Compañía de Minas Buenaventura

Good day, ladies and gentlemen, and welcome to the Compania de Minas Buenaventura third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode, and please note that this event is being recorded. I would now like to introduce your host for today's call, Mr. Gabriel Salas, Investor Relations. Mr. Salas, please be in.

Good morning, everyone, and thank you for joining us today to discuss our third quarter 2022 results. Today's discussion will be led by Mr. Leandro Garcia, Chief Executive Officer. Also joining our call today and available for your questions are Mr. Daniel Dominguez, Chief Financial Officer, Mr. Juan Carlos Ortiz, Vice President of Operations, Mr. Alejandro Hermosa, Vice President of Sustainability, Mr. Renzo Maher, Projects Manager, Mr. Juan Carlos Alazar, Geology and Explorations Manager, Mr. Roque Benavides, Chairman, and Mr. Raul Benavides, Director. Before I hand our call over, let me first touch on a few items. On Bonaventura's website, you will find our press release that was posted yesterday after market closed. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions. While management believes that its assumptions, expectations, and projections are reasonable in the view of the currently available information, your caution not to place a new reliance on these forward-looking statements. I encourage you to read the full disclosure concerning forward-looking statements within the press release we filed on October 27, 2022. Let me now turn the call to Mr. Orlando Garcia.

Thank you, Gabriel. Good morning to all, and thank you again for attending to this conference. We are pleased to present the results of World Corporate 2022 from Compania de Minas Gerais. As always, 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 the slide. Moving on to slide three, the highlights of this quarter were as follows. Third quarter 2022 EBITDA from direct operations was US$22.2 million compared with US$39.5 million reported in the third quarter 2021. Third quarter 2022 operating cash flow reached US$16.1 million compared minus $464.3 million in the third quarter of 2021. The third quarter 2021 operating cash flow figures include U.S. dollars $544.2 million payment to Sunac, the Peruvian tax authority. Third quarter 2022 net loss was $19.8 million compared to a 91.9 million net loss for the same period in 2021. Third quarter 2022 Exploration Act operating units increased to $20.7 million compared to U.S. dollars $17.1 million in the third quarter 2021. This increase is aligned with the company's review strategy to increase its focus on exploration in order to extend our life of mine. The results of the exploration campaign in June part are very encouraging. We are outlining a high silver grade deposit and we believe there is a potential resource that will allow us to at least double the amount of silver ounces we have reported up to now. Buenaventura's cash position reached $288 million as of September 30, 2022. Medbet decreased to $448.1 million with an average maturity of 3.6 years. Third quarter 2022 capital expenditures were $37.2 million compared to $23.9 million for the same period in 2021. Third quarter 2022 CAPEX includes $5.2 million related to the San Gabriel project and $7.3 million related to the June park project. activities at San Gabriel are gradually and progressively resuming. Bonaventura has therefore updated its capital guidance for San Gabriel and now expects this to reach approximately $65 million by the year end 2020. Moving on to slide number four, our ESG corporate strategy. we will find some key indicators regarding our ESG strategy. We have completed our carbon footprint measurement in all units, as we announced in last quarter. With these two, we know now how much CO2 we generate, and our next step is to develop a plan to reduce these emissions. The full report can be found in our website. Moving on to slide five, our financial highlights. Total revenues during the third quarter were $195 million, which is 11% lower in comparison to the third quarter of 2021. In the nine months of the year, total revenues decreased to $578 million compared to $647 million during the nine months of 2021. As we mentioned before, our EBITDA from direct operations for the third quarter 2022 was $22 million in comparison to $39 million during the third quarter of 2021. EBITDA from direct operations for the nine months of 2022 decreased to $96 million in comparison to $145 million during the first nine months of 2021. These few years exclude the Anacocha transaction effect. Also, our net loss for the third quarter of 2022 was $22 million in comparison to a net loss of $94 million during the same period in 2021. Net income for the first nine months of the year reached $534 million. compared to a net loss of $41 million for the same period in 2021. The increase is explained by the Yanacocha transaction. The capex increased to $37 million in the third quarter of 2022 compared to the $24 million in the third quarter of 2021. The first nine months of the year, capex total $93 million, a 60% increase in comparison to the first nine months of 2021. Moving on to slide six and seven, our attributable production. Total gold attributable production in the third quarter of 2022 was 56,000 ounces, which is 2% higher than the figure reported for the same quarter of the previous year. This increase is mainly explained by the stable production from the Pucara vein and at Orcopanta, but partially offset by lower production at Tainilachi. In the first nine months of 2022, total gold attributable production was 153,000 ounces, 10% higher than the same period in 2021. Silver attributable production for this quarter was 1.7 million ounces, which shows a decrease of 50% compared to the figure reported in the third quarter of 2021. During the first nine months of 2022, silver attributable production was 5 million ounces, 49% lower than the first nine months of 2021. This decrease was mainly explained primarily due to the suspension of Uchichagua's operations as we previously announced, and a change of the mine plan sequence at El Brocal. In the third quarter of 2022, 7,000 metric tons of zinc were produced, a decrease compared to the third quarter in 2021. In the first nine months of the year, zinc production reached metric tons, 30 percent lower than the same period in 2021. In the case of lead, equity production was around 4,000 metric tons in the third quarter of 2022, which is 28 percent lower in comparison to the third quarter of 2021. In the nine months of 2022, lead production was approximately 12,000 metric tons. three to four constant metric tons, a 13% increase compared to the same period of 2021. Moving on to slide eight, all-in sustaining costs and costs applicable to sales. The all-in sustaining costs from our direct operations in the first nine months of 2022 decreased by 12% to US$1,424 per ounce of gold. The costs applicable to sales for the first nine months of 2022 were as follows. For gold, US$1,126 per ounce, which is 8% lower than a year ago. For silver, 17.65 US dollars per ounce, which is 10% lower than a year ago. For lead, 1,282 US dollars per metric ton, which is 12% lower than a year ago. For copper, 6,675 US dollars per metric ton, which is 6% higher in comparison to a year ago. And finally, in the case of zinc, the cost applicable to sales was $3,037 per metric ton, which is 43% higher than a year ago. Moving on to slide 9, our pipeline of projects. This is an update. Here, we are presenting in one snapshot the current development level for each one of our projects. Moving on to slide 10, San Gabriel. Engineering and procurement work offsite activities progress as planned by significant 45% and 77% respectively relative to total target for the project completion. This thereby reduces overall project uncertainty and potentially enables the recovery of a portion of time lost related to this project relative to its targeted completion. We estimate to have commercial production from San Gabriel during the third quarter of 2015. Moving on to slide 11, Trabiche. We have finished the first set of one-site polymetallurgical testing. The second set of column testing will aim to improving copper recovery and controlling acid consumption. Environmental impact assessment and social engagement view work progressing as planned. Thank you for your attention. I will hand the call back to the operator to open the line for questions. Operator, please go ahead.

Thank you. And we will now begin the question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. Please note that you may need to pick up the handset before pressing the keys. To withdraw your question, please press star then 2. And we will pause momentarily for the first question. And our first question today will come from Tanya Jakuznik with Scotiabank. Please go ahead.

Good morning, everybody, and thank you so much for taking my questions. I have three questions I'd like to ask. The first one is just on San Gabriel. Can you give us an update on where we are, like in terms of actually physically starting construction? Like where are we on the social issues? that were occurring? Have those been resolved? And when do we actually start breaking ground? That's my first question.

Thank you. Do you want to continue with the second and the third and then we answer?

Okay, sure. And then my second question is that we have been hearing from other companies easing of inflation pressures in the cost There's been a relief in fuel price. There's been a relief in the supply constraints. Some are seeing lower cyanide pricing in consumable steel. I'm interested in what you are seeing in Peru in terms of easing, if any, of these inflation pressures. And then the last one, which is for Daniel, which is the easiest one, is on CapEx. Should we still be modeling for 2022, $90 to $100 million in sustaining, and now only $65 million for San Gabriel? Previously, it was $100 to $105. So those are my three questions.

Thank you very much, Tania. Regardless, you know, Rensselaer-Macher, our project manager, and he will give you a comment about our status in San Gabriel. And then Tania will help us with the answers of the second, number two and three.

Great. Thank you.

Sure. Hi, Tania. So when we started this issue with the project, we were kind of starting the the pre-construction work. Currently, I would say that we're at 1% of construction. And we have resumed our activities after finding a common ground with most of the outside communities and the authorities. So on-site work has already begun. And we are already training the people from the nearby communities so they can help us move this forward at a faster pace. So far, we are the soft start process.

Okay, so as I understood it, you've started construction right now. You're only 1% complete, but you've started and you've resolved the issues with the communities around that wasn't your communities, the further communities. You've resolved all of that and access to site is fine and you're starting on that.

Yes. So there's already work going on in this on-site.

Can I ask, just remind me again of the critical milestones from today to Q1 2025. What are the critical milestones for me to look at for your construction of this site?

Towards the second half of of next year, we should start our concrete architectural structural job work. And then late second quarter 2025, we should be producing our first ballpark. This will be revised probably another quarter. We have been working with no stop on engineering and procurement, so we can recover some of this delay. So probably another quarter.

So next year, second half of next year, you're going to start your concrete and structural work. So now you're moving.

Toward the second half, we're going to have our final camp, and that's when we can bring most of the people to start construction, full construction, concrete construction. Between now and then, earthworks.

Oh, earthworks. Okay. Okay. And then I think I understood that we might have a bit of a slippage in the time schedule from Q1-25 to Q2 because of this little bit of delay. Did I hear that right? Yes. Okay. Okay. No, I appreciate that. And then maybe, Daniel, if I could, just on the inflationary pressures, where are you seeing easing, if any, and then just on the CapEx?

Yes, Tanya, good morning.

Hello, I can't hear anything.

Anyone there? Yes, Tanya, this is Alejandro Hermosa. I just wanted to add up something on the social issues of San Gabriel. Yes, for sure. Yes, what we have done after the social project we have We have approached these further located communities and villages. We've been successful in approaching them and establishing working spaces for them, basically to reinforce information and projects. We have opened very positive spaces with most of them, and we are confident we are strengthening the whole social climate And that's why Renzo was explaining that with that confidence, we have resumed many of the field activities oriented to go into the ramp-up construction. So this is an ongoing process, and we feel very confident on what we have accomplished so far, and we will continue on this effort to give social sustainability to the projects.

And just on the social front, what have we done? Have you implemented social programs in their communities or have you implemented, you know, I know that there's jobs for construction of this mine and working, but social have you done to help them along?

Yes, along with authorities from the Minister of Mines, from the environmental authorities, in most of the places we have conducted workshops, information workshops, and some cases we've also gotten some agreements and explaining about our environmental management. And of course, as well, we are also working on, as Lorenzo explained, into building local capacities to engage more local workers into the project.

Yeah. Okay, perfect. Thank you. Good to see that being resolved.

Okay, thank you.

And once again, if you would like to ask a question, please press star then 1.

There are two questions left. Right. Thanks, Sanja. Two additional questions from you. The first one, regarding the inflation, yes, we have been seeing some reductions in prices, especially in diesel, in cyanide, and explosives. If we can make some... Hello?

Is anybody there? I don't hear anything, so maybe someone in the webcam.

And pardon me, this is the operator. One moment, please, while I get the speakers. Pardon me, this is the conference operator. Please hold on while we reconnect Daniel to the line.

Hello?

Hello. Please proceed.

Tanya? Yes.

Anything except that you saw some relief in explosive diesel and cyanide. That's it.

Yes. Sorry, Tanya. We had a problem with the connection. So if we compare the prices of some of the consumables, the nine-month period of this year against the nine-month period of last year, We have that for diesel, there is a reduction of around 10%, cyanide around 5%, and explosives between 8% and 10%. As an overall, we would say that we can have, for the fourth quarter, we can have a reduction in inflation for consumable prices of around between 5% to 8%. And also, we have labor. reducing due to the higher exchange rate that we have against the dollar.

Okay. And Daniel, what about freight and transportation? Are you seeing any relief there?

Sorry, Tanya, I didn't get you.

Are you seeing any relief in freight, transportation, any, you know, transportation costs?

Yes, yes. We do, we do. We also have been, we see a trend of a decrease in the freight. We cannot, we don't have right now the amount of the percentage, but we do see this reduction.

Okay, that's great. Good color. And just on the labor side, Would you say, do you see a relief? You said a relief there. Would you know how much percent?

Yes. In labor, we would say that it's around 3% to 4%.

Perfect. And then, sorry, just lastly, I don't want to hog the call, but just on the CapEx, should I still be using $90 to $100 million for sustaining and $65 for San Gabriel? No.

Well, we have revised our total CAPEX for this year. We now can estimate around 190 million dollars, from which 110 will be devoted to sustained CAPEX. From this sustained CAPEX, 40 million dollars will be to construct the DUNPAC project. And in growth, we are expecting close to between 70 and 80 million dollars from which 65 will be devoted to San Gabriel and the remaining for Trapiche and other projects. This is for 2022. And preliminary, we can say that for 2023, the capex should be in the order of $340 to $350 million.

Okay. Perfect. Thank you so much. I'll let somebody else ask questions.

Thanks, Tanya.

And once again, if you would like to ask a question, please press star then 1. And this will conclude our question and answer portion of today's conference call. I'd like to turn the conference back over to Mr. Garcia for closing remarks.

Thank you, sir. Before we finish today's conference call, I will thank again for making the time to join us. Please have a wonderful day.

The conference is now concluded. Thank you for attending today's presentation. We'd like to thank you again for your participation, and you may now disconnect.