Compania de Minas Buenaventura SAA (BVN) 2016 Q1 法說會逐字稿

Excuse me, ladies and gentlemen. Good morning and welcome to the Buenaventura's first-quarter 2016 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 Mr. Rafael Borja of i-advize Corporate Communications. Sir, you may begin.

Thank you and good morning everyone. Welcome to Compania de Minas Buenaventura's first-quarter 2016 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. And 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 per 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 you refer to the disclaimer located in the earnings release prior to making any investment decision.

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. Mr. Benavides, please go ahead.

Thank you and welcome to Buenaventura's first quarter conference call and delivering of results. In this first-quarter 2016, our EBITDA from our direct operations were $60 million, a 34% increase compared to $45 million reported in the first-quarter 2015. Adjusted EBITDA increased 21%. All in sustaining cost decreased 35% in the first-quarter 2016. This significant decline reaffirms the cost reduction efforts in Buenaventura's direct operations.

Total attributable production in the first-quarter 2016 was 158,000 gold ounces and 6 million ounces of silver, compared to 187,000 gold ounces and 5.5 million ounces of silver in the first-quarter 2015.

The Tambomayo project is in line with budget and the detail engineering was completed. Civil works' progress is at 52% with full completion expected in the second quarter of 2016. Exploration and development works are at 86% done. Production ramping up is expected by the fourth quarter of 2016.

The environmental impact study of San Gabriel is expected to be approved also in the fourth quarter of 2016.

Yanacocha distributed dividends of $300 million in March 2016, and our equity share was $131 million from -- for Buenaventura.

At Cerro Verde, the concentrator number two achieved full capacity in the first-quarter 2016. In March, the mill rate performance of 100% including the two concentrators was in excess of 370,000 tons per day throughput, really a great achievement in the case of Cerro Verde.

And Buenaventura is in the process of raising $275 million long-term debt, in order to reprofile its current short-term debt. The proceeds are expected to be available in the second quarter of 2016. Terms and conditions of the loan will be on an investment grade company.

In the first-quarter 2016, Buenaventura's gold equity production from direct operations remained stable, in line with the figures reported in the first quarter of 2015. Gold production, including associated companies, in the first quarter of this year was 157,955 ounces, 16% lower than the figure reported in the same period of 2015, explained by a decrease in production from Yanacocha.

Silver equity production from direct operations increased 11%, mainly due to higher production at Uchucchacua mine and the Mallay mine.

Orcopampa gold production decreased 12% in the first quarter of 2016 compared to the same quarter of 2015 due to lower grades. The cost applicable to sales in the first quarter decreased 8%. This was mainly explained by labor or lower labor costs, lower contractor costs, and a decrease in reagents' consumption and price.

Gold production guidance for this year is between 200,000 ounces and 210,000 ounces of gold.

At La Zanja, and I have to mention that we have received prizes for securing the safety at La Zanja and Tantahuatay for not having got any accidents in the full-year 2015. I think this is an achievement, very important, far more from the -- than the financial figures, very important to take care of our best assets, which are our people. In La Zanja and Tantahuatay, we have made the excellence in terms of our safety standards.

In La Zanja, gold production in the first quarter increased 12% compared to the first-quarter 2015 due to higher ore leached. Cost applicable to sales in the first-quarter 2016 decreased 23% explained by lower labor and reagent costs. Gold production guidance for this year, 130,000 ounces to 140,000 ounces.

In Tantahuatay, gold production in the first quarter increased 14% compared to the same quarter of 2015 due to higher ore grades. Cost applicable to sales in this quarter decreased 34% due to lower contractor and reagent costs. Gold production guidance for the full year, 140,000 ounces to 150,000 ounces of gold.

At El Brocal, where we control in excess of 56%, during the first quarter, copper production increased 193% compared to the same-quarter 2015 mainly due to higher ore treated. Moreover, in the first quarter of 2016, zinc production decreased 29% due to lower ore treated and lower zinc grade. We have concentrated more on the copper ores than on the lead, zinc, silver ores.

In the first quarter of 2016, zinc's cost applicable to sales remained in line with the figure reported during the first quarter of 2015. Additionally, copper cost applicable to sales in the first-quarter 2016 decreased 13%, mainly explained by lower contractor costs due to better mining unit prices.

Zinc production guidance for 2016 is 60,000 tons to 70,000 tons of zinc, while copper production guidance for this year is between 35,000 tons and 45,000 tons. General and administrative expenses in the first quarter of 2016 were $21.4 million, an increase of 4% compared to the same period of 2015.

Exploration in non-operating areas during the first quarter was $3.5 million compared to $10.7 million in the same quarter of 2015. During the period, Buenaventura's main exploration efforts were focused on the Tambomayo project and in Marcapunta in Brocal.

During the first-quarter 2016, Buenaventura's share in associated companies was $28.4 million, compared to $36.3 million reported in the first quarter of 2015.

At Yanacocha, during the first quarter of 2016, gold production was 180,000 ounces, 27% lower than in first-quarter 2015, due to lower gold grades. Gold production guidance at Yanacocha for full-year 2016 is between 630,000 ounces and 660,000 ounces.

At Cerro Verde, during the first-quarter 2016, copper production was 123,000 metric tons, 154% increase compared to the first quarter of 2015. During the first quarter of 2016, Cerro Verde reported a net income of $96.9 million compared to $40.7 million reported in the first quarter of 2015. This was mainly due to higher volume sold and lower cash cost.

At Coimolache, attributable contribution to the net income in the first quarter was $5.7 million compared to $2.1 million reported in the same quarter of 2015.

In terms of our project development and exploration, the Tambomayo project, the production ramp up is expected to start in the fourth-quarter 2016. Civil works progress is at 52%, expected to be completed in the second quarter of 2016. Mechanical and structural installation works at 35% progress. The mill equipment is already mounted on their bases, and CapEx of $340 million, exploration and mine development $122 million, civil works and equipment $218 million.

At San Gabriel project, 100% owned by Buenaventura, the project has been rescheduled in order to preserve cash flow. Geomechanical studies were completed in the first quarter of 2016, environmental impact study of the project construction is expected to be approved in the fourth-quarter 2016. Objectives for the first semester are to continue the construction of the 450 meters exploration ramp and drilling program of 7,000 meters in order to confirm resources and certainty.

Buenaventura's cash and debt situation, currently Buenaventura is in the process of raising $275 million long-term loan and the proceeds are expected to be available in the second quarter of this year. Proceeds from the new debt will be used for the following; reprofiling Buenaventura's current short-term debt and partially finance the construction of the Tambomayo project.

Yanacocha, as we mentioned, distributed $300 million, for which $131 million came to Buenaventura.

I just want to insist and congratulate our people of La Zanja and Tantahuatay for having obtained the best standards of safety in Peru for open mines, open pit mines. With that, we are open to any questions that you may have. Thank you.

Ladies and gentlemen, at this time we'll open the floor for questions. (Operator Instructions). Ivano Westin, Credit Suisse.

The first one, your costs, you reported sustaining cost declining 35% in quarter one this year on a year-on-year basis. Appreciate if you could comment on what to expect on this trend moving forward and what sort of additional decline we could expect?

And on the gold production, on your Orcopampa, you saw a decline of 12% year on year. You mentioned that was due to ore grades, but you are still guiding like 200,000 ounce to 210,000 ounce of production this year. Particularly if you could comment if you should expect production at a lower range of this guidance and also if you could provide a gold production for the full year including your associated company as well? Thank you.

In terms of the 35% cost reduction, it had been a good quarter in terms of having focused on cost reduction. This is not a trend that we are going to show 35% reduction every quarter. I think the first step has been very positive. We might see some additional cost reductions, but certainly have been an important effect in reducing costs and we expect to maintain more or less the same level of costs going forward.

In terms of Orcopampa, the guidance of Orcopampa continued to be the same as we mentioned earlier this year. The quarter has been lower due to some lower grades, but we expect to come back and at the end of the year being able to show 200,000 ounces to 210,000 ounces of gold production.

In terms of the full ounces at (inaudible).

Yes, mainly just to that the operations in the region has (inaudible) a plan to catch up with final production guidance to Orcopampa and we are sure that we are going to complete our projects in Orcopampa by the end of Q4. But the full year gold production for Buenaventura and affiliates, well, it's around the same line that what we have told that is in the 300,000 ounces to 350,000 ounces of gold.

Karel Luketic, Bank of America-Merrill Lynch.

I have a couple of questions on growth. First on the San Gabriel project, if the environmental impact assessment is in fact approved by the fourth quarter, could you provide a bit of light in terms of what the volumes could be of the project and what the potential CapEx would be? That's the first question.

And second just on the -- a follow-up on Orcopampa. I recall you mentioned in previous conference calls that you are working on potential projects to stretch production in Orcopampa. If you have any updates on that, it would be great.

And last question, if I may, on Cerro Verde in terms of cash cost, what can we expect on cash cost versus what we just saw on the first quarter? Is there further upside to be seen on that or are we already at normalized levels? Those are my questions. Thank you. Hello?

Ladies and gentlemen, it looks like the speaker line has disconnected. Please hold the line and we will get the question answered in one moment.

We have our presenters' line back on. Karel, could you please repeat your question in case they didn't hear it?

Yes, of course. So my questions were on the growth side. I don't know if you guys heard them. If not, I can repeat them here.

Be part of Orcopampa only.

So I'll repeat. So very briefly here, what I asked was first on San Gabriel, if the environmental impact assessment is confirmed, what could be the potential volume of the project and CapEx?

The second question was on Orcopampa follow-up of Ivano's question, if you're working on a series of initiatives there to extend mine life and production, if you have any updates on Orcopampa. And the last question on Cerro Verde, if costs can still decline from the current level or if you are already at a normalized level? Those are the questions. Thank you.

Thank you, thank you for clarifying. At San Gabriel, we -- as you know, the initial idea when gold field was in charge was to go for an open pit and that would have cost a lot of money. We have focused on another ground mine and we are looking for CapEx in the order of $500 million to produce in excess of 200,000 ounces of gold and obviously some silver with it. So that is the level of cost of the project CapEx and then the production at this point in time.

At Orcopampa, we continue with our exploration effort. We are looking and finding additional ores and higher grades and that gives us a lot of optimism in terms of the mine life of the mine. Buenaventura had been always committed to exploration and that is what we expect to continue doing in Orcopampa. We are confident that we would be able to create reserves this year and hopefully we will find additional ores in some areas adjacent to Orcopampa.

In the case of Cerro Verde, cash cost is performing better than expected, and we are talking of cash cost below $1.30 and that is certainly very, very efficient. So we certainly are very excited about the Cerro Verde project.

Botir Sharipov, HSBC.

Congratulations on a pretty impressive set of results. I have couple of questions on direct operation and then on the Cerro Verde as well. First one is your guidance for EBITDA at direct operations for 2016 is $180 million to $220 million while your Q1 number was $60 million. With the current commodity prices generally higher than in Q1 and CV obviously ramped up now, do you expect to sustain these EBITDA levels considering that Yanacocha gold production is going to decline?

Well, in the case of Cerro Verde, [we really go] with gold some not only due to the new level of prices we are observing, but you have to bear in mind that Cerro Verde production has grown between January to March. And we believe that the final volumes level and efficiency will be at the level of March production. So this is what Roque mentioned.

In the case of Yanacocha, Yanacocha has a new guidance and so according to this new guidance, the cash cost will be in the order of $300 million to $350 million. So let's see what happens with the new levels of production and prices that gives what (inaudible) the future of Yanacocha during this year.

And EBITDA of the direct operation, do you expect to maintain these sort of quarterly levels going forward?

Absolutely, the objective is try to get at 1,200 ounces gold and 14 million ounces of silver. Our direct operation should report in the order of 220 ounces, but well, bearing in mind the new level of prices and if both prices increase, well we could expect much better result, I'm sure.

Okay, great. Thank you. Now at Cerro Verde, obviously impressive production and costs in Q1. What should we expect beyond 2016 with the concern some pundits have been expressing concern that grades are going to come down at Cerro Verde? What do you expect beyond 2016 for annual production? Do you think the mine kits can sustain 2016 production levels in a longer term?

By all means, no, but also much better. You have to consider that just beginning the operation in the new facility, the operator has to sanction this level of recovery and so on to figure the best grades and the best ore in operation. So no doubt that we'll be much better.

Okay, great. And the last one on CapEx for Cerro Verde. I believe Freeport in their Q4 results of last -- for the year stated that they expected to spend another $400 million on expansion CapEx in 2016, and obviously Q1 CapEx came way below that. Do you -- is expansion CapEx over at Cerro Verde? Do we expect more in the second and third quarter in line with what Freeport said at the end of last year?

Well, we can say that in the first quarter, the CapEx in Cerro Verde was $72 million, $73 million and this is because [they need] the $54 million to complete the expansion project. We believe that this is already completed. So what we can expect is that the most -- at most something between $100 million to $150 million CapEx.

So the 100 -- you said $200 million of CapEx for the remainder of the year or is that an annualized number in general?

Annualized number.

Okay, thank you very much.

John Bridges, JP Morgan.

Following on on the CV story, just wondered when you expected to see dividend starting to flow from there? I know previously you were talking about the end of this year, possibly next year, but given the strong start to operations there, how's that changed?

Well, thank you John. With the affiliates, the thing we are expecting is to get paid the loan that we made as of the end of last year that essentially destroy our balance sheet. But anyway, that's the way it works. And the thing is that we expect the loan to be repaid to Buenaventura before the end of the year if possible, but we are not going to put any pressure on that respect. And we don't see that Cerro Verde will distribute dividend before the first quarter of next year.

(Operator Instructions). Ricardo Miranda, Larrain Vial.

First, it goes for a -- for El Brocal. I would like to know how much of that capacity was utilized during this quarter and what do we expect for the rest of the year? Is the Company is the field showing negative margin, operating margins?

And the second question is how much is the contribution, annual contribution from the Huanza hydroelectric plant, which I think you are utilizing to meet your capital needs for this year and beyond?

Well, regarding the Brocal operation on the cash evaluation, we are targeting [unfortunately] the first quarter (inaudible) of $1 million. But it's improving as we (inaudible) had been in the last quarter of last year. In terms of that, our projections considering a conservative price is expect to generate something in the order of $10 million to be back. We are working on our capital increase in Brocal to continue in the turnaround of the operations on project. And after completing that, we believe that could have better results. We expect better prices and this could come up.

Regarding Huanza hydroelectric plant, how much is the contribution for the year?

Can you repeat that please? We were not able to get it.

Okay.

Regarding what --

Sorry?

Regarding what? Your last question please.

Regarding -- you mentioned that part of the financing that you are taking this year is contribution from the Huanza hydroelectrical plant and I would like to know how much --

Yes. Well, Huanza generate $25 million to $27 million EBITDA per year and the only movement we have in Huanza was to renegotiate the records of the date of Huanza had in term of -- it show against Buenaventura.

So as of today, Huanza really has no [cost] going into Buenaventura and we are going to maintain an important role of leverage. So from then on, we are going to cancel these cash to Buenaventura.

Alex Hacking, Citi.

The first question is on Tambomayo. Can you just remind me of what the cost structure there is expected to be and also just remind me of the silver stream, it's around 3 million ounces per year at full capacity, if I remember correctly.

And then the second question is on San Gabriel, would you take any consideration into finding a partner for that project and then also can you remind me of what residual interest or economics still exist with gold fields, if any?

Tambomayo will be in production by the end of year producing in the order of 120,000 ounces-150,000 ounces of gold and close to 3.5 million ounces of silver. And the cash cost, we reckon that will be in the order of $600 per ounce. It will be a very profitable mine, and as I said, we expect to be ready by the end of the year.

In the case of San Gabriel -- sorry?

Sorry, does that cash cost is before the silver byproducts, correct?

No, no including the sliver byproducts.

Including silver. Thank you for the clarification.

Cash cost, we calculated with the current following methods.

Okay, clear, thank you sir.

But this is -- at this point in time, it is at negative, not free cash but we expect to do better than that.

In the case of San Gabriel, the gold field has nothing to do anymore. We have a royalty I think of 1% for 1%, but that is all, no? And if you are looking for a partner --

Did you say 1% revenue?

1% net sales, net-net in return. And if we are looking for a partner, at this point in time we don't have that idea. We believe that it's a project, that it's a site that we can develop by ourselves. As I mentioned, we are talking of $500 million investment and to produce in excess of 200,000 ounces of gold. We don't discuss the possibility of looking for a partner at this point in time. We are not considering that [opportunity].

Scott Macdonald, Scotiabank.

Just wanted to talk to you a bit about the liquidity, in particular on the loan and then also a bit about how much cash you have in the some of your new joint ventures. So just on the loan, what kind of maturity are you looking at for this $275 million loan?

The maturity of this loan will be five years, including two years of grade and the cash we have is now roughly well in the case of Yanacocha, we are still (inaudible) in the area of $2,700 (inaudible) without having an event. In the case of Cerro Verde, the cash in the order of -- let me see because there is specific information on that.

Yes, well the cash position as of today is in the order of [26] plus some important amount of receivables. So but we are going to increase in our cash position according to the main developments.

Okay. So then at El Brocal, I think you mentioned last quarter that you might need to contribute additional capital, is that done now? No more needs to go in?

Well, capital includes is in progress. We have the shareholders meeting in Brocal, I think will pass a resolution to have $26 million capital increase, but we will complete it at the end of May, the responsibility at the end of May and their grade are to devote to call additional training (inaudible) to be called whenever the Board decides.

You have to bear in mind that initially the (inaudible) for Brocal was to have total of $70 million capital increase. Yes.

Okay. And so just in total then, what portion of the balance -- so you have I think $180 million on your consolidated balance sheet of cash. How much of that is then El Brocal as of March 31?

No, no, no Brocal is -- as of March is very few, just going to $125 million. The consolidated cash position (inaudible) within the Buenaventura's operations, Huanza and La Zanja and well the $1 million I mentioned. So the majority is held by Buenaventura.

(Operator Instructions). At this time, we have no further questions. So will turn it back to Mr. Benavides for closing cum remarks.

Well, thank you again for attending this conference. We are attending the Merrill Lynch Conference in two weeks' time. We appreciate your time and your interest in the Company. And I guess to reassure you that we are working very hard in order to make the Company as efficient and as profitable for the benefit of all shareholders. Thank you very much and good morning.

Ladies and gentlemen, that concludes today's presentation. You may disconnect your phone lines and thank you for joining us this morning.