Earnings Call: Q1 2021

Apr 30, 2021

Good day, ladies and gentlemen, and welcome to the Compania de Minas Buenaventura First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. Please also note today's event is being recorded. At this time, I'd like to introduce your host for today's call, Mr. Rodrigo Echikapar, Investor Relations. Mr. Echikapar, you may begin. Thank you. Good morning, everyone, and thank you for joining us today to discuss our Q1 2021 results. Today's discussion will be led by Mr. Leandro Garcia, CEO. Also joining our call today and available for your questions are Daniel Dominguez, CFO Mr. Juan Carlos Ortiz, Vice President of Operations Aldo Masa, Vice President of Business Development and Commercial Alejandro Moza, Vice President of Sustainability Renzo Maher, Project Manager. And also available questions are Mr. Roger Benavides, our Chairman and Raul Benavides, our Board member. 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 factors discussions. I encourage you to read the full disclosure concerning forward looking statements within the press release we filed on April 29, 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 statements also provides information on risk factors, including the effects related to COVID-nineteen that could affect our financial results. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-nineteen pandemic. This means when Aventura results could change at any time and the impact of COVID-nineteen on the company's business results and outlook is a best estimate based on information available as of today's date. Please note that in the interest of safety, we are again utilizing a more virtual approach in exercising social distancing. While conducting this call this quarter, we would ask you to please bear that in mind in light of any technological difficulties which could occur. At this moment, let me turn the call over to Mr. Lando Garcia. Lando, 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 pivotal time. We are pleased to present the results of the Q1 of 2021 from Compania Aeminas 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 2. Please consider the disclosure related to the COVID-nineteen pandemic. Moving on to Slide 3. Highlights were as follows. EBITDA from direct operations reached $38,200,000 in Q1 'twenty one compared to negative $6,700,000 reported in the Q1 '20. Q1 'twenty one adjusted EBITDA, including associated company, reached $182,900,000 compared to $30,100,000 in the last quarter in the same in the last year December quarter. Q1 'twenty one net income of $16,400,000 compared to a net loss of $68,600,000 for the same period in 2020. Q3 'twenty one exploration and operating units increased to $9,300,000 compared to $6,000,000 in Q1 of last year. This increase was due to an internal policy change to boost exploration activities despite COVID-nineteen personnel restrictions at some of our operations. Q3 'twenty one capital expenditures were $13,100,000 compared to $10,700,000 for the same period in 2020. Buenaventura's cash position reached $225,400,000 for the Q1 2021. Moving on to Slide 4, financial highlights. Total revenues during the Q1 were $185,900,000 which shows a 62% increase comparing to total revenues in the Q1 of 2020. Increased commodity prices excluding lead supported the net sales figures despite reduced volume sold. EBITDA from our direct operations in the Q1 of this year was $38,200,000 in comparison to negative $6,700,000 in the Q1 of 2020. EBITDA including our affiliates in this quarter was $182,900,000 which is significantly higher than the figure of this quarter in 2020. This increase mainly comes from better results from Cerro Verde. And the net income in this quarter was $18,100,000 compared to a net loss of 80 point $4,000,000 a year ago. The CapEx has increased to $13,100,000 in the Q1 of 2021 compared to $10,700,000 in the Q3 of 2020. The free cash flow in the Q1 of this year was 8 $100,000 compared to $22,300,000 of free cash flow in the Q1 of 2020. Moving on to Slide 56, attributable production. Total gold attributable production in the Q1 of 2021 plus 62,900 ounces, which is 29% lower than the figure reported on the same quarter of the previous year. This decrease was mainly explained by lower production in Zaracotra. Steeler attributable production for this quarter was £3,500,000, which is in line compared to the figure reported on the past year. This is mainly due to less production in Uchucchac. In the Q1 of 2021, 9,300 metric tons of zinc were produced, a 27% decrease compared to the Q1 in 2020. This is mainly due to a 47% decrease in production at C of zinc and our Cutu Taco mine. In the case of lead, equity production was 4,400 metric tons in the Q1 of 2021, which is 37% lower in comparison to the Q1 of 2020. Finally, our copper and the Rudolfo production for this quarter was 24,000 metric tons in line with the figure reported in the Q1 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 first quarter of 2021 decreased by 21% to US1631 dollars per ounce of gold. The costs applicable to sales for the Q1 of 2021 were as follows: for gold, US1295 dollars per ounce, which is 14% lower than a year ago for silver, US19.39 dollars per ounce, which is 17% higher than a year ago for lead, US1321 dollars per metric ton, which is 6% lower than a year ago For copper, US5594 dollars per metric ton, which is 8% higher in comparison to a year ago. Finally, in the case of zinc, the cost applied to sales was US2059 dollars per metric tonne, which is 8% higher than a year ago. Moving on to Slide 8, pipeline of projects. Here we are presenting in one snapshot the current development level of each one of our projects. Moving on to Slide 9, San Gabriel. We are working with the authorities to resume the Consulta Previa process aiming at completion by the second half of twenty twenty one. Additionally, we are currently working to obtain the construction permit. We have already submitted a water dam construction permit. Moving on to Slide 10, Trapiche. We are working with the communities on defining development opportunities to support the 2nd environmental impact assessment workshop by the end of 3 quarter of 'twenty one. We continue with the chloride leaching test, obtaining good results and evaluating its inclusion in the AIA. Moving on to Slide 11, Rio Seco. We are executing solvent extraction tests to increase gold and silver residue value. Also, we are currently working on responding the EIA issued observation points. Moving on to Slide 12, Cantagua Thi sulfides, Homolache's Board approved viability stage. We are currently defining a drilling contractor to increase preserve certainty. Thank you for your attention. I will hand the call back to the operator to open the line for questions. Operator, please go ahead. Ahead. And our first question today comes from Carlos de Alba from Morgan Stanley. Please go ahead with your question. Thank you very much. Good morning, everyone. Hope you're doing well. I have a few questions, if I may. The first one is, if you could elaborate a little bit more on the €550,000,000 debt or bond that the Board of Directors approved and that the shareholders are going to be voting upon. If you could maybe provide a little bit of background and confirm if this is related with the tax dispute that you are right now facing in Peru. And if you could provide an update on that tax dispute, that would be appreciated. My second question has to do with the CapEx outlook for Buenaventura. If you can confirm the number that you spent for this year and maybe you have already sort of a view for next year. And how does the Yanacocha Sulfide project, which may be approved in a few months, place into that? How is operating going to be financed? In the release, you mentioned it could be $2,000,000,000 seems that the autoclave is a route that is most likely to the company will follow. So how will the project be financed? That will be great. And then finally, if there are any comments that you would like to make addressing the uncertainty that we're facing in Peru, sort of what are the certainties that the company the mining companies and the structural companies in Peru have in the event that one of the candidates becomes President and carries on with the comments about maybe claiming a little bit more of the wealth that the mineral resources in Peru generate? Thank you. Thank you, Carlos. Your first question was about the $500,000,000 in negotiable obligations that we mentioned in our press release. Well, we are asking for approval to the shareholders In order to be prepared for the debt and our obligations to Sonatwiga, We are looking for that approval. We are making preparing a plan, a complete plan to solve the current situation of Sunnat in Granada Tura. And we are expecting that approval, and we will continue and we inform which will be the way we are following, and we will announce in the market. In terms of CapEx, there is no significant change in our view for the guidance for this year. We continue with the CapEx expected in the beginning of the year. And in Gianacorta, for the sulfide project, as you know, the decision will be made in the second half of twenty twenty one. We have not yet discussed how to finance this project with Newmont. And while we are working together reviewing all the projects, And whenever the decision is made, it will be announced. And finally, the question about the political situation. Yes, it's now it's a special political situation, intra political situation in the country. However, we are sure that the the country will all the people in Peru will think for Honduras, how it's going to be their vote. They think they I think they will prefer the trend of development. And in the meantime, as a company, we do not make any participation or political issues or any comment about that. We continue with our work, with all the sustainability we have with our people and with the communities that are in our areas. So we are expecting to continue in that way. And I don't know if you want to make an additional comment about that. Thank you, Leandro. I don't know why they call on me always for political comments, but anyway. I think the elections have shown that there is no majority leader in Peru. Between the two candidates, they obtained less than 30% of total votes between the 2 that went for the runoff. So the problem being is Congress in fact. It's a Congress that has a number of political parties, if I'm correct, 10 different political parties that are part of the Congress and that is going to make it difficult to pass some laws. Our impression is that the these elections should show that Peru continues in the trend of development. But obviously, we are not sure of what is going to happen. We think Peru has shown to be a reliable country in economic terms. The Central Bank is very respected and we hope most of the parties that are in Congress will support that position from the Central Bank, and that should give us some assurance. Difficult to say, it's 5 weeks to go until the runoff, and I don't think there is a clear winner yet. And our next question comes from Tanya Jakusconek from Scotiabank. Please go ahead with your question. Yes. Good morning, everybody. Thank you for taking my questions. Rockey, maybe if I could just continue, and I know you're the expert on this political situation in Peru. But just any thoughts that you might have or what you're hearing on mining laws and taxation in Peru if Castillo wins the presidential election? Well, again, I go back to what I said. In Congress, there is no majority group. So whatever comes out of Congress, whatever law is given in Peru will require the consensus of a number of political parties. It is funny, I am no expert, Tanya. Certainly, politics in Peru is something that is very difficult to understand. But essentially, we can candidates say that they are going to do such and such. But at the end of the day, they will have to discuss these matters with the other political parties. And I hope that the right analysis is made in the sense that what we need is laws that attract more investment in order to develop our resources and other activities in Peru. So I think if Mr. Castillo is the winner, which I as I said, there is no clear winner at this point in time. He will have to get to consensus with other groups. Great. Thank you so much, Rocky, for that color. I appreciate it. All the world obviously looking forward to seeing what comes out of Peru in the next short while. If I could move off Peru and maybe just move to the financing plan, Can I just confirm that your debt is sort of the route that you are going or are asset sales still an option for you? Thank you, Tanja for your question. Maybe Daniel can make more comments about this for your question. Yes, Tania. Thanks for your question. The debt that we are planning to that we are evaluating is to pay 100% of the Sunnat controversy that we have. As you know, starting in July, we should start paying to the Sunnat the initial amount and then continue with the other installments. So with this debt, with this liquidity, we should pay 100 percent of our controversy with Sunnat. And we are still evaluating the asset sale, as you mentioned, in order to increase our liquidity and also to improve our debt ratios. Yes. I was just going to ask what you think is an appropriate leverage ratio for Buenaventura? We think that between 2.5x and 3x net debt ratio is a good ratio for Buenaventura. Okay. And can I ask where we stand on the because we've got to obviously San Gabriel Capital coming forward if we want to build that mine? We obviously have the Yanacocha sulfide, your portion of the capital there. Can I ask just maybe your strategy on funding of these and where does the Sierra Verde dividend stand? Okay. Thank you, Natalia. Well, as you know, we have a variety of investments to evaluate. We as you know, also, we are working on choosing a group for a type of asset that we will we will sell. We are evaluating all the alternatives. And with that, we should pay the current debt we have with the syndicate debt. With that, we leverage we are free of covenants and we can expand our line of credit in order to finance, as you know, our most important project today that is San Gabriel. So we are working on that, and we feel that we can continue with this investment proposal we have and this and our project. I don't know if Renzo wants to make some comments about our San Gabriel project, additional comments about CapEx. More than that kind of what it's holding us from starting construction is the construction permit and mainly the social part of it that has been we have been working with the government over that permit for the last two and a half years or so. We have been impacted by the recent elected community authorities. But we see from all these discussions with the government that there is an interest in pushing Sangaville forward, because it's going to help a lot into reviving the Peruvian economy. Social distancing has not played in our favor lately. So our best guess is that we're going to have a construction permit in the second half of this year as we stated in the press release. Meanwhile, we're continuing advancing engineering to mitigate any possible delays with the project. Okay. So my understanding, I think, is that you're looking to finance San Gabriel from your credit facility once you're able to alleviate some of the covenants. Is that correct? Sorry, I want to admit. Yes, that's correct. Okay. And what about our Cerro Verde dividend? Will that be coming anytime soon? And can that be used for Yanacocha sulfides portion of your CapEx there? Well, as you know, we are about to receive our dividend in these days. I think between today and Monday, we will receive the first dividend. We with the prices we have of the copper today, the current prices, we are expecting more dividends in the future and well, but this is not already defined with our partners in Cerro Verde. So we of course, we expect more dividends, but and also can be the way to finance our own projects also. Okay. I think there's monies within the joint venture at the asset level that could help finance some of Yenakocha, right? Excuse me, Tanja, I didn't get your question. Yes. So I'm just trying to understand 2 things. 1, how big is the Sierra Verde dividend that we're going to get? And number 2, how much money is in the Yana Cocha joint venture that can be used to pay for this project. Okay. The current cash that Yanacocha holds in their balance sheet is around $800,000,000 So $816,000,000 I think, that is roughly the amount. And if we see the CapEx that we are expecting for the sulfur project, it's around $2,000,000,000 We also think that Yanacocha by itself can finance by its own the rest of the money they need to build the project the sulfide project. It's $1,200,000,000 And of course, maybe they can ask for some warranty from the partners. But we think that they are capable to finance by itself. Okay. And maybe just lastly, what size of dividend are we expecting from Cerro Verde? The dividend from Cerro deli? The size. Well, the last one is announced at $200,000,000 So our part is $39,000,000 our share. Okay. So we're expecting something in that order? Yes. Okay. Okay. I really appreciate it. Thank you so much and good luck with the financing options. Thank you, Tanya. And ladies and gentlemen, with that, we'll conclude today's question and answer session. At this time, I'd like to turn the conference call back over to Mr. Garcia for any closing remarks. Sorry, I was on mute. Thank you for before we finish today's conference call, thank you very much for making your time to be here, and we wish you a wonderful day, and please be safe in this moment. Thank you. Ladies and gentlemen, that concludes Buenaventura's Q1 2021 results conference call. We'd like to thank you again for your participation. You may now disconnect your line.