Compañía de Minas Buenaventura S.A.A. (BVN) Q2 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura Second 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 very much. Good morning, everyone, and thank you for joining us today to discuss our second quarter 2020 results. Today's discussion will be led by Mr. Victor Gobitz, CEO. Also joining our call today and available for your questions are Mr. Leandro Garcia, Vice President and CFO; Mr. Juan Carlos Ortiz, Vice President of Operations; Raul Benavides, Vice President of Business Development; Alejandro Hermoza, Vice President of Sustainability. Also will be present Mr. Roque Benavides, our Chairman. This conference will include forward-looking statements, which are subject to various risk 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 earning release and risk factor discussions. I encourage you to read the full disclosure concerning forward-looking statements within the press release we filed on July 30, 2020. In addition, it is important to note that these statements include expectations and assumptions, which will be shared related to impact of COVID-19 pandemic. As seen on Slide 2, our forward-looking statements also provides information on risk factors, including the facts related to COVID-19 that could affect our financial results. In particular, there is significant uncertainty about the duration and complemented impact of the COVID-19 pandemic. This means when interim 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. Please note that in the interest of safety, we're, again, utilizing a more visual approach in exercising social distancing for conducting this call this quarter. We would ask you to bear that in mind in light of any potential technological difficulties which could occur. At this time, let me now turn the call over to Victor Gobitz. Victor, 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 wellbeing at this difficult time. We are pleased to present our results for the second quarter of 2020 from Compañía de Minas Buenaventura. We have prepared a PowerPoint presentation, which is available in our webpage. Before we go further, please take a moment to review the cautionary statement shown on Slide 2. Please consider that disclosure related to the COVID-19 pandemic. Moving on to Slide 3. Highlights were as follows. In the second quarter of this year, results were adversely impacted by the state of emergency and related mandated lockdown instituted by the Peruvian government in order to contain the spread of the corona virus as part of Buenaventura 2-phased plan on May 15, Tambomayo, Uchucchacua, El Brocal and Coimolache began the process to restart to resume operations. Second phase began on June 15 and as the date of this conference call, the company expects to reach full capacity of all operations by the end of August. In the second quarter, the EBITDA from direct operation was $26.5 million compared to $47.1 million reported a year ago. In this second quarter, the EBITDA from direct operations was - sorry, in June of this year, 2020, the EBITDA from direct operations were $33.3 million, an initial indication of post state of emergency restriction recovery. Even though at the end of June, we keep a high inventory level of final production at Tambomayo's mine in the order of $30 million. In this second quarter, adjusted EBITDA, including associated companies, reached $86.1 million compared to $137.3 million in the second quarter of 2019. In the second quarter of 2020, capital expenditures were $11.6 million compared to $28.8 million for the same period in 2019. In this second quarter, net loss was $25.1 million, compared to a net income of $9.7 million for the same period in 2019. $2.9 million of the above net loss was due to additional expenses related to the effect of COVID-19 on a consolidated basis. The company's De-Bottlenecking Program continued to progress during the second quarter of the year at a reduced level. The program's 2020 focus on the company's Tambomayo, Uchucchacua and El Brocal mines. It's worth to mention that fixed cost reduction in our production costs was a key component to tackle the period with only care and maintenance activities. Buenaventura, in the second quarter, its cash position reached $196 million. Moving on to Slide 4. We are showing our strategic map where we use, as usual, a capital B from the logo Buenaventura as a visual index for the following slides. In the coming slides, we shall discuss the financial results of the company. Moving on to Slide 5 and 6, here we - for transparency matter, we have decided to report the monthly detail of our production so you can appreciate in which way that COVID-19 has impacted our operating results. In this opportunity, we have arranged the mines according to the phase in which we restarted operations. Moving on to Slide 7, financial highlights. Total revenues during the second quarter were $97.8 million, which is 55% lower in comparison to the second quarter of 2019. This was primarily due to a decrease in volumes sold of gold and silver. In the first half of the year, total revenues decreased 47% compared to the first half of 2019. EBITDA from our direct operations in the second quarter of 2020 was $26.5 million in comparison to $47.1 million in the second quarter of 2019. EBITDA from direct operation for the 6 months of 2020 decreased to $19.7 million in comparison to $74.8 million during the first 6 months of 2019. EBITDA, including our affiliates in this second quarter was $86.1 million, which is 37% lower in comparison to the second quarter of 2019. EBITDA, including our affiliates for the first half of the year was $116.7 million compared to $304 million for the same period in 2019. The net loss in this quarter was minus $25 million compared to a net income of plus $9.7 million a year ago. For the first half of the year, our net loss was $100.1 million compared to a positive outcome of $37 million in 2019. CapEx has decreased to $11.4 million in the second quarter of 2020 compared to $27.8 million in 2019. In the first 6 months of the year, CapEx totaled $21.5 million, a 41% decrease - 41% decrease in comparison to the first half of 2019. The free cash flow in the second quarter of 2020 was negative $24.2 billion compared to 44 - sorry, $34.7 million of free cash flow in the second quarter of 2019. For the first half of the year, the free cash flow was negative in $1.9 million compared to negative $3.5 million in the first half of 2019. Moving on to Slide 8. Here again, we can see the capital B as a visual index of analyzing the results of our portfolio of operations. Moving on to Slide 9 and 10, you can see attributable production. Total gold attributable production in the second quarter of 2020 was 52,000 ounces, which is 46% lower than the figure reported in the same quarter of the previous year. In the first semester of 2020, total gold attributable production was 151,000 ounces, 34% lower than the same period in 2019. The decrease was mainly explained for lower production in Tambomayo and Yanacocha. Silver attributable production for this quarter was 3.8 million ounces, which shows a decrease of 5% compared to the same figure reported in the first quarter of 2019. During the first half of 2020, silver attributable production was 5.8 million ounces, 59% lower than the first semester of 2019. This is mainly due to less production in Uchucchacua and Tambomayo. In the second quarter of 2020, 4,000 metric tons of zinc were produced, a 75% decrease compared to the second quarter in 2019 In the first semester of the year, zinc production decreased to 16,900 metric tons, 42% lower than the same period in 2019. This is mainly due to the 72% decrease in production of zinc in our Uchucchacua mine. In the case of lead, equity production for - was 3,300 metric tons in the second quarter of 2020, which is 75% lower in comparison to the second quarter of 2019. In the first half of 2020, lead production decreased to 10,300 metric tons in comparison to 21,300 metric tons in 2019. Finally, our copper attributable production for the second quarter of the year was 76,700 metric tons. During the second half of 2020, copper attributable production was 41,004 metric tons, a 26% decrease compared to the same period of 2019. This reduction is mainly explained by a 24% decrease in production at [indiscernible]. Moving on to Slide 11. The all-in sustaining cost for our direct operations in the first semester of the current year increased to USD 1,815 an ounce of gold, mainly due to lower gold ounces holds in the period. Cost applicable to sales in the first semester of 2020 were as follows; for gold, USD 1,125 per ounce, which is 14% higher than a year ago. For silver, USD 15.44 an ounce, which is 40% higher than a year ago. For lead, USD 1,290 per metric ton, which is 8% greater than a year ago. And for copper, USD 5,252 - USD 5,251 per metric ton, which is 7% lower in comparison to a year ago. Finally, in the case of zinc, the core supply to sales was USD 1,765 per metric ton, which is 20% lower than a year ago. Moving on to Slide 12, we can analyze De-Bottlenecking Program. As a result of the company's De-Bottlenecking Program, we are gaining mining cost efficiency that partially offset lower production outcome. As you can see, results for the second quarter were positive despite the currency percentage, generating $4.4 million of additional EBITDA. Additionally, the company continues to enhance its current mining plan in order to focus on high-grade areas while maintaining our focus on exploration and cost reduction efforts. You can see more detail about the exploration program in the appendix of this presentation. Moving on to the Slide 13. Once again, you can see our capital B from our logo used for analyzing more detailed updated information regarding our portfolio of projects. Moving on to Slide 14, the pipeline of project updated. Here, we are presenting one snapshot a current development level for each one of our projects. Moving on to Slide 15, we can analyze briefly the San Gabriel project. The project in plan design is already finished. The feasibility study is currently at 30% progress. The final layout is ready for the technical economical report, which is under evaluation. Moving on to Slide 16, Trapiche project. We will continue this year with on-site column testing and power line trial of past activities. Also, the environmental impact assessment is expected to be approved by the end of 2021. Moving on to Slide 17, the Rio Seco project, a chemical plant to remove the arsenic content of paper concentrate. We have been expected to finish the feasibility study by the end of the year. The environmental impact assessment is expected to be approved in the third quarter of 2021. And as you know, for this project, we expect - we intend to unlock a significant value of our copper portfolio. Moving on to Slide 18, Tantahuatay zinc factory, we expect to reach the feasibility stage by 2021. We have obtained all the documentation regarding the environmental impact assessment. And also, we are finishing the tailing dam basic engineering, which is a key component for this project. With that, thank you for your attention. I will hand the call back to the operator to open the line for questions. Operator, please go ahead.

Our first question today will come from Thiago Ojea with Goldman Sachs. Please go ahead.

My first question is regarding the cost. It seems that in several operations, we could reduce the cost despite the lower volumes. If you can explain what you think will happen in the next quarter in terms of costs, if you have any guidance? I know that's difficult that you are still ramping up the production, but any rough guidance here would support us. And if you can provide also any indication on terms of capital allocation for this year and next year, CapEx, would be great.

Yes. Regarding the cost, reduction cost, as I said, through the De-Bottlenecking Program, we will be able to reduce significantly the fixed cost or the production cost, which was significantly important to deal with this scale and maintenance periods. In terms of guidance, obviously, as we are trying to explain, at the end of August we will finish this alliance with a lab in order to apply a new sanitary standard, basically using the PCR test procedure in order to resume at the full capacity of our operations. But I don't know, probably Juan Carlos, our COO will add some specific information. Juan Carlos, please.

Thank you, Victor. Regarding the cost, as shown by Victor, we have an advantage in this quarter by the amount we deploy that help us to reduce costs in operations where we have leaching operations as a whole. We can - have to completely keep doing the intimation of all in the past this month. So that's the reason we have recovered some growth for the [indiscernible] basically low cost. And in the last part of the quarter - second quarter, we can see fresh cost into the pack. So that's a mixed result in this quarter, in the second quarter of the year of the recovery of filling points in the pack as well as partial feeding of fresh [indiscernible]. So this is a net result in the second quarter. In the other mines, at Orcopampa, it's - it is the first quarter in which we have the benefits of the dollar for head count reduction and concentration of operations. We have a lot to increase the production with the grade and reduce the cost, difficult as we have sustainable operation in the next quarter for Orcopampa. [indiscernible] cooperation, which the benefits of that reducing the footprint of synchronization of the underground operation at - and we see operations with very few people and also help us to review the cost in the second quarter. That will be increasing the development exploration in the third and fourth quarter and probably give that into the budget operating cost for Tambomayo and then for the other operation as well.

Okay. Thank you, Juan Carlos. And I don't know if we cover all your questions.

Yes. Unfortunately, the sound from Juan was not very good. Just also Orcopampa, if you can explain, you should be sustainable and I understand the reduction in personnel, but it seems also there was some high grading, right? Do you think that this is sustainable also for the future quarters?

I can't hear - I can't hear clearly your question, Thiago, sorry. You said regarding our projects, regarding our CapEx.

No, no. Sorry, specifically on Orcopampa, there was a reduction in personnel that supported the cost reduction, but also it seems there was some high grading, right? So I'd like to - how sustainable is the cost that you presented on Orcopampa for the next quarter?

Okay. Right. Your first one is regarding Orcopampa. Yes. Yes, definitely, we reduced significantly our head count, but we maintain our exploration efforts, and we have found areas with high grade. We are taking advantage of that. And we probably can - also Juan Carlos has more information, but according to our plan, we expect to maintain this level of production during 2020 and probably also in 2021.

And you think that this cost level is also sustainable then?

No, as I say, we are trying to extend the visibility of Orcopampa right now. Clearly, we have more information regarding this year and the coming year, 2021. But obviously, through this exploration program that is part of also of this presentation, you can see that we maintain our effort to expand the life of mine of Orcopampa.

And the next question will come from Carlos Alba with Morgan Stanley. Please go ahead.

So my question is on - first one is similar to the last question that was asked, but maybe more broadly, how do you see the evolution of the mining plan in the second half of the year? Because my understanding is that as part of the efforts for the second quarter to sustain production under a very challenging environment and to reduce costs, the company high grade some areas in some specific mines. Is this something that will continue for the second half of the year? Or as you reach full capacity at the end of August, will the company come back or go back to the mining plan that you had put in place at the beginning of the year? If you could elaborate more broadly, that will be very useful. I also have questions on the future. So San Gabriel is progressing well. When do you think that this deposit could see first production? And then I wonder if you can also please give us an update on Yumpaq, which I didn't see in the presentation. And then finally on Yanacocha, it seems that a decision now is going to be made until 2021. And Newmont was suggesting that they see a $2 billion investment to extend the operation, the level of the operation. Can you comment as to when in 2021 do you expect to reach a decision? And how - if the $2 billion indeed is what proceeds, how is the financing of that going to take place?

You have two main components. Your question on the first part is regarding our operations. And the second part is regarding our future, our projects. In the first part, in terms of our mining plan for the second quarter, broadly speaking, we are very confident to improve our numbers because after this, more than 100 pay days, we gained a lot of experience and knowledge. And we, as I said, we are improving our tools in order to minimize the impact, a better screening of our workforce through this PCR procedure. So in that regard, our main concern is that part, how to improve our sanitary protocol. And definitely during this month - in the next months in [indiscernible], we will be able to improve significantly this procedure. And obviously, how to offset this high grading mining plan, obviously, through our storage control and the exploration program for these underground mines, Orcopampa, Tambomayo and Uchucchacua is a key component of this strategy. We have defined contractors for these activities in [indiscernible] as well. We are starting that to increase our activities in these specific topics. Probably, at the end, we can - with the help of Alejandro, who can explain with more details the significant knowledge that we have gained dealing with these corona values. But I call the call over to Raul to talk about San Gabriel, Yumpaq and [indiscernible]. Raul, please, go ahead.

Well, in the case of San Gabriel, we finished feasibility this year, by the end of this year. We are pending on the IO consultation. That's something that the government does. And we hope that by the end of the year, we will have all of these done, and we will initiate the permit for construction. That will take us - if we get the permit on time, that should be by mid-2021, we will have the construction and probably starting on 2022 the production. That will be San Gabriel. Yumpaq has been incorporated into [indiscernible]. Our project is to integrate into [indiscernible] Yumpaq in ramp coming from the impact in panel coming from the lower levels of the circle. And in case of Yanacocha, yes, we won't have working on the sulfide project and the decision should be made by mid next year. I - tell me if I have answered all your questions, Carlos?

Yes. Just one question on Yanacocha. So if the plan goes ahead, it's a $2 billion investment, how would financing of that project take place? Presumably, part of that will be done again with the Yanacocha resources, but I'm not sure that it has the balance sheet, certainly not the cash balance to finance the full $2 billion. So could it be - is it a possibility that the shareholders of Yanacocha are required to inject capital into the project, into the subsidiary?

No, Carlos, we have not discussed this yet. And you can imagine this essentially for mid next year. So probably in the next month, we will discuss. But up to now, we have nothing to report. But Carlos, generally speaking, you have in cash - in Yanacocha, you have in cash, $1 billion, 1,000 - $1 million, and the investment is $2 billion for a period of almost 3 years. So it's an open discussion, obviously. If you don't mind, probably changing the subject, which is significantly important right now, Alejandro Hermoza could explain with more details the sanitary standard that we have in place and hinting in order to assure our coming outcome results.

Yes. Thank you, Victor. As Victor mentioned, we, as a sector - as mining sector, we had to adopt the higher standards, higher sanitary standards across all industries in Peru. And for what I'm including in particular was a challenge having all these different operations across our country. So it has been a learning process from the beginning when we started by maintaining current maintenance on our operations, and we were able to put in place a specific protocol to test all of our workers before going onboard to our mines. On the first stage, we rely heavily on the use of a serological or rapid test, as they are called, on sequence to try to gain the more security into avoiding having people with the COVID-19 going into our operations. Now as long as the pandemic growth in Peru, we have been - we had to review our protocols and also having the fact that now the use of what they are called the PRC or the molecular tests are available now because you have to understand in Peru, they were not available. Now we have also included the molecular test for all the workers before they go on board. And once we have every worker now tested negative, we have them gone through our operations. Also, we have reviewed - we have learned which group of workers are more suitable to be infected. We have a specific treatment for different sectors of workers. We have rearranged the task forces or the sales. So in general work, we have been upgrading all of our procedures to have a more dynamic process of incorporating people into our operation. We have had some delays in having people going on board because, specifically, the time that it took to test everybody. We have finally - just to end up, we have an arrangement with an important lab in Peru, which is also going to give us a lot of backup into having all of our workers tested on a faster way than we had before.

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

So my first question is regarding reserves. Now that prices are up with difference from the years before, could you please speak somewhat about the resources that could become reserves? I mean, the part that we are not able to see yet, could you explain if those resources that become reserves are - become reserves until they are margin 0 for the new prices of evaluation? Or they all of them become - have at least, for example, $100 per ounce margin? That would be number 1. Also, could you perhaps give some color on the amount of - in Tambomayo, Orcopampa, La Zanja, those - the mines that are running out of reserves, how much is there right on the border to come in to reserves if a higher grade of a higher price of - to evaluate reserves could come in? That's my first question. I'll post another one afterwards.

Thank you for your words. Let me try to summarize. Your two questions are related to all reserves and no resources and the impact of the long-term metal prices, and specifically in the case of Tambomayo, Orcopampa, I don't know, Juan Carlos, you could a little bit explain the case definitely through the De-Bottlenecking Program, we have reduced the costs. We have reduced the curve. We have to analyze if we could change the long-term price. But Juan Carlos, probably, it's better to explain the different programs in Tambomayo, the different areas in the deepest part of Tambomayo, surrounding Tambomayo, the different areas in Orcopampa and as well as different areas of exploration in Uchucchacua, please.

Sure, Victor. The - first of all, we use always long-term prices for the definition of resource and reserves. So a spot increase in prices like copper, gold and silver, usually doesn't have an impact in the short-term evaluation of - sorry, on the long-term evaluation of the reserves. We have taken a complication of reserve by the end of this year. So probably by the end of this year, we will review our numbers, which prices are we going to use in the long term for which mine. But in the short term, from the work that we have made in the last 2 years in the De-Bottlenecking Program, we already put that into consideration for the setup of the cutoff for each mine, what fraction of their resources can become reserves. So the reduction in operating costs in Orcopampa, in Tambomayo, in Uchucchacua, has already been the consideration last year reserve and results estimation. The new work that we are doing for exploration, particularly in the Tambomayo mine, we're focusing now in the bottom part of the mine. The veins keep going down. So we are now focused on the exploration that the Board of Peruvian mine where we are finding the extension of a known vein, and we are ramping down to reach that area along with the drilling campaign at the bottom. It's the same ore. It's the same structures. So we keep going down in the deepening part of the mine. Probably by the end of this year, we will have some fraction of these exploration results incorporating with our results and our sales estimation. The same go for all of the mine like Orcopampa, with the exploration in 2 sectors in the north and in the southern part of known footprint of the operation and also in the Uchucchacua mine. We are receiving now this installation and the particular meeting, we see the eastern side of the mine, the Uchucchacua mine, that is leaving our gap between Uchucchacua and the Yumpaq operation. So we are putting a lot of effort in the eastern side of Uchucchacua and all in to fill the gap in Uchucchacua and the exploration that we are putting focus this year and probably next year and in a satellite operation in Uchucchacua processing plant. So in these preparations, we have this strategy for exploration. And the prices, probably by the end of the year, we will take a review of the long-term scenarios of the prices. And if any change in units, we will apply that for the definition of cutoff and value of the pricing end of this year.

Okay. Correct me if I'm wrong, but I knew that you used the average of the last 3 years for the metals prices in your reserves. Is it correct?

Sorry, I couldn't hear your question. Could you repeat it?

Yes. Sure. Under my understanding, Buenaventura uses the average of the last three years of prices to evaluate reserves. Is it correct?

That's correct. That's correct, yes.

Okay. So my second question is - sorry, let me check. So regarding Orcopampa and Tambomayo and the reduction in reserves, you had said during the year that some of that came because of centralization of the mine, right? So I'm kind of confused. So what was the cost? And what was the consequence, the centralization of the mines or the - not finding all reserves, what provoked the other one?

All right. That's right.

Yes. Okay. Go ahead. Go ahead, Juan Carlos.

Yes, in the case of Tambomayo, we have a substantial reduction in the operating costs. We were in the average of $150 per ton process, and now we are below $100 per ton. So it's a very significant cost reduction. And of course, all the material of the ore that was between $100 and $150, that was already managing a lot in the past, now become economical low. So that has increment into the reserves, especially from that resources into reserve as by reducing the operating cost. The exploration, it's also new oil premium into the results. And of course, in the over $100 in value per ton is become reserve. So the 2 are working parallel in Tambomayo. In Orcopampa, we have been reducing the cost. We have [indiscernible] working on this process, mainly between that project, the gold went temporarily high, and we were getting back to the average cost that we have in the past, and we are going down. So in the last quarter, it was a transition period. And now we are getting to the point that we would like to be more stable in the implementation of the operation. So the cost went back - went of $300 in the past went up above that figure and then coming back to around $300 as well and we are planning to go below that number. And again, we will be seeing more ore coming reserve by this cost reduction.

But on the - going for the reason was decentralization was a consequence or the reason for the reduction or for the increasing price?

Well, in the transition period, we have a substantial reduction in head count. So we need to assume the severance payment of the people that is reduced in our operation. So that is charged to the cost a temporary basis is a one-shot expense that we need to incur to reduce the number of people working in the operation, and that was part of the centralization. So now you have a higher efficiency, you reduce the head count. You need to pay for the severance payment for these laid off. And in that temporary time the gold went up. Now we are coming back. We are more stable now, with saving 800 people working in the mine. And now we are a stable decision - has a stable operation with this head count and in a fewer number of locations underground. So high utility, the same production and lower head count in these people with lower cost. So it's the process of reducing costs, temporary expenses, like severance payment and we finished that one off, we start getting a more stable cost and more stable production.

And just something very quick, the concept. When you reduced your cutoff rate that you are evaluating your reserves, should your grade come down because as you are reducing your cost, you're like putting less efficient ore into your reserves? And is it necessarily that less efficient ore, less - with less grade? Or just - maybe it's just because it's far away or deep down.

Yes. It's as you say. If we review the cutoff, in my example, from $150 down to $100, you are incorporating ore in that range to your reserve. So you have in the past reserve above $150, let it an average of $200. Now you have a plain average of $200, plus the fraction that you add from $100 to $150. So the new average is a little bit lower, but in a single term of engineering the value. The - you're incorporating more tons into your reserve and each one of these are generating value, smaller than the other, but still generating value for the operation.

Your next question will come from Tanya Jakusconek with Scotiabank. Please go ahead.

So I have a couple of questions, if I could. The first one I wanted to talk about is on your costs. It's your cost of sales. I am trying to understand how your cost of sales declined quite substantially, $66 million down from usually, you're like in the $165 million to $205 million, despite the fact that you've had volumes down 50% to 75% year-over-year. You've had a lot of volume down and then your costs went down even more. So I'm just trying to understand what in there have I missed?

For Leandro, you could explain that concept. The reduction of gold [indiscernible].

Because of the lockdown, as you know, many of our operations units were stopping in close of production. So all because additional cost that we have during that period, especially all the maintenance and care costs that normally you are assigning when you have production to the production indeed, all that product, all that cost is registered now as an expense in others. So we have less volume, but all the extra expenses are registered outside the cost of sales in the account others in other operating activities, in other operating expenses. And for this period of this lockdown, we have around $26 million regarding that type of cost in that account, $13 million coming from Brocal and $13.5 million, around $13.5 million coming from the operations of Buenaventura.

Yes. That $16 million plus $26 million is still well below that $165 million to $205 million.

Yes, but remember that we don't have all the workings and all the force on the extent that normally when the operations are in a normal standard.

Let me say, in other words, all the costs related to the COVID-19 and on the costs related to the care and maintenance of all our mines are not included in this number.

Yes.

No, I understand that, like, I understand that $26 million gets added back to the $66 million, but that is well below the $165 million to $205 million despite that loss change. I'm just wondering what - you put out contractors, so maybe that's also a cost. What other costs were maybe not included in there or cut out or eliminated? Or maybe your workforce is not coming back at the same number of people. I'm not sure. I - just the number. Maybe - yes.

No, the...

Yes. Sorry. Our workforce is not at 100% in our unit. We were - this year, we were not at 100% working then.

Yes. Let me tell you, in other words, in terms of 100% of our workforce, only 30% is part of our payroll. The second component, 70%, is part of the contractors, is an outsourcing activity. In this part, we will be able to reduce significantly during care and maintenance period.

Maybe I'll just move on to - just on your reserves and your new life of mine plans, did I understand correctly that we'll have obviously new reserves at year-end when you usually report next year? Were new life of mine plans related to these new reserves? It just has been quite a bit of change in these operations. I'm just wondering if the new life plans that you'll be able to share with us.

Yes. Juan Carlos, I don't know if you could - would like to answer that part.

Yes. Well, we are - Tanya, we are working on that right now. We are looking at opportunities that we have, particularly in the open pits, that obviously have a boundary of low-grade around the reserve shell, the reserve pit. And we are on the design right now. We are looking for - not only for the availability of all in the world of the open pits, but also for all the ancillary infrastructure that we need to support that reserve, let's say, waist bands, it's the room on the leaching pads, et cetera. So it's something that we are looking after in terms of the - probably we need to have - we like to have all the information and the right support at the reserve by the end of the year. But we are looking at this opportunity, particularly in our gold and copper operations, that we see there is an opportunity to increase on the known areas, on the known footprint, additional reserve by an increase on price.

Okay. And I can ask just one last question? I'm trying to get an idea on your capital allocation. So my understanding is any cash flow that's generated, obviously, you have some that goes into your business, so you're sustaining capital in exploration so that you can increase reserves or maintain reserves. Maybe you can talk about how you allocate any additional capital beyond that. Dividends, obviously, are one, but maybe what's it going to take to get a net dividend back again? Is it profitability? And then number two, on your development capital, maybe you can give us some sights into how you're going to allocate between dividends, development and other opportunities?

Yes. Thank you, Tanya. Let me explain in a very broadly perspective, and probably Leandro will explain also that with more details. In terms of capital allocation, definitely, when we resume full capacity and according to this metal prices environment, we will generate in terms of free cash flow from operations more than $150 million. That could be a very comfortable position in order to maintain our sustaining CapEx. Obviously, also, we expect a positive outcome coming from Cerro Verde, which is expense also in terms of dividends. And obviously, we have to analyze how to prioritize our projects. Obviously, the most advanced project is San Gabriel. We have to analyze how can we finance this project. And the second one, that could be a significant number. It's then a question so far. Obviously, it's an open discussion. In that regard, also, we are working in order to extend the life of mine, our mine. And also, we are extending the maturity, our total debt in that regard to be able to cope with all these necessities in the future. Leandro, probably you could add more details in that regard?

Yes. Thank you, Victor. As you know, Tanya, one of the first and most important objective of this year was to preserve the cash. In that order of idea, our refinancing of our syndicated debt that was in April 2 helped from that objective. So this cash will preserve for us a bit of dollar for our internal - our development of our projects, our - increase our exploration in our mines and the new coming project we have in our pipeline. All the dividends that we can proceed from our affiliates also come into the bid back for our organic development primarily. I mean, well, as you know, also one of the decisions we made to cut the dividend for this year to spend - sorry, with regard to release to our shareholder in order also to preserve the cash. But all the cashes view as back - be back for the development of our organic and our explorations in our mines.

So with the suspension of the dividend, what will it take for you to reinstate that dividend? Is it that all of your mines go back to operating like you are forecasting at the end of all this? And then we are going to be profitable then, would that be enough to reinstate? Or what do you need to see to reinstate that dividend?

Yes. Well, this is a temporary suspension. We expect to reach 100% production. We expect sustaining prices. We expect improvements in our - short-term improvements in our operation. So we are - we will - evaluating the dividends to pay to our shareholders in the following months, whenever this difficult situation finish.

That concludes the question-and-answer portion of today's conference call. I would like to turn it back over to Mr. Gobitz for any closing remarks.

Thank you. I have two final statements. The first one is related to the company. And the second more a personal one. As a company, after more than 130 days dealing with the virus, we have gained significant knowledge, and during August, we intend to have full implemented an alliance with a private lab in order to use PCR test simple tool to minimize by the impact in our workforce and resume operation at 100% level. The exploration program has been delineated for the third quarter and fourth quarter, and that will allow us to offset our implemented high-grade mining plan for 2020. The third one is the De-Bottlenecking Program implemented has allowed us to reduce production costs, specifically its fixed cost component, which was significantly relevant to factor that period of lockdown. And the fourth, in that sense, we are confident that to obtain a positive free cash flow at the end of the year, expressed in terms of reducing our total debt and extending its maturity, progressing the development of our green and brownfield projects, in essence keeping our long-term business plan, although this pandemic experience. And by 2020, we expect as a worldwide perspective that a vaccine for COVID-19 will be reliable. And finally, it's a more personal statement. After almost four year - almost four years being a company, I have decided to step down to pursue another professional challenge. However, before leaving the company, let me recognize the Board's support, particularly that of our Chairman, Mr. Roque Benavides, to carefully explain to me the purpose and legacy of Buenaventura. Also, let me recognize the teamwork of Buenaventura's management. And at last, but not least, allow me also to recognize the discipline and commitment of all our workforce onsite. Without them, we will not be able to deliver positive outcomes. And regarding Buenaventura having new leader, Leandro Garcia, our new CEO, without doubt, will conduct the company wisely on the right direction. All the best for you, Leandro. Let me now turn the call over to Mr. Roque Benavides, our Chairman.

Thank you, Victor. This is a very special occasion. And as many of you present in this conference call know, I have not been participating actively speaking in the conference calls because it was - and it is the responsibility of management. But in this very peculiar occasion, I would like to thank you all for the work that you are doing in the management of Buenaventura, those of you that follow the company and share with you that we have a commitment towards our shareholders. We do believe in our responsibility towards investors, and we want to continue working as hard as we have been doing with the leadership of Victor. We expect having passed, hopefully, this crisis of the COVID-19, that we will be back into our guidance and our production, normal production and even to increase that production with our projects. And when we talk of our projects, we are talking of the important development as San Gabriel that is very, very important for us. You have to bear in mind that we have a legacy between Buenaventura and after 6 to 7 years of history, [indiscernible] continued, and we are very much committed. We are a team that work very hard every single day. Let me share you that in this 130-some days, we have been making every single day at 7:30 in the morning to follow the events of the health of our people, following what we could do in terms of operations. Same way, the government of Peru made the mistake of closing the operations, and that has had a negative impact in our statement, but we believe that we are going to overcome that. I just wanted to finish by thanking Victor. With his decision, we spoke when we hired Victor that he was going to finish his career in Buenaventura. He has decided to take all the responsibility, and it's fair enough, and we desire that he make very well for team, for his family, for Antamina and obviously for Peru. So thank you, Victor, for that. And just to share with you that we have absolute confidence in Leandro. He is a man that has worked many years for Buenaventura, knows the operations. He is very well-trained. He comes from a financial background, but he is a listener, and he will receive the support of all the team, the technical team of Buenaventura. And he will concentrate on our operations. I'm sure that he will do a great job and that the whole team will support. Certainly the Board is committed to support the work of Leandro, and I'm sure that the results are going to be very positive. So thank you, Leandro, and if I may say, welcome to the job. But you know the company, and I'm sure that you will do very well. With that, I would like Leandro to give us a few words, to the market, to the company and to the Board. Why not? Thank you.

Well, yes, thank you, Roque and Victor. First of all, I am deeply honored and humbled that the Board has elected me to succeed Victor as Buenaventura CEO. Buenaventura, 67-year history, we have focused on higher standards of excellence, and I will want [indiscernible] to belong this strong foundation. Our stakeholders should expect continuity and consistency going forward, continue improving our current operations, our exciting pipeline of projects and always are respecting our great legacy. Finally, I believe that with a combination of our portfolio and experience and technical management team, we ensure we have a bright future ahead. Thank you very much, and have an excellent day, everyone.

Well, Victor...

Were you asking...

We think - conference call, yes.

Yes, with that, we are finishing our conference call. Thank you to all for attending this meeting. Wonderful Safety Day.

Thank you.

Ladies and gentlemen, this concludes today's Buenaventura second quarter 2020 results conference call. We would like to thank you again for your participation. And you may now disconnect.