Compania de Minas Buenaventura SAA (BVN) 2020 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Compañía de Minas Buenaventura Fourth Quarter 2020 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. Rodrigo Echecopar, Investor Relations. Mr. Echecopar, you may begin.

Thank you. Good morning. Good morning, everyone, and thank you for joining us today to discuss our fourth quarter 2020 results. Today's discussion will be led by Mr. Leandro García, CEO. Also joining our call today and available for your questions are Daniel Dominguez, CFO; Mr. Juan Carlos Ortiz, Vice President of Operations; Mr. Aldo Massa, our new Vice President of Business Development and Commercial; Alejandro Hermoza, Vice President of Sustainability; and Renzo Macher, the Corporate Project Manager. Also available for your questions will be 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 February 25, 2021.

In addition, it is important to note that these statements includes 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 provides information on risk factors, including effects related to COVID-19 that could affect our financial results. In particular, there is significant uncertainty about the duration and competed 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 a best estimate based on information available as of today's date.

Please note that in the interest of safety, we are utilizing a more virtual approach in exercising social distances while conducting this call this quarter. We would ask you to please bear that in mind in light of any potential technological difficulties, which could occur.

At this moment, let me now turn the call over to Leandro García. Leandro, please go ahead.

Thank you, Rodrigo. 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 of the fourth quarter of 2020 for Compañía 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 the COVID-19 pandemic.

Moving on to Slide 3. Highlights were as follows. EBITDA from direct operations reached $59.1 million in fourth quarter '20 compared to USD 73.9 million reported in fourth quarter '19. Fourth quarter '20 adjusted EBITDA, including associated company, reached $192.4 million compared to $183.7 million in fourth quarter '19.

Capital expenditures in fourth quarter 2020 were $38 million compared to $39.6 million for the same period in 2019. For quarter '20, net loss was $60 million compared to a net loss of $53.7 million for the same period in 2019. The company's De-Bottlenecking Program continued to progress at a reduced level during the fourth quarter 2020. The program focused primarily on Buenaventura's Tambomayo, Uchucchacua and El Brocal mines during 2020.

Buenaventura's cash position reached $235 million for the fourth quarter 2020. The company had no mine-related fatalities during the full year 2020.

Moving on to Slide 4, financial highlights. Total revenues during the fourth quarter were $236.1 million, which is in line with the fourth quarter of 2019. Increased commodity prices excluding lead supported fourth quarter 2020 net sales figures despite reduced volume sold due to the adverse effects of COVID-19.

EBITDA from our direct operations in fourth quarter of 2020 was $59.1 million in comparison to $33.9 million (sic) [$73.9 million] in the fourth quarter of 2019. This was mainly due to the lower production coming from Uchucchacua as we have not achieved full capacity during the quarter as previously announced. Also, lower production from Tambomayo negatively affected the EBITDA.

EBITDA including our affiliates in this quarter was $192.4 million, which is 5% higher in comparison to the fourth quarter of 2019. This increase mainly comes from better results from Cerro Verde. And the net loss in this quarter was $60 million compared to a net loss of USD 53.7 million a year ago. This result considered a deferred stripping cost of $11.6 million from El Brocal originated by a variation in the technical and economic parameters of the resort. Additionally, it considered a cost of $124.8 million from Yanacocha related to an update in the mine closure plan.

CapEx has decreased to $38 million in the fourth quarter of 2020 compared to $39.6 million in 2019.

The free cash flow in the fourth quarter of 2020 was negative $14 million compared to negative $65.9 million of free cash flow in the fourth quarter of 2019.

Moving on to Slide 5 and 6, attributable production. Total gold attributable production in the fourth quarter of 2020 was 79,500 ounce, which is 31% lower than the figure reported on the same quarter of the previous year. This decrease was mainly explained by lower production in Tambomayo and Yanacocha.

Silver attributable production for this quarter was 3.7 million ounce, which shows a decrease of 35% compared to the figure reported on the fourth quarter of 2019. This is mainly due to less production in our Uchucchacua mine.

In the fourth quarter of 2020, 11,500 metric tons of zinc were produced, a 16 decrease -- a 16% decrease compared of the fourth quarter in 2019. This is mainly due to a 64% decrease in production of zinc at our Uchucchacua mine.

In the case of lead, equity production was 6,800 metric tons in the fourth quarter of 2020, which is 34% lower in comparison to the fourth quarter of 2019.

Finally, our copper attributable production for the fourth quarter of the year was 25,400 metric tons. This reduction is mainly explained by a 24% decrease in production at El Brocal and 18% decrease of production in Cerro Verde.

Moving on to Slide 7. All-in sustaining costs and costs applicable to sale. The all-in sustaining costs from our direct operations in 2020 increased to $1,374 per ounce of gold mainly due to lower gold ounces sold in the period. The cost applicable to sales over 2020 were as follows: for gold, USD 1,097 per ounce, which is 10% higher than a year ago; for silver, USD 18.29 per ounce, which is 52% higher than a year ago; for lead, USD 1,174 per metric ton, which is 5% lower than a year ago; and for copper, USD 5,133 per metric ton, which is 4% lower in comparison to a year ago. Finally, in the case of zinc, the cost applied to sale was USD 1,935 per metric ton, which is 5% lower than a year ago.

Moving on to Slide 8, De-Bottlenecking Program fourth quarter 2020. As a result of the company's De-Bottlenecking Program, we are gaining mining cost efficiency that partially offset by lower production output. As you can see, results for the fourth quarter were positive, generating $8.1 million of additional EBITDA.

Moving on to Slide 9, pipeline of projects update. Here, we present in one snapshot the current development level for each one of our projects.

On Slide 10, San Gabriel, we completed feasibility study by Ausenco. Also, we completed geological confirmation drills with no major impact on tonnage or grade. The construction permit is delayed until the second half of 2021 due to the Ministry of Mining and Energy difficulties to -- in reinitiating the Consulta Previa, our prior consultation process due to COVID's second wave and current political situation.

Moving on to Slide 11, Trapiche. Pre-feasibility study has been updated with a new component arrangement by M3. We are currently working with the community to start column test activities by April 2021. Additionally, we are performing chloride leaching tests with excellent results and evaluating its inclusion in the EIA study, Environmental Impact Assessment.

Moving on to Slide 12, Rio Seco. We completed the feasibility study by Samuels. The EIA public assembly was successfully executed, and we are waiting for authority's revision and comments.

Moving on to Slide 13, Tantahuatay's sulfides. We have updated and confirmed the scoping study by M3 for a 6,000 (sic) [60,000] tons per day copper concentrate plant. We are starting the 5-year viability phase.

In this moment, we would like to share our main financial guidelines for 2021. In terms of sales, we will be in the range of $850 million to $950 million. These sales assumes metal prices of gold of $1,800; silver, $23 per ounce; lead, $1,850 per tonne; copper, $7,250 per tonne; and zinc, $2,300.

With this, we will -- we are expecting to have EBITDA from our direct operations in the range of $160 million to $180 million and, including our affiliates, will be $560 million to $600 million. In terms of CapEx, our sustaining CapEx will be between $50 million to $60 million. And our projects, including part of San Gabriel but not the construction, will be between $30 million and $35 million.

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 the first question today comes from Carlos De Alba with Morgan Stanley.

So the first question is just on the CapEx, Leandro, that you just mentioned. How much of the $30 million to $35 million is San Gabriel? And -- yes, just to know how much you guys are spending on that one.

The second question is regarding the ongoing dispute with SUNAT. Can you give us an update, please, what are the latest? I understand that based on the latest press releases on that matter, the company may have to start paying some of this money. And how is the company planning on addressing, yes, or funding or financing the payments for the SUNAT? And any updates on the legal front or the judicial appeal that you are moving forward in order to try and avoid to make these payments or avoid these payments?

For your first question, the CapEx considered for San Gabriel in the figure I just gave you is $19 million. And in terms of the quarter related to SUNAT, there is no news in the legal side, in the legal edge of this controversy. We continue to dispute in the judicial area our rights.

And in terms of pay, we are finishing the strategy to prepay this SUNAT payment directly to SUNAT. We are -- as you imagine, we are constructing this strategy using the -- maybe we will -- we should sell some noncore assets or -- and also, we should look for a financial facility in terms of bonds or any other tool.

We should be done. This -- all this strategy will be done at most in June of this year. When we get some advance, we will inform you, which are the steps we are taking on.

Maybe Daniel can give you some color in this matter, Carlos.

Thank you, Leandro. Just I wanted to give a little bit more detail of the CapEx for year 2021. As Leandro mentioned, we are planning to execute $90 million. From this, San Gabriel represents $20 million. Our direct operations, $55 million, and the remaining $15 million will go to other projects like Trapiche and Rio Seco.

(Operator Instructions) And our next question will come from Tanya Jakusconek with Scotiabank.

I just wanted to circle back just one more for guidance if I can. Is there any more EBITDA improvement you're expecting from the De-Bottlenecking Program in 2021? Or have you completed that program?

Thank you, Tanya. Thank you, and thank you for your questions. The De-Bottlenecking Program has a duration of 3 years, and it has end on December 2020. Now we are working on a new program that is based also in continuous improvement. But now we are focused on recover the full capacity of all our plants and our mine and may continue our -- to increase our -- also increase our exploration program. And for that, we need to gather all our workforce to have a better performance in our units.

Okay. So given the focus on exploration, would you be able to give us the guidance for your exploration spend, both direct and through your affiliates for 2021?

Yes, Tanya. We can send the -- we don't make public our guidance for explorations investment for this year considering the greenfield and the brownfield explorations inside -- in our own mines. We will provision in our website. Perfect. Thank you very much.

Okay. And just 2 other questions if I could. Just wanted to get -- to circle back on -- just on the assets. Can I just get an explanation on what is exactly happening at 2 of your mines? Tambomayo, we seem to have quite a drop in both your gold and zinc recoveries. I'm just trying to understand what's happening at Tambomayo. And then also what's happening at Uchucchacua on the silver side where the recoveries were weak there also.

Yes, Tanya. It will be a pleasure. With us, we are -- here, we have Juan Carlos Ortiz and can give you his -- this explanation in Tambomayo and Uchucchacua issues. Juan Carlos, [44].

Yes. Thank you, Tanya, for your question. Regarding Tambomayo, we have problems in the last quarter with one section of the mine, in the level 44, that we [delivered that ore] into the processing plant, and it has a different behavior from the metallurgical front. So we tried to deal with that because we were the long-hole drilling. So much of the [problem] was already on the processing plant. We expect that problem from the gold side. So we need to change most of the process and we believe with time that (inaudible) reduce the amount of (inaudible) that came into the processing plant. So that was really the problem that we have along with some bad luck of maintenance activities that were not properly attended during the previous quarter due to the pandemic.

So we have the 2 problems at the same time: the [difficult ore delivered] to the processing plant and the delay in the maintenance of the processing plant. We try to have some flexibility to deal with it -- deal with that ore. We are working on that. We started working on that late last year, and we are still working on that in this quarter.

From the -- in Uchucchacua front related to the grade of silver, that came from areas that had a lot of manganese, so we need to make a trade-off for cleaning the ore that we produce. So we need to sacrifice a little bit of the quality of silver in order to get commercial-grade concentrates for Uchucchacua. But that is the reason we have reduced -- we have a little drop in the recovery of Uchucchacua in the last quarter.

Okay. So just going forward, are these recoveries that we are expecting from these 2 mines what we saw in Q4?

For 2021, we have already fixed that in the consideration for the budget. So it's not part of our budget.

Okay. And then my final question. I just wanted to come back on just the funding, your options for funding the -- your tax bill. I think we mentioned noncore asset sales. I just wanted to try and review whether a noncore asset would be your power plant and if you would consider equity issuances as one of your options?

Thank you, Tanya. We will not consider equity in our options. We will consider a bond -- a program of bond issues and the sale of some of our assets. One is the -- can be the asset you mentioned. One also can be [contrato] and a group -- or a group of them. But in that range, and those are the assets that will be divested.

And the next question will come from Leopoldo Silva with LarrainVial.

Guys, do you hear me?

Yes, Leopoldo.

Okay. Well, I guess my question is regarding reserves. I see that your Orcopampa and Tambomayo gold reserves are lower than those at the beginning of 2020. So now that we have higher gold prices and that you, along the year, have said that you were happy with what the preliminary results that we -- that you were getting with exploration in these mines. What -- shouldn't we have expected higher gold reserves? And what happened in these 2 mines? What -- if that or maybe with, I don't know, $1,600 for gold as an average, not all the gold that you could mine at these prices?

Yes, Leopoldo. First of all, you have to keep in mind that last year, we were also affected in area explorations from the COVID. So we fell behind in our programs or going with the people to make all the drillings and all the work involved -- related to these explorations.

However, as you say, we are very optimistic, but we didn't have the time to convert that potential in reserves or inferred reserve. So we -- during this year, we will have, I think, an important increase in our targets and in our results.

Maybe also Juan Carlos can give you more color in this reserves matter.

Thank you, Leandro. Yes, Leopoldo, in the case of Orcopampa, we have discovery. As Leandro mentioned, it was later in 2020. So they are still at the inferred potential level. There, we have not enough time to move all these new discoveries into the measured and indicated category to become reserves. So it's something that's moving along, but we have good results in exploration of Orcopampa, particularly in an area near our operations called [Itara] Ramal 4, Ramal cuatro. It's -- and these results, probably along the year, we will keep updated about the progress of this exploration.

In the case of Tambomayo, it's a very high-grade base -- set of base. So there is not much ore between $1,300 per ounce and $1,600 per ounce. It is very high grade. So there is not much low-grade alteration or low-grade holes around the grade. So the impact of increasing the price not necessarily brings new reserves or additional reserves in the case of Tambomayo. We are working on exploration. We have several achievements working inside right now, probably -- expecting good results in the plant, but still, it's a little bit delay in exploration in Tambomayo.

And do you -- taking that, do you believe that 2022 and the years forward could be -- you could lift the production at this mine? Or would you expect rather to maintain what you have in guidance for 2021?

In the case of Orcopampa, we expect to keep running at around the guidance level that is about 40,000 to 45,000 ounces of gold a year. In the case of Tambomayo, probably a little bit less than the guidance of this year, maybe around 70,000, a little bit below 70,000 ounces. But if you try to work on any percentage, that could be something additional, but it's a little bit too early to say what's the level for the next year.

(Operator Instructions) Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the call back to management for any closing remarks.

Thank you, sir. Before we finish today's conference call, I want to thank you again for making the time to join us today, and have, please, a wonderful day. Be safe and see you soon. Thank you.

And thank you, sir. Ladies and gentlemen, that concludes Buenaventura's Fourth Quarter 2020 Conference Call. You may disconnect your lines. Thank you.