Compañía de Minas Buenaventura

Good day, ladies and gentlemen. Welcome to the Compania de Minas Buenaventura first quarter 2020 earnings conference 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 you, your host for today's call, Mr. Rodrigo Echacopar, Investor Relations. Mr. Echacopar, you may begin.

Good morning and welcome, everyone. Presenting on the call today is Mr. Victor Govitz, CEO. Also present and available for your questions are Mr. Orlando Garcia, Vice President and CFO, Mr. Juan Carlos Ortiz, Vice President of Operations, Raul Benavides, Vice President of Business Development, Alejandro Hermosa, Vice President of Sustainability. In addition, joining us today is Mr. Roque Benavides, our chairman. Before we get started during today's call, we will make forward-looking statements that reflect the company's current expectations about future plans and performance. These statements rely on assumptions and estimates, and actual results may differ materially to team risk and assertiveness. I encourage you to read the full disclosure concerning forward-looking statements within the press release we filed on May 18, 2020. 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 two, 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 significant uncertainty about the duration and completed impact of the COVID pandemic. This means when Aventura's results could change at any time and the impact of COVID-19 on the company's results and outlook is a best estimate based on information available as of today's date. Please note, In the interest of safety, we are utilizing a more virtual approach in exercising social distancing while conducting this call. 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 turn the call over to Victor. 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 well-being at this difficult time. We are pleased to present the results of the first quarter of 2020 from Compania de Minas, Buenaventura. We have prepared a PowerPoint presentation, which is available in our web page. Before we go further, please take a moment to review the cautionary statement shown on slide two. Please consider the new disclosure related to the COVID-19 pandemic. Moving on to slide three, highlights were as follows. In this third quarter of 2020, 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 coronavirus. Due to the outbreak of COVID-19 in Peru and related restrictions imposed, Conaventura lost 17% of its production for the first quarter of 2020. In this first quarter of 2020, EBITDA from direct operations was negative 6.8 billion dollars. And the adjusted dividend for the first quarter of this year, including associated companies, reached $30.6 million. In this third quarter, capital expenditures were $10 million, compared to the $8.5 million for the same period in 2019. In this third quarter, next loss was $75 million. compared with a net income of $27.3 million for the same period in 2019. The loss in the first quarter of this year, considered COVID-19-related provisions, of $9.7 million. The company's deep bottlenecking program continues, progressing during the first quarter of this year. In 2020, the program focused on the company's Tambomayo, Uchichagua, and El Brocán Mines. The companies have a strong cash position of $222 million as of March 2020, and a monthly fixed cost of care and maintenance approximately between $12 to $14 million. Also, we continue resetting our current topics, sustaining and growth, as well as a potential dividend payment to our shareholders in order to preserve liquidity. From April the 3rd, the company announced the successful refinancing of its $275 million syndicated loan facility. Maturity for the new loan facility has been set for a new five-year term loan with a 30-month grace period with $10,000 semiannual installments starting in October the 22nd. And Rentira has already presented the required documentation to restart operations of all its assets. We have already got all the permits to restart operations from the Ministry of Mines in all our mines An updated guidance will be reported once we achieve full capacity of operation in all our operations. The updated guidance is expected to be reported by the end of June. Moving on to slide four, the quarantine period in Peru was implemented starting March the 16th for an initial 15-day period, which was subsequently extended. As of today, The U.S. government mandated quarantine is expected to end on May 24th. During that quarantine period, production of direct operations has remained in care and maintenance. All mining activities were limited to those critical activities. We continue to process all on leach paths at Poimolache, La Sanja, and Llanacocha mines. On May 11th, the Peruvian government authorized mining operators to gradually restart key activities and resume operations. Moving on to slide five, as you can see in this slide, we have summarized Benaventura's current position after COVID-19 outbreak in the country. Benaventura currently maintains a strong cash position of $222 million as of March 2020, and approximately a monthly fixed cost of 10 million dollars between $12 to $14 million. As previously announced, in April 2020, Dona Ventura concluded that a rough announcing of its syndicated loan and maturity has been set for a new five-year term loan with a 30-month wage period. Dona Ventura will restart operations through a two-phase approach to prioritize close mines with the most significant production. In phase one, starting on May the 16th, in this phase, Tambomayo and Chuchapua del Brocal, which include Tajo Norte and Marcapunta, and Coimolache initiate operations. In phase two, starting on June the 16th, it leads to restart the operation in Huacopampa, Jultani, and La Santa. Buenaventura has already presented the required documentation for restarting operations in all of its assets and has obtained a permit from the Ministry of Mines to restart operations in all our mines. Moving on to slide six, the company has decided to report an updated guidance once all the operations achieve full capacity. However, the company continues to enhance its current mining plans in order to focus on high-grade areas while maintaining a focus on exploration and cost reduction efforts. Moving on to slides seven and eight. In these slides, we show the measures taken to transport our workforce safely, keeping the highest sanitary standards, and strict protocols to prevent the virus spread. Here you can find the measures taken inside our facility. A main one consists of organizing work cells based on tasks. A workforce cell will share common status and accommodation. Moving on to slide nine, we are showing our strategic map where we use, as usual, the capital B from the logo of Bonaventura as a visual index for the following slide. In the coming slides, we shall discuss the financial results of the company. Moving on to slide 10, for transparency matters, we have decided to record a massive detail of our production so you can appreciate in which way that COVID-19 has impacted our operating results. Moving on to slide 11, the decrease in this workforce You can see the decrease in revenues is partially explained by a decrease in volume sold, but in a greater magnitude to the current metal price. Moving on to slide 12, financial highlights. Total revenues during the first quarter were $114.5 million, which is 38% lower in comparison to the first quarter of 2019. This was primarily due to the decrease in volumes sold of gold and silver. EBITDA from our direct operations in the first quarter of 2020 was negative, $6.8 million, in comparison to $28.4 million in the first quarter of 2019. EBITDA including our affiliates in this first quarter was $30.6 million, which is 82% lower in comparison to the first quarter of 2019. And the net loss in this quarter was $75 million, compared to a net income of $27.3 million a year ago. This net loss considers a provision of $10.7 million related to COVID-19. CapEx has increased to $10 billion in the first quarter of 2020 compared to $8.5 billion in 2019. The free cash flow in this first quarter of 2020 was $22.3 billion, compared to a negative $38.2 million of free cash flow in the first quarter of 2019, a significant a remarkable number if we consider the current situation. Moving on to slide 13, here again we can see the capital V as a visual index for analyzing the results from our portfolio of operations. Moving on to slide 14 and 15, attributable production, please take into consideration that we suspended operations in the last 15 days of March This period represents 17% of the total effective days of blackwater. Total small attributable production in the third quarter of 2020 was 89,000 ounces, which is 21% lower than the field reported on the same quarter for the previous year. This increase was mainly explained by lower production in Tambo Mayo and Gena Koch. Silver attributable production for this quarter was 3.8 million ounces, which shows a decrease of 5% compared to a figure reported in the first quarter of 2019. This is mainly due to less production in Tambomai. In the first quarter of 2020, 12.9 thousand metric pounds of zinc were produced in nine year-old zinc production in the third quarter of 2019. In the case of lead, equity production was 7,000 metric tons in the third quarter of 2020, which is 15% lower in comparison to the third quarter of 2019. Finally, our upper attributable production for the first quarter of this year was 73.7 metric tons. These reductions may explain by a 22% decrease in production at Sarawak. Moving on to slide 16, the oil entertaining costs from our direct operations in the first quarter of the current year increased to 2,052 liter per ounce of coal, mainly due to lower gold ounce of salt in the period. It was caused by lower sales in Tambo Mario and Inventory. The costs applicable to sales in the first quarter of 2020 were as follows. For gold, 1,510 euro per ounce, which is 44% higher than a year ago. For silver, 10.56 euro per ounce, which is 38% higher than a year ago. For lead, 1,411 euro per metric ton, which is 6. percent greater than a year ago. For copper, $5,193 per metric ton, which is 12% lower in comparison to a year ago. Finally, in the cable sink, all supply to sales was $1,914 per metric ton, which is 10% lower than a year ago. Moving on to slide 17. The Vivo's own making program. As a result of the company's Vivo's own making program, we are gaining mining cost efficiency but partially offset lower migration outcome. As you can see, results for the third quarter were in line with budget, generating $7.4 million of additional EBITDA. This has included three gaps where you can see a downtrend in the operating expenses from 2020 to our software 2020 estimate considering no effects coming from COVID-19. Moving on to slide 18. Once again, you can see our capital B from our logo used for analyzing in more detail the updated information regarding our portfolio projects. Moving on to slide 19. Here we are presenting in one snapshot current development level for each one of our projects. Moving on to slide 20, San Gabriel project, the feasibility study and construction permit documentation by AUSENCO is in progress, and the prior consultation process might be affected by COVID-19 restrictions. Moving on to slide 21, the project We will continue this year with on-site column testing and power line right-of-path activities. Environmental impact assessments submission, social relations, and public assembly were delayed due to COVID-19 restrictions. Moving on to slide 22, the Rio Seco project. The piloting is postponed to 2020 due to COVID-19 restrictions. We expect to finish the accessibility study by the end of this year. Environmental impact assessment is expected to be approved in the first quarter of 2021. Just to record, through this project, we intend to unlock a significant value of Buenaventura's corporate portfolio. Moving on to slide 23, Santa Huatay's suicide project. We expect to reach the feasibility stage by 2021, preparing the environmental impact assessment process, initial documentation, and we are finishing and are tailing down the issue in January. Thank you for your attention, and we hand the call back to the operator to open the line for questions. Operator, please go ahead.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. At this time we will pause momentarily to assemble our roster.

Hello.

Carlos, your line is open on our end. Is your phone muted?

Yeah. No, it is not, but I can hear you now. Can you hear me?

Please go ahead with your question.

Great. Thank you very much, and good morning, everyone. I hope you and your families are doing well. So the first question has to do with the restart of the two phases, Victor. I see that you are prioritizing those mines with more significant production, but to what extent cost and or profitability also play a role in these two-stage strategies that you have put in place? Can you elaborate on that, as well as to what do you see as the cost, if any, of restarting the operations? I mean, the $12 million to $14 million fixed cost and care maintenance that you highlight, Is that going to temporarily increase, or are there any costs additional to those fixed costs just from the restarting point of view of the operations? And then you're talking about the 12 to 14 million tons, maybe, Leandro. The fixed cost, does it include COCS, SG&A, exploration expenses? Can you maybe drill down a little bit on the details as to what costs are included there? And then finally, with all the moving pieces, I know that it's very difficult to forecast the cash flows, but how do you see working capital in the second quarter, given the inventories that you have, that you accumulated during the quarter, at the end of the first quarter? Do you expect that as the economic activity normalizes in Peru, you're going to be able to shift those those inventories and generate cash out of working capital over working capital. Thank you very much and good luck.

Thank you, Carlos, for your question. The first one is related to the restart in two phases. Basically, this concept is based on the dimension of our operation and also in terms of profitability as well, and taking into account the logistic aspects. We have to transport a significant number of people, workers, to the site. So definitely it's a decision based on dimension of our assets, profitability, and as well as restrictions. In terms of cost, care and maintenance, probably Leandro could split down the numbers between the different mines, and definitely this number between $12 to $14. We are not including G&A. Leandro, please go ahead.

Yes, Carlos. How are you doing? Thank you for your question. The total cost, the fixed cost, this is an operational fixed cost. The subsidiaries, when I'm doing subsidiaries, the total of this amount is between $12.2 and $12.5 million. And G&A, it's an average of $4.5 million. So that will be the total cost for fixed cost for Buenaventura. In the case of Coinvolace, as you know, it's an affiliate, the fixed cost is $1.9 million monthly. In additional COVID costs related, in March, we have found, we have spent around between $500.5 million and $1 million of additional costs. We foresee, and these costs are all the instrumental, all the sanitary codes, all the transportation and additional for this COVID-19 problem. And we foresee this figure will be at least 50% more in April. With respect of the deliveries for For this second semester, we foresee that we can, we will be able to deliver all the production that was in our inventories in Tambo Mayo. And once we begin operations in Ogopampa, we will treat all the ore that we stopped because we work in Ocopampa with campaigns, 15 days campaign, and the campaign began in the last two weeks of the month, and this lockdown came just the 15th of March, and we could not process around 4,000 ounces of the month of Ocopampa.

All right, thank you. And just... Yeah, go ahead, please.

No, yeah, sorry. Just on Orcopampa, since that is part of phase two, starting on June 16, do you think that you will be able to treat the ores or the material from the first quarter that wasn't treated in March and in those two last weeks of June?

Yes, good question, Juan Carlos. Juan Carlos Ortiz will explain with more detail our strategy.

Hi, Carlos. Thank you for your question. Yes, we will be able to treat the ore that sits stockpiled in front of the mine during the incoming months. We have a spare capacity on the processing plant to do so. Okay.

Carlos, let me add that also we have to take into consideration that in the last 50 days, the company will gain a significant experience dealing with this situation, with this virus, because we maintain at least 12% of our total workforce in charge of these care and maintenance activities. So we are confident that we are following a right approach in order to restart our operations.

Thank you very much, everyone, and all the best with the ramp-up and particularly with the – just basically stay safe.

Thank you, Carlos.

Again, if you have a question, please press star then 1. The next question is from Thiago O'Haya with Goldman Sachs. Please go ahead.

Thanks, everyone. Thanks for taking the questions. My first question is regarding Cerro Verde. We saw that there was a big miss on the development of Cerro Verde. I know that you are not a controlling shareholder, but if you can clarify exactly what happened with the realized prices there that were 30% down quarter over quarter when the LME prices actually were much lower, just 4% down. So if you can discuss a little bit this mismatch. And second, if you can also provide some more information on why you are restarting the mines in two stages, why you are not starting everything at once. It's a logistics problem. It's a strategy given the current copper price or the metals prices. If you can provide a little bit more details on that, it would be interesting. Thank you.

Thank you, Tiago.

Your first question is regarding our EBITDA, our results. Definitely there are two components, two main components. One of them is volume. We said we need the opportunity to process 17% of the date available. And the second part is related, the second component of this lower EBITDA is related to the metal prices that we realized. Charlie, Leandro, you could... with more information regarding this metal price that we realized. And the second part is related to the process to start operation. Juan Carlos will explain with more detail that part. Yes, Tiago. Leandro, could you send it?

Yes, Tiago. Yes, sure. Tiago, the realized price in Cerro Verde has been affected because they choose not to sell all the material they have available and they have inventories on hold and they decide not to sell less than $5,000 per ton. So they have been affected by the current market and also they have also an effect They have not been realized sales.

Excuse me?

No, I understood the first answer. If you can provide the second one, I appreciate it.

Yeah, Juan Carlos, you could explain with more details. why we decided to use this strategy for two phases.

Okay, well, Thiago, this is basically for prioritizing the more important assets of our portfolio and also with all the constraints by the logistics side. According to the rules, the new sanitary rules set by the government, we need to bring people from their own hometown, not necessarily near the mines, could be some thousand kilometers from the mine. We need to bring that people to a medical station, take a rapid test to confirm if he's or not with COVID. If he's not with COVID, he can get into the truck and then we need to bring that person one way straight to the mine. So you can imagine bringing thousand people for each operation will take time. We need to go in groups of 60 to 70 people per group. That's the capacity of the a health facility to attend this test, and in order to bring it up to all the people, it will take a lot of logistical details. That's the reason we put that in phases, in order to comply with the more important ones in the second half of May, and the other ones in the first half of June.

Okay, thank you. You're welcome.

The next question is from Tanya Yakuskonek with Scotiabank. Please go ahead.

Yes, good morning, everybody. Thank you very much for the call. Just wondering, in terms of the ramp-up of the operations for both Phase 1 and Phase 2, maybe you can give us a little idea of how long it's going to take you to ramp up to full capacity on all of these assets.

Okay. Thank you, Tanya. Yeah, definitely we have a plan to obtain the full capacity around June. We can split this information. Juan Carlos, probably you could explain the phase one with more details regarding Colmolache, Campo Mayo. We have two advanced units and also the program for El Brocal and Fort One. Please, go ahead.

Perfect. The ramp-up will be first, but it will vary between two weeks to four weeks, depending on each mine. In Coimbatore, we have all the camps already set, and we believe it's going to be between the two weeks time period. The same for Tambo Magno, because they have an isolated camp. It will be easier, and it will take a little bit more time for the towns or the mines that are nearby population. because we need to be segregated from the population. We need to be working in a closed environment. So we need to change our setup, how we have all the people living around our footprint. We need to bring them into a new closed facility or closed area. And sometimes it takes time to build these temporary facilities for the workers. So in short terms, two weeks. in the Coimbatore, Tambo Mayo mines are one of the most important ones for us, and up to four weeks in the other mines.

Let me put it in a different way, Tanya. Right now, in Tambo Mayo, we have achieved 100% of our main plate capacity right now in Tambo Mayo. In Uchachua, we have achieved today 75%, in the case of Coimbatore, Okay. Okay. And then what about in Phase 2? Yeah, in Phase 2, it's... Ocopampa, Julcani, and La Sanja. Juan Carlos, also, you could start explaining the situation that's surrounding these units and the starting.

Okay. In La Sanja, it's also in a period of two weeks because it has an enclosed camp already built, so it's only bringing the people on board. And in the case of Julcani and Ocopampa, more in the range of three to four weeks because we need to do some modification. But it doesn't mean that we are starting or we will have zero production from that point. It means that we will start by June 16 with 50%, 60%, and we will ramp up to 100% in the next three weeks for Hulkania and Arco Pampa.

Okay. So by the end of June or thereabouts, like July 1st or so, we should be at design capacity.

Yes, that's correct.

Okay. And can I ask just the other logistics of, you know, transportation of your concentrate from the mine site to the port? Is that all open? Or are we having issue at the ports in terms of shipping out the concentrate or, you know, Dore or whatever that you're doing? Is that all open?

Yeah, it's a good point, Danja. As I said, during the 60 days of quarantine or lockdown. We maintain care and maintenance. We maintain special activities or critical activities. And we were allowed to transport our concentrates and also our dollars. So this is a significant achievement. During this period, we were reducing our inventories on site. So we don't have any issue. We have very confident that we could maintain this flow of materials.

Okay, so the ports are open, ready for transportation onto, you know, your smelters around the world?

Yes. Okay. It was maintained open during this pandemic.

Okay. Okay, that's good. Thank you.

You're welcome. Thank you.

Once again, if you have a question, please press star then 1. Please stand by as we poll for questions. Showing no further questions, this concludes our question and answer session. I would now like to turn the conference back over to Mr. Victor Gobitz for his closing remarks.

Thank you. Thank you, everyone, again for joining our conference call this morning. Final remarks, let me explain the following. All necessary measures and protocols are being considered to take care of the health of all our workers, contractors, and neighboring communities at all levels. Buenaventura has restarted on May the 60th operations through a two-phase approach prioritizing those mines with the most significant production. In phase one, Tambomayo, Echecachua, El Brocal, and Colmolachie. And in phase two, starting in June, the 60th, includes restarted operations in Tocopampa, Hultani, and La Samba. It's important to note that due to the implementation of the VIVO donating program, it has reduced our operational fixed costs significantly, and that has allowed us to cope in this unprecedented period. The level of monthly fixed costs to maintain care and maintenance in all our mining applications was in the order of $12 to $14 million. We have a robust cash position, and in addition, we managed to refinance a significant portion of our debt, and we are preparing to do the same with the portion corresponding to the hydroelectric plant once. Regarding our 2020 guidance, even though our experience in the last 60 days dealing with this unprecedented situation, We prefer to work carefully to define the new guidance 2020 at the end of June. Finally, the current quality of our assets and our financial position will allow us to overcome these sanitary crises and maintain our long-term business plan. Before we finish today's conference call, thank you very much for making the time to join us today. I hope you are all safe and practice all the recommendations given by the government. I look forward to seeing you in person as soon as possible. Thank you again and have a wonderful day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.