Earnings Labs

Compañía de Minas Buenaventura S.A.A. (BVN)

Q2 2021 Earnings Call· Wed, Aug 4, 2021

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Transcript

Operator

Operator

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. 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.

Gabriel Salas

Management

Good morning, everyone, and thank you for joining us today to discuss our second quarter 2021 results. Today’s discussion will be led by Mr. Leandro Garcia, Chief Executive Officer. Also joining our call today, and available for your questions are Mr. Daniel Dominguez, Chief Financial Officer; Mr. Juan Carlos Ortiz, Vice President of Operations; Mr. Aldo Masa, Vice President of Business Development and Commercial; Mr. Alejandro Hermoza, Vice President of Sustainability; Mr. Renzo Macher, Corporate Project Manager; and Mr. Roque Benavides, our Chairman. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements within our earnings release and risk factor discussions. I encourage you to read the full disclosure concerning forward-looking statements within the press release we filed on August 2, 2021. In addition, it is important to note that these statements include expectations and assumptions, which will be shared related to the impact of COVID-19 pandemic. As seen on Slide 2, our forward-looking statement also provides information on risk factors, including the effects related to COVID-19 that could affect our financial results. In particular, there is continued uncertainty about the duration and contemplated impact of the COVID-19 pandemic. This means Buenaventura’s results could change at any time and the impact of COVID-19 on the company’s business results and outlook is a best estimate based on the information available as of today’s date. At this time, let me now turn the call over to Mr. Leandro Garcia, Chief Executive Officer. Leandro, please go ahead.

Leandro Garcia

Management

Thank you, Gabriel. Good morning to all, and thank you for attending this conference call. Before we start this presentation, we would like to wish you, your family and friends, health and well-being at this difficult time. We are pleased to present the results from the second quarter of 2021 from Compañía de Minas Buenaventura. We have prepared a PowerPoint presentation, which is available in our web page. Please, before we go further, 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. Second quarter 2021 EBITDA from direct operations reached $66.9 million compared to $26.4 million reported in two quarter 2020. Second quarter 2021 adjusted EBITDA included associate companies reached $229.7 million compared to $84.5 million in the second quarter year 2020. Second quarter 2021 net income reached $37.5 million compared to $15.6 million net loss for the same period 2020. Second quarter 2021 exploration at operating units increased to $14.5 million compared to US$2.5 million in the second quarter of 2020. This increase was part of the company’s revised strategy to increase exploration activities. Second quarter 2021 capital expenditures were $21.5 million compared to $11.6 million for the same period 2020. The six months – the first six months 2021, cost applicable to sales has been impacted by $30.8 million due to additional COVID-19 expenses, and it is expected to decrease in the third quarter and fourth quarter with the increase of vaccinated workforce. Buenaventura’s cash position reached $255.2 million as of June 30, 2021. On April 2021 – sorry, April 29, 2021, Cerro Verde paid a total dividend of $200 million. Buenaventura received $39.2 million relative to its stake in Cerro Verde. On July 23, 2021, the…

Operator

Operator

Thank you. We’ll now begin the question-and-answer session. Today’s first question comes from Carlos De Alba with Morgan Stanley. Please go ahead.

Carlos De Alba

Analyst

Yes. Good morning, Leandro, Daniel, and Roque. Just a few question, if I may. First is, can you maybe provide a bit more color on how you’re thinking about growth in terms of projects going forward given the recent situation with the new debt as well as the payment to the SUNAT? Second is, if you can give us maybe an idea of how do you see costs trending, particularly for Orcopampa and Uchucchacua, which saw their cost increase – their cash increase quite importantly, in the last quarter. And then finally, if I may squeeze a question on dividends. So we saw that you received $40 million in dividends this past quarter from Cerro Verde. What is the idea, there is still to pay that – part of that to Buenaventura shareholders in the coming months? Thank you very much.

Leandro Garcia

Management

Thank you, Carlos. How are you? The – well, in the case of your question in the growth matters, and as you know, we’re still evaluating the sale of an asset, right? With that sale, we pretend to pay the – our syndicate loan that will allow us to reduce our leverage level. So – and leverage also and also all our lines of credit. So with those actions, we will be in shape to begin San Gabriel – the development of San Gabriel. And also, we expect of course, the cash coming from our own operations that will get better results. We expect, of course, and we are positive with the better results in the following months. And the other that we also expect more dividends from Cerro Verde in the following year. So that is the source that we expect to develop our growth and support our growth. In terms of cost, maybe I can give you, Juan Carlos, the microphone to answer the question. But going to first to dividends on Cerro Verde and we are going to – if we are going to pay some dividends to Buenaventura, we are not discussing that matter up today. We are not planning to, in the short term, a dividend from Buenaventura. Our first goal is to reduce our leverage. And we – with the bond issuing, we have some compromises, and we are going to deliver that compromises in the following months. Please, Juan Carlos. Thank you.

Juan Carlos Ortiz

Analyst

Thank you, Leandro for the question. Regarding Orcopampa, we are ramping up the production. We’re a little bit behind the schedule, but we are ramping up production effectively. And therefore, the cost will be reduced based on the increased coal production. So we expect to reduce the cost in coming quarters in Orcopampa. In Uchucchacua there is a lot of work to be done, a lot of work from infill drilling, a lot of the work from mine development. And this will increase the returns with increasing production month after that. So we expect still to be with high cost Uchucchacua from coming two quarters and start to recline – to reduce the cost in the coming year.

Carlos De Alba

Analyst

Thank you, Juan Carlos and Leandro. Maybe Leandro, if I may. So what are the covenants or the requirements that came together with the bond issuance that may not allow you to pay dividends?

Leandro Garcia

Management

Thank you, Carlos for your question. Here with us is Daniel Dominguez. Please Daniel go ahead.

Daniel Dominguez

Analyst

Hi, Carlos. How are you? Basically, we have to meet two covenants. The first one is to have a net debt ratio – leverage ratio of below 3.5 times, and the fixed charge coverage ratio of over 2 times. Those are basically the two most important ratios in order to start paying dividends.

Carlos De Alba

Analyst

Thank you, Daniel. And just – so on the EBITDA is the consolidated EBITDA or the EBITDA, including your participation in affiliate?

Daniel Dominguez

Analyst

Consolidated EBITDA, Carlos.

Carlos De Alba

Analyst

Thank you very much. Good luck guys.

Operator

Operator

Today’s next question comes from Tanya Jakusconek with Scotiabank. Please go ahead.

Tanya Jakusconek

Analyst · Scotiabank. Please go ahead.

Great. Good morning, everybody. And thank you for taking my call. I have a few questions, if I could. I’m going to start just on the asset side first. Just on Uchucchacua. Can you give us an idea of when we are going to get the mine back up to normal capacity? And then the second thing on Uchucchacua, can you give me an idea of what is happening? In your preview you highlighted a new mine plan is underway. You were having issues underground in terms of meeting the block model. Can you just let me know what’s happening there? Thank you.

Leandro Garcia

Management

Hi, Tanya. Thank you for your question. Juan Carlos, please, if you could.

Juan Carlos Ortiz

Analyst · Scotiabank. Please go ahead.

Thank you, Leandro. And thank you Tanya for question. Yes, we mentioned in the previous quarter and this quarter as well, we are facing difficulties and delays on the recent drilling and in the developing of our new areas that we are accessing right now. The strategy is focusing now on access the Carmen and Huantajalla mines into the Uchucchacua underground setting. These two mines have been mined in the past, and we are getting back into these areas. We are – it’s taking longer than expected their rehabilitation process to – in some cases, a slush up the site of the tunnels to fit with larger fleet, rehabilitate the ventilation circuit. Some of the ventilation risers is that we have need to be, in some cases, re-drill. We need to make parallel risers to complete the ventilation circuit. And in some areas that we expected to have access to some blocks, it’s taking longer because we need to put more roof reinforcement that we expect. So it’s taking longer, and not only because we have more work, but also because we still don’t have 100% of the headcount at site. So we are at a lower pace than expected and with more work than expected. The difficulty that we are facing there regarding the grade is that the infill drilling is way behind our program. We change the contractor for infill drill or the contractor that we have for drill holes in the mine in – we changed the contractor in the first quarter, and it’s taking longer than expected to reach the previous level of production of drilling from the new contractor. So the difficulty in getting that information for the short term planning, again, the long term planning is what is yielding us a negative reconciliation in…

Tanya Jakusconek

Analyst · Scotiabank. Please go ahead.

That’s good news on the vaccination. Can I just move on now to – you mentioned that you are going to be selling an asset in order to get monies so that you can reapply those funds to the San Gabriel development. When you look at your assets for sale, how does the Yanacocha Sulfides, your interest in that one? How does it rank up as an asset for sale?

Leandro Garcia

Management

Well, we are – Tanya, we are still looking, which is the best answer for the best alternative we have. You know that we have our shares – the treasury shares. We have the – our participation in, as you mentioned, in Yanacocha. And also, we count on our participation in Cerro Verde. We have different alternatives, and we are evaluating. We are still evaluating. Yanacocha, it’s – the sulfide project is still evolution and founding, it will be decided in December this year. So we are also in that process.

Tanya Jakusconek

Analyst · Scotiabank. Please go ahead.

Would you consider your equity stakes in Cerro Verde and Yanacocha as two possibilities for sale in addition to all of your assets, I’m just trying to understand if those are for sale also.

Leandro Garcia

Management

We are evaluating all the alternatives, which will affect less our future cash flows. That is the object.

Tanya Jakusconek

Analyst · Scotiabank. Please go ahead.

Okay. And then can I ask – I have been noting on many conference calls, companies are talking about inflationary pressures, both in operating costs and capital costs. Can you talk to us about what inflationary pressures you are seeing in Peru in labor, consumables and other? Thank you.

Leandro Garcia

Management

Well, the – there are some pressures in cost. However, as mainly – these are caused by the exchange rate. However, as you know, our income – 100% of our revenues are in dollars, so we are not feeling as today a great pressure on inflation. Maybe there will be some additional demand from our communities and with the current political situation. But we do not expect too much from the standpoint of inflation as economic definition.

Tanya Jakusconek

Analyst · Scotiabank. Please go ahead.

Okay. And if – my last question could be for Roque, if he’s on, I would love to hear his thoughts about the new leadership in Peru, and what are you expecting to see from that and the impact on Buenaventura. Thank you.

Roque Benavides

Analyst · Scotiabank. Please go ahead.

Let me tell you that we are living a difficult circumstances. It is not easy to deal with people like the government that has been elected. But this is the situation that we have to deal with. I think that in the next 30 days or 60 days, we are going to see some changes in the government. Let me just share with you, Tanya, that out of the 19 ministers there are only two women. This has never happened in the last few governments. There is a lot of people that are questioned in terms of their – I don’t know, integrity in terms of the ministers. And even Mr. Castillo and the leader of the political party, Peru Libre is questioned by the press. So I think we have to wait and see, but this is going to change, and I believe that it will change for the better.

Tanya Jakusconek

Analyst · Scotiabank. Please go ahead.

Okay. We all are looking forward to seeing that for Peru. Thank you very much.

Roque Benavides

Analyst · Scotiabank. Please go ahead.

Thank you.

Operator

Operator

Thank you. And ladies and gentlemen, this concludes today’s question-and-answer session. I’d like to turn the conference back over to Mr. Garcia for final remarks.

Leandro Garcia

Management

Great. Well, before we finish today’s conference call, thank you very much for making the time to join us. Thank you again, and have a wonderful day, and be safe.

Operator

Operator

Thank you. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.