Earnings Call Transcript - BVN Q4 2024

Operator, Operator

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura Fourth Quarter 2024 Earnings Results 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. Sebastián Valencia, Head of Investor Relations. Mr. Valencia, you may begin.

Sebastián Valencia, Head of Investor Relations

Good morning, everyone, and thank you for joining us today to discuss our fourth quarter 2024 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, Vice President of Geology and Explorations; 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 market close. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions. While management believes that these 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 February 20, 2025. Let me now turn the call to Mr. Leandro Garcia.

Leandro Garcia, CEO

Thank you, Sebastián. Good morning everyone, and thank you for being here today to discuss our quarterly results. On Slide 2, we have our cautionary statement, which I encourage you to read. Today, we'll focus on our performance for the fourth quarter of 2024, highlighting key achievements and our strategies moving forward. After the presentation, our team will be available for a Q&A session to address your questions. Next slide, please. I want to emphasize a few key areas contributing to our strong fourth quarter results for 2024. Our full year EBITDA was $431 million from direct operations, excluding the sale of Chaupiloma Royalty Company, compared to $199 million in 2023, excluding the sale of Contacto. This also shows a higher EBITDA margin of 37% versus 24% from the previous year. Our full year 2024 net income, including the sale of Chaupiloma Royalty Company in August 2024, was $402.7 million, significantly up from $19.9 million in 2023, including Contacto. We ended the year with a cash position of $478 million and total debt of $627 million, resulting in a leverage ratio of 0.34. On February 4, 2025, we issued $650 million in senior unsecured notes maturing in 2032 with a 6.8% annual interest rate. The proceeds will help us refinance our 5.5% senior notes due in 2026 and support general corporate needs. We also completed a tender offer to buy back $401 million, or 72.98%, of the bonds maturing in 2026. On December 12, 2024, we received $78.3 million in dividends from our stake in Cerro Verde, totaling $166.5 million in dividends for the whole of 2024. Our total CapEx for the year reached $378 million, with $291 million directed toward the San Gabriel project. We produced 15.5 million ounces of silver, a 69% increase compared to the 9.2 million ounces from the previous year, with 10.5 million ounces from Uchucchacua and Yumpag. Lastly, our Board has proposed a dividend payment of $0.2922 per share, reaffirming our commitment to delivering returns to investors. Looking ahead to our 2025 guidance, we expect stable copper and silver production at El Brocal and Uchucchacua and will focus primarily on the San Gabriel project for gold production as it is set to become our main gold asset. Regarding our cost structure in Slide 5, the all-in sustaining cost for the fourth quarter of 2024 was up 26% year-over-year, driven mainly by increased exploration activities supporting our growth and resource strategy. The year-over-year decrease in all-in sustaining cost was mainly due to lower commercial deductions and higher byproduct credits from Yumpag. On the next slide, we’ll talk about free cash flow. The cash position improved this quarter largely due to strong performances from El Brocal, Uchucchacua, and Yumpag, along with dividends from Cerro Verde, despite investments made in San Gabriel and the full repayment of approximately $50 million in outstanding debt at El Brocal. As we move to Slide 7, we're pleased to report that San Gabriel is 71% complete as of the fourth quarter of 2024, with construction on track. We expect to begin the ramp-up phase in the third quarter of 2025 and produce the first gold bar in the fourth quarter of 2025, pending necessary permit approvals. On the next slide, we’re showing the processing plant's progress, which will handle 3,000 tonnes per day. Currently, primary crusher mechanical works are at 97%, SAG and Ball mechanical works at 75%, and CIL tanks at 87%. As we proceed to Slide 9, we can see the advances in the main components of the plant. Slide 10 highlights the filtered tailings plant, currently at 55%. In Slide 11, I want to point out our implementation of the UDF mining method, designed to improve ore recovery and reduce dilution. Our program includes engaging experts with over 15 years of experience, conducting a trial mine at Tambomayo, and benchmarking with four mines in Nevada to gather best practices. In conclusion, we’ve strengthened our balance sheet through successful bond issuance, enhancing our financial position and liquidity for future growth. The year 2025 will be pivotal as the ramp-up of production at San Gabriel marks a key milestone in our growth strategy. We are seeing stable copper and silver production from our flagship assets and are committed to returning value to our shareholders through resumed dividend payments. Thank you for your attention. I'll now hand the call back to the operator for questions.

Operator, Operator

We will now begin the question-and-answer session. Our first question today is from Carlos De Alba with Morgan Stanley. Please go ahead.

Carlos De Alba, Analyst

Thank you. Good morning, everyone. So, on San Gabriel, construction is 63% completed. Obviously, you have four more quarters to go, but what are the key elements of the construction of the project that are still pending? And what would be, from your perspective, the most critical aspects of them or the top one, top two critical aspects of the construction that you're focusing on? And then, if you could remind us, as you obviously further move the project along and with the new realities of commodity prices and cost inflation, can you remind us a little bit on the economics that you see for the project? What is the cash cost and the all-in sustaining cost that you expect for the project maybe in terms of profitability or IRR for the investment? How have you seen that now? I have a couple of other questions.

Leandro Garcia, CEO

Of course, thank you, Carlos, for your questions. Here with us is Renzo Macher, who can give you an update on the next milestones that we have in the project. Please, Renzo, go ahead.

Renzo Macher, Vice President of Projects

Yes, hi. Thanks for the question. So, as you mentioned, we have all the contractors on site running. Now, it's about completing things, so we are starting with the first commissioning for the electric room in the crusher circuit, and next is going to be the commissioning of the C1 and C2 of the crusher area, and after that, the carbon in leaching area. So that's kind of the three main goals for the next three months, something like that.

Carlos De Alba, Analyst

Thank you, Renzo. And any comments on the profitability?

Leandro Garcia, CEO

Sure. Please, Carlos, let Juan Carlos Ortiz give the...

Juan Carlos Ortiz, Vice President of Operations

Sure. Thank you, Leandro, and thank you, Carlos, for the question. Yes, the cost is going to be in the rate of $1,400 per ounce of gold. That's going to be the cash cost for the project, and we expect to produce on a full-year basis in the area of 120,000 ounces of gold per year. So, depending on the price, you can play with the scenarios of EBITDA that we can generate from San Gabriel.

Carlos De Alba, Analyst

Thank you very much, Juan Carlos. The other question I had is on dividends. We saw the proposed dividends that will be discussed in the next shareholders' meeting. From a management perspective, is this the only dividend payment that, if approved, will occur in 2024? And then, perhaps only in 2025, once San Gabriel starts to ramp up, might there be an increased dividend payment? Is that how we should approach it?

Leandro Garcia, CEO

Our dividend policy is to distribute at least 20% of our net profit. We continuously assess the possibility of paying dividends. If an opportunity arises in the upcoming quarters to issue an additional dividend, we will consider it and proceed accordingly.

Carlos De Alba, Analyst

Right. But haven't you been paying less than that, Leandro?

Leandro Garcia, CEO

Excuse me?

Carlos De Alba, Analyst

I thought you have been paying less than 20%.

Leandro Garcia, CEO

In the last three years, we have been paying $20 million, and the reason for this limited payment was because we were engaged in the construction of San Gabriel. We have resolved some operational programs in that time. However, we are now in a different position and need to reward the patience of our investors.

Carlos De Alba, Analyst

Okay. So, in another way, you may pay more than $20 million in dividends in 2024, or that would only take place in 2025? That's basically what I'm asking.

Leandro Garcia, CEO

In 2024, we paid $20 million.

Carlos De Alba, Analyst

Sorry, my mistake. 2025, sorry, or only 2026? So, in 2025, would you pay $20 million only, and then in 2026, you will potentially pay a little bit more?

Leandro Garcia, CEO

No. The dividend that management is proposing to the Annual General Meeting is approximately $80 million, which represents 20% of our net profit.

Carlos De Alba, Analyst

How is the relationship with Antofagasta progressing? What do you believe your management team and Buenaventura can gain from this partnership and the investment Antofagasta made a couple of years ago, along with the two Board seats they hold? Can you provide examples of initiatives or projects you might collaborate on?

Leandro Garcia, CEO

Well, let me tell you that we, as a management team, feel comfortable with the strategy. We have proposed to the Board and Antofagasta as part of the award, both of them are very supportive of the team strategy. And we are continuing with the same strategy that we proposed a couple of years ago or a year ago. So, we continue with our plan with our flagships, our effort to increase visibility of our company. No, we feel comfortable with them also. We feel they are very supportive.

Carlos De Alba, Analyst

Okay. Thank you very much, Leandro, Juan Carlos and Renzo.

Leandro Garcia, CEO

You're welcome, Carlos. Thank you.

Operator, Operator

The next question is from Cesar Perez-Novoa with BTG Pactual. Please go ahead.

Cesar Perez-Novoa, Analyst

Yes, good morning, gentlemen. Just continuing here on San Gabriel, I'm just going to piggyback on what Carlos' discussion. My question specifically is, if there is any risk related to completion of the asset? I know that you are well advanced and the assembly risk is minimal, but is there anything that investors should consider in relation to weather or perhaps rain as we go into the winter months? That would be my first question. And my second question relates to El Brocal. Your costs increased by around 36% year-on-year in the quarter. And as Leandro mentioned, this relates to lower byproduct contributions. So, should we assume that costs for the copper circuit will remain at this level throughout 2025? That is around $6,800 per metric ton, at least that's what was in the report, considering, of course, that your silver guidance for this unit is expected to fall in 2025, or is there anything that will reverse this? Those will be my two questions.

Leandro Garcia, CEO

Yeah, thank you, Cesar. For San Gabriel, Renzo can give you an idea. He's, of course, our Vice President of Project. He's in charge of San Gabriel, and also he's part of our management committee risk. So, we continuously are evaluating the risk for all our operations and especially for San Gabriel. Please, Renzo, go ahead.

Renzo Macher, Vice President of Projects

Thank you for the question. There is no risk regarding procurement as everything has already been ordered and the engineering is complete. The rainy season in Peru runs from December to March, with the most rainfall occurring in February, so we are nearing the end of that period. There have been slight delays due to the rain and storm warnings, but we can recover from those in the coming months. In terms of commissioning, the southern part of Peru is quite dry, so I do not anticipate any weather-related issues. We have already overcome the most challenging part. There are always ongoing social issues to manage, but we have not experienced any downtime, so I don't expect any major problems in that regard. Finally, regarding permits, we will begin working on those as soon as construction is complete. We will need to go through an authority process, and we aim to finish construction around May or June, giving us time to secure the operating permit.

Leandro Garcia, CEO

Thank you, Renzo. And for the question related to El Brocal, Juan Carlos is here, Cesar.

Juan Carlos Ortiz, Vice President of Operations

Thank you, Cesar, for the question. Yes, we expect the costs for El Brocal to be around $6,500 per tonne of copper. We are stabilizing within that range. This is due to two main factors: we are lowering our unit costs at the mine by decreasing the cost per tonne moved and processed. At the same time, as we adjust closer to the average grade of copper in our reserves, we have been mining slightly above the average grade. This involves balancing increased tonnage, reduced costs, and a gradual approach to the average copper grades in our reserves, all while aiming for a mine life of over 15 years. Considering these factors, we anticipate an average cost of approximately $6,500 per tonne of copper for El Brocal.

Cesar Perez-Novoa, Analyst

All right. Thank you very much. And sorry, Juan Carlos, just one more. At Coimolache, as per the stated mine plan, gold production in 2025 is going to grow as you expand your leach pad. How much of this expansion will translate to cost? I believe that your average cost last year was around $1,600 per ounce. Is this going to change this year?

Juan Carlos Ortiz, Vice President of Operations

Yes. The cost is going to keep the same for the initial three quarters of the year up to August, September, in which we will get the permitting for charging fresh ore into the leach pads. So, for these nine months, eight months up to August, September, we will keep the same cost as we had in 2024. From the time we start placing fresh ore into the pads, August, September, November, December this year, because the project cash cost will come down. So, this is going to be an inflection point also for Coimolache. Once we get the permit, when we get full production, our production costs, our cash costs will come down in the last quarter.

Cesar Perez-Novoa, Analyst

All right. Thank you very much, Juan Carlos, Renzo, and Leandro. Thank you very much.

Leandro Garcia, CEO

Thank you, Cesar.

Operator, Operator

The next question is from Tanya Jakusconek with Scotiabank. Please go ahead.

Tanya Jakusconek, Analyst

Great. Good morning. Thank you so much for taking my question. Just wanted to come back on San Gabriel, and thank you for the slide showing the progress. It's great to see. I can see everything pretty much on surface, and that's great, but I wanted to move to the underground, if I could, and maybe someone can help me. Can I just get an update on where we are on the underground in terms of getting the stopes ready? Because the mill will be ready, but I need to understand where the stopes are in terms of preparation for ore to be delivered to surface. And most importantly, I would like to understand how your ground conditions are. And the testing of these four mines in Nevada, can you kind of give me which mines you benchmarked against and sort of the costing there, and maybe what you are experiencing here? I know you're doing a trial test at Tambomayo. Maybe you haven't done one yet at San Gabriel, but I'm just trying to understand how the underground is being positioned to be ready to deliver ore.

Leandro Garcia, CEO

Thank you, Tanya. Thank you for your question. Please, Juan Carlos?

Juan Carlos Ortiz, Vice President of Operations

Sure. Well, regarding the progress on the underground mine, we are on track against our plans. We have two sets of crews developing the mine with a local contractor, the mining contractor. So, we are on track with what we plan to do. We already have, right now, like 20,000 tonnes of ore already on the surface, along with the development through the ore body. We are stockpiling that material on the surface right next to the processing plant. We expect to grow that stockpile up to almost 300,000 tonnes by October, November this year. Of course, there will be plenty of ore on the surface to catch up with the startup of the processing plant with the commissioning and the final operational settings of the processing plant. So, we feel comfortable with the progress on the underground mine. Along with that, we placed an order with Epiroc for a complete fleet for our mine development and mining activities. That fleet is going to be delivered by Epiroc, since July this year. June, July, and August, all the fleet will be delivered, our conventional equipment, nothing fancy. So, we don't expect any risk. We are training our people already, the new people that we are hiring around the San Gabriel footprint. So, all the plants are working together. Regarding the ground condition, we knew that it's going to be a poor ground, so it's something that we can't control right now with shotcrete. There is no water in the ground, so that's an advantage in the sense that we don't need to deal with that problem from the ground condition standpoint. Regarding the benchmark that we make, we are using all the parameters like this one mine that belongs to i-80, it's a running creek. The other is Cortez mine that is operated by Nevada Gold Mines. But we are taking not the cost, but the production grades, like the KPI of how many tonnes you need to break with the jumbo, how many tonnes you need to hole with the MAC with loader, etc., etc. We use those KPIs and translate that into our local metrics of operating costs. We have to consider that an average operator in the States is in the range of $100,000 or $120,000 per year. In Peru, the same operator is a fraction of that. So, we are taking that into consideration in order to make the local reconstruction of the operating costs for San Gabriel. So, that's the reason we expect to be in the range of $140 to $160 per tonne, whole unit is in the mine, the processing plant, and placing the tailings in the dry stacking system. I hope I answered the question, Tanya.

Tanya Jakusconek, Analyst

Yeah. The only thing, I mean, you've got the poor grounds, you're doing the shotcrete. You said you have no water, so that's good, right? You said no water?

Juan Carlos Ortiz, Vice President of Operations

Yes, that's correct.

Tanya Jakusconek, Analyst

Yeah. The range is $140 to $150 per tonne. Regarding the 20,000 tonnes of ore you've extracted, could you provide the grade of that stockpile as well as the grade of the 300,000 tonne stockpile? Is the grade consistent with your expectations based on the block model?

Juan Carlos Ortiz, Vice President of Operations

Well, we are pretty much in line. We are slightly above that, slightly above. We expect it to be running along blocks with 4 to 5 grams per tonne. We are more in the over 5-grams range for the material that we already have on the surface, for the 20,000 tonnes that we have on the surface. For the whole year, we expect to place the surface either at 4.5 to almost 5 grams that the overall grade of the material that we're going to extract from the mine alone this year.

Tanya Jakusconek, Analyst

And when you proposed your stopes, what sort of mining dilution is in your stope models? Is it meeting what dilution you expected? I'm just looking at the photos on Page 11 of that underground. I don't even know if it's San Gabriel.

Juan Carlos Ortiz, Vice President of Operations

Yes. At this moment, we are not having any dilution because we are opening the tunnels, what we call the first route. Once we have placed the backfill, we need to make the secondary breaks in which we will have waste on the left and the right side of the walls of the new tunnel in between these two backfill areas; this is where we start expecting to have some dilution. Dilution for those blocks is expected to be around 12%, but we will monitor that because it's a consequence of several factors like drilling, blasting control, and the quality of the filling. So, probably we will need to fine-tune that at the early stage of the mine. After a few months, we will have a good assessment of whether that's closer to 10% or more closer to 15%. Right now, our assessment is in the range of 12% dilution.

Tanya Jakusconek, Analyst

Okay. And can I ask, also just finishing off San Gabriel, I saw on the reserve that you didn't report reserves for San Gabriel and you're redoing your reserves. I was a bit confused about that because I would have assumed all of your reserves would have been reported under a specific standard. What was it about San Gabriel that didn't meet standard? And should I be concerned that these reserves are going to go down? I'm just trying to understand why you had to redo the reserves only at that mine and nowhere else.

Juan Carlos Ortiz, Vice President of Operations

Yeah. Remember, I think it was in the third quarter of 2024, we reported an update on the operating cost of the mine. That was a material difference between the operating cost that we have in the feasibility study. So, based on that, we need to review the whole analysis in order to report kind of a fresh report for a 20-F. So, we are working on that. As you mentioned, we are taking into consideration the increased operating cost, the new block model with additional infill drilling that we made up to October last year, all the parameters of operational control, like dilution, as you mentioned, taking into consideration on a more detailed sequence. So, yes, we are working on that. We will report that on a 20-F. We will see so far because it's not finished yet that probably we need to make an adjustment to reduce a little bit of the reserves that we've reported in the past. We'll report an order of 1.9 million ounces of gold at reserve, and probably we will report a little below that in this updated 20-F report.

Tanya Jakusconek, Analyst

Okay. And when's the report coming out?

Leandro Garcia, CEO

April 30, I think.

Juan Carlos Ortiz, Vice President of Operations

April 30, yes.

Tanya Jakusconek, Analyst

Okay. Well, thank you so much. I'm going to leave it to someone else to ask questions, but very helpful in understanding San Gabriel and thank you for the photographs.

Juan Carlos Ortiz, Vice President of Operations

Thank you, Tanya.

Operator, Operator

Ladies and gentlemen, we will now conclude today's audio question-and-answer session. I would like to hand it back to Sebastián Valencia, Head of Investor Relations, for any webcast questions.

Sebastián Valencia, Head of Investor Relations

Thank you, operator. The first question comes from someone at Morgan Stanley. Do you expect any dividends from Cerro Verde?

Leandro Garcia, CEO

Danny?

Daniel Dominguez, CFO

Yes. Well, Cerro Verde, as you know, has paid close to $170 million of dividends associated with the year 2024. For the year 2024, we don't expect more dividends. However, Cerro Verde, on a full year, is generating in excess of $2 billion. They have no debt. The CapEx that they spend every year is around $300 million to $350 million. Working capital plus taxes is in the order of $700 million. With this, they are generating close to $1 billion of cash per year. Considering that they ended 2024 with close to $700 million, which is in excess of their minimum cash, we do expect at this level of prices of $9,000 per tonne, an additional or a dividend for 2025 in a similar amount to what we received in 2024.

Sebastián Valencia, Head of Investor Relations

The next question is about your plans for Trapiche this year and the upcoming milestones for the project. Additionally, can you provide some information on the Algarrobo project that you were awarded by PROINVERSIÓN?

Leandro Garcia, CEO

For this question, maybe Renzo and Aldo can help us.

Aldo Massa, Vice President of Business Development and Commercial

Sure. In Trapiche, as you remember, we have on-site column leaching plant. We are unloading the last set of column testing for viability. We have our QP team visiting the site last month. So that's one of the big milestones for this year: to get a 60% advance in the final world-class feasibility study. We also, in the permit section, we finished answering all the questions from the environmental impact assessment. We're waiting for any second question. If not, we're expecting to have that towards the end of the year. And finally, we keep working with the communities to secure the remaining 20% of the potential power line. That's going to be the plan for this year.

Renzo Macher, Vice President of Projects

And regarding the Algarrobo project, this project will be executed through a transfer and option agreement between Buenaventura and PROINVERSIÓN. It consists of three stages. The first stage consists of a period of three years to reach a social agreement with that community in Piura. Once this agreement is reached, it's going to start a period of five years to obtain permits and authorizations. Of course, we have to execute a project of water supply. That will cost $5 million approximately. Then, start a mineral exploration and, of course, make a feasibility study. Buenaventura will then decide whether to exercise the option or not. The third stage will proceed with the construction of the mining operation if we decide to exercise that option. The CapEx will be between $400 million and $800 million.

Sebastián Valencia, Head of Investor Relations

At this time, there are no further questions. I would like to turn the call over to the operator.

Operator, Operator

That concludes the question-and-answer session of today's conference call. I would like to turn it back over to management for closing remarks.

Leandro Garcia, CEO

Thank you, operator. And before we conclude today's conference call, I would like to thank you for the time and effort you dedicated to joining us today. Your participation and input are greatly appreciated. Thank you very much, and have a wonderful day.

Operator, Operator

Ladies and gentlemen, that concludes Buenaventura's fourth quarter 2024 earnings results conference call. We would like to thank you again for your participation. You may now disconnect.