000 ounces of silver, with a cost applicable to sales of $14.79 per ounce of silver. At the old Julcani mine, total production was 763,000 ounces with a cost applicable to sales of $14.35 per ounce of silver.

At Breapampa, total production was 21,000 ounces of gold with a cost applicable to sales of $461 per ounce of gold. At La Zanja we had an excellent quarter with a total production of 36,000 ounces of gold with a cost applicable to sales of $535 per ounce of gold. At Tantahuatay also a very good quarter with a production of 32,600 ounces of gold with a cost applicable to sales of $437 per ounce. At El Brocal, copper production was 9,792 metric tons with a cost applicable to sales of $5,034 per metric ton of copper.

During the first quarter of 2014, Buenaventura's share in associated companies was a negative $12.5 million. At Yanacocha the gold production was 207,500 ounces of gold, and the net income at this company at Yanacocha was negative $56.1 million, explained by $55.4 million write-down of leached inventory value from La Quinua, Yanacocha, and Maqui Maqui pads.

At Cerro Verde in the first quarter of 2014 corporate production was 60,900 metric tons. And at this operation the capital expenditure in this quarter was $439 million, which is part of the expansion project.

At Coimolache in Tantahuatay the attributable contribution was $4.8 million. The net income [over Valentura] in the first quarter '14 had a negative $16.1 million.

In this quarter, we have been able to start up at the Huanza hydroelectric plant, and Unit 2 began generating 46.3 megawatts, while Unit 1 will start its commissioning in the 2nd quarter 2014, and we are already in the process. These plants will ensure energy supply for our own direct operations and for selling to the grid.

In El Brocal, expansion from 6,000 tons per day to 18,000 tons per day was completed. Production will begin in the second quarter 2014 to treat 11,000 tons of polymetallic ore from Colquijirca and 7,000 tons of copper from Marcapunta.

At Tambomayo, the mine development and engineering studies are in progress. Environmental impact assessment and permits have been filed, and production is expected by the end of 2015 or early 2016.

We had a board meeting yesterday, and we have approved the new code of ethics, which is also in our Web page for those of you that want to check on that. With this, we are open to any questions that you may have on this quarter. Thank you. Hello?

At this time, we will open the floor for questions. (Operator Instructions)

And our first question comes from [Karel Luketic] with Bank of America.

Good morning, Roque, Raul, and thank you for the questions. I have two questions.

The first one is regarding Yanacocha. Two things on Yanacocha -- could you please help us understand the leach inventory adjustment you mentioned in the press release also impacted the reported EBITDA and the cost reported by [new one], and if you could please explain or provide us an update on what to expect in terms of tonnage and costs for the remaining of the year in Yanacocha. That's my first question.

Certainly this quarter has been a low in terms of production at Yanacocha, and we expect this production to raise during the next quarters. In terms of the adjustment that they have made, Carlos, can you please help us on the -- on this?

There was a write-down in terms of the inventory value as you know, what you have to do to [track] this inventory at cost or market value, the lower. And, well, we had a [certain] inventory, a [certain] (technical difficulty). Finally we had an adjustment of this amount, in total $54 million.

That's great. Thank you. My second question is could you provide an update on the Chucapaca and Conga projects?

On Chucapaca you mentioned?

Yes, please.

Chucapaca, as we take it, previously we are in the process of acquiring the land, the needed land, and we have decided to put it on standstill for the time being until we reach an agreement, because if not, we are generating expectations, which we cannot cope with if we are not able to acquire those lands. So, we essentially are doing very little at Chucapaca at this moment.

That's great. And on Conga?

Conga, we have continued building the internal roads needed for the development of the project. As you know, the [Chargaon] project, the Chargaon Dam was finalized last year and essentially we are [closer] because of the election period. As you know, in Cajamarca in whole of Peru there will be regional elections in October, and we don't want to be a subject of discussion, so we have decided to build those roads and wait and see. That's the situation at Conga.

That's great. Thank you.

Our next question comes from Carlos de Alba from Morgan Stanley.

Good morning, gentlemen. Carlos, let me just go back to the question about the write-offs. This is the fourth quarter where Yanacocha has leach inventory write-downs, and I just want to understand why is the logic of having this on a scattered basis as opposed to having just, I said, one write-down?

And if you can tell, do you expect that we're done with this situation, or should we perhaps see more in the coming quarters now that gold prices and silver prices have rebounded year to date? Any clarification there would be great.

Well, first, Carlos, on your question, just let me clarify some information. In the last quarter that year we included the impairment, impairment to our investments. Then according to our international IFRS procedures we had to account our book. This time we are not talking about this impairment. We really are talking about a write-down to the current operations, a value of our inventories.

As you will remember, what we have to do to assess these inventories as I explained at cost all market value to achieve the lower. And this was positive and this was fine while the price of gold was higher than what we had. Remember that this is a variable that incorporate the issue of the grades. If you exploit lower grades and (inaudible) lower grades, you have certain volumes that do --will comply with economic values. And this is [finally] the adjustment.

Carlos, sorry. Last quarter was an impermanent charge of $453 million, which I understand is related to the investment of -- in Yanacocha and the value of that investment, but there was also $43 million charge on write-down for La Quinua and Yanacocha and Maqui Maqui pads, which is, I guess, similar to what we have seen this quarter. And so the question -- if it is related to gold prices, gold prices went up in the quarter, so it's basically the impact of the lower grades of what has been put in on the pads?

Yes. It's related to the lower grades on the recovery.

Understood. And then my second question is regarding the expectations for oil grades in the coming quarters at the Chipmo mine. If you can give us any guidance there, it will be appreciated.

At the Chipmo mine. This is Francois Muths, our Chief Operating Officer, that will be -- help.

The 1st quarter we produced at the Chipmo mine almost 45,000 ounces of gold, and we expect to produce in the 2nd quarter around 48,000, 49,000 ounces of recovered gold at the Chipmo mine. The grade would be at around 13.5 grams per ton.

So it would be higher than the first quarter.

A little bit higher in the third quarter. The grades are --

And that will continue until the end of the year in that situation.

So the 48,000 to 49,000 ounces is the expectation for the 2nd quarter, and this is a level that you expect to see also in the remaining of the year?

Yes, the end of the year, until the end of the year.

Until the end of the year. And what do the mining plans suggest for next year?

Well, the next year we have to -- that will depend on the results of the explorations, but we will do all of our effort for maintaining that level of production.

Thank you, Roque. Thank you, Carlos.

Our next question comes from Alex Hacking with Citi.

Hi. Good morning. Thank you for the conference call. My question is on the El Brocal expansion. In the press release you discuss that you're going to be running there at 7,000 tons per day on the copper ore for Marcapunta and 11,000 tons per day on the polymetallic ores.

So, once this capacity is running at a full rate, should we expect that the copper production should be relatively stable where it is now, maybe 40,000 tons a year, and then the polymetallic production, the silver, the zinc, and the lead, should we expect that to return back to the levels of 2007, 2008? I guess that's my question.

How much output of each metal should we be expecting from El Brocal going forward? Thank you.

You should be expecting a good copper production yet a very stable production but the grades at the [open stage] of the lead, zinc, silver area have come down and I don't think we can expect 2007 production, but it will be a steady production, and we will have an 11,000-ton-per-day capacity to process those concentrate -- those [loads].

We are going to increase in the same rates and for sure our expectation need to happen [both in] cost -- cutting costs.

Reduction.

Reduction.

Thank you. It's clear. And a second question, if I may -- Rio Seco, the manganese plant, could you maybe give us an update there on the ramp-up process? Is everything working as expected, and should we start to see some downward trend in the cost of production from Uchucchacua as a consequence? Thank you.

Well, essentially the Rio Seco plant has been built to add value to the concentrate coming from Uchucchacua. I would like Raul Benavides to explain what is going on in Rio Seco.Raul, please?

Carlos, the Rio Seco plant is running in per [setting] about 120 tons of concentrate per day, and that's about the rate that it was designed -- it was designed for 140, but it depends on the amount of high manganese-silver concentrate produced by Uchucchacua. So, essentially we have solved them the problem of the manganese in the Uchucchacua concentrate, and theleaching is working very nicely.

Our sulfuric acid plant is working perfectly, and we are having some problems to generate crystals for the manganese, and we're struggling with that. We're producing some manganese sulfate by [prey dryer], but we should solve this issue of the crystals and the crystallization of the manganese sulfate is not [for sure].

The thing is we are already producing these concentrates free of -- with natural manganese content that we are producing from Uchucchacua. That is adding value to Uchucchacua's production, and that we are very pleased with.

It's clear. Thank you.

(Operator Instructions)

And our next question comes from Santiago Perez with Credit Suisse.

Hi, Carlos, Roque, and all the team, and thanks for taking my question. I wanted to go back to Yanacocha a little bit. Have you had any advances in [several colleagues]? And also in terms of research, with what you have now, the permits you have now in line, what is the mine life of this current production with everything you have now with no additional permits, no works?

And also if you could comment more on the [mentory] write-downs. Given that Carlos just mentioned that these ones were related to old rates, can you give us color on what you expect for more rates in order for us to understand if these write-downs should be coming also in the next quarters? Thank you.

The thing is in [Chile] nothing has happened, it is -- we have not advanced anything, so it is the same as in the past. In terms of reserves, we continue to have reserves for the next four or five years, but we continue exploring at Yanacocha. I don't know, Carlos, if you want to --

We do not expect additional write-downs, but we don't know. It's (inaudible) review according to the evolution of the innovations, but at this point what we have done is adjust [behavior] we know at the end of the quarter.

Perfect. Thanks, Carlos. And could you give us some color as to how much of this was effective cash, and what is the cash position in Yanacocha?

So, the cash position in Yanacocha is close to $600 million. They continue to keep the cash in other places in order to meet (inaudible) third quarter event. We have to develop the budget. On the other hand, we could [deal with already] cash. You know the major concerns have been attempted merely for not only the prices but essential needs for the positions that we wouldn�t have included in our operations in Yanacocha and by and large adjusting behavior, and we can't cooperate with the [DMS].

Perfect. So just to be clear, right now the 40 -- sorry, the $54 million you mentioned earlier were all cash?

No, this is not total cash. 50% of that is cash, and 50% is not.

Perfect, Carlos. Very clear. Thank you.

Thank you. Bye.

Our next question comes from Karel Luketic with Bank of America.

Hi, gentlemen. Thank you for the follow-up questions. Two quick follow-ups -- if you could provide an outlook for 2014 in terms of what to expect of attributable growth production and the other amount as well, and an outlook for CapEx in 2014 as well. That would be great. Thank you.

Growth production. The growth production at least continue -- we're expecting something in the overall [probably] 900,000 ounces in total (inaudible). Only 60% of that's coming from the operations we manage and 50% of that from Yanacocha. The [quizzening] that -- as it was mentioned, the [tail top] of the year Yanacocha's production, and it has been announced previously will be lower than the second half of the year production.

On the other side, yes, we are getting this production slightly low according to our expectations. In the case of Orcapampa, as (inaudible) has mentioned, but we are doing our best to compensate that with Breapampa, La Zanja, and Tantahuatay productions, so this is other way to compensate.

In the case of silver, we continue aiming to be close to 20 million ounces. Unfortunately, the first quarter was not as good as we expected, but we believe that we are going to have the fortuity to return to the rates of production we expected. So now we are looking at total silver production (inaudible) in the area of 20 million ounces.

And in terms of CapEx for 2014?

Sorry. For the CapEx, we are aiming to something (inaudible) $280 million, which includes the El Brocal expansion project position that happened during the first quarter of this year instead of last quarter last year. Taking away [this], we are talking about the incoming quarters at $160 million, and going forward we expect to maintain [away] in the order of $230 million, $240 million for our other projects and considering obviously the time being the charges we have are mainly -- [can't deny it] when -- that we invest around [$100 million] for a couple of years each year. Then we have to complete the construction of Alejandra, which is a [a part of our] banking expansion operation in [La Banca], and that's it.

That's great. Thank you.

Our next question comes from Tanya Jakusconek with Scotiabank.

Morning, gentlemen. I have a couple of questions, probably for Carlos. I just wanted to just check on what our copper and zinc guidance is for 2014.

The copper production will be on the level of 70% of the [type] and 1,000 tons per year, which [in terms manually] there are two [different] production from -- there is a lot of it from our [statement of production from El Brocal. This will happen this year and next year, and our expectation is to reach close to 150,000 tons once (inaudible) the beginning the expanded production. In the case of zinc, it's been over -- the production (inaudible) 40,000, 45,000 tons per year.

And then we noticed that you did not sell all of the metal that was produced in Q1, especially copper. Will that, Carlos, be sold in Q2?

Sure, but there has been no major (inaudible). There have been no major delays. Everything that is produced is being sold. It may have a short delay but nothing much.

And then can you tell me what exactly is a contingency expense? What is it in the income statement? We can see the number, but I just wanted to understand what exactly is it.

Well, what happened is that we are [negative shape] with the community of Oyon, an area of Uchucchacua, where expansion of our [penga dam]. This is [oscillio] but we tried to manage. We delayed it six years, and it was almost impossible to reach the terms, because we had no [campo bar to negotiate]. At this point in time, [empower]; we have a campo bar. There is a community, and our final (inaudible) called that, and, well, now we are [in a relationship] with them, and the [total value], our best assessment of our unique case, which the agreement is with [aman], but this is part of something that we have to consider and incorporate it (inaudible). Eventually, if we reach terms, we (inaudible) to take out [almost in a very good year].

So this is your best guesstimate of what has to be paid out at this point in time?

Yes. Absolutely.

And then, lastly, can you give us the guidance for exploration for 2014 for your operating and non-operating properties, because exploration looked like it was very high in Q1.

Well, in our non-operating explorations our budget is in the area of $65 million to $70 million, but if you understand these exploration [boxes backwards] includes not only the actual jobs that we have to pay but also they are (inaudible) in the community in these exploration areas. And this could happen in a later point in time, so this is not -- [and I grant] that we will be able to take quarterly (inaudible) which not to an agreement with communities and not to pay it again, but [there's] the low budget.

In a case of the exploration in the operating areas, [sounds with the tide], yet -- but this is the [operation] we are carrying out now in order to replace and replenish the resource, especially in areas of abundance.

Do you have a number for us for 2014 for operating expiration?

Well, I believe that we continue expanding while we have (inaudible) during this quarter.

So if I use $32 million per quarter, is that a reasonable number?

Yes. It could be $40 million per quarter.

That's the order of magnitude, and you all understand that exploration is fundamental for a mining company as Buenaventura, especially in underground mining.

Understood. Well, thank you very much.

Our next question comes from Carlos de Alba with Morgan Stanley.

Thank you for the follow-up. Just wanted to understand, Roque, Carlos, if -- is there anything else in terms of lower expenses, lower costs, that we should expect in the next few quarters coming from the turnaround plan that the Company put together in the third quarter of 2013, or basically all of the benefits had already come through?

Well, it is a process, no? The stopping of operations is a process, and you cannot stop everything from one day to the other, and we are going to see cross-reductions in the course of a year and that most of the benefit, quote-unquote, has been shown. We have --

In [keep] of our general land resources expenses, there's amount we really focused this quarter was impacted by a level of $10 million [condition]. So, we should leave something there.

On the other hand, the impact of the generation, the power generation within the Company, we are not going to purchase energy through the third parties, but it will be an internal thing. So that means on order from $5 million to $7 million per quarter impact in our P&L. And, finally, (inaudible) when we complete the ramp up of our operations in Brocal [all] this year will be an important (inaudible).

We [may] obtain our new incoming (inaudible) of less than $1 million in the 1st quarter without having any expanded production in Brocal. Our [sufficient] is [priceless] of [corporate way] and the (inaudible). We should obtain this year the order of $60 million to $65 million in exact from this population, something that we (inaudible) during the first quarter [on the tap].

Sorry. The $60 million, $65 million EBITDA in Brocal you mentioned is for the year?

It's for the year, yes. It's part that we had as a good contribution for this expansion in the third quarter.

So how much was the EBITDA for Brocal in the first quarter, Carlos?

It was on the order of [$10 million or $15 million]. I don't have the figure, but I could give to you later on.

Excellent. Thank you.

Our next question comes from Hector Collantes with Credicorp Capital.

Hello. Good morning. Thank you for the conference. I just had two brief questions. The first one is related to what is expected for Orcapampa cost, because I remember you were reaching the individual areas perhaps in the second half of the year, and therefore the [tunneling] and [nine] development will go down.

So, shall we expect this cost to slow down in the second half of the year, perhaps 2015? And the other question is even though it's still earliest stages, what do you think that you look now at Tambomayo for the 2016 start? Is there any guidance perhaps the [altodad] is being looked for? And perhaps just a little bit of development of that will be very, very good. Thank you.

We are not able to understand very well your question. The first question was on cost structure?

Perhaps I can say it again. In Orcopampa I was just wondering whether the second half of the year we'll see diminishing of costs, because as I remember, the mine development plans to reach the richer areas might be coming in line. So I'm just wondering whether it is coming sooner or later.

In Orcopampa, we will continue with our intensive exploration, and we don't foresee substantial reduction in costs in Orcopampa, essentially because we are investing in replacing reserves and increasing the ounces produced. So there will be no cost reduction in the course of the year.

Thank you.

And the second question, please?

The second is about Tambomayo. What is it that you are looking now? What is going on? Just a brief overview would be nice.

Well, Tambomayo is something that we feel very proud about. We are increasing the resources there. We are continually finding additional veins and structures and, as I said, increasing our resources. We are working intensively. We are looking after -- the environmental impact studies have been approved, and so it's -- [a make it], sorry, but should be approved shortly.

And then, after, we will continue as fast as we can. The permitting issue in Peru is difficult but not impossible, and the authorities are doing all their best efforts in reducing the timing for obtaining all this permitting. But Tambomayo continues to be a great expectation for all of us in Buenaventura. We expect to be in production I would say by the end of 2015 or early 2016, but it will be in that area that we will be producing.

Thank you very much. Very clear. Thank you.

Again, if you'd like to ask a question, please press *1. There are currently no questions in the queue at this time, so I would like to turn the call over to Mr. Benavides for closing remarks.

So, thank you again for joining us in this quarter. We can assure you that we will continue working very hard on improving our operations, exploring intensively, and getting back to the levels of production that we have mentioned before and that you can be sure that Buenaventura will succeeding in all those respects. Thank you for having us, and have a good day. Thank you.

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