Earnings Call: Q2 2021

Aug 3, 2021

Good day, ladies and gentlemen. Welcome to the Compagnier Divinos Buenaventura Second Quarter 2021 Earnings 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. Gabriel Salas, Investor Relations. Mr. Salas, you may begin. Good morning, everyone, and thank you for joining us today to discuss our Q2 2021 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. Aldo Masa, Vice President of Business Development and Commercial Mr. Alejandro Hermoza, Vice President of Sustainability Mr. Renzo Maher, Corporate Credit Manager and Mr. Roger Enagias, 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 statements should be considered in 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 August 2, 2021. In addition, it is important to note that these statements include expectations and assumptions, which will be shared related to the impact of COVID-nineteen pandemic. As seen on Slide 2, our forward looking statement also provides information on risk factors, including the effects related to COVID-nineteen that could affect our financial results. In particular, there is continued uncertainty about the duration and contemplated impact of the COVID-nineteen pandemic. This means Buenaventura's results could change at any time and the impact of COVID-nineteen on the company's business results and outlook is best estimate based on the information available as of today's date. At this time, let me now turn the call over to Mr. Leandro Garcia, Chief Executive Officer. Leandro, please go ahead. Thank you, Gabriel. 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 from the Q2 of 2021 from Compania De Minas Unalventura. We have prepared a powerful presentation, which is available in our web page. Please, before we go further, take a moment to review the cautionary statement shown on Slide 2. Please consider the disclosure related to the COVID-nineteen pandemic. Moving on to Slide 3, highlights were as follows. 2nd quarter 2021 EBITDA from direct operations reached EUR 66,900,000 compared to R26,400,000 reported in 2 quarter 2020. The Q2 2021 adjusted EBITDA included as a company reached $29,700,000 compared to $84,500,000 in the 2nd quarter year trend. Q2 2021 net income reached $37,500,000 compared to a $15,600,000 net loss for the same period of 2020. 2nd quarter 2021 exploration and operating units increased to $14,500,000 compared to US2.5 million dollars in the Q2 of 2020. This increase was part of the company's revised strategy to increase exploration activities. Q2 2021 capital expenditures were 21 $500,000 compared to $11,600,000 for the same period of 2020. The 6 months the 1st 6 months 2021 costs applicable to sales has been impacted by $30,800,000 due to additional COVID-nineteen expenses and it is expected to decrease in the Q3 and Q4 with the increase of vaccinated workforce. Buenaventura's cash position reached $255,200,000 as of June 30, 2021. On April 21, October 29, 2021, Cerro Verde paid a total dividend of DKK 200,000,000 when Aventura received DKK 39,200,000 relative to its stake in Cerro Verde. On July 23, 2021, the company issued senior unsecured notes for an aggregate amount of R550 1,000,000 with a coupon rate of 5.5% per annum due 2026. The net proceeds from the bond have been used on July 30, last Friday to fully pay the Sunnat dispute. Moving on to Slide 4, financial highlights. Total revenues during the Q2 were $240,900,000 which is 146% higher in comparison to the Q2 of 2019. In the first half of the year, total revenues increased to 4 $27,000,000 compared to the first half of twenty twenty. EBITDA from our direct operations in the Q2 of 2021 was $67,000,000 in comparison to $18,000,000 in the Q2 of 2020. EBITDA from direct operations for the 6 months of 2021 increased to 105 $1,000,000 in comparison to $20,000,000 during the 1st 6 months of 2020. EBITDA including our affiliates in this second quarter was $230,000,000 which is 172% higher in comparison to the Q2 of 2020. EBITDA, including our affiliates for the first half of the year, was $413,000,000 compared to $115,000,000 for the same period in 2020. The CapEx increased to $22,000,000 in the Q2 of 2021 compared to $12,000,000 in 2020. In the 1st 6 months of the year, CapEx totaled $35,000,000 a 55% increase in comparison to the first half of twenty twenty. As you can observe from the graphs shown in this slide, we are returning to the pre pandemic levels and even achieving greater results than the 1st semester of 2019. Moving on to Slide 56, attributable production. Total gold attributable production in the Q2 of 2020 was 73,000 ounces, which is 18% higher than the figure reported on the same quarter of the previous year. In the 1st semester of 2021, total gold attributable to our production was 136,000 ounces, 10% lower than the same period in 2020. This decrease was mainly explained by lower production in Yanacocha. Favorable attributable production for this quarter was 3,500,000 ounces, which shows an increase of 76 percent compared to the figure reported on the Q1 of 2020. And during the first half of twenty twenty one, silver at the root oil production was 7,000,000 ounces, 21% higher than the 1st semester 2020. In the Q2 of 2021, 12,000 metric tons of zinc were produced, a significant increase compared to the Q2 in 2020. The 1st semester of the year, zinc production increased to 21,000 metric tons, 26% higher than the same period in 2020. In the case of lead, equity production was 6,000 metric tons in the Q2 of 2021, which is 91% higher in comparison to the Q2 of 2020. In the first half of twenty twenty one, lead production increased to approximately 11 metric tons 1,000 metric tons in comparison to the 1,000 metric tons in 2020. Finally, our copper attributable production for the Q2 of the year was 25,000 metric tons. During the first half of twenty twenty one, copper attributable production was 49,000 metric tons, an 18% increase compared to the same period of 2020. Moving on to Slide 7, all in sustaining costs and costs applicable to sales. The all in sustaining costs from our direct operations in the 1st semester of 2021 decreased by 18% to US1493 dollars per ounce of gold. The costs applicable to sales for the 1st semester of 2021 were as follows: for gold, USD 12.62 per ounce, which is 12% higher than a year ago for silver, US19 point 65 per ounce, which is 25 percent higher than a year ago. For lead, USD 13.20 per metric ton, which is 2% higher than a year ago. For copper, US5,949 per metric tonne, which is 13 higher in comparison to a year ago. Finally, in the case of zinc, the cost applied to sales was US2.91 dollars per metric ton, which is US0.19 dollars higher than a year ago. As we mentioned before, cost applicable to sales has been impacted by approximately $31,000,000 of expenses related to COVID-nineteen. Moving on to Slide 8, pipeline of projects update. Here we are presenting in one snapshot the current development level for each one of our projects. Moving on to Slide 9, San Gabriel. We have to mention that we have obtained the water dam construction permit. We are working with authority in extension of the environmental area validity as it will expire by the Q1 of 2020. The MINEM advanced the Consulta Previa process to dialogue stage. Moving on to Slide 10, TRAVICE. We are finishing the chloride leaching prefeasibility level testing and expect to complete the trade off study by September. We are advancing corporation agreements with communal authorities to support the 2nd AES workshop by the end of August. Finally, we are finishing a cooperation agreement with Antabamba Moyoco for the final access road and we are working with Moyabamba's community for an alternative one. Moving on to Slide 11, Riloseco. We finished testing activities to improve silver and gold residue value. Also, we submitted the 1st batch of ARS observation and we are currently working on the 2nd batch. We have confirmed the projects were empowered by ability with the authority. Moving on to Slide 12, Tantahuatay sulfides. Cormolace's Board approved viability stage. The infill drilling is expected to begin in this Q3 2021. Thank you for your attention. And I will hand the call back to the operator to open the line for questions. Operator, please go ahead. Thank you. We will now begin the question and answer session. Today's first question comes from Carlos De Alba with Morgan Stanley. Please go ahead. Yeah. Good morning, Leandro, Daniela, and Roke. And just a few questions, if I may. First, can you maybe provide a bit more color how you're thinking about growth in terms of projects going forward given the recent situation with the new debt as well as the payment to the Sunnat? 2nd is, if you can give us maybe an idea of how do you see costs trending, particularly for Orcopampa and Uchucchacua, which saw their cost increase, the CASK increase quite high, importantly, in the last quarter? And then finally, if I may squeeze a question on dividends. So we saw that you received $40,000,000 in dividends this past quarter from Cerro Verde. What is the idea there still to pay that part of that to Buenaventura shareholders in the coming months? Thank you very much. Thank you, Carlos. How are you? Well, in the case of your question on the growth matters, as you know, we are still evaluating the sale of an asset, right? With that sale, we pretend to pay our syndicate loan that will allow us to reduce our leverage level. So and liberate also and free also all our lines of credit. So with those actions, we will be in shape to begin San Gabriel and the development of San Gabriel. And also we expect, of course, cash coming from our own operations that will get better results. We expect, of course, and we are positive with better results in the following months. And the other that we also expect more dividends from Cerro Verde in the following year. So that is the source that we expect to develop our growth and support our growth. In terms of cost, maybe I can give you Juan Carlos the microphone to answer the question. But going to 1st to the dividends from Cerrobel and we are going to if we are going to pay some dividends to Nalentura, we are not discussing that matter up today. We are not planning to in the short term pay dividend from Runantura. Our first goal is to reduce our leverage. And with the bond issuing, we have some compromises and we are going to deliver that compromises in the following months. Please, Juan Carlos. Thank you. Thank you, Glenn, for the question. Regarding Orcopampa, we are ramping up the production. We're a little bit behind schedule, but we are ramping up production effectively. And therefore, the cost will be reduced based on the increased coal production. So we expect to reduce the cost in incoming quarters in Orcopampa. In Cochucchacua is there is a lot of work to be done, a lot of work from infill drilling, a lot of work from mine development. And this will keep the returns with increasing production months after that. So we expect still to be with high cost in Uchuchacua for coming to quarters and start to recline to reduce the cost in the coming year. Thank you, Juan Carlos, Alejandro. Maybe Leandro, if I may. So what are the covenants or the requirements that came together with the bond issuance that may not allow you to pay dividends? Thank you, Carlos for your question. Here with us is Daniel Lominguez. Please, Daniel, go ahead. Hi, Carlos. How are you? Basically, we have to meet 2 covenants. The first one is to have a net debt ratio, leverage ratio of below 3.5 times and the fixed charge coverage ratio of over 2 times. Those are basically the 2 most important ratios in order to start paying dividends. Thank you, Daniel. And just so and the EBITDA is the consolidated EBITDA or the EBITDA including your participation in that period? Consolidated EBITDA Carlos. Thank you very much. Good luck, guys. Today's next question comes from Tanya Jakusconek with Scotiabank. Please go ahead. Great. Good morning, everybody, and thank you for taking my call. I have a few questions, if I could. I'm going to start just on the asset side first. Just on Uchucchacua, can you give us an idea of when we are going to get the mine back up to normal capacity? And then the second thing on Uchucchacua, can you give me an idea of what is happening? In your preview, you highlighted a new mine plan is underway. You were having issues underground in terms of meeting the block model. Can you just let me know what's happening there? Thank you. Hi, Tania. Thank you for your question. Juan Carlos, please. Thank you, Leandro. Sigitania for your question. Yes, we mentioned in the previous quarter that this quarter as well, we are facing developing of our new areas that we are accessing right now. The strategy is focused now on access the Karmin and Guandahaya mines into the Uchucchacua underground setting. These 2 mines have been mined in the past, and we are getting back into these areas. We are it's taking longer and expected a rehabilitation process to, in some cases, to slash up the size of the tunnels to fit with larger fleet, rehabilitate the ventilation circuit. Some of the ventilation rights that we have need to be in some cases redrill. We need to make parallel rights to complete the ventilation circuit. And in some areas that we expected to have access to some blocks, it's taking longer because we need to put more roof reinforcement that we expect. So it's taking longer and not only because we have more work, but also because we still don't have 100% of the headcount at sites. So we are at a lower pace than expected and with more work than expected. The difficulty that we're facing there regarding the grade is that the infill drilling is way behind our program. We changed the contractor for the contractor that we have for drill holes in the mine. We changed the contractor in the Q1 and is taking longer than expected to reach the previous level of production of drilling from the new contractor. So the difficulty in getting that information for the short term planning against the long term planning is what is yielding us negative reconciliation in the grades and the volumes of ore that we are taking from some of those blocks. So altogether, we have some delays on getting their proper information to achieve our plans or to reschedule our plans. And we are delayed we are having some delays of achieving those blocks on those areas. At this time, the rate of in this quarter, we expect to be back on track with a proper rate of about 7,000 meters per month of drilling in the underground, Yamo Drilling. We expect to get to a level of about 3,000 meters of mine development in the Q4. So it's going to be a gradual ramp up. Based on the current pace of things that we are moving on, we expect to be having news about the schedule to get back to the previous production or to the new level of production that we will face for 2022 in the previous quarter in the next in the following quarters. So this is particularly what's going on in Chacoa. The headcount issue also is something that we are attending now. The vaccination is starting now around the mine. So we expect that in the next two quarters, we have a big a larger percentage of our workforce who are fully vaccinated and try to reduce that impact that facing generating some difficulty for operational purpose in Uchucchacua. So the COVID effect will be reduced if we expect to be reducing that effect in coming 2 quarters of 2021, Tanya. Yes. That's good news on the vaccination. Can I just move on now to you mentioned that you are going to be selling an asset in order to get monies so that you can reapply those funds to the San Gabriel development? When you look at your assets for sale, how does the Yanacocha Sulfides, your interest in that one? How does it rank up as an asset for sale? Well, we are Tania, we are still leveraging, which is the best answer for the best alternative we have. You know that we have our shares, treasury shares, we have our participation in, as you mentioned, in Yanacocha. And also, we count on our participation in Cerro Verde. We have different alternative and we are evaluating, we're still evaluating. Yanacocha, it's the sulfide project is still the original founding, it will be decided in December of this year. So we are also in that process. Would you consider your equity stakes in Cerro Verde and Yanacocha as two possibilities for sale in addition to all of your assets? I'm just trying to understand if those are for sale also. Yes. We are evaluating all the alternatives, which will affect less our future cash flows. That is the objective. Okay. And then can I ask, I have been noting on many conference calls, companies talking about inflationary pressures both in operating costs and capital costs? Can you talk to us about what inflationary pressures you are seeing in Peru in labor, consumables and other? Thank you. Well, there are some pressures in cost. However, as mainly these are forced by the exchange rate. However, as you know, our income from 100% of our revenues are in dollars. So we are not feeling as today a great pressure on inflation. Maybe there will be some additional demands from our communities with the current political situation, but we do not expect too much from the standpoint of inflation as economic destination. Okay. And if my last question could be for Rocky, if he's on, I would love to hear his thoughts about the new leadership in Peru and what are you expecting to see from that and the impact on Buenaventura? Thank you. Let me tell you that we are living a difficult circumstances. It is not easy to deal with people like the government that has been elected, but this is the situation that we have to deal with. I think that in the next 30 days or 60 days, we are going to see some changes in the government. Let me share with you, Tanja, that out of the 19 ministers, there are only 2 women, 2 women. This has never happened in the last few governments. There is a lot of people that are questioned in terms of their, I don't know, integrity in terms of the ministers. And even Mr. Castillo and the leader of the political party, Peru Libre is questioned by the press. So I think we have to wait and see, but this is going to change and I believe that it will change for the better. Okay. We're all looking we all are looking forward to seeing that for Peru. Thank you very much. Thank you. Thank you. Ladies and gentlemen, this concludes today's question and answer session. I'd like to turn the conference back over to Mr. Garcia for final remarks. Great. Well, before we finish today's conference call, thank you very much for making the time to join us. Thank you again and have a wonderful day and be safe. Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.