Compania de Minas Buenaventura SAA (BVN) 2015 Q1 法說會逐字稿

Good morning, my name is Katie, and I'll be your conference operator today. At this time, I would like to welcome everyone to 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. The instructions on how to ask a question will be given at that time. Thank you for your attention.

I'd now like to turn the call over to Melanie Carpenter of i-advize Corporate Communications. Ma'am, please go ahead.

Thank you. Good morning, everyone. Welcome to the Compania de Minas Buenaventura First Quarter 2015 Earnings Call on this April 30, 2015 for our recording.

Today's call is for the investors and analysts only. Therefore questions from the media will not be taken. Joining us from Lima are; Mr. Roque Benavides, Chairman and CEO of Buenaventura; Mr. Carlos Galvez, Chief Financial Officer; Mr. Igor Gonzales, Chief Operating Officer, and other members of the company's management team.

They will be discussing the results for the earnings release distributed yesterday. If you didn't receive a copy, please contact i-advize in New York at 212-406-3693, and we'll send you one right away.

Before we begin, I'd like to mention to everyone that any forward-looking statements that are made by Buenaventura's management are subject to various conditions and may differ materially. These conditions are outlined in the company's earnings release in the disclaimer section, and we ask that you please refer to that for guidance regarding this matter.

And now it's my pleasure to turn the call over to Mr. Roque Benavides, Chairman and Chief Executive Officer of Buenaventura, for his presentation. So, please go ahead, Mr. Benavides.

Thank you. Good morning to all. And thank you for attending this quarterly report of our Compania de Minas Buenaventura. This first quarter 2015, our EBITDA from direct operations was $49.3 million and including associated company was $142.9 million. Total attributable production for the first quarter of 2015 was 194,000 ounces of gold and 5.6 million ounces of silver. Yanacocha cost applicable to sale in the first quarter of 2015 was $479 per ounce, a decrease of 56% when compared to $187 per ounce in the first quarter of 2014 due to lower or treated higher grade and lower stripping ratio.

At the Tambomayo project, construction permits are expected to be ready in the second quarter of this year. Production should begin in the second quarter of 2016 at 1,000 tons per day and with a production of 110 to 120,000 ounces of gold and 3.0 million ounces of silver.

At the San Gabriel Chucapaca project, construction of the ramp is expected to start in May 2015. The environmental impact tally of the project?s construction is expected to be submitted in the third quarter of this year.

At El Brocal, testing of the plant expansion was completed and production ramp-up reached 16.5 thousand tons per day level. Full production capacity of 18,000 tons per day will be reached in this quarter.

Cerro Verde's plant expansion to 360,000 tons per day is in line with the schedule and budget. 70% of the expansion had been completed. Additional production from the expanded plant is scheduled for early 2016. It will become the largest concentrations facility in the world.

In terms of our operating revenues in the first quarter of 2015, net sales were $243 million, an 11% increase compared to the reported in the first quarter of 2014. This was explained by lower gold, silver and copper prices despite higher silver and zinc volume sold.

Royalty income increased 13% to $9.1 million in the first quarter of 2015 due to higher revenues at Yanacocha.

In terms of our production and operating cost in the first quarter of 2015, Buenaventura's gold production from direct operations decreased 14%, from 90 to 200,000 ounces in the first quarter of 2014 to 85,000 ounces in this quarter, because Breapampa stopped mining last November in 2014 according to the mining plan.

Gold production including associated companies increased 2% due to higher production in Yanacocha. Silver equity production from direct operations increased 38%, mainly due to a higher production at Uchucchacua and El Brocal.

In Orcopampa, our gold production increased 11% in this quarter due to higher treated and grades, and cost applicable to sales in the first quarter of 2015 decreased 16% mainly explained by lower reagent costs, fuel consumption and contractor costs. Gold production guidance for 2015 is between 190,000 and 205,000 ounces of gold.

At Uchucchacua, our silver production increased 49% compared to the first quarter of 2014, explained by higher ore volume treated and recovery rate. Cost applicable to sales in the first quarter of 2015 decreased 15% compared to the first quarter of 2014. Our silver production guidance for this year is between 14.5 and 15 million ounces for Uchucchacua.

At Mallay, silver production in the first quarter of 2015 was 3% higher than in the same quarter last year due to higher recovery rate. Cost applicable to sales in this quarter was 6% higher compared to the same quarter last year. Silver production guidance is somewhat between 1.1 and 1.3 million ounces for this mine.

At the old Julcani mine, silver production was 7% higher than the first quarter 2014. Cost applicable to sales was 6% higher than the same quarter last year explained by an increase in contractors and supply expenses due to more drilling and drifting activities. The guidance for this mine is between 2.9 and 3 million ounces for all 2015.

At La Zanja where we control 53% ownership, gold production decreased 15% when compared to the same quarter last year due to a higher stripping ratio. Cost applicable to sales increased 49% mainly explained by higher contractor expenses associated with the hauling distance from Pampa Verde, as well as additional acid water treatment costs. Gold production guidance is between138,000 and 142,000 ounces of gold for this year.

Tantahuatay gold production decreased 7% to the figure reported compared to the figure reported in the same quarter of 2014. Cost applicable to sales increased 21% due to higher stripping ratio and lower ore grade in the current area of operation. Gold production guidance for 2015 is between 138,000 and 142,000 ounces of gold.

At El Brocal where we control 54%, during the first quarter, produced 3,869 metric tons of copper, 14,000 metric tons of zinc and 982,000 ounces of gold.

Silver.

Silver. Sorry. 97% increase when compared to 497,000 ounces of silver in the first quarter of 2014. Copper cost applicable to sales was 7% higher compared to the first quarter of 2014. Zinc production guidance for 2015 is between 75 and 85,000 metric tons and Copper production guidance is between 30 and 35,000 metric tons.

General and administrative expenses did well during this quarter and the exploration in non-operating areas during the first quarter was $10.7 million in-line with $10.4 million in the first quarter of 2014. During this period, Buenaventura's main exploration efforts were focused on La Zanja underground and Tambomayo. During the first quarter, Buenaventura's share in associated companies was $36.3 million, compared to the negative $4.5 million reported in the same quarter last year.

At Yanacocha, during the first quarter, gold production was 248,000 ounces, 20% higher than the same period last year. And 2015 Gold production guidance for Yanacocha is close in between 880,000 and 940,000 ounces of gold.

Under IFRS, Yanacocha reported $60 million of net income. It's $2.5 million under US GAAP. In first quarter of 2015, cost applicable to sales was $479 per ounce, a decrease of 56% compared to the same quarter last year. Capital expenditures at Yanacocha were $15 million in this quarter.

At Cerro Verde, during this quarter, copper production was 48,600 metric tons, a 20% decrease compared to the first quarter 2014 due to a lower ore grade and recovery in copper concentrates. During this quarter, Cerro Verde reported a net income of $40.7 million, 59% lower compared to $98.0 million in the first quarter last year. The decrease is primarily as a result of a decrease in net sales which is attributable to 10% decrease in average realized copper price and lower copper sales volumes. Capital expenditures at Cerro Verde were $468.9 million in the first quarter and $439.4 million in 2014.Cerro Verde's plant expansion has an excess of 70% progress and completion is expected in the first quarter of 2015. The total CAPEX for the project continues to be $4.6 billion.

At Coimolache, attributable contribution to the net income in the first quarter was $2.1 million. In terms of our project development and exploration, the Tambomayo?s Environmental Impact Assessment was approved in January 2015. Construction permits are expected to be ready in the second quarter of 2015 and 80% of the purchase orders have been placed.Tambomayo has 250,000 gold ounces in reserves and 335,000 gold ounces in resources. Additionally, Tambomayo has 9.4 million silver ounces in reserves and 5.9 million silver ounces in resources. The estimated annual production for this mine is between 110 and 120,000 gold ounces and 3 million ounces of silver.

At San Gabriel, formally, we call it Chucapaca, diamond drilling at the Pachacutec prospect and the beginning of construction of the San Gabriel ramp is expected to begin in May 2015. The Environmental Impact tally of the project?s construction is expected to be submitted to the authorities in the third quarter 2015. San Gabriel has 2.5 million ounces of gold in resources. The estimated annual production is between 180 and 220,000 ounces of gold. With this, we are open to any questions that you may have.

(Operator Instructions). The first question comes from John Bridges of JPMorgan.

Good morning, everybody. And thanks, Roque, and everybody. Just wondering about Brocal, you said that you've got to 16,000 tons per day, what was the average reports at Brocal for the quarter and how do you see the ramp up? You know, what's the decent average that we should use for Q2 as a tool per item?

You are talking about Brocal, no?

Yes.

Yes. Well, the thing here, the ramp has not been easy but we have been solving a number of problems. Problems dealing with the mechanical problems with the -- with the machines that have the -- essentially, the crusher, the primary crusher, we had a number of problems. But we are ramping up and that's -- we mentioned -- I would say that we should expect the 18,000 tons per day for a -- for the second quarter.

Okay. Okay. So are you operating it 18,000 tons per day now?

We have gone over 18,000 tons some days but we are adjusting the whole processing facility and we do expect that 18,000 should be an average for the second quarter.

Perhaps, one (inaudible) that we have to replace segments of these crushing machine every 10 days. This -- all lines have said to stop this operation that's why we are reporting this. As Roque mentioned but, well, and Mr. Galvez obliged us to not to perform in an hour.

We have had days over 20,000 tons per day. But essentially, that is not the ideal situation. The ideal situation is to have a very stable 18,000 tons per day through Q2.

Absolutely. And then if I may -- Cerro Verde, was it always planned to be commissioned in Q4? I thought it was Q3. Has there been delays with that and are they used -- you know, the weakness that we saw in Q1, does that change your expectations for what we should expect from coppers from Cerra Verde this year?

No, not really. Let me pass to Igor Gonzales. He has just been visiting Cerro Verde. Igor.

Yes, the first two mills should be lying in September, probably late September. And then from there on, there will be one additional mill every month going into operation. Of course, mill and associated equipment, they are going with it which is the crushers and the floatation and the glotation sections. So the startup -- they are -- the start of the first two mills so will be in September and there -- and then a month later will be a third mill and they're --until they complete the six mills that they need to start. And so that's the skim and has been changed. So hopefully by yearend and on early 2016, the entire facility should be running.

Could you comment on the -- on how the project has been going? You have a lot of experience in building things in North America. Pretty comments on that. There were some stories about some delays.

Actually, the project has been going very well and the -- for example, the processes on the schedule and I'm just -- and also on budget, the mine is going to be doing a lot of the earth works for the tailing facility and we see a lot of activity in the mine so I don't -- we don't see a major delays. As the matter of fact, they are already preparing for the pre-operational testing and also filling some water in the reservoir to have enough water for startup of the mills.

Are they still borrowing trucks from the pit to do the earthworks or could we expect better valuables in the pit for the rest of the year?

Only for tailing facility, they are using some -- they are moving some rock from the pit. This is a waste rock from the -- from the pit that is going to the tailing facility but gradually, they are -- they are building there. Their truck fleet -- and putting more trucks in to operation.

Okay, brilliant. Many, many thanks. I really appreciate it. Good luck, guys.

Thank you.

Thank you. Our next question comes from Santiago Perez Teuffer from Credit Suisse.

Hello. Thank you for taking my question. My questions (inaudible) related to a local. Can you give us your expectation in terms of when this - crusher and other projects, what do you expect in terms of zinc and silver and especially -- and what cost in -- when merging these. Thank you.

Brocal.

We'll in the case of Brocal, you know that we have a -- these two challenges. One is just to achieve the volumes and on the other hand, how hard the rock that we create. And there are -- there are two issues, the copper ore which are very hard and with the special sort of a crushing equipment and on the other side, the (inaudible) metallic that have a plate. So this is why we have to achieve not only to achieve the volumes but also controlling the mix of course that we create.

Due to this, it is quite difficult at this point in time to start with where the final production we will make for the year and the cost for every single metal. However, we can renew this to the extent that we reach the final volumes and we control only the 11,000 tons per day of gold for (inaudible) gold and the 7,000 tons per day for copper.

I'd like to ask that if we compare February to March, for example, in Brocal, in terms of silver ounce production has gone from 275,000 to 495,000. So significant increase, and this is roughly due to the damage. If we review the damage, we've gone from 215,000 in February to 512,000 in March. So as we ramp up the plant and then get more through the plan and also the production is big enough in Brocal, in silver and also in zinc. I think we should expect that plan to continue until we reach the nominal capacity.

Perfect. So in terms of merging for this year, I mean, is there any sense of profit? Are there any expectation you have at going prices?

We expected -- well, if everything goes well, we should obtain, you know, given back in the old (inaudible) 50 million to 60 million bars in Brocal. Mainly, this is where we are working on. It was pretty difficult doing this first quarter, but, well, to the extent that we will reach the objectives, this is going to be the final result.

Perfect. Thanks a lot (inaudible). Thanks a lot.

Thank you. Our next question comes from [Carl Ludwig] From Merrill Lynch.

Good morning, everyone. Thank you for the questions. I have two questions. My first one is a follow up on Cerro Verde. I remember you mentioned on the previous conference call that you were processing stock piles and that was impacting, I mean, in lower grades and high cost, et cetera. How has this reverted? Have you already gone back to your traditional operation areas in Q2?

And thus we should expect a recovering results on Cerro Verde in the coming -- in the second or third quarter before the expansion? That's my first question. And my second question is on Yanacocha, the potential expansion to the access, the sulfate deposits. Is this still ongoing and when should we have any potential updates on this that would be great. Those are my questions. Thank you.

This is Raul Benavides. Are you -- well, we can expect some of the scenes for Cerro Verde for the rest of the year. We are still in the, you know, we focus on the operations in the expansion. So you probably see low grades as compared to the last rate. From the last thing, we saw they were opening the Santa Rosa mine and the work that they were doing, we've been tailing them. You know, they were kind of obstructing the fleet. So yes, we can expect the same for this quarter.

I don't think that you will get surprises in higher grades or things like that in Cerro Verde. In the case of Yanacocha, Yanacocha has been producing, as you see, from lower waste to more waste and this has been the main reason of (inaudible) and we have been talking to the people of (inaudible) and we've seen that we have now a very clear path forward into this whole place that would go through the sortation of sulfates, of sulfurs and giving the copper sulfurs in order -- I don't know, maybe for years, you know.

That's perfect, Raul, thank you.

Thank you. Our next question comes from Tanya Jakusconek from Scotia Bank.

Yes. Good morning, everybody. Thank you for taking my question. I just wanted to come back to Tambomayo and thank you very much for some of the details. I'm still just missing the capital cost build and also the cash cost and the all-in sustaining cost for this asset.

Well, this -- okay, Tambomayo, we are aiming to (inaudible) $250 million. Dollars. We have already invested 50% of that. It is a pretty well controlled, in order that the man development and we have already -- I'll say, it has to be mentioned, the purchasing and (inaudible) so we have fixed price for the equipment. So mainly, the civil works that we have to carry out, well, we might control that. Regarding the cash cost in the operation of Tambomayo due to the requirements that we obtained from the silver, the expectation is to achieve cash cost in the order of 500 -- 450 to $500 per ounce of gold. They are always sustaining the cost of monthly in the whole -- due to that -- the prices and underground operation with a pretty smooth sustaining the CapEx in monthly -- to over 750 to 800 the most -- dollars per ounce of gold.

Okay, and then Carlos, for the CapEx, the 250 million, what is gonna be spent this year and what is going to be spent in 2016?

We have already spent some mission of 125 or 130 million that -- and (inaudible) who will be paying now the timing to deliver the equipment so we have already a stage for about 30% of that. In monthly, about 50-50 because we have to complete the dispersion in the -- and other $6 million for the equipment and the rest is to be spent on (inaudible) the series of works.

So, a 125 million this year and 125 million in 2000...

No, no, no, no. No, no, no, no, no, no. It's in the order of $70 million this year and the rest is for next year.

Okay. So $70 million this year and the 100 -- not --

No. 60, I was talking about 125, yeah. So for 55 to 60 next year.

Okay, and Carlos, is your capital guidance for this year is still $270 million to $300 million, does that include a $70 million for Tambomayo?

Yes, that's right.

Okay. And this lastly, on Breapampa, is it now just closed than on care on maintenance? Like what's happening at that asset?

Well, what we are doing is just leeching. We stopped mining and we are in the process and Raul perhaps can explain anything else right in...

Yes, we'll -- we're just harvesting from the -- from the leech parts. What we are doing is we are getting youngsters from the leech part but we are not moving the earth at all. And we are in process of selling it to the third party and we hope that this would be in a couple months or so.

Okay.

We expect to get out at Breapampa because it's -- you know, the good thing about this is that this will focus us into the big operations here. We think that we have to do today and not take care of this small operation that don't generate much value for the company.

Okay. Yes. Okay, no, that's perfect. And then maybe this is my last question for Roque. This is on Conga is there any update there? On new month call, they didn't give us an update.

No, I don't think that we are getting in to -- into elections here in Peru.

Yes.

And I don't that Conga will move in here. I think that will have to wait for the next administration if any.

Okay. Okay. Thank you much, everybody.

Thank you.

Thank you. Our next question comes from [Faltier Shavapo] from HSBC.

Good morning. Thank you for taking my questions. I have a couple of them. You are starting the ramp construction at San Gabriel and you also planned to build a Tambomayo project essentially within one year. With substantial remaining capex to be spent, you have $135 million in cash. But potentially, you might need additional funding before certain (inaudible) close expansion and begins generating free cash before you. What's your thinking of financing San Gabriel and Tambomaya. I guess, if you have to, will you be looking to possibly increasing your short term bank loans further or perhaps take on longer term debt?

Well, we are reviewing the options we had. Mainly, we're looking at long term debt that we can raise. That depends on the -- for three (inaudible) on debt. We are trying to expand out to investor. You know, the sort of facility on the window of opportunities right now to raise on debt. I believe that it will be some syndication eventually.

Thank you.

Yes, there is a -- this is over (inaudible) I think that the ramp construction, that wouldn't that much money. I mean, it's the process. Now you need to build an underground mine. That's the reason we were pushing very hard on the ramp. But the ramp won't take that much investment. So the -- the thing in that in San Gabriel will come next year.

And that will match with the -- with the finishing of the construction of Tambomayo and then we will start with San Gabriel. So don't think there is going to be fast person, the indicator of this project.

Yeah.

Okay.

People must think -- we must think of these projects. They are in sequence, not so much in parallel.

Yeah. Okay. I guess the other question is, are there any limits on your available credit with you -- that you have with your current lenders and could you please maybe remind us with your current -- debt covenants are if any?

Well, we have been talking to different banks and reviewing the best way to finance that. We are looking for flexibility and the -- and new time, we will decide what mechanism to use.

Okay. Thank you.

Okay.

Thank you. (Operator Instructions). At this time, I'm showing no further -- I'm sorry, we do have one question from Patrick Chidley from HSBC.

Hi, everybody. Just a quick question on cost on a cost trends that you are seeing. Can you comment on fuel prices in Peru that you are experiencing relative to last year. And are there any trends there in terms of the delay from actual market prices to what you are seeing on the ground then?

Well, if I understood your question properly, the thing is that in Peru, there is happening, a devaluation essentially because of the trends of the US dollar and we do have some of our items in local currency and that is contributing to cost reductions in the -- in the sense -- in dollar terms. And inflation is essentially running at 2% to 3% and that is not putting a lot of pressure on cost. I think we have seen already an increasing cost and we don't forsee towards the future that we will have a pressure in the respective. And then exactly the price of oil in Peru is still the same in the cost the government is not transparently lowered the oil price yet.

Not yet. But is that possibility? Is that...

Yeah, look at -- no, if coming on the government is (inaudible) in question that the price of the oil run out to the extent that the oil incorporation the impact of the devaluation to improve. So this is impacting us.

So something is still yet to come if -- if the lower price kind of filers through to what you're seeing there?

Yeah.

And then just a quick follow-up there on Cerro Verde and in terms of the ramp out there. You said you are going to have all six mills running by the end of the year including all of the artillery crushing and flotation machinery, would you say that that's a hard, sort of that's including the ramp-up time? I.e., should we be at full production in 2016? Or is this still then beyond that, sort of a ramp-up time to get to full production?

The ramp-up time is about six months. So what I mentioned is that they will start a mill, just about one mill every month after September, when they start two mills. But that doesn't mean that they will - the mills will immediately get to nominal capacity. It will be a process. So that should take about six months.

Yes, but having said that, the equipment that has been bought and is being installed for the expansion are similar equipments to the ones that are currently in operation in the 120,000 tons per day mill.

So the ramp-up should be easier than in many other projects.

Got it.

We must praise the work the people of [Friea] have done in terms of the project. I think things are going very smoothly and we hope that will continue to be the case.

Great. Okay. So we could say that by the middle of 2016, everything should be actually up 100% while it's going to be a gradual ramp-up between sort of September this year and the middle of 2016.

It could be even earlier than that, but yes. Yes.

Okay.

Well, that was 3%. 3% we will be at full capacity by June, July next year.

Okay, good. All right. Well, thank you very much, and congratulations on the quarter.

Thank you.

Thank you. Our next question comes from Hector Collantes from Credit Corp.

Hi. Thanks for taking my question. Could you give more comments Yanacocha and what explains the difference between the IFRS $60 million in net income versus the $2.5 million under US GAAP. Could you tell please tell us a little bit of what are the main differences -

Yes. Well, I won't comment about the accounting, because that's Carlos' job. But I can tell you what's happening at the mine, is that we were working last year on mainly taking the overall burden over the over burden the [Latina Azure] expansion. And today, we have got into the ore, and the ore happens to be very high grade in the lower parts that the deposits, [El Tapalo] has been very high grade ore as compared to the rest of Yanacocha.

So now that we have the overburden out, we're benefitting from these high-grades and we don't need as much tonnage in order to get ounces. Now, Carlos will explain to you about the US GAAP and the other system. I don't understand much about that.

Yes. Well, I have the reconciliation of these figures between US GAAP and IFRS. And maybe what happened in the accounting issue at the level of taxation. While taxation according to IFRS is $23 million for the quarter, in terms of US GAAP, it is reported as $80 million. So, mainly you have the main difference between the one and the other.

While in terms of the cost of sales, including differentiation, according to IFRS, the report is $182 million and in terms of US GAAP, it's $179 million, a small difference in dollar, I think. But mainly coming from the taxation that we have already incorporated in the past due to the fact that under IFRS, you have to calculate the deferred income tax that you account as an asset before income tax as well.

And this is what happened in our internal report. If you look at our financial statement shown on the back for our release, you will find, for instance, and this is just an example, you have P&L are current income tax expense of $5.3 million while you have $5 million as a deferred income tax that we account in our balance sheet as well.

So this is the difference. The timing to report and then how you report in advance certain issue. We have already incorporated in the past this taxation for Yanacucha as we are doing with our account.

Thank you very much. It's been very helpful. Thank you.

Yes, you're welcome.

Thank you. Our next question comes from John Bridges of JPMorgan.

Hi. Thanks again. In an earlier answer, you said that you had a clear view now on what to do with the sulfides with Yanacucha. I just wondered if you could give us a little bit of an idea as to what that is? Is that going to be sulfides through the existing plant? And what sort of throughput should we expect? When should it begin and maybe what's sort of grade do you think you'll be putting into it?

I think that (inaudible) should answer that question, but we're working on that. We don't have straight answers for throughputs or (inaudible), but we're discussing between putting a flotation circuit after the volume or putting another mill in a flotation circuit. So I cannot answer what exactly we will do. But at least what is decided is that we both see both companies in the future on Yanacucha with flotation.

Okay, that's great. What's the capacity of the existing plant?

It's 15 plants, it's about 6 million tons per year.

Okay.

It's [18,000] tons I see daily, something like that.

And would this be arsenical sulfide ore or have you found some clean ore to work with?

You know, John, that's another discussion that we're having because, yes, you have Yanacucha where it is mainly arsenical, but you have in [Macimaci] some sulfides that are not arsenical. The question is, if we can sequence the mining in such a way that we can with the sweet copper. But essentially, we will have the problem in arsenic in Yanacucha all the time. There are some huge pots, but mainly it's arsenical copper.

How is your pilot plant working to treat the sulfides?

Well, we're working on that. Right now we're finishing -- we built the pilot plant that would take care of not continuous treatment. And we are working on getting this piloting into a continuous piloting so that we can be sure that all the variables are in line.

But we still have a lot of way to go, John, I think that by the end of this year, we will have some answers.

Okay, perfect. I'll put that in my calendar for a question. Thank you, guys. Well done. Good luck.

Thank you. Our next question comes from Ana Zinser from Credit Suisse.

Hi, good morning. Thank you for the call. Could you comment a bit more on the depreciation increase we saw on direct operation? Could this be related to Brocal or (inaudible) write-down or to the exit of Breapampa? Thank you very much.

Regarding the depreciation that come from Brocal that we completed this construction and we began to depreciate this investment at the end of last year. So we're comparing the depreciation accounted during the third quarter and comparable with the first quarter last year, you have a tremendous increase, and the [La Canca] expenses also.

Thank you very much. That was very useful.

Thank you. Our next question comes from Carlos De Alba from Morgan Stanley.

Yes, good morning, gentlemen. So we saw a very good performance in cost, on the cost front in the quarter. So I just wonder how sustainable this is. And then we can see further improvement in Uchucchacua and perhaps in Orcopampa, which it was good but not as good as we expected to see. What are the prospects of those two operations going forward?

We continue to do a lot of cost reviews in the operations. We're optimizing in all fronts, especially in contractor charges. And so, we see a trend, slow, but it is a trend, a decreasing in contract or charges, and we continue to negotiate with contractors to try to drop the cost, because the market, we're trying to accommodate ourselves to the current market conditions.

So I shouldn't say it's going to be a trend, because the cost is also dependent on grade and tonnage. But we are seeing a downward trend in our cost and then also in the market.

We have an important window of opportunities to renegotiate with the contractor, especially with the equipment that they are using and the way we are going to manage that. We believe we are going to have a qualitative change in the way to work with these contractors and not out, and we are going to reuse this cost in Orcopampa, in Uchucchacua and, perhaps, the most important part, in Tantahuatay.

All right. And I do not know if you discussed this before, but the great improvement in Uchucchacua, sorry the recovery rate in Uchuacchacua, is this sustainable going forward? And for that matter the rate as well.

Yes. Okay, that's a wonderful question because that's the reason why we have Rio Seco. And Rio Seco has, you know, we have changed the (inaudible) circuit in such a way that we have increased the recovery and we are producing a very high manganese silver concentrate. And that's what we're taking in Rio Seco.

So what happens in Rio Seco is we are liberating the restrictions that we have for exploration and mining in Uchucchacua.

Terrific. Good quarter. I think you needed to post these good numbers. And the stock is reflecting that. Thank you.

Thank you. At this time, I'm showing no further questions. I'll now turn the call back over to Mr. Benavides for a closing remark.

Well, thank you for attending this conference. So it's very good to exchange ideas and to receive your questions, because this makes us think a lot about our own operations.

May I just let you know that I -- we will be attending the Merrill Lynch conference in Barcelona. And for those of you that will be there, we will be happy to meet with you and we will continue in touch further during the year.

Thank you. And we will be filing our 20-F report today. So that is also a piece of information that you may be interested. Thank you very much for attending and see you soon.

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

Thank you. Gracias.

You have a great day.