Earnings Call Transcript - BVN Q1 2022

Operator, Operator

Good day, ladies and gentlemen. Welcome to the Compania de Minas Buenaventura First Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode and please note that this call is being recorded. I'd now like to introduce your host for today's call, Mr. Gabriel Salas, Investor Relations. Mr. Salas, you may begin.

Gabriel Salas, Investor Relations

Good morning, everyone, and thank you for joining us today to discuss our first 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. Aldo Masa, Vice President of Business Development and Commercial; Mr. Alejandro Hermoza, Vice President of Sustainability; Mr. Renzo Macher, Project Manager; Mr. Juan Carlos Salazar, Geology and Explorations Manager; Mr. Roque Benavides, Chairman; and Mr. Raúl Benavides, Director. 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 28, 2022. With that, let me now turn the call over to Mr. Leandro Garcia, Chief Executive Officer. Leandro, please go ahead.

Leandro Garcia, CEO

Thank you, Gabriel. And good morning to all and thank you for attending this conference call. Before we start this presentation, we would like to wish you and your family and friends health and wellbeing at this difficult time. We are pleased to present the results of the first quarter 2022 for Compania de Minas Buenaventura. We have prepared a PowerPoint presentation, which is available on our webpage. Before we go further, please take a moment to review the cautionary statements shown on Slide 2. Moving on to Slide 3, highlights are as follows. First quarter ‘22 EBITDA from direct operations reached $431.9 million, compared to $39.7 million reported in the first quarter ’21, reflecting $300 million resulting from the sale of Buenaventura’s stake in Yanacocha and $45 million from Newmont’s contribution to La Zanja’s future closure costs. First quarter ‘22 EBITDA, including associated companies, reached $578.7 million compared to $168.8 million in the first quarter 2021. First quarter ‘22 net income reached $636.2 million compared to $16.4 million for the same period in 2021. First quarter ‘22 exploration at operating units increased to $14 million from $9.3 million in the same period last year, aligned with the company's strategy to focus primarily on exploration. First quarter capital expenditures were $19.9 million, compared to $13 million in the same period for 2021. First quarter ‘22 CapEx includes $2.8 million in CapEx related to the San Gabriel Project and $4.7 million in CapEx related to the Yumpag Project. The company is continuing the strategy of progressively reducing fixed costs at the Uchucchacua mine to improve the cost structure efficiency when the operation restarts. First quarter ‘22 COVID-related expenses were $5.3 million, compared to the $11.7 million reported in the first quarter ’21. 2022 COVID-related expenses estimates are between $12 million and $14 million. Buenaventura’s cash position reached $337.4 million as of March 31, 2022. Net Debt was reduced to $771 million, achieving a 1.71 times net debt to EBITDA ratio. Aligned with the company’s commitment to deleveraging, on March 2, Buenaventura fully paid its syndicate loan amounting to $275 million, and on March 18 the company canceled $50 million of its revolving facility. On March 30, the San Gabriel Mine Project received the Government of Peru’s approval of all required permits, enabling the company to immediately commence mining project construction, development, and exploration. 2022 production guidance will be updated in the second quarter ‘22 due to a new mine plan in progress for El Brocal, resulting in an expected 1 million to 1.5 million ounce decrease in silver production for the full year 2022. Moving on to Slide 4, ESG Corporate Strategy. As presented before, here you will find our materiality metrics. This year, we will start working on the closing of gaps and fortifying standards in the supply chain, climate change, and energy use. The results of the progress made in this first quarter are shown in the next slide. Moving on to Slide 5, here you can find some key indicators regarding our ESG Strategy. For example, on the environment pillar, Buenaventura is committed to responsible water management, achieving 99% of our circulation at our open pit operation, and 83% at our underground upgrades. Also, in the first quarter of 2022, we have used 74% of renewable energy, primarily from our hydroelectric power plant. And this year, we will focus on measuring our carbon footprint. Regarding the social pillar, as we have always mentioned, taking care of our workers’ health is our top priority and we will continue working on this. We have achieved a 92% fulfillment of our social commitment. Also, we have made more than $120 million in local purchases. Finally, regarding the government's pillar, we will focus on optimizing EBITDA and the construction of our San Gabriel and Yumpag Projects, which are key value generators. Moving on to Slide 6, financial highlights. Total revenues during the first quarter were $233 million, which is 27% higher in comparison to the first quarter of 2021. As we mentioned before, our EBITDA from direct operations for the first quarter increased to $432 million in comparison to $14 million during the first quarter of last year. Also, our EBITDA including associated companies for the first quarter of 2022 reached $579 million in comparison to $163 million for the same period. The CapEx increased to $20 million in the first quarter of ‘22 compared to $13 million in the first quarter of last year. Moving on to Slides 7 and 8, attributable production. Total gold attributable production in the first quarter of 2022 was 49,000 ounces, which is 31% higher than the figure reported in the same quarter of the previous year. The silver production of this quarter was 2 million ounces, which shows a decrease of 42% compared to the figure reported in the first quarter of 2021. This is a direct result of the suspension of operations at Uchucchacua. In the first quarter of 2022, 9,000 metric tonnes of zinc were produced, a slight decrease compared to the first quarter of last year. In the case of lead, equity production was 4,000 metric tonnes in the first quarter of ‘22, which is 3% lower in comparison to the first quarter of 2021. Finally, our copper attributable production for the first quarter of the year was 27,000 metric tonnes, an increase of 13% when we compare it with the same period of 2021. Moving on to Slide 9. All-in sustaining costs and costs applicable to sales cash. The all-in sustaining costs from our direct operations in this quarter decreased by 34% to $1,131 per ounce payable. The cost applicable to sales for the first quarter of 2022 were as follows: for gold, $1,126 per ounce, which is 30% lower than a year ago; for silver, $15.21 per ounce which is 22% lower than a year ago; for lead, $1,375 per metric tonne, which is 4% higher than a year ago; for copper, $6,631 per metric tonne, which is 19% higher in comparison to the year ago. Finally, in the case of zinc, the cost applicable to sales was $2,838 per metric tonne, which is 38% higher than a year ago. Moving on to Slide 10, our pipeline of projects update. Here we are presenting the current development level for each of our projects. In Slide 11, San Gabriel, we obtained the approval of all requirements. This enables us to immediately commence the construction and the early works. We are currently starting to release purchase and service order for contracts for the construction. Moving on to Slide 12, Trapiche. Onsite metallurgical column testing is in progress. We have completed one of two environmental assessment workshops in the field. We are only missing one to be held in the second quarter of ‘22. The cooperation agreement with four out of five communities is in the final stages. We finished an update report on powerline land access with favorable results. Moving on to Slide 13, Tantahuatay’s Sulfides project. Coimolache’s board approved the viability stage. We finished 2021’s In-fill drilling program confirming the high-grade zone. Thank you for your attention. And we'll hand the call back to the operator to open the line for questions. Operator, please go ahead.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Carlos De Alba from Morgan Stanley. Please go ahead.

Carlos De Alba, Analyst

Yeah. Good morning, gentlemen. Hopefully you're doing fine. The first question is if you could give us even more color on El Brocal? What has led to the revised mining plan? And what would be the impact besides the production that you provided on costs for that operation? Also, if there are any other meaningful changes to the production of the other metals at that operation? And then could you comment on the discrepancy between EBITDA and cash flow generation? Cash from operations was negative, EBITDA was really strong. I think that it has to do potentially with the discontinued operations, the results on discontinued operations. How much in cash taxes did you pay on the profits that you booked from these continuing operations? Thank you.

Leandro Garcia, CEO

Thank you, Carlos. With respect to your question about the production of Brocal, this is a consequence of the event we had in March that was advised to the market. We have to change the mining plan. But more color should be provided by Carlos.

Juan Carlos Ortiz, VP of Operations

Thank you, Carlos, for the question. Yes, the landslide occurred on the west flank of the open pit. So in that area, we have a remediation plan that is in place right now. This will probably take between three to four months to remediate that area, to remove the loose material, and to stabilize the slope to ensure safe conditions for that particular area of the mine. We will continue with the mining of the south section of the open pit, and also the remaining area in the north. In addition, we will supply ore to the processing plant from the polymetallic stockpile that we have right next to the main crusher. The consequences will be a delay in the production or rescheduling of production from certain areas of the open pit due to this incident. The impact for this year will be within the range of 1.1 to 1.5 million ounces of silver. This production will be delayed for 2022, probably pushing into 2023. We're still looking for opportunities to adjust the schedule. By reviewing this plan, we hope to capture some opportunities to reduce the gap in silver production and increase a bit of lead production. But we are on the conservative side so far, and we will have more information from the studies and more progress on the works that have been done.

Carlos De Alba, Analyst

Thank you, Juan Carlos.

Leandro Garcia, CEO

Daniel, please.

Daniel Dominguez, CFO

Thank you, Leandro. Good morning, Carlos. Yes, the discrepancy between the EBITDA from direct operations and the operating free cash flow that we reported is due to two reasons. One is the taxes that you mentioned. In February, we sold the Yanacocha asset. The taxes related to this asset sale were paid in March, and this was in the order of $50 million. This is under Condesa which consolidates in our results. This is the explanation for the tax increase. The increase in working capital, which is around $30 million, is explained by three main factors. First, it’s due to the provision to Uchucchacua. Remember that in December, we accrued between $17 million and $20 million for contractor cuts, as well as the headcount adjustments made at the end of the year. These bills were due in January and February. The provision was made in December, so you saw these effects in December in our costs, but the cash disbursements happened in January and February. The same applies to El Brocal. We had some claims that were provisioned at the end of last year and paid in the first quarter, which amounted to about $6 million. Also, in December, we renewed property insurance worth around $10 million to $11 million. The provision was made in December, and the payments were executed between January and February. This is why there is a discrepancy between the EBITDA and the free cash flow of around $70 million.

Carlos De Alba, Analyst

Thank you, Daniel.

Operator, Operator

Our next question comes from Tanya Jakusconek from Scotiabank. Please go ahead.

Tanya Jakusconek, Analyst

Yes. Good morning, everyone. Thank you so much for taking my call. I have three questions. The first question goes back to El Brocal. I just wanted to check with you why there was no adjustment to either the copper or the base metal aspects of the mine. You lowered the guidance for silver but nothing on the base metal products. Can you explain to me why that's the case?

Leandro Garcia, CEO

Tanya, we have two operations in America. One is the open pit and the other is the underground mine. More detail should be provided by Juan Carlos. Please, Juan Carlos, go ahead.

Juan Carlos Ortiz, VP of Operations

Yes, Leandro. Thank you for the question, Tanya. The guidance for copper was not changed because we don't have any impact on the underground mine, which accounts for 95% of the copper production for this year. Regarding lead and zinc, as I mentioned, the south wall of the open pit and the northern wall of the open pit were not impacted by the accident. We have to add extra fleets to remove additional material, but we will maintain the expected production. So probably, as I mentioned, we will review it in order to see if we can reduce the gap in silver and increase effectively a little bit of the lead and zinc. But for now, we believe the main impact will be on silver, or the equivalent in monetary terms on the income later on with a little bit of reduction in zinc and lead. That will be shared with the market in our next conference call when we have more information about stability and the progress on the remediation works.

Tanya Jakusconek, Analyst

So what I'm understanding from you is that you've got to take the trucks away from the portion of the pit that's working on the zinc and lead and move them to where we've had the mudslide, and the cleanup is going to incur additional costs. Is that what I'm understanding?

Juan Carlos Ortiz, VP of Operations

Not exactly. The southern wall is around 100 meters away from the landslide. We continue with the work in this area. We had a halt of about two weeks, and now we are deploying additional trucks to catch up in the southern wall. The southern wall is 150 meters away from the mudslide. So we will continue the work in that area. The northern wall of the open pit, the northern phase is about one kilometer north of the mudslide, so we don't have any interference there. We temporarily stopped work for a couple of weeks, but we are resuming work right now. We believe we will continue with the plan and catch up on the two-week delay we experienced during the accident. However, we are looking for ways to reduce the gap in silver production as a result of the landslide that might lead to a trade-off between single lead production. But that will not be substantial in terms of dollars. We would trade off the income of single lead with a bit more income from silver, which we will consider throughout the year.

Tanya Jakusconek, Analyst

Okay. So $3 million to $4 million is really the additional costs we should expect for that operation this year?

Juan Carlos Ortiz, VP of Operations

Yes.

Tanya Jakusconek, Analyst

And in terms of an updated mine plan for Uchucchacua, will we be getting that this year or is it next year?

Leandro Garcia, CEO

Tanya, thank you for your question. The market is concerned about when we are going to resume work in Uchucchacua. We are working very hard to shorten the schedule. However, we believe that the expected date for Uchucchacua to be back in operation will be next year.

Tanya Jakusconek, Analyst

Do you remember if that was the second half of the year or towards the end of the year for Uchucchacua next year?

Leandro Garcia, CEO

The second half.

Tanya Jakusconek, Analyst

Okay. And my next question concerns San Gabriel. Congratulations on getting the permits and starting construction there. Can you provide some of the milestones we need to meet from here to 2025 for production?

Leandro Garcia, CEO

I would like to take the opportunity to congratulate the entire team that made this possible. The permitting process has been very challenging, and we succeeded. Renzo Macher, our Project Manager, is with us to provide details and the correct answer.

Renzo Macher, Project Manager

Thank you very much. We have authorization to start with the earthworks, and we are currently placing orders for equipment and conducting pre-construction work, as well as maintaining the current main infrastructure that has been inactive for a couple of years. Our goal is to finish construction towards the end of 2024 and aim for first production in the first half of 2025.

Tanya Jakusconek, Analyst

So commercial production is expected in the second half of 2025. Are there any critical milestones in the construction phase for us to watch for?

Renzo Macher, Project Manager

During 2021, we worked on engineering, with 33% of the engineering completed. I expect that the key milestone will be reaching the foundation for the plant and the foundation for the water dam. We will have more information on that towards the end of 2022. That will be the first milestone of the project, confirming the foundation's integrity. Subsequently, the campsite should be ready by the second quarter of 2024, which will signify the beginning of heavy construction.

Tanya Jakusconek, Analyst

So just to confirm, you'll be laying down the foundation by the end of 2022 and completing the campsite by Q2 2024. Then you have heavy construction from Q2 2024 until you pour gold in the second half of 2025. Is that correct?

Renzo Macher, Project Manager

Yes, that's correct. I just want to clarify that the first milestone is reaching the foundation level, not the installation; we will be working on the foundation confirmation.

Tanya Jakusconek, Analyst

Got it. Thank you for that. And my last question is for Daniel. Can you provide an update on the Cerro Verde dividends? We're expecting some in 2022. Do you foresee a dividend in Q2?

Daniel Dominguez, CFO

Yes, Tanya. Good morning. We are receiving today close to $30 million. These are dividends related to the 2021 results. We also expect additional dividends for the second half of the year, but we don't have any figure to report yet as we are evaluating the potential for additional dividends in the second half.

Tanya Jakusconek, Analyst

Okay, well, congratulations on the additional $30 million. That's good news. Thank you! Have a great weekend, everyone.

Leandro Garcia, CEO

Thank you. You too.

Operator, Operator

Again, if you have a question, please press star then one. There are no more questions in the queue. That concludes our question-and-answer portion of today's conference call. I would like to turn it back to Leandro Garcia for closing remarks.

Leandro Garcia, CEO

Thank you. Before we finish today’s conference call, thank you again for making the time to join us. We would like to invite you to our 2022 Investor Day, which will be held in New York on June 6 at 10 am Eastern Standard Time. Thank you again, and have a wonderful day.

Operator, Operator

Ladies and gentlemen, that concludes Buenaventura’s first quarter 2022 earnings results conference call. We would like to thank you again for your participation. You may now disconnect.