Compañía de Minas Buenaventura

Good day, ladies and gentlemen. Welcome to the Compania de Minas Buenaventura second 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 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 Gorvitz, 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 Hermosa, 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 risks and uncertainties that could cause our actual resource to differ materially from these statements. Any such statements should be considered in conjunction with questionary statements within our EARN 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 two, our forward-looking assessments 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 an interim result 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. Please note that in the interest of safety, we are again utilizing a more virtual approach in exercising social distances while 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 Govitz. 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 second quarter of 2020 from Compañia de Mina 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 number two. Please consider the disclosure related to the COVID-19 pandemic. Moving on to slide three, 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 coronavirus. As part of the Buenaventura two-phase plan on May the 15th Sabomayo, Uchachua, El Brocal, and Colmo Lache began the process to restart, to resume operations. The conference began on June the 15th, and at 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 operations 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 was $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 Tambo Mayo's mine in the order of $30 million. In this second quarter, adjusted dividend, including associated companies, reached $86.1 million, compared to $137.3 million in the second quarter of 2019. In this second quarter of 2020, capital 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 effects of COVID-19 on a consolidated basis. The company's de-bottlenecking program continued to progress during the second quarter of this year, but the risk reduced to 11. The program's 2020 focused on the companies Tambomayo, Uchuchagua, and El Brocán Mines, with worth to mention that fixed cost reduction in our production cost was a key component to tackle the period with only care and maintenance activities. Manaventura, in the second quarter, its cash position reached $196 million. Moving on to slide number four, we are showing our stability map where we use, as usual, capital B. from the logo of Bonaventura as a visual index for the following slides. In the coming slides, we shall discuss financial results of the company. Moving on to slide five and six. Here we can, for transparency matter, we have decided to report the monthly details of our production so you can appreciate in which way that COVID-19 has impacted our operating results. this opportunity, which has arranged the mine according to the phase in which we restarted operations. Moving on to slide seven, 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 volume sold of gold and silver. In the first half of the year, total revenues decreased 47% compared to the first half of 2019. Dividends from our direct operations in the second quarter of 2020 were $26.5 million in comparison to $47.1 million in the second quarter of 2019. Dividends from direct operations for the sixth month of 2020 decreased to $19.7 million in comparison to $74.8 million during the first six 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 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, the net loss was $100.1 million compared to a positive outcome of $37 million in 2019. The CAPEX has decreased to $11.4 million in the second quarter of 2020 compared to $27.8 million in 2019. In the first six months of the year, CAPEX totaled $21.5 million a 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 $34.10 million of free cash flow in the second quarter of 2019. For the first half of the year, the free cash flow was negative $1.9 million compared to negative $3.5 million in the first half of 2019. Moving on to slide eight, here again, we can see the capital V as a visual index for analyzing the results of our portfolio of operations. Moving on to slide nine and 10, we 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 on the home 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. DCPs were mainly explained for lower production in Tambo Mayo and Yana Koch. 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. In the first half of 2020, silver attributable production was 5.8 million ounces, 69% lower than the first semester of 2019. This is mainly due to less production in YouTube charcoal and tambourine. In the second quarter of 2020, 4,000 metric tons of zinc were produced, a 75% decrease compared to the second quarter of 2019. In the third semester of the year, zinc production decreased to 16.9 thousand metric tons. 42% lower than the same period in 2019. This is mainly due to the 72% decrease in production of zinc in our Utilchacoa mine. In the case of lead, equity production was 3.3 thousand 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 10.3 thousand metric tons in comparison to 21.3 thousand metric tons in 2019. Finally, our copper attributable production for the second quarter of the year was 11.7 thousand metric tons. During the second half of 2020, copper attributable production was 41.4 thousand metric tons a 26% decrease compared to the same period of 2019. This reduction is mainly explained by a 24% decrease in production at zero-waste. Moving on to slide 11, the all-in sustaining costs for our diet operations in the first semester of the current year increased to US$1,815 ounce of gold, mainly due to lower gold ounces sold in the period. in the first semester of training were as follows. For gold, 1,125 USD per ounce, which is 14% higher than a year ago. For silver, 15.44 USD per ounce, which is 40% higher than a year ago. For red, 1,290 USD per metric ton, which is 8% higher than a year ago. greater than a year ago. And for copper, 5,252 US dollars per metric ton, which is 10% lower in comparison to a year ago. Finally, in the case of zinc, the cost applied to sales was 1,765 US dollars per metric ton, which is 20% lower than a year ago. Moving on to slide 12, we can analyze the DeWaterMaking program. As a result of the company's DeWaterMaking program, we are gaining mining cost efficiency that partially offset lower production outcome. You can see results for the second quarter were positive despite the current circumstances, generating $4.4 million of additional EBITDA. Additionally, the company continues to enhance current mining plan in order to focus on high-grade areas while maintaining a 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 D from our logo used for analyzing in more detail the updated information regarding our portfolio of projects. Moving on to slide 14, the pipeline of projects updated. Here we are presenting one snapshot of current development level for each one of our projects. Moving on to the slide 15, we can analyze briefly the San Gabriel project. The processing plan design is already finished. The feasibility study is currently at about 30% progress. The final layout is ready for the technical-communical report, which is under evaluation. Moving on to slide 16, Trapeze Project. We will continue this year with on-site column testing and power line write-off class 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, the chemical plant, to remove the arsenic content of copper concentrate. We have expected to finish the feasibility study by the end of the year. The environmental impact assessment is expected to be approved in the first quarter of 2021. And as you know, through this project, we expect to intend to unlock a significant value of our copper portfolio. Moving on to slide 18, the 10-tower-tied sulfide toric. We expect to reach the feasibility stage by 2021. We are preparing 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 toric. With that, thank you for your attention. Call back to the operator to open the line for questions.

Operator, please go ahead. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time you would like to withdraw your question, please press star, then 2. Our first question today will come from Tiago Ojea, with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning, everyone. First of all, Victor, I'd like to thank you for all the support throughout this period. Wish you best of luck on the future ventures, and also, Leandro, also best wishes on the new position. 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 cost, do you have any guidance? I know that it's difficult that you are still ramping up the production, but any rough guidance here would support this. And if you can provide also any indication on terms of capital locations, for this year and next year, CAPEX would be great. Thank you. Okay, thank you, Thiago. Anything for your words. Yeah, regarding the cost, the production cost, as I said, through the Liberal Networking Program, we were able to reduce significantly the fixed cost of the production cost, which was significantly important to deal with this gain and maintenance period. 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. Carlos, please. Thank you, Edgar. Thank you, Edgar, for the question. Regarding the cost, as mentioned by Victor, we have an advantage in this quarter by the that helped us to reduce costs. We have recorded some gold for the employees at a basically low cost. In the last part of the quarter, we can feed fresh oil into the pad. That's a mixed result in this quarter, in the second quarter of the year, of the recovery of feeding points from the pad as well as partial feeding of fresh oil into the pad. This is a mixed result in this second quarter. It's the first quarter in which we have the benefits of the product for headcount reduction and concentration of operations. It helps a lot to increase the production, avoid degrade, and reduce costs. This is going to be a sustainable operation in the next quarter for Cotampa. The benefits of rapidly reducing the footprint of centralization of the underground operation also helps us to resume operations with very few people and also helps us to reduce the cost in the second quarter. That will be increasing the development and exploration in the third and fourth quarter and probably get back into the budget operating costs for condominium and for the other operations as well. Thank you, Juan Carlos. Teo and Ayamno, if you recall all your questions. Unfortunately, the sound from Juan was not very good. Just also, Pampa, if you can explain, if this is sustainable, and I understand the reduction of 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 hear clearly your question, Arturo. Sorry. You said regarding our project, regarding our topics? No, no. Sorry. Specifically on the Oracle Pampa, there was a reduction personnel that supported the cost reductions. but also it seems there was some high grading, right? So I'd like to understand how sustainable is, you know, the cost that you presented on Orcopampa for the next quarter. Okay, right. Your question is regarding Orcopampa, yeah. Yeah, definitely we reduced significantly our shed 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, add 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 said, we are trying to extend the visibility of Orcopampa. Right now, we have more information regarding this year and the coming year, 2021. But obviously, through this exploration program that is part of also this presentation, you can see that we maintain our effort to extend the life of mine of Orcopampa. Okay, great. Thank you. Thank you again.

You're welcome, Tiago. And the next question will come from Carlos Alba with Morgan Stanley. Please go ahead.

Thank you very much. I'll second Tiago in thanking you, Victor, and wishing you good luck in the new opportunity. And, Leandro, looking forward to continue working with you as we have done in the last few years. So my questions on the 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 it had put in place at the beginning of the year? If you could elaborate more broadly, that would 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 YonPak, 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 life 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? Thank you very much.

Thank you, Carlos, for your words. You have two main components. Your question, 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 these more than 130 days, We gain 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 protocols. And definitely, during this month, next month, in August, we'll be able to improve significantly this procedure. And obviously, how to offset these high-grading mining plants? Obviously, through our exploration program. And the exploration program for these underground mines, Okopampa, Tambomayo, and Kipchakwa, is a key component of this strategy. We have defined the contractors for these activities and in Moors as well. We are starting to increase our activities in these specific topics. Probably at the end we can, with the help of Alejandro, we can explain with more details the significant knowledge that we have gained dealing with this coronavirus. but I call over to Raul to talk about San Gabriel, JunPAC, and Yanacocha Fitch. Raul, please, go ahead. Hello, everybody.

Well, in case of San Gabriel, we should finish this meeting.

This year, by the end of the year, we are pending on the prior consultation. That's something that the government does. And we hope that by the end of the year, we'll have all of this done. And we will initiate the permit for construction. That will take us, if we get the permits on time, that could be by mid-2021. We have the construction and probably starting on 2023, the production. That will be in San Gabriel. Junipac has been incorporated to Ixchuk Chacoa. Our project is to integrate Ixchuk Chacoa and Junipac with a ramp coming from Junipac and a tunnel coming from the lower levels of . In the case of , yes, Newman is working on the sulfide project, and the decision should be made by mid-next year. Tell me if I have answered all the questions, Carlos.

Yes, just one question on Yanacocha. So if the plan goes ahead and it's a $2 billion investment, how would the financing of that project take place? Presumably part of that would be done with 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 the Anacocha are required to inject capital into the project, into their subsidiary?

No, Carlos, we have not discussed this yet. And you can imagine it's essentially for mid-next year.

So probably next month we will discuss. But up to now, we have nothing to report. Thank you very much. But, Carlos, generally speaking, you have in cash, in Yanacocha, you have in cash $1 billion, $1 million. And the investment is $2 billion for a period of almost three years. So it's an open discussion, obviously. If you don't mind, probably changing the subject, which is significantly important right now, Alejandro Morza could explain with more details the sanitary standards that we have in place and fine-tune in order to assure our upcoming outcome results. Thank you. Yes, thank you, Victor. Thank you. Yes, as Victor mentioned, we as a sector, as mining sector, we had to adopt the higher standards, the higher sanitary standards across all industries in Peru. And for Buenaventura 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 care and maintenance on our operations. And we were able to put in place a specific protocol to test all of our workers before going on board 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 most security into avoiding having people with COVID-19 going into our operations. Now, as long as the pandemic grows in Peru, We have to review our protocols and also having the fact that now the use of what they are called the PRC or the molecular test 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 cells. So in general, 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 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 backups. into having all of our workers tested on a faster way than we had before. Thank you. Thank you, Alex.

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

Hi, guys. Me too. I adhere to the words from Tiago and Carlos, and thank you, Victor, and wish you the best of luck for Leandro too. 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 become reserves until they are margin zero for the new prices of evaluation, or all of them have at least, for example, $100 per ounce margin? That would be number one. Also, could you perhaps give some color on the amount in Tambomayo, Urcopampa and La Sanja, the mines that are running out of reserves, how much is there right on the border to come in to reserves if a higher price to evaluate reserves could come in? That's my first question. I'll post another one afterwards.

Thank you for your work. Let me try to summarize. Your two questions are related to all reserves and all resources and the impact of the long-term metal prices, specifically in the case of Tambo Mayo, Porco Pampa, and Tacua. I don't know, Juan Carlos, if you could a little bit explain the case. Definitely, through the liberal-making program, we have reduced the cost. We have reduced the cutoff. And 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 Tambo Mayo, the different areas in the deepest part of Tambo Mayo, surrounding Tambo Mayo, the different areas in Morpopampa, and as well the different areas of exploration in Chapuchaco. Please. Sure, Victor. Thank you for the question, Diego. First of all, we use always long-term prices for the definition of resource and reserves. Any spot increase in prices like copper, gold, or silver usually doesn't have an impact on the long-term evaluation of the reserves. We have an updating and 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 each mine. But in the short term, from the work that we have been doing in the last two years, we already put that into consideration for the setup of the cutoff for each mine. what fraction of the resources can become reserves. So the reduction in operating costs in Otopan, Bain, Tambomayo, and Chukchakwa has already been taken into consideration in last year's reserves and resources dimension. The new work that we are doing for exploration, particularly in Tambomayo mine, is focusing now in the bottom part of the mine. The veins are keep going down, so we are now focus on the exploration at the bottom part of the mine where we are finding the extension of a known way and we are ramping down to reach that area along with a heavy looming campaign at the bottom. It's the same hole, it's the same structures, so we keep going down in the eastern part of the mine. Probably by the end of this year we will have some fraction of these exploration results incorporated into our resources and our surface dimensions. The same goes for all of the mines, like Ocopampa, with the exploration in two sectors, in the north and in the south, as part of the known footprint of the operation, and also in the Chukchakwa mine. We are receiving now this exploration, and particularly looking into the eastern side of the mine, the Chukchakwa mine, that is a gap between the Chukchakwa and the GIMPAC operation. So we are putting a lot of effort in the eastern side of Chacoa and only to fill the gap between Chacoa and GIMPAC. That's the exploration that we are putting focus this year and probably next year and in part of our satellite operation in the Chacoa 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 is needed, we will apply that for the definition of cut-off and value of the ore by the end of this year.

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

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

Yeah, 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 Tambor Mayo 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 cause and what was the consequence? The centralization of the mines or the not finding ore reserves? What provoked the other one? All right.

That's all right. Okay. Go ahead. Go ahead. Yes. In the case of Tambumayo, we have a substantial reduction in the operating cost. 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 only marginal load in the past, now become economic load. So that has incremented into the reserves, passing from just resources into reserves, just by reducing the operating costs. The exploration, it's also new oil bringing into the resource. And of course, they have over $100 in value per ton, which become reserves. So the two are working in parallel in Tambo Miner. You know, for Pampa, it has been reducing the cost. We have that idea working on this process. Maybe in that process, the cost went temporarily high, and then we're putting it back to the average cost that we have in the past, and we're putting it 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 of the operation. So the cost went back in the order of $300 in the past, went up, and then they're coming back to around $300 as well, and we're planning to go below that number. And again, we will need more oil to come in reserve by this cost reduction.

Okay, but going for the reason, was decentralization a consequence or the reason for the reduction or for the increase in price?

Okay, well, in the transition period, we have a substantial reduction in headcount, so we need to assume the severance payment of the people that is reduced in our operation so that you can charge to the cost temporary basis you know it's a one-shot expense that you need to include to reduce the number of people working in the operation and that was a part of the centralization so now you have a higher efficiency you reduce the headcount you need to pay for the severance payment for for this make-off and in that temporary time it got the impact Now we're coming back. We are more stable now in order of having the 800 people working in the mine. And now we are stabilizing. We have some stable operations in this headcount and in a fewer number of locations underground. So higher productivity, the same potential in lower headcount in these people means lower cost. So it's a process of reducing cost, simple expenses. like and they, once you finish that one off, you start getting a more stable cost and more stable production.

Okay, and just something very quick. The concept, when you reduce your cutoff rate that you are evaluating your reserves, should your grade come down? because as you are reducing your cost, you are putting less efficient ore into your reserves, and is it necessarily that less efficient ore with less grade, or maybe it's just because it's far away or deep down?

Yeah, it's as you say. If we review the cut-off, in my example, from $150 down to $100, you're incorporating all in that range to your reserve. So you have the past reserve above $150, I think, an average of $200. Now you have a blend, a mix of $200 plus the fraction that you add from $100 to $150. So the new average is a little bit lower. But even a single ton of EG-medicine value, you're incorporating more tons into your reserve, and each one of these are generated value. It's smaller than the other, but still generated value for the operation.

Okay. Great, guys. Thanks very much. Very clear.

Okay. You're welcome.

Okay. The next question will come from Tanya Jakuskaunek with Scotiabank. Please go ahead.

Good morning, everyone. Can you hear me?

Yes.

Okay. Victor, I just wanted to congratulate you and wish you good luck in your new role, and you'll be missed. And Leandro, congratulations on your role and look forward to working with you. So I have a couple of questions, if I could. The first one I wanted to talk about is on your cost, and 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 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 cost went down even more. So I'm just trying to understand what in there have I missed?

Thank you, Tania. For Leandro, you could explain that concept, the reduction of cost of trade. Because of the lockdown, as you know, many of our operations units were stopped in closed production. So all the additional costs 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 coming from Brocal, and 13.5, around 13.5, yes, coming from the operations of Buenaventura.

Yes, but that $165 million plus $26 million is still well below that $165 million to $205 million.

Yeah, but... Remember that we don't have all the work and all the force, all the expenses normally when the operations are in a normal standard. Let me say, in other words, all the costs related to the COVID-19 and all the costs related to the maintenance of all our mines are not included. No, I understand that.

I understand that that $26 million gets added back to the $66 million, but that is well below the $155 million to $205 million, despite that change. I'm just wondering what cut-out contractors, so maybe that's also a cost. What other costs were maybe not included in there or cut out or eliminated? Maybe your workforce is not coming back at the same number of people. I'm not sure.

Sorry. Our workforce is not 100% in our unit. In this deal, we were not 100% working. Yes. Yeah, let me say 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. It's an outsourcing activity. In this part, we will be able to reduce significantly during care and maintenance periods. OK.

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? We're still having 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 there's a lot of plans that you'll be able to share with us.

Yeah. Juan Carlos, I don't know if you would like to answer that part. Yes. Well, Tania, we are working on that right now. We are looking at opportunities that we have, particularly in the open peaks. that obviously has a boundary of low grade around the reserve shell, the reserve pit, and we are on the design right now. We're looking not only for the availability of all in the walls of the open pits, but also for all the ancillary infrastructure that we need to support that reserve. Let's say a waste dump, a room on the leaching pad, et cetera. It's something that we are looking after. It's something that probably we need to have, we would 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 increasing price.

Okay. I can ask just one last question. I'm trying to get an idea on your capital allocation. So my understanding is, you know, any, you know, cash flow that's generated, obviously, you have some that goes into your business. So you're sustaining capital and expiration so that you can, you know, these reserves or maintain reserves. Maybe you can talk about how you allocate any additional capital beyond that. Dividends obviously are one, but you know, maybe, you know, 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, you know, sites into how you're going to allocate between dividends and development and other opportunities.

Yeah. Thank you, Tanya. Let me explain in a very broad perspective, and certainly Leandro could explain also that with more details. In terms of capital allocation, definitely when we resume at full capacity and according to these metal prices environment, we will generate, in terms of free cash flow from our operations, more than $150 million. That could be a very... very comfortable position in order to maintain our sustaining CAPEX. Obviously, also, we expect a positive outcome coming from Cerro Verde, which is expressed also in terms of dividends. And obviously, we have to analyze how to prioritize our project. 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 is the Nacocha Sulphide. Obviously, it's an open discussion. In that regard, also, we are working in order to extend the life of our mine. And also, we are extending the maturity of our total depth. And in that regard, we are able to cope with all these problems. 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 objectives of this year was to preserve the cash. In that order of ideas, our refinancing of our syndicated debt that was in April the 2nd, help for that objective. So this catch will preserve it for us, for our internal development of our project, our exploration in our mines, and the new coming project we have in our pipeline. All the dividends that we can receive from our affiliates also come into a big bag for our organic development, primarily. As you know, also one of the decisions we made was to cut the dividends to for this year to spend to our shareholder in order also to preserve the cash. But all the cash is viewed as a back for the development of our organic and our explorations in our mines.

Okay, so with this suspension of the dividend, what will it take for you to reinstate that dividend? Is it that all of your minds go back to operating like you are forecasting at the end of and then we are going to be profitable again? Would that be enough to reinstate or what do you need to see to reinstate that dividend?

Yeah, well, this is a temporary suspension. We expect to We expect sustaining prices. We expect improvements in our short-term improvements in our operation. We will be evaluating the business to pay to our shareholders in the following months whenever Typical situation, finish. Okay.

Okay, thank you very much. Good luck, everybody.

Thank you.

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 is 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 fully implemented an alliance with a private lab in order to use PCR tests, a simple tool to minimize virus's 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 plans for 2020. The third one is the de-bottlenecking program implemented has allowed us to reduce production costs. Specifically, it fixed those components, which was significantly relevant to tackle that period of lockdown. And the fourth, in that sense, we are confident to obtain a positive peak 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, at a worldwide perspective, that a vaccine for COVID-19 will be reliable. And finally, it's a more personal statement. After almost four years living in the 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, who carefully explained 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 on site. Without them, we will not be able to deliver positive outcomes. And regarding Buenaventura's coming 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 Honorentuda, 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 guidance production, normal production, and even to increase that production with our projects. And when we talk about our projects, we are talking about the important development at San Gabriel that is very, very important for us. You have to bear in mind that we have a legacy in Buenaventura and that 67 years of history We are a team, a team of beings that work very hard every single day. Let me show you that in this 130 Sunday, we have been meeting every single day at 7.30 in the morning to follow the events of the help of our people, following what we could do in terms of operations. Finally, the government of Peru made the mistake of closing the operations, and that has had a negative impact in our statement, that 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 responsibilities, and it's fair enough. And we desire that he makes very well for him, 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 Victor 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, thank you. Thank you, Roque and Victor. First of all, I am deeply honored and humbled that The board has selected me to succeed Victor as Buenaventura CEO. Throughout Buenaventura's 67 years history, we have focused on higher standards of excellence, and I will work tirelessly to build on this strong foundation. Our stakeholders should expect continuity and consistency growing forward, continue improving our current operations, our exciting pipeline of projects, and always 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. Thank you very much, and have an excellent day, everyone. With that, we are finishing our conference call. Thank you to all for attending this meeting. Have a wonderful and safe day.

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