Compania de Minas Buenaventura SAA (BVN) 2024 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Compania de Minas Buenaventura second quarter 2024 earnings results conference call. (Operator Instructions) Please note that the call is being recorded.

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

Good morning, everyone, and thank you for joining us today to discuss our second quarter 2024 results. Today's discussion will be led by Mr. Leandro Garcia, Chief Executive Officer, also joining our call today and available for your questions are Mr. Daniel Dominguez, Chief Financial Officer; Mr. Juan Carlos Ortiz, Vice President of Operations; Mr. Aldo Massa, Vice President of Business Development and Commercial; Mr. Alejandro Hermoza, Vice President of Sustainability; Mr. Renzo Macher, Vice President of Projects; Mr. Juan Carlos Salazar, Vice President of Geology and Explorations; Mr. Roque Benavides, Chairman; and Mr. Jorge Henzi, Director.

Before I hand our call over, let me first touch on a few items. On Buenaventura's website, you will find our press release that was posted yesterday after market close. Please know that today's remarks include forward-looking statements that are based on management's current views and assumptions.

While management believes that your assumptions, expectations, and projections are reasonable in view of the currently available information. You are cautioned not to place undue reliance on these forward-looking statements. I encourage you to read the full disclosure concerning forward-looking statements within various results press release issued in July 25, 2024.

Let me now turn to Mr. Leandro Garcia.

Thank you, Sebastian, and good morning to all, and thank you for joining us today to discuss the quarterly results of the company.

On slide 2 is our cautionary statement, important information that I encourage you to read. Today we will be discussing our performance for the second quarter of 2024, highlighting key achievements and the strategy is moving forward. After the presentation, we will be available for our Q&A session and our team will be happy to answer your questions.

The next slide, please. I would like to highlight a few key areas that contributed to our strong second quarter '24 results. Our EBITDA from direct operations for the second quarter has increased $85 million compared to the previous year, primarily driven by the great results coming from Yumpag and El Brocal. Despite that, El Brocal processing plant was voluntarily suspended for 16 days as a response to a protest by nearby communities as announced on May 22, 2024.

This is also reflected in a higher EBITDA margin of 39% compared to 13% from previous year. Our net income in the second quarter 2024 reached $74 million compared to last year's net loss of $5 million. Copper production decreased 22% year over year, mainly due to El Brocal voluntary suspension previously mentioned.

In the second quarter 2024 silver production reached 4 million ounces, a significant increase compared to the 1.7 million ounces produced during the same period last year. Of this total of 29 million ounces came from Uchucchacua and Yumpa. Both production decreased 9% year over year, reaching 33,800 ounces since we are now mining lower grades at Orcopampa and Tambomayo mines.

We are pleased to share that Cerro Verde they announced a new dividend of $300 million on July 24, of which $59 will be distributed to an event. This dividend expected to be paid by the end of August will contribute to strengthening our overall financial performance. We're now into that CapEx in the second quarter of this year, total of $84 million, which includes $70 million allocated to the San Gabriel project, primarily directed towards the completion of waste dumps on main substation platform. Our cash position reached $172 million and with a total debt of $682 million, we continue deleveraging the company reaching a net debt-to-EBITDA ratio of 1.4 times, lowest in years and within our targeted range.

Moving on to our cost structure in slide 4. Second quarter all-in sustaining cost has been reduced by 91% year over year. This reduction is primarily attributable to the increased silver contribution from Uchucchacua and Yumpag as well as increased production at El Brocal.

Moving on the cost applicable to sales trends, as you can see, Copper CAS has also increased, mainly due to the forecast voluntary suspension that was previously mentioned. Silver CAS has decreased year over year, primarily driven by higher contribution of the Uchucchacua and Yumpag silver rounds. Gold CAS cost increase year over year from primarily driven by lower grades of Tambomayo and Orcopampa.

On the next slide, we'll presenting the free cash flow generation. Second quarter 2024 cash position was in line with the first quarter of this year. The Capex from San Gabriel and dividends paid were offset by the cash generated by the operations and dividends received from San Gabriel where they were $29 million in April.

The EBITDA to free cash flow reconciliation is explained by the following breakdown, inflows, and outflows. El Brocal and Yumpag has been the main contributor for the second quarter 2024. As we have mentioned before, Buenaventura is going through a growth phase with an intensive CapEx related to San Gabriel. The additional dividends declared by sort of our way $59 million will be reported in the third quarter of 2024.

Moving on to slide 6. We know, we have that in the next months, Buenaventura will be focusing most of its efforts in the San Gabriel project. On this slide, you can see the project's cumulative progress, reaching 57% overall progress by the second quarter of 2024, primarily driven by the completion of waste dumps and the main service station platform. The key milestone we are closely monitoring for the next quarter is the start of the high-voltage power line construction and the start of the electrical instrumentation construction works.

On the next slide we are showing the processing plant progress that will operate at 3,000 tonnes per day. Currently, the foundations are at 80% progress. The shaft and both mechanical work at 60% that primary crusher mechanical work at 40%. And finally, this shield tanks, mechanical worlds are at 30%.

Moving on to slide 8, we are showing the water dam foundation and filtering implant civil works. Finally, I would like to finish the presentation with a couple of closing remarks. First, in the first full quarter of operations, which are Uchucchacua and Yumpag, have made a remarkable impact delivering 2.9 million ounces of silver.

We are actively working at the vertical to recover the production that an estate aligned with our guidance with a strong focus on reaching 11 tonnes per day by the end of this year. Third, this is a real project, has achieved 57% overall progress meeting our brand targets. We remain on track to reach our goal of producing our first gold bar by the second half of 2025.

Cerro Verde continues to generate robust cash flow leading to increased dividends. For fiscal year 2024, we estimate dividend of between $120 million and $150 million attributable to Buenaventura equity. In the second quarter 2024, our leverage ratio stands at 1.4 times, our reflecting our growing EBITDA and effective debt management strategy.

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

(Operator Instructions)

Carlos De Alba, Morgan Stanley.

Yeah. Thank you, and good morning, everyone. And so I have a few questions, so on dividends in Cerro Verde. I want to see what you expect to receive in the fourth quarter, there's already a dividend announced for August and by the fourth quarter? And what is the outlook given how relevant it is for the cash flow generation of the company.

And then on San Gabriel, do you have any update on the CapEx figure until you're well into the project and we don't yet have a revised estimate for the CapEx. So I think we all would like to get sort of some new information.

And then finally, we saw a significant increase in the cost as some of your gold mines and you had some production issues or grades declining. And so there are explanations in the release but I would like to understand how do you see things going forward in the coming quarters?

Okay. Hello. Thank you. Thank you for your questions. And first, as depends from Cerro Verde will depends on the level of prices and the level of production that we think there will not be any may or change. So our expectations, as I say told before, it is still between $120 million and $150 million for the 2024 year and corresponding to this fiscal year.

In terms of San Gabriel project this semester, we have expensed the entire semester $108 million. We are big to invest during 2024 a total of 280 and the investment in the 2025 will be around $200 million. I think maybe, Renzo can go a little bit more further along the explanation. Please, Renzo.

Yes, hi. The total project cost will be updated into $650 million and this additional 180 is mainly based on escalating prices in our regional destination, which was up 3% to 4% year over year, and we have been having changes in the project sequence and expediting costs to mitigate the 18-month delay that we had on 2021, 2022 to secure our first gold bar by the end of the third quarter of 2025.

So construction is professional and work is going as expected as can be seen in the picture. And we're advancing as planned and we're dancing as planned. And the last big contractor is which is the electrical signal, we will be starting next month. Now we have all the prices ready.

So the $280 million is the CapEx not for San Gabriel, but overall in 2024?

No, just for San Gabriel.

Okay $280 million is just for San Gabriel in 2024. And the total CapEx for the project is now $650 million?

Yes, that's correct.

Total project cost, yes.

But we will continue with our margin EBITDA of the project around 50%. And we expect to give more details in OpEx and the NPV, new NVA in the third quarter of this year, then the third quarter conference call. Regarding the your third question, our cost on grades, as you can see, and you can read in our press release ore grades in Orcopampa and Tambomayo are declining and that is the main reason maybe Juan Carlos Ortiz can add some comment.

You are having some problems with my line. But could you please repeat the comment because I mean (inaudible)

Caesar Nuvoa, BTG Pactual.

Yes, good morning to everyone. I have three questions from my end if I may. Could you please comment on how we should see Buenaventura's inflows and outflows of capital for this year and the possible breakdown on what you expect to receive on the potential sale of Orcopampa and the [Yanacocha] royalties? Your dividends Cerro Verde were FCX already made a $300 million dividend announcement and your CapEx commitment budget for this year.

If you could reiterate that, I would appreciate it. Then at El Brocal, how will costs evolve in the second half of the year, noting that the increased 14% in the second quarter and whether this copper ore that you have on inventory to support the plant's resumption will have some impact or benefit once you hit a processing rate of 15,000 tonnes per day.

And finally, at Coimolache, I understand that when Buenaventura received a construction permit to increase leach pad capacity. Could you please comment on next steps and when will the expansion be completed?

Thank you very much, gentlemen.

Thank you, sir. Regarding the sale of [Chapiloma] and we have in sense information to the Superintendencia del Mercado de Valores restricted information and we cannot give many details of the operation, but we expect during the following weeks, we should comment to the market the results of this. In terms of sort of weather events, as you know, is an important portfolio for the cash inflows in mature.

And we maintain our expectations to receive during the year between 101, 120 or 150. In terms of Coimolache, we have received per the environmental permits, and we are today in working with them in permitting of the construction, the construction permit, and we expect to receive it on the final quarter of this year. If I don't know, Daniel, if you want to more details in the inflows and outflows.

No, thank you, Caesar for your question. Getting a bit a little bit into the details regarding the inflows and the outflows, we are going to generate an EBITDA for this year of around $300 million to $320 million, considering a copper price of $9,000. Then as Leandro mentioned, we should be receiving dividends from Cerro Verde in the order of $120 million and $150 million.

And regarding an asset sale, I don't mean specifically totally normal, as you know. And as we have been mentioning this in the past, we have a portfolio of non-core assets that we are going to sell during the following months. We expect to receive this year between $150 million or $180 million.

Regarding the outflows, the total CapEx for this year should be in the order of $380 million to $400 million. This includes the $280 million that we have disclosed for San Gabriel. And finally, between interests and the amortization of our loans, we will disburse around $70 million.

Regarding the second question to talk about the costs of El Brocal. As we reported, the costs were a over $7,100 per tonne. This was specifically due to the events of the liberalization that we had in May, but for the following quarters, third quarter and fourth quarter of this year, we should come back to the level that we have been opening, we have been operating in the last months focusing on the under one month, which will be between $5,300 per tonne and $5,500 per tonne.

And finally the inventory that we have 210,000 tonnes of copper concentrate in El Brocal should be valued at an EBITDA of between $5 million and $6 million, which will be executed or realized in between July and August of this year.

All right, Daniel, very detailed. Thank you. Thank you very much and also, Leandro. Thank you.

Tanya Jakusconek, Scotiabank.

Good morning, everyone. Thank you so much for taking my questions. And just Daniel, just wanted to confirm what on the last conference call, you mentioned that you had put in place a revolving credit facility and with three banks of $200 million, which could also help you with the financing of San Gabriel as well, which you have in a drawdown in Q2, Q3. Is that still in place for us above and beyond everything else you mentioned?

Look, we still have the $200 million revolver facility undrawn, and we expect not to use it during this year.

So maybe for 2025?

Possibly, but remember that next year, we will count with the proceeds from Yumpag the full year. We also expect some dividend from Cerro Verde. So if copper price continues at these levels of over $9,000 per ton. We probably will not use this revolving facility, of course, adding what we expect to receive from the asset sale from our portfolio.

Yes. No, fair enough. It's a buffer on top of everything else. And okay. Can I just go back to San Gabriel, and I appreciate that. Thank you very much for the capital number. I know we have talked about it in the past. It has increased as expected and we await as for you on guidance on the costing side, on the Q3 call. Can I ask now that you've got you have major contracts in place, so you have a good handle on the capital side.

Can I just ask about your development? I saw that you develop 2.2 kilometers of the underground. I'm just trying to understand one, your advance rate. So how is that going the ground conditions? Number two, I'd like to understand your cost per meter of advancement and just trying to get an understanding of productivity as you go into the underground before we can actually get what's built for mining. So someone can help me on that, that would be great.

Here, Renzo, please. Go ahead.

Yeah, hi and okay. So in the other one, we have we have finished the second sprint task of OpEx calculation. And it includes, we're focusing our development in what's going on in underground recent steel and mining method because of the rock type four A and B that's mainly where we are. Now we are going to be hitting the top of the deposits compared to our previous plan, which was to hit the bottom and then moving up, we're going to hit the top one and going down.

So we're going I've asked this earlier in the process and currently we are developing the crossing between the two ramps and probably 50 meters below the DRD and at a rate of $3,000 to $4,000 per tonne, where it depends where crossing difficult parts today. We just say we have like 200 meters, 400 meters of advancing so far.

Okay. We have also Juan Carlos Ortiz that can add some comments of the construction on San Gabriel advances.

Yes, we have, as mentioned by Renzo, developing panels at that rate of about 200 meters per month in underground. The ground in San Gabriel heavy support, short ridid and steel reinforcement. In late August we will have the second crew coming on board. We have a cycle throws open the normal ramp. So we'll have two crew working in parallel.

Probably in a couple of months, that second crew also will reach 200 meters per month rate. So we'll be developing in the fourth quarter, the two crews where we are right now running at a combined rate of 400 meters per month. The average cost right now is in the rate of $4,000 per meter all costs included. Excavation muck removal the shortest review all the reinforcement.

We expect by the last quarter of this year and started developing into the ore body. We are very close right now, but we expect to be doing more work in the last quarter of this year. It started building up a stockpile on surface in the first quarter of next year. So we'll really, they're producing ore at that time from the first quarter of this year.

Thank you so much. Look forward one day, hopefully to see this asset. This you guys have a mine tour, and we'd love to see it heard so much about it when it was within Goldfields as well.

Maybe, Daniel, can you just help me out on the capital, just the $280 million that needs to be spent this year at San Gabriel, and then $200 million next. Can you give me the big ticket items? Like maybe what's the underground? What's the infrastructure, like a surface? What is just some of the big ticket items. So I understand what I'm fending on?

Renzo?

Yeah. So we are engaged in our air moving contract it's 70% complete on our side. A piece of that, mainly for the water done. And you can see in the picture, we feel the conditions are now somewhat recently. Then the concrete steel, mechanical and piping contract have a couple of months on the waste on their side, eight months to go and electrical contractor is going to start and then we move into commissioning top. It is mainly that we are advancing, unlike at 10% per quarter, so pretty much. And might this first quarter, early second quarter of next year, you're going to finish all the construction and what is remaining and the commissioning activities.

Okay. So of the $280 million this year, how much would be the mill and how much is the underground just the rough math and now and then finishing next year on the I'm assuming underground, I'm just trying to understand the surface from the underground. We have an idea of that would be?

It's like $50 million for the underground around that.

So $50 million for the underground this year, 50?

No, between now and I don't have numbering in monthly between now and September next year is like one year over the next one year.

So one year $50 million is in the underground. The remaining of the $380 million is all surface infrastructure and another?

Yes.

Okay, that's great. Thank you so much for helping me understand.

Ladies and gentlemen, with that, we will be concluding today's audio question and answer session. I would like to turn the floor back over to Sebastian Valencia, Investor Relations Analyst for any webcast questions.

Thank you, operator. At this time, there are no further questions. I will like to turn to Leandro Garcia.

Thank you, Sebastian. And before we finish today's conference call, again, thank you very much for making the time to join us today and have a wonderful day. Thank you very much.

Ladies and gentlemen, that concludes Buenaventura's second quarter 2024 earnings results conference call. And we would like to thank you again for your participation. You may now disconnect.