Compania de Minas Buenaventura SAA (BVN) 2015 Q4 法說會逐字稿

Good morning, my name is Chelsea, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Buenaventura 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 would now like to turn the call over to Rafael Borja of i-advize Corporate Communications, please go ahead sir.

Thank you, Chelsea, and good morning everyone. Welcome to Compania de Minas Buenaventura's fourth quarter and full-year 2015 earnings conference call. Please be advised that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. I would like to introduce our speakers joining us from Lima, Peru are Mr. Roque Benavides, Chairman and Chief Executive Officer; Mr. Carlos Galvez, Chief Financial Officer, and members of the Company's management team. They will be discussing the results for the press release distributed yesterday. If you did not receive a copy, please contact i-advize in New York at 212-406-3693.

Before we begin, I would like to remind you that during this call, comments made by management may include forward-looking statements, which are subject to various conditions and uncertainties based on a variety of factors. These forward-looking statements may differ materially from actual results that we ask that refer to the disclaimer located in the earnings release prior to making any investment decision and now it is my pleasure to turn the call over to Mr. Roque Benavides, Chairman and Chief Executive Officer of Buenaventura for his presentation. Mr. Benavides, please go ahead.

Thank you, and welcome to our conference call this morning. In the fourth quarter 2015, our EBITDA from direct operations was $16 million and adjusted EBITDA including associated companies was $72.6 million. In the initial press release, there was a small mistake essentially due to the fact that the accounting principles used by Yanacocha, which are US GAAP and our international accounting principles have to be checked and we had a mistake. So excuse us for that, but essentially the adjusted EBITDA was $72.6 million. Total attributable production for the fourth quarter 2015 was 182,000 ounces of gold and 6.5 million ounces of silver.

Full-year 2015 attributable production was 759,000 ounces of gold and 22.3 million ounces of silver. Gold production from direct operations will increase in 2017, once Tambomayo starts operations at full capacity. Tambomayo will add 150,000 ounces to 170,000 ounces of gold per year. The Tambomayo project is in line with budget. Civil works are at 30% progress, exploration and development at 80%. Production ramping up is expected by the fourth quarter of 2016.

Silver production in 2015 was in line with the guidance provided despite one month strike at Uchucchacua mine. During the fourth quarter 2015, El Brocal reached full production capacity level of 18,000 tons per day. Cerro Verde's plant expansion project from 120,000 tons to 360,000 tons per day was completed in the fourth quarter 2015 and expected production for 2016 is somewhere between 550,000 tons and 600,000 tons of copper.

Yanacocha will distribute dividends of $300 million in March 2016. Buenaventura will receive its equity share of $130 million. During the fourth quarter 2015, net sales were $227.5 million, a 14% decrease compared to the $264.6 million reported in the fourth quarter 2014. This was mainly explained by the decrease in metal prices as well as lower gold and copper volume sales. Royalty income decreased 39% to $7.2 million in the fourth quarter 2015 compared to $11.9 million reported in the same quarter 2014. This was due to lower revenues at the Yanacocha mine.

For 2015, net sales decreased 19% from $1.139 billion in 2014 to $919 million in 2015. Royalty income for the full-year was $32.4 million. Buenaventura's gold equity production from direct operations decreased 14% from 104,000 ounces in the fourth quarter 2014 to 90,000 ounces in the fourth quarter 2015 due to the decline in production at the Breapampa mine. Gold production including associated companies in the fourth quarter 2015 was 182,000 ounces, 26% lower than the reported in the same period 2014, explained by a decrease in production from Yanacocha.

Silver equity production from direct operations increased 14% mainly due to higher production at Uchucchacua mine. At Orcopampa, gold production decreased 11% in the fourth quarter 2015 compared to the same quarter of 2014 due to lower ore grade. Cost Applicable to Sales in the fourth quarter 2015 was $693 per ounce of gold, in line with the Cost Applicable to Sales in the same quarter last year. Gold production guidance for 2016 is somewhere between 200,000 ounces and 210,000 ounces of gold.

At our Uchucchacua mine, silver production in the fourth quarter increased 21% compared to the same quarter of 2014 due to higher ore treated and higher ore grades. Cost Applicable to Sales in the fourth quarter 2015 decreased 13% compared to the same quarter of 2014 mainly explained by lower labor cost due to higher exchange rate, lower consumable costs, reagents costs, and more silver ounces sold. Our silver production guidance in this mine is somewhat between 15.5 million ounces and 16.5 million ounces.

At Mallay, silver production in the fourth quarter increased 16% compared to the same quarter 2014 due to higher ore treated. Cost Applicable to Sales was 8% higher compared to the same quarter of 2014 due to lower by-product contributions. Silver production guidance for Mallay in 2016 is somewhat between 1.5 million ounces and 1.9 million ounces of silver.

At our old Julcani mine, silver production in the fourth quarter of 2015 increased 11% compared to the fourth quarter of 2014 due to higher ore treated and higher ore grade. Cost Applicable to Sales in the fourth quarter 2015 was 19% lower than the same quarter in 2014 mainly explained by lower labor costs, due to higher exchange rate and lower contractor costs due to fewer meters drifted. Silver production guidance for Julcani is somewhat between 3 million ounces and 3.4 million ounces of silver.

At La Zanja, where we control 53% equity, gold production in the fourth quarter 2015 increased 8% compared to the fourth quarter 2014. Cost Applicable to Sales in the fourth quarter 2015 increased 18% compared to the fourth quarter of 2014 mainly explained by higher ore treated and lower ore grade. Gold production guidance for the 2016 should be between 130,000 ounces and 140,000 ounces of gold.

At Tantahuatay, where we control 40%, gold production increased 24% in the last quarter of 2015 compared to the same quarter of 2014. Cost Applicable to Sales decreased 18% compared to the same quarter last year [of 2014] mainly due to higher ore grades from Cienaga Norte mine. The gold production guidance in this mine for 2016 is between 140,000 ounces and 150,000 ounces of gold.

At El Brocal, during the fourth quarter 2015, copper production decreased 15% compared to same quarter 2014 due to a lower recovery rate. Moreover in the fourth quarter 2015, zinc production increased 85% due to higher ore treated, despite the lower grade. In the fourth quarter 2015, zinc Cost Applicable to Sales increased 9% compared to fourth quarter of 2014 mainly due to higher selling expenses. Copper Cost Applicable to Sales in the same period was in line with the same quarter of 2014. Zinc production guidance for 2016 is between 60,000 tons to 70,000 tons of zinc while copper production guidance is between 35,000 tons and 45,000 tons of copper.

General and administrative expenses in the fourth quarter 2015 was $25.8 million, 9% lower compared to the $28.5 million in the same quarter of 2014. This is mainly due to lower third-party services. For 2015, the expense was $86.5 million compared to $101 million in 2014.

Exploration in non-operating areas during fourth quarter 2015 was $5 million compared to $17.6 million in the same quarter of 2014. During the period, Buenaventura's main exploration efforts were focused on Tambomayo project, Marcapunta, El Brocal and for 2015, the expense was $30.6 million compared to $50 million in 2014.

Our share in associated company; during the fourth quarter of 2015, Buenaventura's share in associated companies was negative $235 million compared to negative $114 million reported in the fourth quarter of 2014. At Yanacocha, during the fourth quarter of 2015, gold production was 211,000 ounces, 34% lower than the same period in 2014. For 2015, gold production was 917,000 ounces, 5% lower than in 2014. Gold production guidance at Yanacocha for 2016 is somewhat between 600,000 ounces and 650,000 ounces of gold.

At Cerro Verde, during the fourth quarter 2015, copper production was 95,600 metric tons, a 71% increase compared to the same quarter in 2014. For 2015 full-year, copper production was 247,000 metric tons and during the fourth quarter of 2015, Cerro Verde reported a net loss of $13 million compared to net profit of $55.9 million in the same quarter of 2014. This was mainly due to a higher depreciation and a higher net loss from currency exchange difference despite a 71% increase in volume sold. For 2015, net income was $33.3 million. Capital expenditures at Cerro Verde were $274 million in the last quarter of 2015 and $1.6 billion in the full-year 2015. Cerro Verde's plant expansion was completed in line with schedule and budget $4.6 billion. It became the largest concentration facility in the world and full plant capacity is expected to be reached in the first quarter of this year. Copper production guidance at Cerro Verde for 2016 is between 550,000 metric tons and 600,000 metric tons of copper.

At Coimolache, attributable contribution to the net income in the fourth quarter 2015 was $6.5 million. For full-year 2015, the contribution was $16.6 million compared to $22.3 million reported in 2014. The Tambomayo project, we have finished the detailed engineering. The civil works are at 30% progress. 100% of major equipment has been purchased. 80% has arrived in site. CapEx of $340 million. Exploration and mine development $218 million, civil works and equipment $122 million.

At the San Gabriel project, the project has been rescheduled in order to preserve cash flow. Feasibility studies were completed in the fourth quarter 2015. Environmental Impact Assessment of the project's construction is expected to be approved in fourth quarter 2016 and the objective for this semester is to continue the construction of a 450 meters exploration ramp. Drilling program of 7,000 meters in order to confirm resources and certainty.

Currently, Buenaventura is in the process of raising $270 million long-term syndicate loan. Proceeds from the new debt will be used for the following: Reprofiling our current short-term debt and partially finance the construction of the Tambomayo project. Yanacocha will be distributing next week a cash dividend of $300 million. Buenaventura will be receiving $131 million. Cerro Verde loan of $125 million in the fourth quarter 2015 is -- Cerro Verde received a loan of $600 million from its shareholders in order to comply with the covenants of its syndicate. That means that we have to cope with our equity stake. In El Brocal, we increase the capital by $19 million and that was put by Buenaventura. We had a Board meeting yesterday and the following resolutions were passed: To call for Annual Shareholders' Meeting to be held on March 29, 2016 to propose for the approval of the following items: Approve the Annual Report as of December 31, 2015, the financial statement at the same date, and appoint the external auditors for the fiscal year 2016. With this, we are open to any questions that you may have. We are here with all the management team of Buenaventura to answer your questions. Thank you.

(Operator Instructions). Carlos De Alba, Morgan Stanley.

Yes, thank you very much. And just wanted to ask you a couple of questions. The first one is on, if you can give us any indications of where the cost trends for your main operations will go, Orcopampa and Uchucchacua primarily, but also if there is anything worth highlighting in the rest, we would appreciate any comments on that front and that has to do because the Company continues to -- the direct operations continues to book negative EBIT results and so despite the fact that in the first quarter, silver and gold prices have recovered, just wanted to check how you see going forward the profitability of the direct operations? Thank you.

Our EBITDA in the last quarter 2015 was $16 million positive and for full-year 2015 was $105 million. The cost reductions that we are performing and I would like Igor Gonzales to explain what we are doing. We expect the same level of prices and higher now to have a higher EBITDA and certainly more profitable operations. Igor, can you answer the cost question?

We are trending down most in mines in cash costs. This is how we measure the operation. And if we compared 2014, 2015, and our estimate in 2016, we have to trend it down about 11% in Orcopampa and in the case of [Uchucchacua, 38%]. So we are trending down. We are doing numerous efforts to not only reduce cost, but also to optimize productivity.

Thank you. And just a last question if I may. Any prospects of a dividend from Cerro Verde? Should you wait until 2017?

I would say that we don't expect any dividend until next year because essentially the drop in copper prices cost us at the end of the project far from having received dividend, they requested that we mention some capital. It all depends on copper prices, but I would say that we should not expect any dividend this year.

All right. Thank you.

Just to add to that we would expect -- because of the very expedient ramp-up process that Cerro Verde has, we would expect a full-year production for 2016. So the ramp-up period is now almost over and we're in production to nominal capacity.

Right. Thanks and just, very last question, is the Company expected to distribute part of the $131 million share of the Yanacocha dividend that is coming in March?

Carlos Galvez will answer.

Carlos, it was explained that we are doing this to reprofile our liquidity and debt position. This cash dividend you know that we received after (inaudible) cash dividend from Yanacocha and this includes in our final results. As you know, we have a cash dividend policy. That means that we distribute at the most 20% of our net income including the cash dividend of our affiliates when we treat it. So this is going to be considered during the year 2016.

I would like to complete certain information regarding the debt. Regarding the [EBITDA generation it was reported at 105 and at the change over the prices], we expect to double this EBITDA. So it below the $200 million and due to fact that the prices [on basis only due to the efforts of increase in production and cutting costs but for sure if the prices our Company has, we therefore make sure] we expect better results.

Thiago Lofiego, Bank of America Merrill Lynch.

Hi, good morning gentlemen. Thank you for the questions. Actually this is Karel talking, I have two questions. The first one is actually a follow-up on Cerro Verde on the comments that you guys just did. Do you have a sense on what level of cash cost can we expect now that the operations are reaching the full ramp up for the second half of this year, maybe once everything is in order already on the expansion? That's my first question. And my second question on Yanacocha and potential updates on the [steel result] projects you're doing to actually expand production back upright so Maqui Maqui, the sulphide deposits and the other initiatives in Yanacocha. What could be the timing of an update on that? Those are my questions.

In terms of cash cost, I don't know if we are allowed to talk about cash cost while the management of (inaudible) essentially the cash cost will be below $1.50 per pound of copper. We consider somewhat between [$1.30 and $1.40, but let's say below $1.50] and it will be a very, very efficient operation. The fact of the matter is that now they can apply with the depreciation of the investment and you will know initially that can be a major impact in the profitability of the Company, but cash costs are essentially very low in the lower-end of the industry.

In the case of Minera Yanacocha, we are working on Estudio integral project that essentially puts in value a number of areas within the mine type. We are foreseeing levels of production that we maintained the level of production at Yanacocha and continued production -- I don't know if Raul Benavides wants to add to that.

Well, (inaudible) that most taking care of the more complex source in improving its OpEx.

John Bridges, JP Morgan.

Good morning, Roque, Carlos, everybody. Just wondered on Cerro Verde as well, is there any sort of formula as to how much of cash flow is going to be distributed and how much is going to be allocated to pay down debt. I'm just trying to get a sense as to when we can expect cash flow to come from there?

Well, the thing is that question was asked to me by some investor some time ago and essentially, I think that Freeport's interest will be to distribute as much dividend as possible and certainly we will support that. I would say that most of the cash generation will be distributed, but that is something that we have to discuss with our partners.

The one thing that eventually I can add is the fact that Cerro Verde holds [$3.3 billion in within the projects]. So it is enough to have cash flow [pay debt] to consider the possibility to distribute a cash dividend. It is [only necessary to generates positive it makes ourselves to make a decision in the result. So if the prices of copper surpass, we generate enough cash].

Okay, great. And then may be a question on Brocal. What's the strategy there because it's not making an awful lot of money. You just bought another share or increased your share in that project. Just wondered what you are thinking about in terms of how that project would go forward? Thank you.

You have to understand first of all, we are [minority] shareholders. We control 54%. The problem being is that we called for an increase in CapEx spend, because the operation needed that at this level of prices or at the level of prices that we had at the end of the year, it was very marginal the operation and we couldn't let it down. So we called for this increase in capital, the other shareholders, the other 46% did not accompany us, so we put our money and now we are going for a second increasing capital, but what Brocal needs is $70 million increasing capital to maintain their operations at the levels of prices of the end of the year. We are seeing better prices of zinc now and that has a positive impact on Brocal.

Let me just add to that, that Brocal is the deposit of Colquijirca and Marcapunta, it's a deposit located seven kilometers south of Cerro de Pasco. Cerro de Pasco being the flagship of mining in Peru for many, many years. To me, Brocal is at Cerro de Pasco 50 years younger. It is very well mineralized area and with some technical problems, the copper has a technical content and that obviously has to be approached, but the mineralization and the potential for exploration and developing San Gregorio, which is the largest zinc deposit in the world that is not introduction is substantial. We do reckon that with this level of prices it may not look as a wonderful investment, but certainly it is a substantial resource and we believe in the long-term, it will give us the benefits that we are expecting.

Thank you. And you were looking at the different scenarios, I seem to remember given the prices, are you expecting it to run with positive cash flows this year or might there be a need for more cash injections after this $70 million you just spoken of?

Well, the thing is the $70 million is good for the full-year 2016 and we have to continue improving the operations. We have with us in this room [Gonzalo Freyre] who is in-charge of the operation of Brocal and I would like him to comment on this operation and all the efforts, he and his team are doing in order to improve the operation.

Thank you, Roque. Yes. I want to ask that for 2016, under the current level of prices, the EBITDA for El Brocal will be positive. That means that we can manage our cash costs and $30 million is going to be [paid part of the debt], also interests and the CapEx that we need for 2016. So we have to work a lot in improving cost. For example, our cost per ton [target] during 2014 was above $50 per ton and now for 2016, we have a cost of $32. So that means that more than 40% decrease.

We will continue with these improvements. We have similar projects that we're going to do with this $40 million. One of them is to replace the secondary crusher, which will give us a better tonnage, a better recovery. We're expecting to have an average of 18,000 tons per day during 2016. The increase in science due to (inaudible). So we expect that with this 2016 will be a good year for El Brocal, not because of high prices, because we expect that the prices will maintain under the current level but at least we can pay and have a positive EBITDA. We can pay our cash costs and have a positive EBITDA by the end of the year. Thank you.

Botir Sharipov, HSBC.

Hi everyone and thank you for taking my questions. Second follow-up to John's questions and the response you guys provided, so the $70 million that you planned to disperse to El Brocal, is that can go to the $30 million debt repayment that you just mentioned, plus the $40 million for the replacement of the secondary crusher. Is that the allocation?

It's not only the secondary crusher, we have some business to do in [Buenaventura system in the big] also in drainage system for the underground mine. We're going to start [a starting] for the state expansion project. We need to complete the reallocation of some housing for this expansion project. We need to finish (inaudible) during 2016. We are also changing overland belts, we need to buy critical and spare components for the process plant and we need to relocate the [house and the gastric station also. That's the $40 million, that mining this projects] that I just mentioned.

Okay, great. Thank you. Switching over to Cerro Verde, any idea maybe how much sustaining capital, what's the run rate of sustaining capital for the mine at full capacity, once ramped up obviously?

It's essentially a low figure. I would say something between $30 million and $40 million.

No, it's in the order of $200 million to $250 million.

That much?

Per year?

Yes.

$200 million per year in sustaining CapEx?

Yes.

Okay.

Tanya Jakusconek, Scotiabank.

Yes, great. Good morning, everybody. I have a couple of questions, the first one is just on Cerro Verde coming back again and maybe Carlos you can help me understand this, under what circumstances will you need to put in more capital to recapitalize Cerro Verde?

No. Capital has are already been put in. We do not expect any additional cash costs. The thing is it was needed to comply with the covenants of the loan facility and that was a recommendation and we had mentioned that we needed, the shareholders were going to put the money, but that is over. We don't recall any possibility of additional cash.

Also then you're well within your covenant and what was the covenant?

In the case of Cerro Verde, the covenant was debt-to-EBITDA at the most [four times]. And due to the fact (technical difficulty) has been completed, but without increasing the production, the lowest level of prices in the year, that was the limit and that we were committed to put the money and we did.

And maybe just on the El Brocal and I understand there's $70 million that needs to be placed for El Brocal this year for the debt and the secondary crusher and infrastructure, is that -- of the $78 million cash on your balance sheet, that's restricted to $70 million for El Brocal?

We have to put this money for El Brocal. We reported that our CapEx expected that we [$200 million to $300 million] in the mid-year, and this includes the investment in El Brocal.

Sorry, the CapEx was [$215 million to $300 million].

Yes.

And then just maybe if you can also give us some guidance Carlos for your lead production this year, your exploration both regional and obviously G&A?

The lead production comes mainly from Brocal and essentially Gonzalo cam expand on that.

For 2016, we expect lead production of [around 20,000 points], similar to what we have during 2015.

Okay. And then what about the exploration spend and corporate G&A spend for this year?

While in case of the exploration we have been reducing the value of those greenfield exploration, which here will be in the order of $5 million and we have some brownfield exploration where its included in the mine's cost.

Okay. I thought you have two levels of exploration that you spend through your income statement. The exploration in the operating units and then the exploration in non-operating, what would those [SMSC] for 2016?

In is a fact that what Raul mentioned the $5 million is exploration (technical difficulty) within our operating cost. Within our operating cost, [we need to maintain our projects, maintain those budgets].

Okay, because you did expense $30 million and $91 million respectively this year. I'm just trying to understand what that total will be expensed this year. I'm just maybe not understanding, maybe you've reclassified and it's no longer going through the income statement?

No. It goes directly to [tax figures], when we report for the year. Exploration in operation units we have $91 million and to the level of expenses, we are going to continue spending during the year because we have to replenish the results in our (technical difficulty) underground. And there was the exploration in non-operating areas, where we are mentioned the $31 million (inaudible) as Raul indicated.

Okay. So $91 million still and $5 million for the other one?

Yes, you're correct.

Okay. Sorry, I couldn't understand. And then just maybe lastly your G&A that was $96.5 million. What will that be this year?

We expect to reduce our responsibility, the devaluation of our currency and we are adding the headcount in the inflation. And so we got (inaudible).

Botir Sharipov, HSBC.

Hi, sorry, just two quick follow-up questions I got cut off there. On dividends, have you guys already received $130 million from Yanacocha or do you expect to receive in March?

We expect to receive it next week.

Next week. Okay. Got it. And the other question was on dividends in 2016, that was asked earlier, just a quick follow-up on that. You said you'd consider your policy of 20% of net income including the affiliates. If we were to adjust for Yanacocha's write-down deferred tax charge. That would leave you with a negative, I guess net income for the year. Would you still consider paying dividends despite that?

Well, you know we follow IFRS and we consider this full impact in our P&L, which calculates our net income. As a consequence, this is the way to calculate our cash dividends. The policy will continue, the policy will be 20% of net income of the year and it [will give a dividend from Yanacocha, we put] that dividend in the basis for the calculation.

(Operator Instructions) All right, there are currently no further questions in the queue at this time. Mr. Benavides do you have any closing remarks?

Well, thank you to all for connecting to this conference call. These are not easy times for the mining industry certainly in Buenaventura we continue working, maintaining our optimism in the future and we believe that we have a huge potential for improvements in our statements and in our operations and our team continues to work strongly in that respect. So thank you very much. We will be attending the BMO Conference on Monday and Tuesday and we have the Buenaventura Day on Friday next week at the New York Palace Hotel at eight o'clock in the morning. Those of you that would like to join us, you are most welcome and hope to see you then. Thank you very much.

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