Compania de Minas Buenaventura SAA

NYSE:BVN

Earnings Call Transcript

[Operator]

Good day, ladies and gentlemen. Welcome to the Compania de Minas Buenaventura Fourth Quarter 2020 Earnings Conference Call. At this time all participants are in 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. Rodrigo Echecopar, Investor Relations. Mr. Echecopar, you may begin.

[Rodrigo Echecopar, Head, IR]

Good morning, everyone, and thank you for joining us today to discuss our fourth quarter 2020 results. Today's discussion will be led by Mr. Leandro Garcia, CEO. Also joining our call today and available for your questions are Daniel Dominguez, CFO; Mr. Juan Carlos Ortiz, Vice President of Operations; Mr. Aldo Masa, our new Vice President of Business development and Commercial, Alejandro Hermoza, Vice President of Sustainability; and [Indiscernible] the Corporate Project Manager. Also available for your questions will be Raul 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 statement should be considering 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 January 25th, 2021. In addition, it is important to note that these statements include expectations and assumptions, which will be shared related to the impact of the COVID-19 pandemic.

As seen on slide 2, our forward-looking statements also provides information on risk factors, including the effects 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 Buenaventura results could change at any time and the impact of COVID-19 on the company's business results and outlook is a best estimates based on the information available as of to-date.

Please note that in the interest of safety, we are utilizing a more virtual approach in exercising social distances. While conducting this call this quarter, we would ask you to please 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 Leandro Garcia. Leandro, please go ahead.

[Leandro Garcia, CEO]

Thank you, Rodrigo. Good morning to all, and thank you for attending this conference call. Before we'll start this presentation, we would like to wish your family and friends, health and well-being at this difficult time.

We are pleased to present the results of the fourth quarter of 2020 from Compania 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 this slide two. Please consider the disclosure related to the COVID-19 pandemic.

Moving on to slide three highlights were as follows; EBITDA from direct operations, reach US$59.1 million in fourth quarter 2020, compared to US$73.9 million reported in fourth quarter 2019.

Fourth quarter 2020 adjusted EBITDA associated companies reached US$192,4 million, compared to US$183.7 million in fourth quarter 2019. Capital expenditures in fourth quarter 2020 were US$38 million, compared to US$39.6 million for the same period in 2019.

Fourth quarter 2020, net loss was US$60 million, compared to a net loss of US$53.7 million for the same period in 2018. The company's de-bottlenecking programs continue to progress at a reduced level during the fourth quarter 2020. The program focused primarily on Buenaventura's Tambomayo, Uchucchacua, El Brocal mines during 2020.

Buenaventura's cash position reached US$235 million for the fourth quarter 2012. The company had no mine-related fatalities during the full year 2012. Moving on to slide four, financial highlights. Total revenues during the four quarters were US$236.1 million, which is in line with the fourth quarter of 2019.

Increased commodity prices excluding lead supported fourth quarter 2020 net sales figures despite reduced volume sold due to the adverse effects of COVID-19. EBITDA from our direct operations in fourth quarter 2020 was US$59.1 million in comparison to US$33.9 million in the fourth quarter of 2019.

This was mainly due to the lower production coming from Uchucchacua as we have not achieved full capacity during the quarter as previously announced. Also, lower production from Tambomayo negatively affected the retail [ph].

EBITDA including our affiliates in this quarter was US$192.4 million, which is 5% higher in comparison to the fourth quarter of 2019. This increased mainly comes from better results from several elements. And the net loss in this quarter was US$60 million, compared to a net loss of U.S.$53.7 year ago.

These results consider a deferred stripping cost of 11.6 from a local originated but variation in the technical and economic parameters of the results. Additionally, it considers at cost of US$124.8 million from Yanacocha, related to an update in the mine closure plan.

The CapEx has decreased to US$38 million in the fourth quarter of 2020 compared to US$39.6 million in 2018. The free cash flow in the fourth quarter of 2020 was negative US$14 million compared to negative US$65.9 million of cash flow in the fourth quarter of 2019.

Moving on to slide five, and six, attributable production. Total gold attributable production in the fourth quarter of 2020 was 79.5000 ounces, which 31% lower than the figure reported on the same quarter of the previous year. This decrease was mainly explained by lower production in Tambomayo and Yanacocha.

Silver attributable production for this quarter was 3.7 million ounce, which shows a decrease of 35% compared to the figure reported on the fourth quarter of 2019. This is mainly due to less production in our Uchucchacua mine.

In the fourth quarter of 2020, 11.5000 metric tons of zinc were produced at 16% decrease compared of the fourth quarter in 2019. This is mainly due to a 64% decrease in production of zinc at our Uchucchacua mine. In the case of lead, equity production was 6.8000 metric tons in the fourth quarter of 2020, which is 34% lower in comparison to the fourth quarter of 2019.

Finally, our copper attributable production for the fourth quarter of the year was 25.4000 metric tons. This reduction is mainly explained by a 24% decrease in production at Brocal and 18% decrease of production in silver.

Moving on to slide seven, all-in sustaining costs and costs applicable to sales. Well all-in sustaining cost from our direct operations of 2020, we increased to US$1374 per ounce of gold mainly due to lower gold ounces sold in the period.

The cost applicable to sales for 2020 were as follows; for gold US$1,097 per ounce, which is 10% higher than a year ago. For silver, US$18.29 per ounce, which is 52% higher than a year ago. For lead US$1,174 per metric ton, which is 5% lower than a year ago. For copper US$5,133 per metric ton, which is 4% lower in comparison to a year ago Finally, in the case of zinc, the cost applied to sales was US$1,935 per metric ton, which is 5% lower than a year ago.

Moving on to Slide eight. The De-Bottlenecking Program fourth quarter 2020. As a result of the company's De-Bottlenecking Program, we are gaining mining cost efficiency that partially offset by lower production now. As you can see, results for the fourth quarter were positive, generating US$8.1 million of additional EBITDA.

Moving on to slide nine, pipeline of projects update. Here, we are presenting one, snapshot of the current development level for each one of our projects. On slide 10, San Gabriel. We completed feasibility study by zinc. Also we completed geological confirmation drills with no major impact on tonnage or rate.

The construction permit is delayed until the second half of 2021, due to Ministry of Mining and Energy difficulties took in reinitiating the Consulta Previa. Consulta Previa our prior consultation process due to COVID second wave and current political situation.

Moving on to slide 11, Trapiche. Pre-feasibility study has been updated with a new component arrangement by M3. We are currently working with a community to start column test activities by April, 2021. Additionally, we are performing chloride leaching tests with excellent results and evaluated its inclusion in the EIA study, environmental assessment.

Moving on to slide 12, Rio Seco. We completed feasibility study by Samuels. The EIA's public assembly was successfully executed and we are waiting for authorities revision and comments.

Moving on to slide 13, Tantahuatay's sulfides. We have updated and confirmed the scoping study by M3 or a 6,000 tons per day copper concentrate plant. We are starting a five-year viability phase.

At this moment we will like to share our main financial guidelines for 2021. In terms of sales, we will be in the range of US$150 million to US$950 million. These sales assumes a metal prices of gold of 1800, silver US$23 per ounce lead US$1,850 per ton, copper US$7250 per ton and zinc US$2300.

With this, we are expecting to have out EBITDA from our direct operations in the range of US$160 million to US$180 million. And including our affiliates will be US$560 million to US$600 million.

In terms of CapEx, our sustaining CapEx will be between US$50 million to US$60 million and our project including part of San Gabriel, but not the construction will be between US$30 and US$35 million.

Thank you for your attention. I will hand the call back to operator to open the line for questions. Operator? Please open the lines.

[Operator]

Thank you very much. We will now begin the question and answer session. [Operator Instructions] And the first question today comes from Carlos De Alba with Morgan Stanley. please go ahead.

[Carlos De Alba, Morgan Stanley]

So, the first question is, you saw on CapEx, Leandro, you just mentioned. How much of the 30 to 35 is San Gabriel? And just to know how much you guys are spending on that one. The second question is regarding the ongoing dispute with the SUNAT. Can you give us an update please, what are the latest? I understand that based on the latest releases as on that matter, that the company may have to start paying some of these money. And how is the company planning on funding or financing the payments for the SUNAT? And any updates on the legal front or judicial or appeal that you are moving forward in order to try and avoid to make these payments or avoid these payments? Thank you very much.

[Leandro Garcia, CEO]

Thank you, Carlos. And for your first question. The CapEx considered for San Gabriel in the February are just released US$19 million. And in terms for 340 worth of related to SUNAT, there is there is no news in the legal side -- in the legal age of this controversy. We continue to dispute in the judicial area, our rights. And in terms of pay we are finishing the strategy to repay this SUNAT payment directly to SUNAT. We are -- as you imagine, we are constructing this strategy using the -- maybe we will should -- we should sell some non core assets or/and also a will we should look for financial facility in terms of loans or any other to -- we should be done this. All these strategy will be done at most in June of this year. And when we get some advance, we will inform you which are the steps we are taking of.

[Carlos De Alba, Morgan Stanley]

Thank you.

[Leandro Garcia, CEO]

Maybe a Daniel can give you some color in this matter, Carlos.

[Daniel Dominguez, CFO]

Thank you, Leandro. Just I wanted to give a little bit more detail of the CapEx for year 2020/2021. As Leandro mentioned, we are planning to execute US$90 million. From these San Gabriel represents US$20 million. Our direct operations US$55 million and the remaining US$15 million will go to other properties like Trapiche and Rio Seco. Thank you.

[Carlos De Alba, Morgan Stanley]

Thank you very much.

[Operator]

[Operator Instructions] And our next question will come from Tanya Jakusconek with Scotiabank. Please go ahead.

[Tanya Jakusconek, Scotiabank]

Great. Good morning, everybody. And I hope everyone is well. Thank you for taking my question. I just wanted to circle back just one more for guidance if I can. Is there any more EBITDA improvement you're expecting from the de-bottlenecking program in 2021? Or have you completed that program?

[Leandro Garcia, CEO]

Thank you, Tanya. Thank you. And thank you for your question. The de-bottlenecking program, it has a duration of three years. And it has end on December 2020. Now we are working on that new program, is based also in continuous improvement. But now we are focused on recover the full capacity of all our plants and our mines. And may continue to increase our -- also increase our exploration program. And for that, we need to gather all our workforce to have a better performance in our unit.

[Tanya Jakusconek, Scotiabank]

Okay. So given that the focus on exploration, would you be able to give us the guidance for your exploration spend both direct and to your affiliate for 2021?

[Leandro Garcia, CEO]

Yes, Tanya. We can send. We can make public our guidance for exploration investment for this year considering the briefing and Buenaventura's exploration in our own mines. We will publish in our website. Perfect. Thank you very much.

[Tanya Jakusconek, Scotiabank]

Okay. And just two other questions if I could. Just wanted to get to circle back on just on the assets. Can I just get an explanation on what is exactly happening at two of your mines, Tambomayo, we seem to have quite a drop in both your gold and zinc recoveries. I'm just trying to understand what's happening at Tambomayo? And then also what's happening at Uchucchacua on the silver side where the recoveries were weak there also?

[Leandro Garcia, CEO]

Yes, Tanya, it our pleasure. With us here we have Juan Carlos Ortiz. He can give you his information in Tambomayo and Uchucchacua issues. Juan Carlos Ortiz?

[Juan Carlos Ortiz, VP, Operations]

Hello, everybody. Thank you for your question. Regarding Tambomayo, we have saw in the last quarter with one section of the mine, the level. We believe that all into the property plant and we have a different behavior from the energy front. So, we try to deal with that, because we are building gold sites. So much like virtual. That’s already on the processing plant. We expect that color from the gold site. So we didn't really change most of the profits for the remaining type and [Indiscernible], the amount of platform that came into the processing plant. So that was really the problem that we have along with some bad luck of maintenance on PV [ph] pit that was not properly attended during the previous quarters and even today in pandemic. So we have the two fronts at the same time made difficult for getting into the property plant. And to maintain the maintenance of the property plants. We try have some flexibility to building that support. We are working on that. We were able to do that last year and we are still working with that is require.

From the Uchucchacua front, we think the way of silver. That came from areas that have a lot of mine done. So, we need to make a trade off for cleaning the ore that we produce. So we need to sacrifice a little bit of the problem on silver in order to get commercial grade concentrate for Uchucchacua. But I think in April we will reduce -- we got a little drop in Uchucchacua in last quarter.

[Tanya Jakusconek, Scotiabank]

Okay. So just going forward of these recoveries that we are expecting from these two mines, what we saw on Q4?

[Leandro Garcia, CEO]

For the 2031, we are arranging the arrangement for the budget. So its not part of our budget.

[Tanya Jakusconek, Scotiabank]

Okay. And then my final question, I just wanted to come back on just the funding -- your options for funding your tax bill. I think, we mentioned non-core asset sales. I just wanted to try and review whether a non core asset would be your power plant? And if you would consider equity issuances as one of your options?

[Leandro Garcia, CEO]

Thank you, Tanya. We will not consider it within our options. We will consider a program of loan issues and the sale of some of our assets. One, can be the asset you mentioned. Once also can be converted to group or a group of them. But in that range, and those are the assets that will be divesting

[Tanya Jakusconek, Scotiabank]

Okay, great. Thank you so much. And good luck.

[Leandro Garcia, CEO]

Thank you, Tanya. Take care.

[Operator]

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

[Leopoldo Silva, LarrainVial]

Hi, guys. Do you hear me?

[Leandro Garcia, CEO]

Yes, Leopoldo.

[Leopoldo Silva, LarrainVial]

Okay. Thanks. Well, I guess my question is regarding reserves. I see that your Orcopampa and Tambomayo gold reserves are lower than those at the beginning of 2020. So, now that we have a higher gold prices, and that you along the year have said that you were happy with what the preliminary results that we -- that you were getting with exploration in this mines? What -- shouldn't we have expected higher gold reserves? And what happens in these two mines? What if that or maybe we've -- I don't know 1600 for gold as an average, not all the gold that you could mine at these prices?

[Leandro Garcia, CEO]

Yes, Leopoldo. First of all, you have to keep in mind that last year, we were also affected in the area of explorations for the COVID. So we fell behind in our programs. So going with the people to make all the drillings and all the work involved and related to exploration. However, as you say, we are very optimistic, but we didn't have the time to convert that potential in reserves or inferred reserves. So, during this year, we will have I think important increase in our targets and in our results. Maybe also from Carlos, he can give you more color in this reserves matter.

[Juan Carlos Ortiz, VP, Operations]

Thank you, Leandro. Leopoldo, in the case of Orcopampa, we have San discovery as Leandro mentioned, it was later in 2020. So very few update evolve at the potential level there. We have not enough time to move all these new discoveries into the measured unlimited category to Tam - research. So we think that to leave along, but we good result to exploration of Orcopampa particularly in an area, in our operations called Moquegua. We'll keep updated that all the progress of this exploration.

In the case of Tambomayo, these are very high grade. So there is no much ore between US$1800 per ounces and US$5000 per ounce. This is very high grade. So there is not much low grade operation or low grade around the debate. So that we could see the price, and literally brings new research or bitumen research in the case Tambomayo. We are working on exploration. We help them achieve insight right now. It may be a new research and delayed plant. But still a little bit delayed exploration in Tambomayo.

[Leopoldo Silva, LarrainVial]

Okay. And do you -- taking that, do you believe that 2022 and the year forward could be -- you could lift the production on this mine? Or would you expect rather to maintain what you have in guidance for 2021?

[Leandro Garcia, CEO]

In the case of Orcopampa, we expect to keep running at around the guidance level that is about 40,000 to 45 1000 ounces of gold a year. In the case of Tambomayo, probably a little bit less than the guidance of this year, maybe around 75 and a little bit below 70,000 ounces. But we still try to work on exposure to that degree something additional. But certainly here we are going to say, the levels are less here.

[Leopoldo Silva, LarrainVial]

Okay. All right. Thanks very much.

[Operator]

[Operator Instructions] Ladies and gentlemen, this concludes our question and answer session. I would like to turn the call back to management for any closing remarks.

[Leandro Garcia, CEO]

Thank you, sir. Before we finish today's conference call, I want to thank you again, for making the time to join us today. And have a wonderful day. Be safe, and see you soon. Thank you.

[Operator]

And thank you, sir. Ladies and gentlemen. That concludes Buenaventura's fourth quarter 2020 conference call. You may disconnect your lines. Thank you.