Compania de Minas Buenaventura SAA (BVN) 2021 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Compañia de Minas Buenaventura Third Quarter 2021 Earnings Conference Call. (Operator Instructions) And please note that this call is being recorded. I would now like to introduce your host for today's call, Mr. Gabriel Salas, Investor Relations. Mr. Salas, you may begin.

Good morning, everyone, and thank you for joining us today to discuss our third quarter 2021 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; and Mr. Roque Benavides, our Chairman.

This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements within our earnings release and risk factor discussions.

I encourage you to read the full disclosure concerning forward-looking statements within the press release we filed on October 28, 2021. In addition, it is important to note that these statements include expectations and assumptions, which will be shared related to the impact of COVID-19 pandemic.

As seen on Slide 2, our forward-looking statements also provide information on risk factors, including the effects related to COVID-19 that could affect our financial results. In particular, there is continued uncertainty about the duration and contemplated impact of the COVID-19 pandemic. This means Buenaventura's results could change at any time, and the impact of COVID-19 on the company's business results and outlook is best estimated based on the information available as of today's date.

At this time, let me now turn the call over to Mr. Leandro Garcia, Chief Executive Officer. Leandro, please go ahead.

Thank you, Gabriel. Good morning to all, and thank you for attending this conference call. Before we start this presentation, we would like to wish you, your family and friends health and well-being at this difficult time.

We are pleased to present the results from the third quarter of 2021 from Compañia de Minas Buenaventura. We have prepared a Powerpoint presentation, which is available in our web page. Before we go further, please take a moment to review the cautionary statement shown on Slide 2. Please consider the disclosure related to COVID-19 pandemic.

Moving on to Slide 3. Highlights were as follows. Third quarter '21 EBITDA from direct operations reached $39.5 million compared to $68.5 million reported in the third quarter of 2020. In 9 months -- the first 9 months '21 EBITDA from direct operations reached USD 141.6 million, an increase as compared to $88.1 million from the 9 months of 2020.

Third quarter adjusted EBITDA, including associated companies, reached $183.7 million compared to $183.9 million in third quarter of 2020. 9-month 2021 adjusted EBITDA including associates reached $593.3 million, a significant increase as compared to USD 298.5 million for the first 9 months of 2020.

Third quarter net loss reached $91.9 million compared to $14.9 million in net income for the same period in 2020. The first 9 months of '21 net loss was $39.3 million compared to $68.9 million net loss in 9 months 2020.

It is important to note that the net loss for the third quarter '21 and the 9 months 2021 was impacted by $66.4 million Yanacocha impairment corresponding to BVN's equity ownership position in this asset. Aligned with the company's strategy to focus primarily on exploration, the third quarter '21 exploration and operating units increased in $17.1 million compared to $7.6 million in third quarter of 2020.

The first 9 months 2021 exploration and operating units increased to $40.9 million compared to $16.1 million in the first 9 months of 2020. The third quarter 2021 capital expenditures were $24 million compared to $12.9 million for the same period in 2020. 9 months 2021 capital expenditures reached $58.5 million compared to $35.2 million in the first 9 months of 2020.

Cost applicable to sales, CAS, for the first 9 months of 2021 reflects a $43.8 million impact due to COVID-19-related expenses. Buenaventura's cash position reached $287.9 million as of September 30, 2021. Mining and ore processing activities were suspended at the Uchucchacua mine in line with Buenaventura's strategy to reduce cost and become cash neutral while enabling the company to focus on underground exploration and optimize the current reserve exploitation sequence with a gradual operations restart.

Moving on to Slide 4, ESG corporate strategy. Our company has always been committed to help local communities and to have responsible practices with the environment. We have measured some indicators, as you can see on this slide. For example, we achieved a 94% water recirculation in our open pit operations and 88% at our underground operations.

We have grown our special effort to improve our ESG reporting practices following international standards like the World Gold Council, [AED], Dow Jones Sustainability Index and the United Nation Global Compact.

Moving on to Slide 5. Continuing with the ESG corporate strategy. For several months, we have been working with our stakeholders, local communities, investors, directors, workers, et cetera, in order to start implementing a better ESG reporting system. And after all the efforts, we have been able to build a matrix that we are presenting on this slide.

Here, you can see the most important subjects, which are located at the right part of the matrix and belong to the high material area. In this area, we have determined that the health and safety, the responsible use of water and the value generation for the stakeholders are the 3 most important topics to work on and those efforts are included in our report.

Moving on to Slide 6. Financial highlights. Total revenues during the third quarter were $220.4 million, which is 3% lower in comparison to the third quarter of 2020. This -- in the first 9 months of the year, total revenues increased to $647 million compared to the 9-month period of 2020, where total revenues were $440.5 million.

EBITDA from our direct operations in the third quarter of 2021 was $40 million in comparison to $69 million in the third quarter of 2020. EBITDA from direct operations for the 9 months 2021 increased to $142 million in comparison to $88 million during the first 9 months of 2020.

EBITDA including our associates in this quarter was $184 million, which is in line to the EBITDA generated in the third quarter of 2020. EBITDA including our associates for the first 9 months of the year was $593 million compared to $299 million for the same period in 2020.

The CapEx increased to $24 million in the third quarter of 2021 compared to $13 million in 2020. In the first 9 months of the year, CapEx totaled $59 million, a 66% increase in comparison to the first 9 months of 2020. As you can appreciate on the graph shown in this slide, we are returning to pre-pandemic levels and even achieving greater results than the first 9 months of 2019.

Moving on to Slide 7, Uchucchacua's status. The COVID-19 pandemic adversely impacted mine preparation and exploration at Uchucchacua. As a consequence, we are working with narrower ore veins and lower silver. The suspension enables us to achieve the most significant cash preservation while derisking future negative free cash flow generation through the following: workforce optimization in order to reduce fixed costs from $2 million to $5 million per year; decreased COVID-19-related expenses from 12 to 15 months (sic) [$12 million to $15 million] in 2022; reevaluation of existing contracts to renegotiate, reconcile and streamline the company's contractor base from $7 million to $9 million per year.

This strategy will be implemented during the period 2021-2023, which -- with a gradual and efficient restart of operations once related objectives have been achieved, prioritizing exploration over ore extraction to increase reserves in the long term. Importantly, these suspensions will not affect the progress related to our high-grade Yumpaq project expected to begin production in early 2024.

Moving on to Slide 8 and 9, attributable production. Total gold attributable production in the third quarter of 2021 was 80,000 tons, which is 2% lower than the figure reported on the same quarter of the previous year.

In the first 9 months of 2021, total gold attributable production was 217,000 ounces, 7% lower than the same period in 2020. This decrease was mainly explained by lower production in Yanacocha. Total attributable production for this quarter was 3.6 million ounces, which shows an increase of 20% compared to the figure reported on the third quarter of 2020. During the first 9 months of 2021, silver attributable production was 11 million ounces, 20% higher than the first 9 months of 2020.

In the third quarter of 2021, 11,000 metric tons of zinc were produced, a significant decrease compared to the third quarter in 2020. In the first 9 months of the year, zinc production decreased to 32,000 metric tons, 2% lower than the same period in 2020. In the case of lead, equity production was 6,000 metric tons in the third quarter of 2021, which is 23% lower in comparison to the third quarter of 2020.

In the first 9 months of 2021, lead production decreased to approximately 16,000 metric tons in comparison to 18,000 metric tons in 2020. Finally, our copper attributable production for the third quarter of this year was 26,000 metric tons. During the first 9 months of 2021, copper attributable production was 75,000 metric tons, a 12% increase compared to the same period of 2020.

Moving on to Slide 10. All-in sustaining cost and cost applicable to sales. The all-in sustaining cost from our direct operations in the first 9 months of 2021 increased by 16% to USD 1,488 per ounce of gold. The costs applicable to sales for the first 9 months of 2021 were as follows: for gold, USD 1,224 per ounce, which is 18% higher than a year ago. For silver, USD 19.54 per ounce, which is 15% higher than a year ago. For lead, USD 1,463 per metric ton, which is 30% higher than a year ago. For copper, USD 6,295 per metric ton, which is 25% higher in comparison to a year ago.

Finally, in the case of zinc, the cost applicable to sales was USD 2,127 per metric ton, which is 19% higher than a year ago. As we mentioned before, cost applicable to sales has been impacted by approximately $44 million of expenses related to COVID-19.

Moving on to Slide 11. Pipeline of projects, an update. Here, we are presenting in one snapshot the current development level for each one of our projects.

Moving on to Slide 12, San Gabriel. We finished geometallurgy testing and confirmed study gold recovery at 85.33%. The EIA's validity extension will be achieved by starting water dam preliminary works next year.

We reached an agreement with Corire community to finalize Consulta Previa. In Oyo Oyo community, this is still in process. Early construction works are expected to start after both communities ratify agreements with MINEM, the Ministry of Energy and Mines.

Moving on to Slide 13, Trapiche. We started on-site metallurgical column testing. And we finished chloride leaching trade-off study. The evaluation of primary ore is the next step. We agreed with SENACE to hold a second EIA workshop by late November, followed by EIA submission early 2022. The project's access road agreement draft was released to Antabamba and Molloco communities for approval.

Moving on to Slide 14, Tantahuatay’s sulfides. Coimolache's board approved viability stage as informed in the previous conference call. The infill drilling started and is currently at 24% in [Tantahuatay sulfides]. 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) And our first question today comes from Tanya Jakusconek from Scotiabank.

I have 2 that I'd like to ask on 2 different assets. Can I start on Uchucchacua? I just want to try and understand as you go through this whole evaluation on this asset, is it fair to assume that this asset will be down from the rest of 2021 and all through 2022?

Tanya, thank you for your question. Well, as you know, we have been struggling with -- we have a lot of problems in Uchucchacua as we have informed in the last 4 conference calls. We have been doing our best efforts to -- not to stop production. But finally, we have decided this holdup of our output and our production in order to make more efficient the mine to go further with all the works we have in geology explorations and remaining preparation.

And actually, we will expect to have this mine stopped by at least 1 year. And we will be evaluating this resuming of operations during 2022. But any additional comment, maybe Juan Carlos can give us some more color about this.

Thank you, Tanya, for the question. Yes. We will plan to continue with exploration, work is on the ground, developing of panelings and diamond drilling along 2022. And based on those results, we will review our decision on where to restart the operation in 2023. If we don't have the conditions at that time and we would prefer to continue with exploration, we'll probably extend that strategy along 2023.

Okay. And given you stopped the mine, should I be thinking that this care and maintenance now is going to have a cost for us to have? And if so, what is the cost of care and maintenance, either per quarter or per year, whatever is easier for you?

It's a combination of 2 things. One is going to be obviously the care maintenance per se. It's about fixed costs in order of $1.5 million per month, payroll plus all the ancillary services, pumping, water treatment. And on top of that, we will have mine tunneling for exploration to get new access to different areas for diamond drilling. And that amount is still under review with our people. We are working on our annual budget around November.

Okay. So I guess you will give us some sort of guidance next year, but at least $1.5 million per month of holding costs as long as this is down. Okay. And just on the -- you mentioned narrower veins that you're seeing and you're putting the effort in to do this exploration. As you go into narrower veins, usually, you have to kind of change your mining method because you're going to have to be more selective mining, which is more expensive.

So I'm just wondering how -- you mentioned that you don't really see much impact to your reserves and resources with this being down. But just because these -- the veins are narrower, I just -- I'm trying to understand how it could not have an impact.

Yes. The thing is that right now, we have -- we don't have isolated veins. Usually, they came like in a package, several veins altogether. We need to fill all the gaps in between in order to have an idea of how many veins do we really have altogether closer to each other and optimize the design of the mining facilities to mine that area.

Right now, we are mining certain veins. In certain times, we duplicate the infrastructure like an additional ramp or an additional ventilation infrastructure for a vein that is only 90, 80 meters. So now we're going to the south.

So we need to have time to explore the other veins, get all the information together in addition to the existing veins that we already reported in our reserves. And once we have all that information, we locate the ramps in our infrastructure to serve more tonnage than we are doing right now.

That's the reason we need time for exploration to include all those veins that we have now as a potential or potential resources in order to have an optimized design. That's the reason we need some time for continued exploration near the existing reserve blocks. In doing so, we expect to dilute the infrastructure costs and get back into production with pretty much the same operating cost or improved operating cost from the underground mine.

Okay. But from what I'm hearing, it appears to me, and maybe I'm wrong, that maybe you haven't done enough detailed tighter space drilling to really understand. And maybe someone can tell me what your drill spacing has been on your mine planning, but it appears if you're not able to connect all of these veins together, you kind of have to do more tighter space drilling. Is that a correct assumption?

Well, no, in the blocks that we already have on reserve, in some areas, of course, we need to go from maybe 22 meters, I think it was, to 15 meters spacing. That's the -- according to the new guidelines and updated statistics, we need probably to make shorter distancing holes for part of existing reserve. So that will be part of the migration to the S-K 1300 standard.

But what I mentioned was structures or veins that are parallel to the existing ones, 20 meters, 60 meters, 80 meters to the north or to the south of the existing ones.

So we will add those potential resources now into our mining plan. That's what the strategy we will focus on in the ore reserve for us. In addition to that, of course, explore potential areas where in the past, we had the ore bodies with a larger thickness and a higher grade.

So we identified basically the model that we are understanding better in Yumpaq. We're bringing that experience from exploration into Uchucchacua mine. And we identified several targets pretty much in the anticline of Uchucchacua. So it will be a 2-set strategy: working for or looking for more structure, more veins near our existing reserves; plus opening new areas of exploration near the mine, 600 meters, 500 meters from the existing facilities in that anticlinal sector with particular ore [risings] in limestone that pretty much follow the same model in which we are very successful right now, exploring Yumpaq. So we're bringing that controls, that metallurgical control into Uchucchacua in the anticlinal sectors to look for ore bodies, high-grade veins that we had in the past -- we already had in the past. So we are connecting the dots in that kind of near-mine areas as well.

Okay. So as I understand it, there's some tighter space drilling to be done within your reserve blocks plus step-out to try and target some of these veins close by to bring them in.

That's right. Yes.

And then my last question, if I can, just on San Gabriel. You mentioned the validity of the EIA extension to be achieved. So are you saying that you're going to be getting this EIA by putting in this water dam next year? Or what is it that you still need to do to just get this EIA approved?

Thank you, Tanya. With that also is Renzo Macher, our project manager, and he will explain a little bit more about our process in San Gabriel. Please, Renzo.

Well, the EIA is already approved, but these instruments have a shelf life of 5 years. So because of the COVID, we haven't been able to start construction and it is getting to the end of that shelf life. And in order to extend that shelf life, we need to start something, and we have all the working permits to start the water dam. So if we start the early process of the water dam, we're going to be initiating the execution and, therefore, the environmental impact assessment shelf life is going to continue. That's the strategy.

Okay. And then when you've done this water dam, like what else? You're doing consultation with the communities, I see, to finalize that process. Once we've done that, are you then ready to make a decision for construction?

The construction permit has already been submitted a year and something ago. And there's no more technical questions about it. We are ready to start. The only thing that is missing is the -- to finish the Consulta Previa with the community that has been impacted by the COVID activities. Now we have had some advances in the last quarter. One of those being that we have been able to have public assemblies with the community.

That was one of the main obstacles to reach agreements with them.

Second, the community directors have been finally assigned. They have all the paperwork ready to make decisions. That's another big step. And third, the government have been helping us sending the right letters to the community. However, they have changed. So the new officers in the ministry are new, and we are working with them to kind of know each other again. But we are still expecting to start construction, full construction, by the end of the rainy season. That is March 2022. That's our best -- we're holding with that in mind.

(Operator Instructions) Our next question comes from Jens Spiess from Morgan Stanley.

I just want to ask -- how much do you expect to get from dividends from Cerro Verde next year? And also for us to model this going in further years, what payout ratio are you expecting Cerro Verde to have in the upcoming years? And if I can do a follow-up question, I just wanted to ask if you have any sense of how much the government might increase the mining taxes because obviously, they haven't given details about specific rates. But I was just wondering if you have got any sense of that.

Hi, Jens. Thank you for your question. In respect of the first question about the Cerro Verde dividends, you have seen the results of this third quarter of Cerro Verde. And the operation is going very well. And of course, we will expect an additional dividend for this last part of the year. We have not talked -- speak with Freeport. But I'm sure that all the shareholders will expect an additional dividend before the end of 2021.

And the payout rate, we have to talk with them. I think the future years of Cerro Verde, we do not have any investment, big investment planned for the following years. So the CapEx is limited for the following year or so. It's around -- imagine around $300 million, $400 million. But all the cash with these prices that generates Cerro Verde, of course, we'll finish with some part of dividends for shareholders.

Regarding your second question about tax. We are not sure with how will be the final number with increasing the tax. For mining, we have received some message from the minister, the public declarations, that he will increase for the higher profit margins with a company that current profit greater -- in the higher level of the profit margins for companies that are located there.

But however, he has been very clear telling the press and in all the declarations that he will be vigilant and analytic. He will not somehow being -- how to say, he will preserve the competitiveness of the mining industry. That is the message that we have received from him. So we expect some additional tax or royalties, additional increase but in the higher level of profit margins. So we will see it in the following weeks how is the final number.

And ladies and gentlemen, at this time, we would like to conclude today's conference call. And I would like to turn the floor back over to Mr. Garcia for any closing remarks.

Well, thank you for attending this conference call. And have a great day, and be safe. Thank you very much.

Ladies and gentlemen, that does conclude today's conference. We do thank you for attending. You may now disconnect your lines.