Compañía de Minas Buenaventura S.A.A. (BVN) Q4 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Compania de Minas Buenaventura Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded.At this time I would now like to introduce your host for today's call, Mr. Rodrigo Echecopar. Mr. Echecopar, you may begin.

Thank you. Good morning and welcome, everyone. Presently on the call today is Mr. Victor Gobitz, CEO. Also present and available for your questions are Mr. Leandro Garcia, Vice President CFO; Mr. Juan Carlos Ortiz, Vice President of Operations; Raul Benavides, Vice President of Business Development; and Alejandro Hermoza, Vice President of Sustainability.Before we get started in today's call, we will make forward-looking statements that reflect the company's current expectations about the future plans and performance. These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainties. I encourage you to read the full disclosure concerning forward-looking statements, which is in the press release we filed on February 20, 2019 [ph].With that, I'll turn the call over to Mr. Victor Gobitz. Please go ahead.

Thank you Rodrigo. Good morning to all and thank you for attending this conference call. We are pleased to present the results of the fourth quarter of 2019 from Compania 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. In the fourth quarter of 2019, EBITDA from direct operation was $73.9 million compared to $68.7 million reported in the fourth quarter of 2018.In the fourth quarter of 2019, the adjusted EBITDA including associated companies reached $176.8 million compared to $147.4 million in the fourth quarter of 2018. Primarily due to improved results of Cerro Verde and Coimolache.In the fourth quarter of 2019 capital expenditures were $38.4 million, compared to $41.2 million for the same period in 2018. In the fourth quarter of 2019, net loss was $53.7 million, compared to a net loss of $72.9 million for the same period in 2018.The company's portfolio of greenfield projects continue progressing well during the quarter. At Yumpaq our silver project, at San Gabriel our gold project and Trapiche our copper project we are declaring our results in this fourth quarter of 2020.In the fourth quarter of 2019, Buenaventura generated $13.6 million in incremental EBITDA through the company's de-bottlenecking program. The program enables Buenaventura to increase the efficiency of Tambomayo, Uchucchacua and El Brocal mines.Yanacocha's Quecher Main project is on budget and achieved commercial production in the fourth quarter of 2019. Cerro Verde processing plants averaged almost 400,000 metric tons of ore per day, approximately 10% above nameplate capacity.A dividend payment of $0.027 was proposed at Buenaventura’s February 20, 2020 Board Meeting. Moving on to Slide 4, summery. In 2019, 3 of our 9 mining assets were below budget. You can see in the left side of the slide using our faulty system.We have highlighted in red, the operation that were below budget in 2019. In the case of El Brocal this year's production was lower than expected due to slope instability in the northern part of the pit problems with Dominion Mill in a couple of plants. And also problems with the overland belt and crusher in the number 2 plants that process latency.EBITDA was additionally affected by lower copper prices and budgeted and was commercial conditions for lead and zinc concentrate. Uchucchacua production was below budget due to a strike at the beginning of the year that lasted 21 days and lower silver grades than expected.The EBITDA was additionally affected due to our decision to focus on upper zones with low costs and high content of lead and zinc at the area called Cachipampa. And lower silver content performing lower zones high silver content. However, the lead and zinc market even generated the expected EBITDA.Finally at Orcopampa production in 2019 was lower than expected, mainly due to the lack of good results through our exploration program. However, in August 2019, due to our reduction of the headcount, we obtain breakeven point.Moving on to Slide 5, we're showing our strategic maps where we as usual use as usual the capital B for the lower Buenaventura for visual index for the following slides. In the coming slides, we shall discuss the financial results of the company.Moving on to the Slide 6 financial highlights. Total revenues during the fourth quarter were $235.5 million, which is 7% lower in comparison to the fourth quarter of 2018. This was primarily due to the decrease in volume sold of gold and silver.EBITDA from our direct operations in the fourth quarter of 2019 was $73.9 million, which is 8% higher in comparison to the same quarter last year. EBITDA including our affiliates in this fourth quarter was $176.8 million, which is 20% higher in comparison to the fourth quarter of 2018.The accumulated EBITDA including associates, as of December 2019 is $620.9 million, which is 6% lower in comparison to the same period of 2018. And a net loss in the fourth quarter of this year was $53.7 million, compared to a net loss of $72.9 million a year ago. In the case of the full year, the net loss was $12.2 million, compared to a net loss of $13.4 million in 2018.The CapEx has decreased to $38 million in the fourth quarter of 2019, compared to $41 million in 2018. During 2019, the CapEx was $103 million. This represents a 10% decrease compared to the periods of 2018.This is in line with a budget targets that we reported at the beginning of the year. The free cash flow in the fourth quarter of 2019 was minus $66 million. In the whole year, free cash flow was minus $59 million. This was mainly due to the total debt reduction from $682 million by the end of 2018 to $627 million by the end of 2019.Moving on to Slide 7. This slide you can see the quarterly upward trend of the EBITDA from our direct operations, which reached $202 million in 2019. And in the lower part of this slide, you can see three different graphs showing that early downtrend of the unit cost expressed in terms of U.S. dollar per metric tons, positive results as a consequence of that debottlenecking program.Moving on to Slide 8. Here again, you can see the capital B as a visual index for analyzing the results of our portfolio of operations.Moving on to Slide 9 and 10, attributable production. Total gold attributable production in the fourth quarter of 2019 was 115,000 ounces, which is 18% lower than a figure reported for the same quarter of the previous year.For whole year total gold attributable production was 464,000 ounces, 21% lower than the same period in 2018. This reduction is mainly explained by lower production coming from Orcopampa.During 2020 we expect to achieve a neutral financial situation at Orcopampa due to the headcount downsize that has improved its breakeven point. We focus in this production program looking for high gold grade.Silver attributable production for this quarter was 5.6 million ounces, which shows a decrease of 3% compared to the figure reported on the fourth quarter of 2018. In 2019, silver production was 20.1 million ounces, which is 24% lower. And our total silver production in the same period of 2018.This disease is mainly explained by lower production in Uchucchacua as a result of the workers union strike at the beginning of January and also lower silver grade than expected. During 2019, the mining plan in Uchucchacua focus on upper zones with high content of lead and zinc and lower silver content.However, this plant was negatively impacted by lower commercial times and base metals prices. During 2020, we will be focused on zones with high silver content. In the fourth quarter of 2019 13,600 metric tons of zinc was produce 2% lower in comparison to the fourth quarter of 2018.During 2019 55,600 metric tons of zinc were produced which is 5% lower compared to 2018. This decrease was mainly due to lower production at Uchucchacua and El Brocal mines. The case of lead equity production was 10,300 metric tons in the fourth quarter of 2019 which is 2% higher in comparison to the fourth quarter of 2018.For the complete year 2019 lead production was 40,700 metric tons 10% greater than the lead production in 2018. Finally, our copper attributable production for the fourth quarter of the year was 31,400 metric tons.In the case of 2019 total copper attributable production was 116,000 metric tons, 5% lower than 2018. We faced difficulties at El Brocal for the same plant that reduced our throughput. During 2020 we are going to tackle it, implementing an overhaul of the two production plants to a program designed with a system of [indiscernible].Moving on to Slide 11. The all-in sustaining costs from our delayed operations in the fourth quarter of the current year decreased to $1,611 per ounce of gold, 12% lower in comparison to the same period a year ago.The cost applicable to sales in the fourth quarter of 2019 were as follows. For Gold $1002 per ounce which is 3% lower than a year ago. For silver, $13.97 per ounce, which is 18% higher than a year ago. For lead, $1,698 per metric ton which is 7% greater than a year ago. And for copper, $5,352 per metric ton which is 8% lower in comparison to a year ago.Finally, in the case of zinc, the costs applied to sales was $1,993 per metric ton, which is 2% higher than a year ago. Moving on to Slide 12 and 13, the debottlenecking program for 2019. As a result of the company's debottlenecking program, we are gaining mining cost efficiency that partially offsets lower production outcome.As you can see, in the year 2019, we generated $44.8 million of EBITDA with a debottlenecking program. Moving on to slide 14, the debottlenecking program for 2020 in this slide represent in the budgeted quarterly EBITDA that will be generated by this program. For 2020, we expect in total $39.7 million of EBITDA generation. For this year Orcopampa is not included.Moving to slide 15. In enhanced exploration approach. As part of our exploration strategy, we focus more in diamond drill activities to increase productivity instead of tunneling. As you can see we increase production efforts in Tambomayo and Orcopampa. In a particular case of Uchucchacua the main aim was to convert Yumpaq ore resources into ore reserves.Moving on to Slide 16, Buenaventura's ore reserves. In this slide we are presenting our total reserves by metals as of December 2019. In the case of gold, we increased significantly our ore reserves by 213% compared to 2018.This increase is mainly explained by the ore reserves declared at our San Gabriel project. Our attributable gold assets also increased in 37% compared to 2018. In the case of silver, Buenaventura's ore reserves increased to 4% and attributable assets increased by 2%.And Buenaventura's copper ore reserves also increased in 2019 with a declaration of reserves at Trapiche project. In this sense attributable copper assets increased to 39%.Moving on to Slide 17. Once again here you can see our capital B from our low use for analyzing in more details, the updated information regarding our portfolio of projects.Moving on to slide 18. Here we are presenting in one snapshot, a current development level for each one of our projects.Moving on to Slide 19, 20, 21 and 22. Here it is important to highlight the following details. In San Gabriel, we are reporting 1.7 million ounces of gold reserves. We have started the feasibility study in parallel with construction on operating permit.We expect to finish the social experiment called Prior Consultation by the second quarter of this year. In Trapiche we are reporting a1.4 million tons of copper reserves. We are finishing the construction of our onsite pilot plant to support column testing throughout 2020.In Rio Seco that chemical plant, the pilot plan was upgraded to perform industrial continuous testing. Hatch was hired to validate the metallurgical process. Samuel Engineering was hired for the design and FS studies.The environmental impact assessment will be submitted in the second quarter of this year, and is expected to be approved in the first quarter of 2021. As we know throughout this project, we intend to unlock a significant value for our copper portfolio.And in Tantahuatay's Sulfides we are delineating a standalone business case. We expect to reach pre-feasibility stage in the first half the year. Also preparing the environmental impact assessment, initial documentation. And starting the basic engineering for the tailing dam's facility.Moving on to Slide 23. Thank you for your attention. I will turn the call back to the operator to open the line for questions. Operator Please go ahead.

Thank you. We will now be conducting a question and answer session. [Operator instructions] Our first question today will come from Thiago Ojea of Goldman Sachs. Please go ahead.

Hi, thanks, everyone. I would like for you, if you can discuss a little bit about the debottlenecking and the cost, the difference on cash that was reported. We saw the cash in several operations going up to the overall cash for the company going down.And how does it relate to the bottlenecking. And we saw as well in the fourth quarter negative free cash flow. So the total net debt now rose to above $400 million. How do you see that in terms of capital allocation for the future? Thank you.

Thank you Thiago for your two questions. The first one is regarding the debottlenecking program. One part is related specifically to the technical part. And the second part regarding the differences between our information we express in terms of EBITDA and also in terms of production costs US dollar per metric tons of cash.The first one would -- that first part two will be answered by Juan Carlos.

Hello, there. This is Juan Ortiz from Operations. The evolution of the debottlenecking program was due to the result expected in the last quarter of 2019. One of the main evolutions was in terms of value, we consolidate the change in the processing of the ore, reducing the cost of sanitation and sanitation on the concentrated on 100% of the core profit, but only on about 5% of the mass the concentrated.So, we achieved that consolidated result in the last quarter and it is a real cash saving. And we call this a recovery with lower expenses. Also the consolidated reduction in meters, the need to develop meters for exploration, we consolidate the strategy to do more drill holes and longer drill holes that are cheaper to do than the tunnels and we consolidate the structure and the strategy also in our minds particularly in Tambomayo and Uchucchacua.

Yes. The second part of your question. What was the differences in between them our [indiscernible] and cash? And also resulted in the free cash flow Alejandro if you will explain that to him the topics?

Beginning with a free cash flow. We -- in this year we repay the loans in the short term -- the short term loan. And also with the payment. We have the schedule for our long term. Hopefully also we have made an additional disbursement for dividends and mega different of around $100 million in the reducing cash flow.For the debt, you also asked for what are we planning to that. We are planning to refinance our debt facility in this 2020 in April. We should have an announcement of our refinancing debt.

Yes, we're taking advantage of the market to increase the maturity and to reduce that costs.

Yes. Regarding the cost -- the cash and the operating costs, we report is that basically the difference is the accounting methods we use for the cash and our operational costs. There are some differences within week accounts.We take in an account to report those costs. And the for example, the cash considered inventories, initial inventories, the final inventories of our concentration the answers we have in containing our constant. So, there will be -- I think very recommendable to have a reconciliation that we can send you before to go through from our operating cost to our cash and we can send it to you.

Okay, thanks so much. Just for following up. What do you -- how do you see the current net debt level? How should we see the capital allocation in terms paying down debt and dividends in the future? What are the priorities for the company going forward? Thank you.

Yes, in general terms Thiago we are comfortable with our current level of debt. But as Alejandro said, during 2020, we intend to extend the maturity of these total debt in order to be more comfortable in order to be able to allocate part of these capital for our future growth.

Thank you.

You are welcome.

[Operator Instructions] Our next question today will come from [indiscernible]. Please go ahead.

Hi, good morning everyone. Thanks for the opportunity. My first question is regarding reserves. In Orcopampa I see that you have reduced reserves further from what could be explained by production on 2019.And Tambomayo reserves for this year are largely and perhaps only explained but by production on 2019. However you have -- you should be reducing and to my standing the cutoff rate of Tambomayo? And is there any other factor on this on the exploration process on 2019 that made you guys discover these reserves on Orcopampa and not more in Tambomayo, both reserves I am speaking of?

Thank you for the question. The first part is technical part Carlos Ortiz will explain that. At the second part all the different aspects that we have to deal with rural communities in order to expand those programs will be explain by Alex Hermoza.

Hi, good morning. In the case of Orcopampa in the last quarter, in the last month of 2019, we achieved the balance for a positive EBITDA in a new strategies with limited production and focusing on high grade in the underground mine.This impact on the increase on the cut off the duration we need to run the resource with a new cut off and as a reduction in the reserve, as presented in December 2019. The exploration is ongoing in Orcopampa.We are working hard on that. But, so far we are having only mine reserves probably along the year we can deliver more news about exploration of Orcopampa. Regarding Tambomayo the exploration is focusing right now at the bottom part of the mine and we are still within fair reserves.So, we are not publishing and not increasing any of results so far. And this would likely impact also in the value of the ore, particularly for the value coming from the zinc and lead. As you know, the throughput charge has been increased in both markets zinc and lead.And that generates lesser value from the ore coming or the ore that has an important value in Tambomayo in zinc and lead terms. That's the reason these blocks have been pushing for reserve to excluding resources in here as like small amounts.It's a gold mine but still, though, has a section of the mine that has an important value coming from the latency that they are have impacted by this treatment charge in 2019.

Yeah, the second part of your question on the follow up regarding our exploration. As you know in Peru we have also a new rule regarding the prior consultation and Alejandro Hermoza will explain in more detail on this topic.

Yes, hello. Yes. Juan Carlos explained about the mine exploration but regarding the near mine and district explorations, we have had some delays, both from reaching agreements, land agreements with community symbols.And on the other side, as Victor explained, we have this, Peru subscribe the ILO 169 convention, which has to do with prior consultation to population around the surrounding projects. And this process, which is not handled by the company, it's handled directly by the officials from the ministry.They're taking longer than we expected. And not only Tambomayo in different sites, we have these delays. And we expect that after many changes that have been going on inside the ministry, changes of responsibles and officers in-charge of with take to have that process back on track on this year and this semester.

Okay, great. Have a follow up question as well. So, I see that you declared reserves with gold at 1300. If gold continues to be at these levels, current levels for the coming years, could you give some color on how much reserves would you have or perhaps in terms of life of mine could you have in Orcopampa and Tambomayo, please?

[Indiscernible] in general terms when you talk about ore reserves we try to define a long-term gold price. The long-term gold price is in the order of $1300. The current price is $1500, sorry $1600. But for the long-term we'd have to be careful and to have a more conservative overview. And we as a company we use $1300 per ounce of gold.

Yeah, naturally, but if prices continue to be at these levels, would you be able to continue or other terms of the pit that would be economically viable to continue and to extend the life of mine without any further exploration?

Yeah. I suppose it is a possibility. The problem that it's too early to try to calculate the amount involved in this option.

Okay. Thanks very much.

You are welcome.

Ladies and gentlemen. This will conclude our question and answers session. At this time, I'd like to turn the conference back over to Mr. Victor Gobitz for closing remarks

Thank you, everyone for joining our conference call this morning. On behalf of Buenaventura's management team, I would like to express our commitment off maintaining our plan of developing the full potential of existing assets, prioritizing our long term perspective in order to give more predictability in terms of production and profitability.In this respect we can say that 2019 was a transitional year, essential to achieving these goals. Just to let you know we are attending at BMO Metals and Mining Conference next week in Miami. And finally we are glad to invite you to our Investor Day that will take place on Monday, March 9th in New York.Please contact our IR team for further information. Thank you again and have a wonderful day.

The conference is now concluded and we thank you for attending today's presentation. You may now disconnect your lines.