Compania de Minas Buenaventura SAA (BVN) 2014 Q3 法說會逐字稿

Good morning, my name is Katie and I will be your conference operator today. At this time I would like to welcome everyone to the Buenaventura earnings conference call. All lines have been placed on mute to prevent any background noise. After the presentation we will conduct a question-and-answer session. Instructions on how to ask a question will be given at that time. Thank you for your attention. I would now like to turn the call over to Rafael Borja of i-advize Corporate Communications. Sir, please go ahead.

Thank you Katie and good morning everyone. Welcome to Compania de Minas Buenaventura's third quarter 2014 earnings conference call on this October 31, 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 per the press release distributed yesterday. If you did not receive a copy of the earnings report please contact i-advize in New York at 212-406-3693.

Before we begin I will 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 available 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 Mr. Roque Benavides, Chairman and Chief Executive Officer of Buenaventura. Mr. Benavides, please go ahead.

Thank you, Rafael. Thank you, all of you, for attending this quarterly conference call of Compania de Minas Buenaventura. The third quarter 2014 where EBITDA from our direct operations was $84 million in third quarter 2014 continuing the positive trend announced earlier this year. Our net income increased 20% compared to third quarter 2013. This result includes close to $60 million non-cash income from Canteras del Hallazgo, Chucapaca project acquisition.

Yanacocha's gold production began its ramp up in the third quarter of 2014 to 250,000 ounces in line with mining plans to reach guidance of close to or in excess of 900,000 ounces. Total attributable production was 217,000 gold ounces and 5.2 million ounces of silver.

At Tambomayo project Buenaventura expects approval of our environmental impact assessment and construction permittings by the end of 2014.

At La Zanja, drifting activities continued to consume approximately 350,000 gold ounces in Alejandra underground deposits.

And El Brocal plant is expected to operate at 18,000 tons per day by December this year and at Chucapaca project permits for advanced exploration with underground development will start as soon as the surface property acquisition is completed and we are very advanced in that respect.

The Cerro Verde's plant expansion to 360,000 tons per day is in line with schedule and budget, production from the expansion is expected by 2016.

In terms of our production, we have produced during the quarter 52,000 ounces of gold from Orcopampa, 3.3 million ounces of silver from our Uchucchacua mine; 307,500 ounces of silver from Mallay; 774,700 ounces from our Julcani mine and close to 20,000 ounces from Breapampa in Ayacucho.

At La Zanja we produced 36,000 ounces during this quarter. At Tantahuatay it was in excess of 37,000 ounces of gold this quarter. And in total we have produced 11,700 metric tons of copper and 600,000 ounces of silver.

We have concentrated in Brocal in producing more copper than lead, zinc and we have been starting the ramp of the expansion project.

We would like to concentrate in this country on explorations and project. And for exploration in non-operating areas I would like Cesar Vidal to join us and to help us on explaining what we have done during this quarter.

Good morning to everybody. Non-operating expenditure in exploration activities during the first quarter was $7.2 million compared with $5.7 million reported third quarter 2013. During this period, our main exploration efforts were focused in the La Zanja underground delineation of the Alejandra vein $4 million, and for development and exploration -- the exploration mainly of Tambomayo, $2.5 million.

We expect our nine month period 2014 at $32.4 million compared to $23.4 million during the nine months of 2013. We had significant high grade discoveries in Uchucchacua first where Natalia and Camila ore shoots were drilled for the first time this year. We have had some formidable intercepts varying in thickness from currently just 24 meters with 15 ounces per ton silver to 32 ounces per ton silver, our average thickness is 16 meters and the average rate per section for this last intercept is anything between 24 ounces and 28 ounces per ton silver. Which is very high in manganese anything from 15% to 41% but the additional 1% of lead and 2% zinc that makes the ore amenable to floatation.

We have identified, as of 30th September a 300,000 metric tons of indicated and measured resources. From a single ore-shoot, we have an average rate of 24 ounces per ton silver, with [rougher recovery] in the order of 90%. We are very pleased about this result with the discovery of an ore shoot 4 kilometers to northeast of the [Cerro Verde] mine that extents that corridor for further exploration and we have high expectations from the ore shoots in the next drilling campaign.

At La Zanja, the underground drifting of a 2400 mine level has advanced 420 meters and started to cross cut into the Alejandra ore shoot as evidenced by drilling. This ore-shoot is 400 meters long and it has a thickness of 2 meters as indicated by previous drilling. This gives us a resource indicated -- [inferred] resource of 700,000 metric tons with just over half an ounce per ton of gold and 7 to 8 ounces per ton of silver, mostly in oxide and transitional material.

The drifts in Alejandra started giving us high grade only a couple of weeks ago, and so far we have an average thickness of 2.1 meters and an average cut rate of just shy of 1 ounce per ton gold and over 2 ounces per ton of silver. Certainly we use best industry practice and cuts were a high grade of 70 grams per ton otherwise the average gold grade would be significantly higher.

We remain firm about the additional potential. Alejandra is our main target at the moment but the underground drifting will also address the [footwall vein] of Verde and we have at least 18 kilometers of our high grade silver and gold sharing in gains in the La Zanja districts.

Thank you, Cesar. In terms of our share in associated company, at Yanacocha we produced close to 250,000 ounces of gold during the third quarter 2014, and 3% lower than the third quarter 2013 but ramping up and we are very pleased with the results of the quarter in Yanacocha.

In Cerro Verde we have produced 53,000 metric tons of copper lower than the same quarter 2013 but at the end of the year we expect to reach the target production.

At Coimolache we have an attributable contribution to net income in the third quarter was $6.3 million and Coimolache is doing very well. In terms of our project development and exploration and I will have to concentrate on that as well.

In the Tambomayo project, the advanced exploration in mine development at Tambomayo has so far required $35 million for surface right acquisition, underground ore-shoot delineation and ongoing environmental impact study and the permitting process for construction. Measured and indicated resources are 1.6 million tons running 13.6 grams per of gold and 9.2 ounces per ton of silver, it is quite high grade as you can recall.

At the Chucapaca project and this quarter we finalized the acquisition of 100% of this project. We have reached an agreement with the community of Oyo Oyo to purchase 1,380 hectares and we are in the process of completion of this legal agreement and this has to do with the formality of the registration of some of this community that we expect to finalize it very soon and go ahead with the project.

Yesterday, we had our Board meeting and we have declared a cash dividend of $0.023 per share or ADS payable on November 28th. An important [aspect] for Buenaventura has been that after 40 years of very positive and efficient contribution, Mr. Francois Muths has resigned from being Vice President Operations, he has had all his career in Buenaventura and we have a great appreciation for him.

He decided to retire because of personal reasons and we have been able to appoint Mr. Igor Gonzales as Vice President of Operations to replace Francois, effective next Monday, November 3rd. And Mr. Gonzales who was chief operating officer of Barrick Gold Corporation and he is a Peruvian and born in Cusco and we are very pleased to [account] with him and to maintain this efficiency of Francois according to the operations.

So, with this we are open to any questions that you may have please. Thank you.

(Operator Instruction) Karel Luketic, Merrill Lynch.

Congratulations for the good (inaudible) on the results today. So, I have two questions, the first one if I may, regarding costs. We saw very good performance in both Orcopampa and Yanacocha this quarter and if you could help us understand, if you see any further room for improvements from the current level, so if you think costs can continue to decline from the levels we saw in Orcopampa and Yanacocha in the next quarters and structurally in 2015, going forward?

And if I may, the second question regarding growth, we are very pleased to hear all the initiatives you are pursuing on growth. If you could help us understand a bit better exactly like a bit more the timing and CapEx, for example on Tambomayo, if you obtain licenses by year end, when do you think the mine could start to operate and what's the potential production there?

And also on the other initiative like Chucapaca, what are the next steps, Chucapaca and Alejandra, what are the next steps on potential additional production that we can see from them or general tariff if I may, that would be great.

Thank you for your questions. Regarding the (inaudible) we have renewed that due to the high grade, higher volumes of production. As you know, we tried to catch up with our guidance for the year and improving our operations not only in Orcopampa, La Zanja, Tantahuatay, (inaudible) happen in our affiliate in Yanacocha. This is due to higher volumes, grades, efficiencies and recoveries. We expect to reuse (inaudible) not only due to these improvements that would be much better during the fourth quarter of this year, but also we believe that the impact of the (inaudible) pricing to market will share our operations to reduce. Coincidently, in the case of Yanacocha, $1 per gallon means in the order of $1 million per (inaudible) in total cost in the operation.

On the other hand we are improving not only in our gold operations, but also in our silver operation, we need to check one, we have to complete this performance in the combination of our manganese sulfate plant and the Uchucchacua operations in higher grades. We will [hydrate] our resource to meet in the case of (inaudible) operations. So, we feel very comfortable with that.

With regard to Tambomayo, let me answer the part of the project, Tambomayo, the total CapEx is in the order of $200 million. We are advancing, we expect to be in production by early 2016 and we are advancing in budget and in schedule. So, we feel quite comfortable that we will be able to produce on that mine probably somewhat less than 200,000 ounces but we are going to be in that range.

In Chucapaca, we are waiting on a project, an underground project that will be in the order of $400 million to $500 million and that will produce probably in excess of 200,000 ounces and we are now in its early days, but we are expecting that probably by 2017, we will be in production at Chucapaca. The social front, the dealing with the community, have some positive steps, and we are very pleased about that.

Alejandra is a project that is thoroughly in its early stages that will require probably a rotation plant at some point in time. We are developing the resource and the reserves and probably that will take less time to put into production, but in any event it will require additional metallurgical facilities and at this point in time we are not in a position to say when are we going to produce from Alejandra, but we will continue (inaudible) operations at La Zanja.

John Bridges, JPMorgan.

I just wanted to dig a little bit deeper into Alejandro, I just wondered what the potential was. I think, Cesar, you said they were several kilometers of the veins there, obviously not necessarily that grade, but what do you see as the potential there, longer term?

This is a discovery based on 16 intercepts that we -- were drilled a year and half ago and now we are starting to drift, as you know we drift for structure and we drift for grades. The news today are only preliminary because we just started drifting in the vein but the first start of the ore shoot which is 400 meters long, an averages half an ounce per ton has given us a rough average of 1 ounce, so we are well above the average using best industry procedures.

However, encouraged by the higher grade of this initial drifting of the vein. So we expect better grade than what has been announced, so this is part of the upside. And the 700,000 tons of half an ounce of gold will give you 350,000 (inaudible) if we can make 20 grams it will be significantly more. So that is an intrinsic upside in the Alejandra vein itself or the offshoot drills [we will host].

In addition to that we have other veins in the neighborhood in the surrounding neighborhood and we have permits now to access them and start drilling them. So this will take at least, I would say another year to get positive results and perhaps we also start naturally from a trend of Alejandra to the Northeast doubles the size of the current development plan, so I would guess that the potential is there to double the original 350,000 ounces to at least 700,000 ounces, but that's my (inaudible) at the moment, we are working on that.

Looks a nice robust deposit to have in a weak gold price environment, right? Just wondered maybe or Carlos on the operations, and in particular this mix of production coming from the part through the end of the year, you are doing, you are up to 18,000 tons a day now. What sort of mix would you have just through the end of the year of the zinc and the copper ore? Thanks.

You are talking mainly about Brocal and we think so Brocal -- you know that we had to delay the full capacity operation of the new plant due to certain difficulties in the (inaudible) virtually yesterday began again the operation of the primary and secondary crushing about 2:00 o'clock in the morning, and this in a continuous operation, you know, that there were -- so to be (inaudible) the segments of the question (inaudible) that good work even though we do not understand why, but we will take the pictures and (inaudible) we expect to continue (inaudible) without having any employee. With this moving that we continue to do on copper, however that will depend on the possibility to continue growing -- and the one part that we expect to have in this question improvement. We are limited now to 11,000 tons per day throughput, and by the way, we confirm that we have no impairments. We will add additional ores that will come from the metallic area. So from the time being and the (inaudible) we have no problems, we are going to continue to treating only copper.

Okay. And then maybe just finally Cerro Verde, they missed their production numbers or expectations. What do you expect for Q4, and what's a reasonable number for the next year to prior to them completing the expansion plan? Thank you.

Well, the guidance for production was in the order of 260,000 tons of metal and this is used to define that the grades were going to reduce in the time (inaudible) extended the time factor, and this is why Cerro Verde is working on the expansion. So we believe that as soon as Cerro Verde completes this expansion, we are going to get the 600,000 tons per year as expected to begin. But next year I would suspect that it will be somewhat between 260,000 tons and 280,000 tons, and starting 2016 all year, calendar year will be 600,000 tons.

Okay. That's very helpful and thanks and well done with the results guys, best of luck for the [build up].

Santiago Perez Teuffer, Credit Suisse.

I wanted to ask also on Cerro Verde, well, this time regarding cost. We saw a significant increase in cash cost, how are you thinking of this going forward?

Well this increasing cost is due to the lower grades and if you observed the (inaudible) but due to the low grades (inaudible).

In that front your partner commented that the reduction in grades could be permanent. Do you have any comments on this?

No, this is why Cerro Verde decided to go ahead with the expansion, again (inaudible) that was the [serves] grade we had, and this is what explains or justifies expansion for this. That's the explanation for tripling the plant capacity and only reaching 600,000 tons of copper. If you (inaudible) it gets to a very clear opinion then.

Perfect thanks. And then my second question is regarding Cajamarca. How did your expectations change with the outcome of the elections and how do you expect your project there to evolve now?

It is difficult to say, and we have been evaluating the results. We think there have been -- on the 12 there have been a number of explanations. People say that this has been a referendum and when you check on the figures Mr. Santos claimed essentially 33% to 36% of the votes, so he didn't reach 50% as many journalists are saying. We don't regard this as a referendum. I think that yes he had a strong support. The campaign was based on emotions, they -- for instance and Mr. Santos was going to be (inaudible) if he won the election and then that was not the case. We understand that the demand that is going to take over was his vice president will be more of a [party] member and that we can discuss matters in a better level, if I may say. And we see we can reach agreement with the local authorities. The thing is business (inaudible) democracy and we have to (inaudible) the situation. That we are happy with the results, obviously not, but that we have to continue working on socializing the [Conda] project and obviously looking for other projects in the Yanacocha operation.

We have been looking to explorations that have shown some results in the [Kecher] area that is probably a resource in the order of 1.5 million ounces in north side. We have been looking at the Chaquicocha Underground development, we have been looking at the [tail pipe] developments at Yanacocha. So yes the pipeline with the interruption of conduct has been disrupted if I may say but we have to look to the current operation and try to find additional resources to maintain the production. I know that this is not a very concrete answer, but this is what we have at this point in time.

La Zanja and Tantahuatay are operating normally and we have no disruptions there, and as Cesar was mentioning we have been able to discover a substantial underground deposit in Alejandra. we do know that there are substantial resources in copper underneath the gold offsite in both La Zanja and Tantahuatay. And we will continue working in Cajamarcenos and obviously for the benefit of our shareholders.

Perfect. And then one last question if I may. On the comment you made, Roque, on Chucapaca that it could be producing this new plan to earn 200,000 ounces by 2017. Could you run us through the permit process and how do you expect this to evolve, because I mean if we recall it usually takes a little bit longer, right?

Well, I think that in Peru we are getting to a point where people are simply so frustrated and upset with the time that it takes to get the permitting that we are also improving in that respect. A critical aspect is finalizing all the legal documents with the local community because it is saying that we have essentially reached an agreement with the local community to purchase the surface land and that is (inaudible) to obtain the permitting for development of the project. So, the thing is we are going to work hard on obtaining the permitting and develop the project as soon as possible.

Perhaps one important thing to bear in mind is that in this case the agreement (inaudible) we have had the opportunity to socialize the concept of the project, so that the need, the need to make it easier to obtain the (inaudible) permit.

James Bender, Scotiabank.

I just have a few follow-up questions and then a more of a finance question. First, on the Tambomayo, just to confirm, you said that production will be less than 200,000 ounces, is that correct?

Less than 200,000 ounces, yes. In the case of Tambomayo where our project considers is 110,000 ounces of gold per year plus 3 million ounces of silver per year.

Okay. That's very helpful. And at this point, I know it's early stage, but would you have maybe a ballpark of what you expect the costs to be on a byproduct basis of gold?

Well, we consider the cash operating cost for these sort of operation in the mix, but due to the silver credits, we should obtain something in the order of $330 per ounce of gold.

That's very helpful. And just to confirm one thing. Has this project, the development, has it been approved by the Board?

Tambomayo?

Yes.

Yes.

Yes, it has, okay. And Chucapaca?

Chucapaca, the process of approval is that we are going ahead, we are working on it and probably we have to approve step by step, essentially there is a coincidence in all Board Members that we are going ahead with Chucapaca. So, for all practical purposes it has been approved.

Okay. That's good to know. And on El Brocal, I think Carlos mentioned that we are going to focus on processing copper for the rest of the year?

Yes.

Yes, okay. And does that mean that the guidance for zinc, is that going to be impacted for the year?

Well, the guidance for zinc could be diminished if we continue producing copper, we are not going to be able to (inaudible). But let's see, we are adjusting the secondary after turning around the problems we had in the [crushing] plant. So, perhaps in a week or two we could have a much better information that we will foresee what is going to happen with this (inaudible) production.

The beauty of Brocal and its huge deposit is that we are flexible in producing the lead, zinc, silver ores or the copper ores depending on the price, and we have to look after the profitability of each of those.

Understood. And lastly, could you help me understand a little bit more that $60 million non-cash income from the Chucapaca acquisition, what is that, number one? And number two, is there any tax impact on that?

Well, as you may know, we have to report under IFRS and that authorizes the Company to include the full value of the (inaudible). In this case the evaluation reported that we had this positive number, but there has been no tax impact. On the contrary, we have had certain before taxes (inaudible) in the case of our important investment in Brocal (inaudible) more cash, but (inaudible) in the order of $9 million due to a default tax due to the resolution and we have to (inaudible) in terms of solid, the fixed assets. But this assumption that do not impact from the cash component and it means only an accounting issue.

So, you said that's $9 million, right, is that additional expense or is that a benefit?

It's higher taxation that is important and this is why (inaudible) get into the section we are reporting are pretty high.

All right that is it for me, congratulations.

Karel Luketic, Merrill Lynch.

I would like to ask a question on M&A and if you could please comment on if there is a possibility of eventually acquiring an additional state, maybe Yanacocha or if you are studying any other source of potential M&A that are available, that will be great?

(Inaudible) in order for an M&A to get forward, there needs to be seller and a buyer. And we haven't heard that there is a seller and obviously we are very much involved together with movement in the development of other resources in Yanacocha. As a matter of fact we have come out from a quarterly meeting with our friends of Yanacocha and they are in a room next to ours, and essentially we don't foresee any acquisitions at this point in time, obviously we are the local partners and we are always looking after the benefit of the contribution of Yanacocha. At this point in time we have not had any discussions on this matter and we don't foresee discussions in the near future.

Pablo Abraham, Morgan Stanley.

Just a couple of questions. First one is, if you could give us an update of the sales process of the mining units that you are not working right now? And second one, if you could give us a guidance regarding Orcopampa and Uchucchacua with the cost on production?

What was the first question, sorry, I did not got it?

First question is if you could give us an update about the sales process of a mining unit you are not operating?

The selling process of the smaller operations, yes. Well, we are working on those. We have essentially some interested parties in the Antapite mine, and we are essentially given confidentiality of time, confidentiality agreement with this interested party. We also have some interested parties in [Irracupedara] mine and we are working on that. It is a process. We believe that there is interest, there is appetite in the market and we are looking for that. The fact of the matter is that those operations are consuming less, far less resources from us by not being in production and that is part of the cost reduction that we have been following. In terms of the cost (inaudible) guidance of production, yes, both in Orcopampa they have been mentioned, we are aiming to 200,000 ounces of gold this year in Orcopampa to take the material. And in the case of Uchucchacua we are aiming to (inaudible) of silver, aiming to 13.5 about -- once we get the (inaudible) to expand our production. Does that answer your question?

Yes, well -- just, guidance for the cost.

Oh well, sorry. In terms of the cost or well in the case of Orcopampa we are going to keep (inaudible) at some level. You know that we are focusing on the (inaudible) of operation. We have (inaudible) areas of exploitation and in the area of (inaudible) which is an interesting game, we are working on, we are obtaining higher grades than we have in the others. So, this is something that could continue to be discussed for next year.

In the case of Uchucchacua, as it was mentioned, we expect to hybrid our operations. The length of our research is in the area of 15 ounces of silver per ton and we expect to be closer to the (inaudible) for the location of material. So this means (inaudible) with the procedures that we have, we expect to cut the cost at the level of $40 per ounce of silver.

(Operator Instructions). [Yana Vizer], Credit Suisse.

Could you comment a bit more on Yanacocha, what are your expectations in terms of production and profitability for 2015, and if you have guidance, it will be great?

Well, we are reviewing and as Roque mentioned, we had our (inaudible) Yanacocha (inaudible) the production and so on. And we expect to have a guidance that could be with some standard deviation, a 150,000 to 180,000 ounces of gold for next year. However, we have to compare the mining plants and the details, you know the market could be (inaudible) total guidance, but also in the (inaudible) value the mining plants. As you remember, last year we had a (inaudible) average, it was mentioned that we are going to have a pretty low profile of production during the first half of the year, and a higher profile of production during the second half of the year, and we are performing delivering to the market. So, these things are the sort of the things we have to work on and we are discussing.

In terms of cost per share, again this profile of production is impacting that, but in the average we believe that we could be in a (inaudible) in some sort of (inaudible) with the sales, something that we singlehandedly handed (inaudible).

And also do you have guidance for El Brocal?

It was mentioned, the guidance of El Brocal depends on the performance of this -- the solution, the expanded capacity will provide for lower costs and that is what we are essentially looking forward, but the thing is that we will like to have a better idea of when the 18,000 tons per day will be (inaudible) and that we will be able to give some guidance to the market. As soon as we have that, we will get to the maximum.

Thank you. At this time we have no further questions. I would now like to turn the call back over to Mr. Benavides for closing remarks.

Thank you again for attending this conference call. It is times when companies have to strengthen our costs and we are working on that front. We are also working on the social front and trying to reach agreement with the local communities and being able to develop projects; 51 of experience, have the matter for that and we will continue working as a team. And obviously the talent that has been developed in Buenaventura will help to face big times. And we expect to see you in some future conferences in order to continue giving information to the market. Thank you very much for attending this conference.

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