Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) Q3 2023 Earnings Call Transcript

Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) Q3 2023 Earnings Call Transcript October 31, 2023

Operator: Good day, ladies and gentlemen. And welcome to the Compania de Minas Buenaventura Third Quarter 2023 Earnings Results Conference Call. At this time, all participants are in a listen-only mode, and please note that this call is being recorded. At this time, I would like to introduce your host for today’s call, Mr. Gabriel Salas, Investor Relations. Mr. Salas, you may begin.

Gabriel Salas: Good morning, everyone, and thank you for joining us today to discuss our third quarter 2023 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 Massa, Vice President of Business Development and Commercial; Mr. Alejandro Hermoza, Vice President of Sustainability; Mr. Renzo Macher, Vice President of Projects; Mr. Juan Carlos Salazar, Geology and Exploration 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 Buenaventura’s website, you will find our press release that was posted yesterday after the 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 view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. I encourage you to read the full disclosure concerning forward-looking statements within the earnings results press release issued on October 30, 2023. Let me now turn the call to Mr. Leandro Garcia.

Leandro Garcia: Thank you, Gabriel, and good morning to all, and thank you for joining us for today to discuss the quarterly results of the company. On Slide 2 is our cautionary statement, the important information that I encourage you to read. We assume that you have already read the results reported yesterday. Moving on to the next slide. Our presentation will cover the five main topics shown here, and we will be followed by our Q&A session, where our team will be happy to answer your questions. Let’s begin with some overview of the key highlights for the first nine-months of 2023. Our EBITDA from direct operations for the first nine-months of 2023 has witnessed a 27% increase as compared to the same period of the previous year.

It is worth mentioning that the figures do not include the $300 million obtained last year from the sale of our stake in Yanacocha. Our cash position remains strong in third quarter 2023 due to a strong performance at El Brocal. We are pleased to share that our dividends received from Cerro Verde during the quarter have contributed to $49 million, strengthening our overall financial performance. It is important to note that Cerro Verde has a record in copper production during the third quarter 2023 of 430,000 tons per day, representing 255 million pounds of copper. After completing the processing plant operational readiness, we have successfully resumed operations at Uchucchacua on October 29, and also received approval from the – for the Yumpag project’s Environmental Impact Assessment on September 7, enabling Buenaventura to perform metallurgical tests for up to 125,000 tons of ore from Yumpag’s pilot scope.

We are determined with our commitment to sustainability and responsible mining practices, while fostering production. Although operations at El Boral, specifically, the Colquijirca Tajo Norte mine, have temporarily been suspended until the approval of the Environmental Impact Assessment. We are able to continue focusing on increasing the underground production to 12,000 tons per day as planned for the following two-years. Our consolidated production for copper, silver and gold across all the last three quarters has had the following results: 44,000 tons of fine copper, thanks to the record production at El Brocal. We are on track to achieve the upper range of the guidance; 4.9 million ounces of silver, being El Brocal its main contributor during the fourth quarter 2023, Uchucchacua and Yumpag will contribute almost with 2.8 million ounces to reach the full year guidance; 411,000 ounces of gold with a steady production El Brocal.

Moving on to our cost structure in Slide 5. You can see that our all-in sustaining costs have increased by 34% compared to the nine-month period of last year. This is primarily explained by the whole production decrease at La Zanja, Tambomayo and Coimolache. However, it is important to mention that these figures does not include El Brocal and Cerro Verde with excellent cost performance during the third quarter of 2023. Moving on to costs applicable to sales trends. As you can see, the prioritization of copper ore at El Brocal with better operating margins is translating into a 10% cost reduction in the last quarter. Silver costs applicable to sales has increased 29% year-over-year, primarily driven by lower head grades at the Julcani and Tambomayo.

However, we expect to reduce costs during the fourth quarter of 2023 with the contribution of Uchucchacua and Yumpag silver houses. Gold cost applicable to sales has remained relatively flat year-over-year, despite the reserve depletion at La Zanja and lower production at Tambomayo. On the next slide, we are showing the free cash flow generation. During the third quarter of 2023, we have increased our cash position in $20 million, thanks to the excellent performance from El Brocal and the dividends received from Cerro Verde. The EBITDA to free cash flow reconciliation is explained by the following breakdown of the inflows and outlook. El Brocal, Tambomayo and Orcopampa have been the main contributors for the period of nine-months of 2023. While La Zanja, Julcani and Uchucchacua had a negative EBITDA due to lower production for the first two assets, [indiscernible] in the Uchucchacua mine.

However, we expect to have a positive EBITDA for the fourth quarter, thanks to the resumption of Uchucchacua and the contribution of Yumpag. As we have mentioned before, Buenaventura is going through growth – in a growth phase with an expected CapEx related to Yumpag and San Gabriel. This has been partially offset by the income taxes and the dividends received from Cerro Verde. Moving on to Slide 7. We are focusing the pipeline of the projects that has more than 10-years of life of mine. Also, we have a diversified portfolio of projects in each stage of the viability cycle, enabling Buenaventura to continuously deliver new projects in the following years. The following slides, I would like to illustrate our main two projects, Yumpag and San Gabriel.

We are relaunching a new Uchucchacua with the Yumpag mine, almost 6 kilometers away from the current mine. This recent restart will extend the life of mine by around 15-years. Yumpag have successfully obtained its environmental permit and have submitted the financial authorization for the deposit depletion. However, in November, we are going to start processing ore from the Camila with a permit that allows us to treat up to 125,000 tons of ore from the pilot scope. Moving on to Slide 10. In the next year, Buenaventura will be focusing most of its efforts in the San Gabriel project because it will be a relevant contributor to the company’s value. It will add more than 14-years of life of mine to the company. In this slide, you can see the progress of the project quarter-by-quarter.

By the following quarter, we expect to start the field work with the underground contract. On the next slide, we are showing the earth movement activities for the processing plant facility. On Slide 11, you can see the layout of the future plan of the San Gabriel project, with its crushing equipment on the left of the picture, going through the milling and the grinding area to finally reach the carbon leach area. We expect to complete 100% of this facility by the first half of year 2025. On the next slide, we show a couple of pictures of other components of the project that are processing and planned, such as the mine pond and water treatment plant on the top left. Also, the San Gabriel definitive campsite and the waste dump facility. On the bottom of the slide is the underground portal with its ventilation system.

Finally, I would like to finish the presentation with a couple of closing remarks. San Gabriel construction will progress faster as the main contractors are already on the project. Total CapEx for the project remains unchanged, and the start of commercial production for the second half of 2025 is maintained. Uchucchacua was successfully restarted after two-years of care and maintain. Yumpag’s impact environmental permit was approved and production will start in November. El Brocal has a record production of copper this year. Despite the open pit temporary suspension for the nine-months of 2023, El Brocal have reduced consistently copper cash by 10%, confirming Buenaventura’s effort to optimize costs. Thank you for your attention. I will hand the call back to the operator to open for the line for questions.

Operator, please go ahead.

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Q&A Session

Operator: [Operator Instructions] Our first question today comes from Carlos De Alba from Morgan Stanley. Please go ahead with your question.

Carlos De Alba: So first question is regarding Tambomayo. In the explanation of the production performance, it is noted that in order to reach the mine’s upper zone, you were required to do more rehabilitation, and then you will be able to access this high-grade ore. When would you be in a position to reach this high-grade zone and how much expenses – or capitalized expenses will you have to incur in order to do so?

Leandro Garcia: Thank you, Carlos, for your question. Actually, yes, that ore is in the upper part of the mine. But I will let Juan Ortiz to give more explanation of the time line to reach that core. Please, Juan Carlos.

Juan Carlos Ortiz: Thank you, Carlos, for the question. In the upper part of Tambomayo, we are already there. We are mining that area. We expect this year to mine at a certain pace, but due to the rock condition, the ground condition, we need to slow down the rate of extraction from that – this area. We need to do more reworks on the ground support, do ancillary accesses for the area in order to have more flexibility to mine the upper area of the mine. So we are already there. We don’t need extra CapEx to add this area into production. We are already there. The only difference is the production rate is lower than we expected. So we are carrying on this production from 2023 into 2024 and the production in that area or the grade in that area is basically silver.

It is around five to seven ounces of silver, two, three grams of gold. So it is a substantial production of silver coming from this area and now we are offsetting this production with other areas of Tambomayo that are more on the gold value than the silver. That is the difference that you see in our guidance for the rest of the year 2023.

Carlos De Alba: Another question is on Julcani. Clearly, the mine is losing money, cash capital to sales of 26% in the third quarter. But it is mentioned that there is a new zone of gold and copper that will begin production during the fourth quarter. Would this – I mean can you talk a little bit more about this zone? And what the implications would be for cost and production? Is this going to allow the mine to turn to the black and make money?

Leandro Garcia: Yes, of course, Carlos. Actually, the different – the difference against our budgeted production is the reconciliation of the grades – the actual grade will reach this quarter and during 2023. However, we have – we are working on this new area called Rosario. And well, Juan Carlos will give you another – a big picture of what is – what are we finding there? Please, Juan Carlos.

Juan Carlos Salazar: Yes. In Julcani, you see footprint, how it looks like. We have a core area at the center of the deposit, where we have the main, I would say, from a geological point of view, is the hotter area, and it is surrounded by a ring, where we have all the lead silver mineralization. We are producing right now – and historically, we have been producing most of our recent silver production from the [indiscernible] ring, that is the [indiscernible] mine. In that mine, we are hitting now lower-than-expected grades in the stock that we have planned for 2023. Rosario area is at the center of the deposit. So it is not far, maybe 500, 400 meters from the existing installs in the [indiscernible] area. So we share a lot of infrastructure with [indiscernible].