Compania de Minas Buenaventura SAA (BVN) 2022 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura First Quarter 2022 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 first quarter 2022 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, Project Manager; Mr. Juan Carlos Salazar, Geology and Exploration Manager; Mr. Roque Benavides, Chairman; and Mr. Raul Benavides, Director.

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 April 28, 2022.

With that, let me now turn the call over to Mr. Leandro Garcia, Chief Executive Officer. Leandro, Please go ahead.

Thank you, Gabriel, and 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 first quarter 2022 from 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.

Moving on to Slide 3. Highlights were as follows: First quarter '22 EBITDA from direct operations reached USD 431.9 million compared to USD 39.7 million reported in first quarter '21, reflecting a USD 300 million resulting from the sale of Buenaventura's stake in Yanacocha and USD 45 million from Newmont's contribution to La Zanja's future closure costsf.

First quarter '22 EBITDA, including associated company, reached USD 578.7 million compared to USD 168.8 million in first quarter 2021. First quarter '22 net income reached USD 636.2 million compared to USD 16.4 million for the same period in 2021.

First quarter '22 exploration at operating units increased to USD 14 million from USD 9.3 million in the same period and last year, aligned with the company's strategy to focus primarily on exploration. First quarter capital expenditures were USD 19.9 million compared to USD 13 million in the same period for 2021.

First quarter '22 CapEx includes USD 2.8 million in CapEx related to the San Gabriel project and USD 4.7 million in CapEx related to the Yumpag project. The company continue it's strategy of progressively reducing fixed costs at the Uchucchacua mine to improve the cost structure efficiency when the operation restarts. First quarter '22 COVID related expenses were USD 5.3 million compared to the USD 11.7 million reported in the first quarter '21. 2022 COVID related expenses estimates are between USD 12 million and USD 14 million.

Buenaventura's cash position reached USD 337.4 million as of March 31, 2022. Net debt was reduced to USD 771 million, achieving a 1.71x net debt to EBITDA ratio.

Aligned with the Company's commitment to deleveraging, on March '22, Buenaventura fully paid its syndicate loan amounting to USD 275 million. On March 18 the Company cancelled also USD 50 million of its revolving facility.

On March 30, the San Gabriel Mine Project received the Government of Peru's approval of all required permits, enabling the company to immediately commence mining project construction, development and exploitation. 2022 production guidance will be updated in the second quarter of '22 due to a new mine plan in progress for El Brocal, resulting in an expected 1 million to 1.5 million ounce decrease in silver production for the full year of 2020.

Moving on to Slide 4, ESG corporate strategy. As presented before, here you will find our materiality metrics. This year, we will start working on the closing of gaps on topics like standards in the supply chain, climate change and energy use. The results of the progress made on this first quarter is shown in the next slide.

Moving on to Slide 5. Here you can find some key indicators regarding our ESG strategy. For example, on the environment pilot, Buenaventura is committed to responsible water management, achieving a 99% of the circulation at our open pit operations and 83% at our underground operations. Also in the first quarter of 2022, we have used 74% of renewable energy, primarily from our hydroelectrical plant. And this year, we will focus on measuring our carbon footprint.

Regarding the social pilot, as we have always mentioned, taking care of our workers health is our top priority and we will continue working on this. We have achieved a 92% fulfillment of our social commitments. Also we have made more than $120 million in local purchases.

Finally, regarding the government's pilot, we will focus on optimizing EBITDA and the construction of our San Gabriel and Yumpag projects, which are key value generators.

Moving on to Slide 6, financial highlights. Total revenues during the first quarter were $233 million, which is 27% higher in comparison to the first quarter of 2021. As we mentioned before, our EBITDA from direct operations for the first quarter increased to $432 million in comparison to $14 million during the first quarter of last year.

Also, our EBITDA, including associate company for the first quarter of 2020, reached $579 million in comparison to $163 million in the same period. The CapEx increased to $20 million in the first quarter of $22 million compared to $13 million in the same quarter last year.

Moving on to Slide 7 and 8, attributable production. Total gold attributable production in the first quarter of 2022 was 49,000 ounces, which is 31% higher than the figure reported in the same quarter of the previous year. Silver production for this quarter was 2 million ounces, which shows a decrease of 42% compared to the figure reported on the first quarter of 2021. This is a direct result of this expansion of operations at Uchucchacua.

In the first quarter of 2022, 9,000 metric tons of zinc were produced, a slight decrease compared to the first quarter of last year. In the case of lead, equity production was 4,000 metric tons in the first quarter of 2022, which is 3% lower in comparison to the first quarter of 2021. Finally, our copper attributable production for the first quarter of the year was 27,000 metric tons, an increase of 13% when we compare with the same period in 2021.

Moving on to Slide 9, all-in sustaining costs and cost applicable to sales cash. The all-in sustaining cost from our direct operations in this quarter decreased by 34% to $1,131 per ounce per of gold. The cost applicable to sales for the first quarter of 2022 were as follows: for gold, USD 1,126 per ounce, which is 13% lower than a year ago. For silver, USD 15.21 per ounce, which is 22% lower than a year ago. For lead, USD 1,375 per metric ton, which is 4% higher than a year ago. For copper, USD 6,631 per metric ton, which is 19% higher in comparison to a year ago. Finally, in the case of zinc, the cost applicable to sales was USD 2,838 per metric ton, which is 38% higher than a year ago.

Moving on to Slide 10, our pipeline of projects update. Here we are presenting in this slide, the current development level for each of our projects.

In Slide 11, San Gabriel will obtain the approval of all required permits. This enable us to immediately commence the construction and the early works. We are currently starting to release purchase and service order for construction -- for the construction.

Moving on to Slide 12, Trapiche. On-site metallurgical column testing is still on progress. We have completed 1 of 2 environmental assessment workshops in the field, and we are only missing one to be held by the second quarter of '22. The cooperation agreement with 4 out of 5 communities are on their final stages. We finished update report and power-line land access with favorable results.

Moving on to Slide 13, Tantahuatay's sulfide project. Coimolache's Board approved viability stage. Finished 2021's in-fill drilling program confirming high-grade zone.

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

(Operator Instructions) Our first question comes from Carlos De Alba from Morgan Stanley.

First question is, if you could give us a little bit more color on El Brocal. What has led to the revised mining plan and what would be the impact besides the production that you gave on cost for that operation? And if there is any other meaningful -- probably not, but I will just ask -- if there any other meaningful changes to the production of the other metals at that operation?

And then if you also could comment on -- yes, the discrepancy between EBITDA and cash flow generation. Cash from operations was negative. EBITDA was really strong. I think that it has to do potentially with the discontinued operations, the results of the continuing operations. How much of the -- how much taxes -- cash taxes that you guys paid on the profits that you booked from discontinuing operations?

Thank you, Carlos. With respect to your question of the production of Brocal, this is a consequence of the event we have in March that was advised to the market. And we have to change the mining plan. But more color should Juan Carlos will give you. And the other question about the EBITDA reconciliation with the cash generation, of course, here is Daniel. So first, we can begin with the question of Brocal. Please, Juan Carlos, go ahead.

Thank you, Carlos, for the question. Yes. The last slide happens or occurs in the west flank of the open pit. So in that area, we have a remediation plan that is in place right now and probably will take between 3 to 4 months to remediate that area to renew for the loose material and to shallow the slope in order to have safe condition for that particular area of the mine. We will continue with the mining of the south section of the open pit and also remaining area in the north. In addition to that, we will supply ore to the -- to feed ore to the processing plant from the polymetallic stockpiles that we have right next to the main crusher.

So the consequences will be a delay on the production of our risk schedule of the production of certain areas of the open pit due to this action. And the impact of this year will be in the range of 1.1 million, 1.5 million ounces of silver. This production will be delayed from 2022, probably going into 2023. We're still looking for opportunities to review this scale, but we believe will be in that range. Also by reviewing this plan, probably we will catch some opportunity, captures some opportunities in order to reduce the gap in silver and increase a little bit of zinc and lead. But we are on a conservative side so far until we have more information from the studies and more progress on the works that I have been done.

Regarding the cost due to this action is still being assessed, but we believe it will be in the range of $3 million to $4 million of additional expenses on the open pit due to the additional removal of material to shallow the slopes, the slopes of the west side of the open pit.

Daniel, please?

Thank you, Leandro. Yes, the discrepancy between the EBITDA from direct operations and the operating free cash flow that we reported is due for 2 reasons. One is the taxes that you mentioned. In February, we purchased -- we sold the asset -- the Yanacocha asset. And the taxes related to this asset sale were paid in March, and this was in the order of $50 million. And this is under condition, which consolidates in our results. This is the explanation for the tax -- the increase in taxes.

And the increase in working capital, which is around $30 million, is explained by 3 main factors. First is due to the paralyzation at Uchucchacua. Remember that in December, we provisioned between $17 million and $20 million for the contract cuts and also the headcount that we adjusted at the end of the year. So this bills were paid in January and February. The provision was made in December. So you saw this effect in December in our costs, but the disbursement, the cash went out between January and February.

The same for El Brocal, we had some claims that were provisioned at the end of last year and paid in the first quarter. This was around $6 million. And also in December, we had our -- the renewal of the property insurance. This is in the order of $10 million to $11 million. In December, we made the provision and the payments were executed between January and February. This is a $10 million to $11 million effect. That's why there is a discrepancy between the EBITDA and the free cash flow of around $70 million.

(Operator Instructions) Our next question comes from Tanya Jakusconek from Scotiabank.

I have 3 questions. The first question comes back to El Brocal. So I just wanted to check with you why there was no adjustment to either the copper -- to the base metal aspects of the mine. You lowered the guidance for silver, but nothing on the base metal products. Can you explain to me why that's the case?

Sure, Tanya. Remember that we have 2 operations in El Brocal. One is the open pit and the other is the underground mine. But more detail should give you Juan Carlos. Please, Juan Carlos, go ahead.

Yes, Leandro. Thank you for the question, Tanya. Yes, as Leandro was mentioned, the guidance for copper was not changed because we don't have any impact on the underground mine that is 95% of the production of copper for this year. In regard to the lead and zinc, as I mentioned, the south wall of the open pit and the northern wall of the open pit were not impacted by the actions. So we have to put extra fleet to remove additional material, but we will supply that production as expected.

So probably, as I mentioned, we will review that in order to see if we can reduce the gap in silver, and increase or affect a little bit of the lead and zinc. But at this time, we believe the main impact will be on silver or the equivalent in money on the income later on with a little bit of reduction on zinc and lead. That will be shared with the market in our next conference call when we have more information for stability and the progress on the remediation works.

So what I'm understanding from you is that you've got to take the trucks away from the portion of the pit that's working on the zinc and lead, and move it to where we had the mud slide and sort of clean up, it's going to be additional cleanup. And then hopefully you're able to push on zinc and lead when you bring the trucks back. Is that what I'm understanding?

Not exactly. It's that they sell the wall in like 100 meters away from the landslide, the mudslide that we suffer. So the southern wall we will continue with the work. We have a hold of pretty much 2 weeks and now we are putting additional trucks to catch up with the scheduled work in the southern wall. The southern wall is 100, 150 meters away from the landslide. So we will continue with the work in that area.

In northern wall of the open pit, the other phase is about 1 kilometer to the north of the mudslide. So we don't have any interference with that. So only we still work there for a couple of weeks as well we are receiving the work right now. So we believe we will continue with the plan. We can catch up with this 2 weeks delay that we had during the action. But we are looking for ways of reducing the gap in silver production that was in the landslide. And that might have a trade-off between single net production, but not really substantially in terms of dollars. We trade the income of zinc and lead with a little bit more income from silver. Probably, we will do that along the year.

And so $3 million to $4 million is really the cost then we should just put additional costs and for that operation this year?

Yes.

And in terms of an updated mine plan on Uchucchacua, will we be getting that this year? Or is it next year?

Tanya, thank you for your question. As you and the market, of course, we worry about when we are going to resume to initiate the works in Uchucchacua. We are working very hard. We are trying to shorten the schedule. But we think, finally, that next year will be -- I expect the date to expect Uchucchacua back again.

And I don't remember, was it the second half of the year or towards the end of the year, Uchucchacua next year?

The second half.

Second half. Okay. And so then my next question has to do with San Gabriel. Congratulations on getting the permits and starting construction there. Can you just maybe someone give me some of the milestones that we need to get from here to 2025 when we see production?

Sure. And I take the opportunity to congratulate all the team that have made this possible. The permits has been a very tough onward to make and we did it. With us is Renzo Macher, our project manager, and he can give you details and the correct answer.

Thank you very much. So we -- what we have authorization is to start with the earthworks and releasing the orders for equipment and the preconstruction work as well as maintaining the current mine infrastructure that has been inactive for a couple of years. So that's where we're going to start today. The idea is that we're going to be finishing construction towards the end of 2004 and aiming at the first bar towards the first -- the end of the first half of 2025. That will be commercial products.

So commercial production in 2025, second half. And but from -- are there anything within the construction that are critical milestones for us to watch for?

Well, during 2021, we have been working on engineering. So we have 33% advance in engineering. I think we're going to be reviewing. Kind of the last uncertainty outbreak is to reach the foundation of the plan, the foundation of the water dam, and we expect that we're going to have more information on that towards the end of 2022. I guess that will be the first milestone of the project, is to reach the foundation. And then the campsite should be already somewhere in the second quarter of 2024, and that's when another milestone that will signify the beginning of the heavy construction.

So as I understood it, so you're going to be putting down the plant foundation by the end of 2022 and then the campsite by Q2 of 2024 in place. And then you have a bit of construction, heavy construction from Q2 2024 till the time you pour gold in the second half of 2025. Is that a correct understanding?

Yes. I will just make sure that the first statement was reaching their foundation level, not putting their foundation. It's reaching the foundation, confirming all our models about where the foundation is, information, yes.

So the prep work for that. So the technical side. Okay. And then my last question, maybe for Daniel. Just an update on the Cerro Verde dividends. We're expecting some in 2022. So maybe an update on what are you seeing or are you expecting a dividend in Q2?

Yes, Tanya. We are receiving today close to $30 million. These are dividends related to 2021 results. We also expect, and this is something that Cerro Verde lease evaluating, we expect additional dividends for the second half of the year, but we don't have yet any figure to report. But they are evaluating an additional dividend by second half.

Well, congratulations on the additional $30 million. That's good news.

(Operator Instructions) There are no more questions in the queue. That concludes our question-and-answer portion of today's conference call. I would like to turn it back to Leandro Garcia for closing remarks.

Thank you. Before we finish today's conference call, thank you again, and thank you very much for making the time to join us today. We would like to invite you to our 2022 Investor Day, which will be held in New York on June 6 at 10 Eastern Time. Thank you again and have a wonderful day.

Ladies and gentlemen, that concludes Buenaventura's First Quarter 2022 Earnings Results Conference Call. We would like to thank you again for your participation. You may now disconnect.