Compania de Minas Buenaventura SAA (BVN) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura First Quarter 2018 Earnings Conference Call. (Operator Instructions)

I would now like to introduce your host for today's call, Mr. Rodrigo Echecopar, Investor Relations. Mr. Echecopar, you may begin.

Good morning, and welcome everyone. Presenting on our call today is Mr. Víctor Gobitz, CEO. Also present and available for your questions are Mr. Leandro García, Vice President and CFO; Mr. Gonzalo Eyzaguirre, Vice President of Operations; Raúl Benavides, Vice President of Business Development; Alejandro Hermoza, Vice President of Sustainability; and also in the call is President Mr. Roque Benavides, our Chairman.

And as we normally do, we will be making certain forward-looking statements during the call. Such statements are based on assumptions of future events that may not prove to be accurate. And as such, they involve risks and uncertainties. It is, therefore possible, that the actual results may materially differ from any forward-looking statements that we may make today. We refer you to our cautionary statements in the press release we filed on April 26, 2018.

With that, I will now turn the call over to Mr. Víctor Gobitz, CEO. Victor, please go ahead.

Thank you, Rodrigo. Good morning to all and thank you for attending this conference call. We are pleased to present the first quarter of 2018 results of Compañía de Minas Buenaventura. We have prepared a short PowerPoint presentation, which is available on our webpage. Before we go further, please take a moment to review the cautionary statement shown here on Slide #2.

Moving on to Slide 3. Highlights were as follows: In the first quarter of 2018, EBITDA from our direct operation was $97.6 million, a 20% increase as compared to $81.3 million reported a year ago. Adjusted EBITDA included our associated companies decreased 3%, $173.7 million in this first quarter compared to $179.2 million a year ago. Adjusted EBITDA has been affected, mainly by the results coming from our affiliates. Total attributable gold production in this first quarter was 147,507 ounces, a 9% increase compared to a year ago. Total attributable silver production in this first quarter was 7.2 million ounces, a 17% increase compared to a year ago. Buenaventura refinanced its syndicated loan, extending the maturity until 2022 with an interest rate, which has been reduced to LIBOR plus 2.15%. All the other terms remain the same. The net debt over EBITDA ratio was reduced to 1.2x. The debottlenecking program is in line with schedule. On Page 13, it will be discussed more in detail.

We remain confident in achieving our production guidance for all of the Buenaventura's direct operations as was provided at the beginning of the year. Regarding our greenfield projects, Trapiche, San Gabriel and Yumpaq are progressing according to the plan in order to be developed in the future. At Cerro Verde, a dividend of $200 million, which $39 million are attributable to Buenaventura was declared in the last Annual General Meeting. This dividend was paid on April 24.

Moving on to Slide 4, financial highlights. Total revenues in this first quarter were $317 million, which is 14% higher in comparison to a year ago. EBITDA from our direct operations was $98 million, which is 20% higher in comparison to last year. EBITDA including our affiliates was $174 million, compared to $179 million in 2017. And our net income in 2018 was $28 million, compared to $71 million a year ago.

Moving on to Slide 5. We are showing our strategic map where we use, as usual, the capital B from the logo of Buenaventura as a visual index for the following slides. Here, we would like to point out in the right part of the slide that our ratio of net debt over EBITDA has been reduced to 1.2x.

Moving on to Slide 6, attributable production. Total gold equity production in this first quarter was 148,000 ounces, 9% higher in comparison to a year ago. By this, we have mitigated Yanacocha's production decline. In terms of our direct operation, we produced 100,000 ounces, which was 32% higher in comparison to a year ago, mainly explained by the new production coming from Tambomayo. Silver equity production for this first quarter was 72 million ounces (sic) [7.2 million ounces], which is 17% higher in comparison to a year ago, based on the better results coming from Uchucchacua and a new production coming from Tambomayo. Copper equity production was 28,100 metric tons, 7% lower in comparison to a year ago. Finally, in this first quarter, more than 16,000 metric tons of zinc was produced, 15% higher in comparison to a year ago. This increase was mainly due to Uchucchacua higher production.

Moving on to Slide 7, as you can see, the consolidated volumes sold from our direct operations significantly increased. In the case of gold, explained by more volume sold coming from Tambomayo. And In the case of zinc, it is explained by more volumes sold from Uchucchacua.

Moving on to Slide 8. The all-in sustaining cost from our direct operations in this first quarter was USD 758 per ounce of gold, 12% lower in comparison to a year ago. Mainly explained by better results from the Uchucchacua mine. The cost applicable to sales in this first quarter was as follows. For gold, USD 788 per ounce, which is 2% higher than a year ago. For silver, USD 9.76 per ounce, which is 16% lower than a year ago. For zinc, USD 0.88 per pound, which is 7% lower than a year ago. In the case of copper, the cash cost was USD 1.56 per pound, which is 12% higher in comparison to a year ago.

Moving on to Slide 9 and 10. You can see the volume of gold sold and the cost applicable to sales for each one of our gold assets. At Orcopampa, cost applicable to sales was $864 per ounce, an increase of 10% in comparison with a year ago, mainly due to lower volumes sold. Tambomayo began commercial production in August 2017 and in this first quarter -- and this year 2018 will be Tambomayo's first full year operating at total capacity and production will be in the range of 110,000 ounces to 130,000 ounces.

Moving on to Slide 11. You can see the volume of silver as well as the cost applicable to sales for each one of our assets, part of our portfolio. Uchucchacua cost applicable to sales was $9.7 per ounce, a decrease of 11% in comparison with a year ago, mainly due to zinc and lead volumes sold.

Moving on to Slide 12. You can see the volume of copper and zinc block -- sold as well as the cost applicable to sales for each of the assets part of our portfolio.

Moving on to Slide 13. The debottlenecking program, which we are implementing in our 4 biggest underground mines is in progress. Our results are expected to be seen gradually. The debottlenecking program is meant to improve efficiency, reduce cost and also increase our capability for more aggressive mine development and exploration programs in order to generate more visibility for our ore reserves; in other words, to increase our life of mine. We are providing an updated table with the main projects of this program.

Moving on to Slide 14. Here, we present in one snapshot the maturity of our portfolio or pipeline of projects. Here, it's important to highlight the following: In the case of Trapiche, we have started the prefeasibility phase to perform trade-off studies, to define project's size, start environmental baseline and reinforce social relationships. And in the case of San Gabriel, we are updating the geological and geochemical models in order to increase its profitability.

Moving on to the Slide 15. Thank you for your attention. I will hand the call back to the operator to open the line for questions. Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Botir Sharipov with HSBC Global Asset Management.

It's HSBC Securities. I have 2 questions. One is on El Brocal, we saw the zinc production increase quarter-on-quarter while copper production declined, and yet you guys are working on, obviously, expansion project there. So I just wanted to see if you could shed some light on why that zinc production went up and copper went down and what we should expect going forward this year. And a second question, how do you see production and operating costs evolve into direct operation as the year progresses?

Botir, thank you for your question. Regarding El Brocal, as you know, we have 2 different assets: our underground mine, which is Marcapunta and the open pit coal also, Tajo Norte. We have in El Brocal some flexibility in terms of production. We are taking advantage of this flexibility probably as you know as well in zinc, lead has -- the treatment charges are changed in favor of the mining producer and we have -- in this first quarter, we take advantage of this situation in order to move the ramp-up of the underground mines. We keep our production guidance in terms to increase and to achieve 30,000 tons per day production coming from the underground mines, but as I said, we are taking advantage of this situation.

And regarding your second question, we achieve -- we also said that in this conference call, we keep -- that we will achieve our guidance in terms of production and also in terms of profitability for each one of our assets.

Our next question comes from the line of Thiago Ojea with Citi.

My questions are related to Cerro Verde. If you can give a little bit of more color on the decline of production and what you believe that would be the average rate for the remaining of the year?

And my second question would be around CapEx. Capex was really low at only $22 million in the first quarter. You have a guidance of $220 million something like that. So would your guidance change? Are you concerned with the evolution of the products given the lower CapEx spend?

Thank you, Thiago for your questions. Regarding Cerro Verde, along -- let me explain. In this first quarter, there was some lower production in the first 2 months in January and February, but clearly along March from where we achieved our monthly record, they produced more than average, 400,000 metric tons of ore per day and additionally with higher methodological recovery. So Cerro Verde has confirmed that they will achieve the annual production that was for CapEx.

During January and February, they also treated some ore mineral with some high content of oxides that means lower methodological recovery. But just to reinforce that concept, we don't see any problems in the production and the results coming from Cerro Verde. Regarding your second question, regarding the CapEx for this year, Leandro Garcia, our CFO will answer it.

Thiago, we maintain our guidance for the CapEx. Remember our first quarter always here in Peru, always we have the rainy season, so sometimes all the budget -- the high expense -- expenses in CapEx begins in the second quarter. But we are looking at our guidance as we're going to fulfill all our CapEx investment in December 31.

Our next question comes from the line of Tanya Jakusconek with Scotiabank.

I wanted to come back to the debottlenecking program and we really appreciate the slide you put for us on Page 13, but you know, can we relate what you have done in progress dollar wise? I think the target had been for 2018 to do $15 million to $25 million and improved EBITDA. Can you tell us how much of that you achieved in Q1?

Tanya, thank you for your question there. Regarding the debottlenecking program, if you have seen Page 13, we have a breakdown on this program in our 4 main underground mines. And clearly, for example in the case of Tambomayo, we are fine-tuning the processing plant. We expect to achieve the result -- this increase in terms of gold recovery at the end of this second quarter. So that's in terms of the results that we expect to improve. But in terms of progress, specifically in that project, the progress is in the order of 90%, but that one of the most important.

In the case of Orcopampa, one of the oldest underground mines, we are improving the infrastructure, in this case, the Hoist system. We expect to complete this program at the end of the year in the fourth quarter. And also we here show you that the cost savings is in the order of USD 2.15 per ton. This underground mine is a significant reduction. And the progress is in the order of 83%.

I understand the chart. I can see all of those numbers in your table. I just can't relate to seeing how much of that $15 million to $25 million you've achieved a year-to-date. Maybe you haven't yet because these things are -- have not been completed. Maybe the $15 million to $25 million is expected in the second half of the year. I'm just trying to understand when this -- when is it coming? Yes.

Yes, part of this value will be captured in the second semester of the year. But clearly, we prefer to analyze annually this program. As you know, it's a program with 3 years of schedule.

Yes, no, no. And I think for 2018, it was $15 million to $25 million. So is it fair to assume that we will capture some of that in Q2, but the majority of the $15 million to $25 million come in Q3, Q4?

Yes, right.

Okay. All right. Maybe I can move on to just a little bit -- thank you very much on giving us a little bit of update on Trapiche and San Gabriel. Can you let us know maybe on San Gabriel, maybe Raúl is there to give us an update on what exactly the geotechnical and geological models that are being updated to increase profitability? What exactly are you looking at in terms of changing the scope of the project?

This is Raul. Well, the idea of it is drilling. We have started a drilling campaign in San Gabriel in order to have a better understanding of the rock stability. These will generate a better design for the stopes so that we can really be sure. And all this is part of derisking projects. As you know, we have been reviewing these projects with Terry Owen, this guy that wrote the book about projects, mining projects. And we're monitoring these things, so we need to derisk the projects before getting into more complex situations. So we prefer to have better information in order to go ahead afterward.

Is the drilling campaign tied to drill spacing because you don't have a good handle on, maybe, the faulting in the area, and then ultimately to get an appropriate mining method for the underground?

Let me explain to you. What we have is -- we have very good drilling with vertical or subvertical drilling, but we do not have horizontal drilling happening on these vertical structures because mainly the deposit is embedded. So what we would like to do is to have all these faults very well defined, so that we can really make a good design on the stopes. See what happens in underground mines is that you get -- you don't want to surprises, so that's the issue. And it's part of the derisking process. I mean when you go to more mining, what we used to do in the old times is just go ahead and see what we will get. Here, what we want to do is completely be sure that we're not exposing people and that costs are not going to go up.

Okay. And what's the size of the drill program dollar wise and footage wise? And when will you have all of this completed?

Our budget for this year in San Gabriel is $9 million and the drilling is going to be, I think, it's 5,000 meters and with that, we will be ready.

Sorry, when it is going to be completed so that we will get an update?

This is going to be completed before the end of the year and by that time we will be rushing into prefeasibility as soon as possible.

Okay. And then last question before I hand it to someone else. What about Trapiche? You said you started a prefeasibility stage. You're doing the baseline for permitting, et cetera. When is that going to be available for the market? When are you going to finish that?

Tanya, I will take the advantage that here is our VP of sustainability. In the case of Trapiche, one of the key aspects is the social relationship. Alejandro Hermoza, go ahead.

Tanya, just to give you a quick update on the social issues. With Trapiche, we're currently conducting a negotiation for the workload, reaching an agreement with the committee to solve some pending issues we have with them that will secure us, things like road accesses to the project, some issues related to land usage with cattle from the community, some benefit related to local employment, local services and we expect to have -- to be reaching an agreement, a full agreement on the -- probably before the end of this semester. So we have -- with that, we can have that cleared to go ahead with the on-field activities for the project.

Yes and regarding the technical aspect, we are more comfortable, but here Raul will update this information.

Yes, well, essentially as mentioned by Victor, we are doing a number of trade-off studies in order to define the project size. One issue is what is the optimum size, and we need to be more clear about that. And we need to start the environmental baseline and reinforce the social relationship that Alejandro was telling you.

The other issue is that we are promoting a road with the regional government that will give us a better access for the project. Today, the access to Trapiche is a community road that has been good for this time as we need to have a better access for the project. And that's where we are, and it should be done by the end of the year with the prefeasibility study.

So will the prefeas be available at the end of the year?

For sure.

(Operator Instructions) Our next question comes from the line of John Bridges with JPMorgan.

I don't know if I totally got the answer to the question given to you on El Brocal and the breakdown of production. I get the message that you are being opportunistic and benefiting from the very low TC/RCs on some products. But how should we look forward for the rest of the year in terms of the mix of copper or lead/zinc, the mix of tongues from the different -- through the different mills, that sort of thing? Can you give us a bit of guidance on that?

John, thank you for your question. Yes, as I said in the case of El Brocal, it's an asset with sound flexibility. It has the open pit, which produces zinc and lead concentrates and we have the underground mine, which is Marcapunta. And we are taking advantage of this facility and in this first quarter, we increased the production coming from the open pit in order to reduce the pressure to smooth this ramp up coming from the underground mines and taking advantage of the treatment charges. The commercial terms for the zinc and lead concentrates have been in favor of the producer, the mining producers. But clearly, we keep in our -- because in the long term -- for the long-term for the larger mine of El Brocal, it makes sense to reinforce, to increase the production coming from the underground mine. So we keep in this program, in this expansion of Marcapunta in order to achieve in the last quarter of this year, 13,000 tons per day. We keep in that program, but as I said, we are taking advantage. And clearly, if you see the numbers, we -- in terms of EBITDA, in terms of profitability, that efficient to start increasing the production from the open pit generated for El Brocal more profitability. But clearly, it's an opportunistic decision. We are taking advantage of this short period of time, but keep in mind that in the long term, we have to be an underground mine producer.

Right, right. So you benefited from very low spots of TC/RCs on lead/zinc from Tajo Norte and so it sounds as if you're having a few teething problems with the underground. When do you think you're going to be able to switch more to the underground? Is that going to be Q3? Or is it in Q4?

Yes, good point. In the last quarter, John. In the last quarter, we have to achieve that number, this goal, 13,000 tons.

Right. And so do you think it's going to be a steady progression to that from here? Or is there going to be a switch over at some point?

No, we keep that -- with that program, John.

Our next question is a follow-up question from the line of Thiago Ojea from Citigroup.

Just a follow up on Cerro Verde, there was a $200 million dividend payment. Can you give us a little bit more detail on the payment on the timing and what is the likelihood that -- for the dividends would be paid yet this year?

Yes, we have the advantage that our Chairman is here, Roque Benavides, will answer this question.

The policy of Buenaventura in terms of distributing dividends has been to distribute 20% of net income of the year per year. And in this respect, we will continue with this policy. We discussed this at the board level yesterday. Essentially, we have been distributing in early May and early November every year, and we will take obviously into account the dividends paid by Cerro Verde and probably will receive some other dividends from Cerro Verde in the future. We have decided to continue with the policy of 20% and distributing it twice a year. So in early November, in the board meeting of late October, we'll decide on the dividend paid and will take into account these dividends that come from Cerro Verde.

Thank you very much, Roque. But do you have anything on what would be perhaps future dividend payments from Cerro Verde yet this year and for next year, 2019?

Well, that is for Freeport to answer because essentially they are the controlling shareholder. But essentially, Cerro Verde is generating a lot of cash and they are paying back the debt and we probably should be expecting some additional dividend, but we, at this point in time, we don't have an answer for that.

There are no further questions in the queue. I'd like to hand the call back over to Mr. Gobitz for closing comments.

Okay, thank you. We would like to thank -- take advantage -- is here Gonzalo Eyzaguirre. We would like to thank Gonzalo Eyzaguirre for the important contribution he had made while at Buenaventura and Sociedad Minera El Brocal. Gonzalo has decided to continue his professional career abroad. And thank you, everyone, for joining our call this morning.

As the Buenaventura's team, we are committed to reaching the 2018 targets in terms of production and profitability. And in addition, to develop the full potential of our existing assets through the debottlenecking program, and also to implement a disciplined process for value generation through the development of our portfolio of greenfield projects. Thank you again, and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.