Compania de Minas Buenaventura SAA

NYSE:BVN

Q2-2024 Earnings Call

[Operator]

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura Second Quarter 2024 Earnings Results Conference Call. [Operator Instructions] And please note that the call is being recorded. I would now like to introduce your host for today's call, Mr. Sebastian Valencia, investor Relations Analyst. Mr. Valencia, you may begin.

[Sebastian Valencia Carrasco, executive]

Good morning, everyone. And thank you for joining us today to discuss our second quarter 2024 results. Today, 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, Vice President of Projects; Mr. Juan Carlos Salazar, Vice President of Geology and Explorations; Mr. Roque Benavides, Chairman; and Mr. Raul Benavides, Director.

Before I hand our call over, let me first touch on a few items. On Buenaventura's website, you will find our press release that was posted yesterday after market close. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions. While management believes that its assumptions, expectations and projections are reasonable in view of the current available information, you are cautioned not to place undue reliance on these forward-looking statements. I encourage you to read the full disclosure concerning forward-looking statements within the earnings results press release issued on July 25, 2024. Let me now turn to Mr. Leandro Garcia.

[Leandro Raggio, executive]

Thank you, Sebastian. Good morning to all, and thank you for joining us today to discuss the quarterly results of the company. On the Slide 2 is our cautionary statement, important information that I encourage you to read.

Today, we will be discussing our performance for the second quarter of 2024, highlighting key achievements and the strategies moving forward. After the presentation, we will be available for you -- our Q&A session, when our team will be happy to answer your questions. The next slide, please. I would like to highlight a few key areas that contributed to our strong second quarter and '24 results.

Our EBITDA from direct operations for the second quarter has increased $85 million compared to the previous year, primarily driven by the great results coming from Yumpag and El Brocal despite the El Brocal's processing plant was voluntarily suspended for 15 days as a response to a protest by nearby community, as announced on May 22, 2024. This is also reflected in a higher EBITDA margin of 39% compared to 13% from previous year.

Our net income in the second quarter 2024 reached $74 million compared to last year's net loss of $5 million. Copper production decreased 22% year-over-year, mainly due to the El Brocal's voluntary suspension previously mentioned. In the second quarter 2024, silver production reached 4 million ounces, a significant increase compared to the 1.7 million ounces produced during the same period last year.

Of this, a total of [ 2.9 million ounces ] came from Uchucchacua and Yumpag. Oil production decreased 9% year-over-year, reaching 33.8 thousand ounces since we are now mining lower grades at Orcopampa and Tambomayo mines. We are pleased to share that Cerro Verde announced a new dividend of $300 million on July 24, of which $59 will be distributed to Buenaventura. The dividend is expected to be paid by the end of August will contribute to strengthening our overall financial performance.

Buenaventura CapEx in the second quarter of this year totaled $84 million, which includes $70 million allocated to the San Gabriel Project primarily directed towards the completion of waste dumps and main [ superstation ] platform. Our cash position reached $172 million, with a total debt of $682 million. We continue deleveraging the company, reaching a net debt-to-EBITDA ratio of 1.4x, lowest in years and within our targeted range.

Moving on to our cost structure in the Slide 4. Second quarter all-in sustaining costs have been reduced by 91% year-over-year. This reduction is primarily attributed to the increased silver contribution from Uchucchacua and Yumpag as well as the decreased production at the El Brocal.

Moving on the cost applicable to sales trend. As you can see, copper cash has also increased mainly due to the El Brocal's voluntary suspension that was previously mentioned. Silver cash has decreased year-over-year, primarily driven by higher contribution of Uchucchacua and Yumpag silver houses. Gold cash has increased year-over-year, primarily driven by lower grades at Tambomayo and Orcopampa.

On the next slide, we will present the free cash flow generation. Second quarter 2024 cash position was in line with the first quarter of this year. The CapEx from San Gabriel and the dividends paid were offset by the cash generated by the operations and dividends received from Cerro Verde that were $29 million in April. The EBITDA to free cash flow reconciliation is explained by the following breakdown of inflows and outflows.

El Brocal and Yumpag has been the main contributor for the second quarter 2024. As we have mentioned before, Buenaventura is going through a growth phase with an intensive CapEx related to San Gabriel. Additional dividends declared by Cerro Verde, $59 million, will be reported in the third quarter of 2024.

Moving on to Slide 6. We have that in the next months, Buenaventura will be focusing most of its effort in the San Gabriel Project. On this slide, you can see the projects' cumulative progress reaching a 57% overall progress by the second quarter of 2024, primarily driven by the completion of waste dumps and the main sewer station platform. The key milestone we are closely monitoring for the next quarter is the start of the high voltage power line construction and the start of the electrical implementation construction works.

On the next slide, we are showing the processing plant progress that will operate at 3,000 tonnes per day. Currently, the foundations are at 80% progress. The SAG and Ball's mechanical works are at 60%. The Primary Crusher mechanical works are at 40%. And finally, the CIL tanks mechanical works are at 30%.

Moving on to Slide 8. We are showing the water dam foundation and filtering plant civil works. Finally, I would like to finish the presentation with a couple of closing remarks. First, in its first full quarter of operations, Uchucchacua and Yumpag have made a remarkable impact, delivering 2.9 million ounces of silver. We are actively working at El Brocal to recover the production that -- and stay aligned with our guidance, with a strong focus on reaching 11 tonnes per day by the end of this year.

Third, the San Gabriel Project has achieved 57% overall progress, meeting our planned targets. We remain on track to reach our goal of producing our first gold bar by the second half of 2025.

Cerro Verde continues to generate robust cash flow, leading to increased dividends. For fiscal year 2024, we estimate dividends of between $120 million and $150 million attributable to Buenaventura's equity. In the second quarter 2024, our leverage ratio, it stands at 1.4x, reflecting our growing EBITDA and effective debt management strategy. Thank you for your attention, and I will hand the call back to the operator to open the line for questions. Operator, please go ahead.

[Operator]

[Operator Instructions] Our first question comes from Carlos De Alba with Morgan Stanley.

[Carlos de Alba, analyst]

Yes. Thank you. So I have a few questions. So on dividends in Cerro Verde, I want to see what you expect to receive in the fourth quarter. There is already a dividend announced for August. But for the fourth quarter, what is the outlook given how relevant it is for the cash flow generation of the company?

And then on San Gabriel, do you have any update on the CapEx figure? And clearly, you are well into the project. And we don't yet have a revised estimate for the CapEx. So I think we all would like to get some new information. And then finally, we saw a significant increase in the cost of your -- some of your gold mines. You have some production issues or grades declining. So there are explanations in the release, but I would like to understand how do you see things going forward in the coming quarters.

[Leandro Raggio, executive]

Okay. [ Eldo ]. Thank you for your questions. First, as you know, the dividend from Cerro Verde will depend on the level of prices, the level of production, that we think there will not be any major change. So our expectations, as I told before, is still between $120 million and $150 million for the 2024 year and corresponding to this fiscal year.

In terms of San Gabriel project, this investor, we have expanded the entire semester, $108 million. We expect to invest during 2024 a total of $280 million. And the investment in the 2025 will be around $200 million. I think maybe Renzo can go a little bit more further about the explanation, please, Renzo.

[Renzo Macher, executive]

All right. Yes. Yes, the total project cost will be updated into $650 million. This additional $180 million is mainly based on escalating prices beyond our original estimation, which was up 3% to 4% year-over-year. And we have been having changes in the project sequence and expediting costs to mitigate the 18-month delay that we had in 2021-2022 to secure our first gold bar by the end of the third quarter of 2025.

So construction is -- construction work is going as expected, as can be seen in the picture, and we're advancing as planned. And the last big contractor is -- which is electrical and signal, we will be starting next month. So now we have all the pieces ready.

[Carlos de Alba, analyst]

Sorry. So the $280 million -- is the CapEx not for San Gabriel, but overall in 2024?

[Leandro Raggio, executive]

Just for San Gabriel. Just for San Gabriel.

[Carlos de Alba, analyst]

Okay. $280 million is just for San Gabriel in 2024. And the total CapEx for the project is now $650 million?

[Leandro Raggio, executive]

Yes, it's correct.

[Renzo Macher, executive]

Total project cost, yes.

[Leandro Raggio, executive]

We will continue with a margin EBITDA of the project at 50%, and we expect to give more details in OpEx and the NPV, the new PV in the third quarter of this year -- end of the third quarter conference call. Regarding the -- your third question about cost and grades, as you can see -- as you can read in our press release, ore grades in Orcopampa and Tambomayo are declining, and that is the main reason. Maybe Juan Carlos Ortiz can add some comments.

[Juan Ortiz Zevallos, executive]

But could you please repeat the comment because -- [indiscernible].

[Operator]

And the next question comes from Cesar Perez-Novoa with BTG Pactual.

[Cesar Perez-Novoa, analyst]

Yes. I have 3 questions from my end, if I may. Could you please comment on how we should see Buenaventura's inflows and outflows of capital for this year? And the possible breakdown on what you expect to receive on the potential sale of Chaupiloma Dos, the Yanacocha royalties? Your dividends at Cerro Verde, where FCF has already made a $300 million dividend announcement and your CapEx commitment budget for this year, if you could reiterate that, I would appreciate it.

Then at El Brocal, how will cost evolve in the second half of the year? Noting that they increased 14% in the second quarter and whether this copper ore that you have an inventory to support the plant's resumption will have some impact or benefit once you hit a processing rate of 15,000 tonnes per day. And finally, at Coimolache, I understand that Buenaventura received a construction permit to increase leach pad capacity. Could you please comment on next steps and when will the expansion be completed?

[Leandro Raggio, executive]

Thank you, Cesar. Regarding the sale of Chaupiloma, we have sent information to the [ Superintendencia Mercado Valores ] restricted information, and we cannot talk -- we cannot give many details about the operation. We expect during the following weeks, we should comment to the market the results of this. In terms of Cerro Verde dividends, as you know, it is important for the cash inflows in Buenaventura, and we maintain our expectations to receive during the year between 100 and 120 or 150.

In terms of Coimolache, we have received -- per the -- environmental permit. And we are today working with the permitting of the construction, the construction permit, and we expect to receive it on the final quarter of this year. I don't know, Daniel, if you want to go more details in the inflows and outflows?

[Daniel Dominguez Vera, executive]

No. Thank you, Cesar, for your question. Getting a little bit into the details regarding the inflows and outflows. We are going to generate an EBITDA for this year of around $300 million to $320 million, considering a copper price of $9,000. Then as Leandro mentioned, we should be receiving a dividend from Cerro Verde in the order of $120 million and $150 million. Regarding an asset sale -- and I don't mean specifically Chaupiloma -- as you know, and as we have been mentioning this in the past, we have a portfolio of noncore assets that we are going to sell during the following months. We expect to receive this year between $150 million and $180 million.

Regarding the outflows, the total CapEx for this year should be in the order of $380 million to $400 million. This includes the $280 million that we have disclosed for San Gabriel. And finally, between interest and the amortization of our loans, we will disburse with around $70 million. Regarding the second question, Cesar, about the costs of El Brocal. As you -- as we reported, the costs were over $7,100 per tonne. This was specifically due to the events or the liberalization that we had in May. But for the following quarters, third quarter and fourth quarter of this year, we should come back to the level that we have been -- we have been operating in the last months, focusing on the underground mine, which will be between $5,300 per tonne and $5,500 per tonne.

Finally, the inventory that we have, the 210,000 tonnes of copper concentrate in El Brocal should be valued -- valued at an EBITDA of between $5 million and $6 million, which will be executed or realized in -- between July and August of this year.

[Cesar Perez-Novoa, analyst]

All right, Daniel, very detailed. Thank you very much, and also Leandro. Thank you.

[Operator]

The next question comes from Tanya Jakusconek with Scotiabank.

[Tanya Jakusconek, analyst]

Good morning, everyone. Thank you so much for taking my questions. Just, Daniel, I just want to confirm on the last conference call, you mentioned that you had put in place a revolving credit facility with 3 banks of $200 million, which could also help you with the financing of San Gabriel as well, which you were going to draw down in Q2, Q3. Is that still in place for us above and beyond everything else you mentioned?

[Daniel Dominguez Vera, executive]

Yes, we still have the $200 million revolver facility undrawn, and we expect not to use it during this year.

[Tanya Jakusconek, analyst]

So maybe for 2025?

[Daniel Dominguez Vera, executive]

Possibly. But remember that next year, we will count with the proceeds from Yumpag, the full year, and we also expect some dividend from Cerro Verde. So if copper price continues at these levels of over $9,000 per tonne, we probably will not use this revolving facility. Of course, adding what we expect to receive from the asset sale from our portfolio.

[Tanya Jakusconek, analyst]

Yes. No, no, fair enough. So it's a buffer on top of everything else. Okay. Can I just go back to San Gabriel. I appreciate -- thank you very much for the capital number. I know we have talked about it in the past. It has increased as expected, and we await for you on guidance on the costing side on the Q3 call. Can I ask now that you've got your major contracts in place, so you have a good handle on the capital side.

Can I just ask about your development? I saw that you developed 2.2 kilometers of the underground. I'm just trying to understand, one, your advance rate. So how is that going, the ground conditions? #2, I'd like to understand your cost per -- per meter of advancements. And just trying to get an understanding of productivity as you go into the underground before we can actually get to what's built for mining. So if someone can help me on that, that would be great.

[Leandro Raggio, executive]

Here, Renzo, please. Go ahead.

[Renzo Macher, executive]

Yes. And -- okay. So in the underground, we have -- we have finished the second sprint of OpEx calculation, and it includes -- we're focusing our development into an underground risk and fill mining method because of the rock types for A and B, that's mainly where we are. Now we are going to be hitting the stock of the deposit compared to our previous plan, which was to hit the bottom and then going up, we're going to hit the top 1 and going down.

So we're going to have access earlier in the process. Currently, we are developing the crossing between the 2 rumps, and probably 50 meters below the [indiscernible] and at a rate of $3,000 to $4,000 per tonne, where it depends. We are crossing a difficult part today. That -- we just so we have like 200 meters, 400 meters of advancing so far.

[Leandro Raggio, executive]

Tanya, we have also Juan Carlos Ortiz that can add some comments of the construction on San Gabriel with the advances.

[Juan Ortiz Zevallos, executive]

Thank you, Leandro. Yes, we have, as mentioned by Renzo, [ 1PU ] developing channels at a rate of about 200 meters per month in underground -- underground in San Gabriel requires heavy support, [ short redid ] and steel enforcement. In late August, we will have the second crew coming on board. We have a second front open the inaugural ramp. So we have 2 crew working in parallel. Probably in a couple of months, that second crew also will reach the 200 meters per month rate. So we'll be developing in the fourth quarter, the 2 crews will be running at a combined rate of 400 meters per month.

The average cost right now is in the rate of $4,000 per meter, all costs included. Excavation, muck removal, the short review, all the reinforcement. We expect by the last quarter of this year and start developing into the ore body. We are very close right now, but we expect to be doing more work in the last quarter of this year. Started building up a stockpiling surface in the first quarter of next year. So we're really getting there and producing ore at that time from the first quarter of this year.

[Tanya Jakusconek, analyst]

Thank you so much. Look forward 1 day, hopefully, to see this asset as you guys have a mine tour. I would love to see, I've heard so much about it when it was within Goldfields as well. Maybe, Daniel, can you just help me out on the capital? Just the $280 million that needs to be spent this year at San Gabriel and then $200 million next. Can you give me the big ticket items, like maybe what's the underground, what's infrastructure? Like a surface, what is just some of the big ticket items so I understand what I'm spending on?

[Renzo Macher, executive]

We are -- in our air moving contract, it's 70% complete. So there's a piece of that, mainly for the water dam and you can see in the picture, we finish the foundation and now it's about raising it. Then the -- all the concrete steel mechanical and piping contracts has a couple of months on the way, so there's like 8 months to go, and electrical contractor is going to start. And then we move into commissioning.

So -- it is mainly that. We're advancing at like a 10% per quarter. It's pretty much by the first quarter, early second quarter of next year, we are going to finish all the construction and what is remain, the commissioning activity business.

[Tanya Jakusconek, analyst]

Okay. So of the $280 million this year, how much would be the mill? And how much is the underground? Just a rough estimate. And then finishing next year's all the -- I'm assuming underground. I'm just trying to understand the surface from the underground. Do we have an idea of what that would be?

[Unknown Executive]

I think it's like $50 million for the underground, around that vicinity.

[Tanya Jakusconek, analyst]

So $50 million for the underground this year, 50?

[Unknown Executive]

Well, now between now and -- I have the number in monthly -- between now and September next year, is like 1 year, over the next 1 year.

[Tanya Jakusconek, analyst]

Okay. So 1 year, $50 million is in the underground. The remaining of the $380 million is all surface infrastructure and other.

[Unknown Executive]

Yes.

[Operator]

Ladies and gentlemen, with that, we will be concluding today's audio question-and-answer session. I would like to turn the floor back over to Sebastian Valencia, Investor Relations analyst, for any webcast questions.

[Sebastian Valencia Carrasco, executive]

Thank you, operator. At this time, there are no further questions. I would like to turn to Leandro Garcia.

[Leandro Raggio, executive]

Thank you, Sebastian. And before we finish today's conference call, again, thank you very much for making the time to join us today, and have a wonderful day. Thank you very much.

[Operator]

Ladies and gentlemen, that concludes Buenaventura's Second Quarter 2024 Earnings Results Conference Call. We would like to thank you again for your participation. You may now disconnect.