Earnings Call Transcript - BVN Q1 2023

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Compañía de Minas Buenaventura First Quarter 2023 Earnings Results Conference Call. At this time, all participants are in a listen-only mode, and please note that this event 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.

Gabriel Salas, Investor Relations

Good morning, everyone, and thank you for joining us today to discuss our first 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. Roger Navies, 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 its assumptions, expectations, and projections are reasonable in the 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 April 27, 2023. Let me now turn the call to Mr. Leandro Garcia.

Leandro Garcia, CEO

Thank you, Gabriel. Good morning to all, and thank you for attending this conference call. We are pleased to present the results for the first quarter 2023 from Compañía de Minas Buenaventura. We have prepared a PowerPoint presentation, which is available on our web page. Before we go further, please take a moment to review the cautionary statement on Slide number two. Moving on to Slide three. Highlights were as follows. First quarter '23 EBITDA from direct operations was $51.6 million compared to the $86.9 million reported in the first quarter of '22. EBITDA results do not include $300 million from the sale of Buenaventura's stake in Yanacocha. First quarter '23 EBITDA, including associate company, reached $181.9 million compared to the $233.7 million in the first quarter of '22. Again, EBITDA results do not include the $300 million from the sale of Buenaventura's stake in Yanacocha. First quarter '23 net income from continuing operations reached $72.2 million compared to $134.7 million net income from continuing operations for the same period in 2022. Brocal mine from its open pit was stockpiled during the first quarter of 2023 and was not treated during the quarter. Underground mine production increased to 9,350 tonnes per day during the first quarter '23 compared to the 7,100 tonnes per day in the first quarter 2022 as part of the ramp-up to reach 10,000 tonnes per day during 2023. This stockpiled lead and zinc ore will be treated at the Brocal processing plant in the second quarter of 2023. Buenaventura's cash position reached $173 million as of March 31, 2023. Net debt increased to $556.8 million with an average maturity of 3.1 years. First quarter 2023 capital expenditures were $36.2 million compared to $19.9 million for the same period in 2022. First quarter 2023 CapEx includes $9.7 million related to the San Gabriel project, and $8.8 million related to Yumpag project. On March 24, 2023, we announced a total dividend distribution of $250 million. Buenaventura will receive $49 million relative to its stake in rail on April 28, 2023. During the first quarter of this year, operations at Julcani were suspended for 10 days in February 2023 related to antigovernment protests, which adversely impacted production and mine development. Operations were fully established on February 16, 2023. The company plans to recover this production in subsequent quarters and expects to meet 2023 production guidance. Moving on to Slide four, our financial highlights. Total revenues during the first quarter were $186 million, which is 20% lower in comparison to the first quarter of 2022. As we mentioned before, our EBITDA from direct operations for the first quarter 2023 was $52 million in comparison to $87 million during the first quarter of 2022. Again, these figures exclude the Uchucchacua transaction effect. Also, our net income from continuing operations for the first quarter of 2022 was $73 million in comparison to a net income from continuing operations of $135 million during the same period in 2022. The CapEx increased to $36 million in the first quarter of 2023 compared to the $20 million in the first quarter of 2022. Moving on to Slide five, attributable production. Total gold attributable production in the first quarter of 2023 was 39,000 ounces, 21% lower than the figure reported in the same quarter of the previous year. This decrease is mainly explained by Latana mining operations expansion since the fourth quarter of '22, and lower production at Coimolache as mining and ore stockpiling were temporarily suspended in the fourth quarter of 2022. Silver attributable production for this quarter was 1.1 million ounces, which shows a decrease of 38% compared to the figure reported on the first quarter of 2022. This decrease in production was primarily due to the Brocal underground mine being the sole producing mine during the first quarter of 2023, along with the adverse impact of the 10-day suspension of activities at Julcani due to the protests described. Finally, our copper attributable production for the first quarter of the year was close to 29,000 metric tonnes, a 7% increase compared to the same period in 2022. Moving on to Slide six, all-in sustaining cost and cost applicable to sales. The all-in sustaining cost from our direct operations in the first quarter of 2023 increased by 44% to $1924 per ounce of gold. The cost applicable to sales for the first quarter of 2023 were as follows: for gold, $1,124 per ounce, which is almost equal to a year ago. For silver, $21.5 per ounce, which is 41% higher than a year ago; for lead, $1,394 per metric ton, which is 1% higher than a year ago; for copper, $6,738 per metric ton, which is 2% higher in comparison to a year ago. Finally, in the case of zinc, the cost applicable to sales was $1,966 per metric ton, which is 31% lower than a year ago. Moving on to Slide seven, our pipeline of projects update. Here, we are presenting in one snapshot the current development level for each of our projects. Moving on to Slide eight. Our projects in the case of Yumpag, our brownfield project, we are focused on the development of main ramps and exploration tunnels. The updated geological model suggests the opportunity to increase mineable grade with less mining development. The environmental permit for underground exploration was granted in February 2023. The environmental permit for mining is expected in May 2023. In the case of San Gabriel, our greenfield project, we have finished the organic contract. The construction is to start in May and is definitely coming on site in July. The authority admitted the power line environmental impact assessment and is currently programming the third workshop by the third quarter of 2023. We are working with the regional government regarding maintenance and right of way, which we have reached an agreement with the community on oil transport fees. Thank you for your attention, and I will hand the call back to the operator to open the line for the questions. Operator, please go ahead.

Operator, Operator

Our first question today comes from Carlos De Alba from Morgan Stanley. Please proceed with your question.

Carlos De Alba, Analyst

Thank you. Good morning, everyone. My first question is about El Brocal and the stockpiles that you accumulated in Q1. How much under your process this quarter are you processing? Can you offer some color on how much lead will be sold during the second quarter from the stockpiles? Or would you really expect to see the volumes really coming only in the third quarter given that the processing will take place during the second quarter? And my second question has to do with the balance sheet and the free cash flow. The free cash flow in the last several quarters has been for the most part negative, and your debt has increased. Net debt has increased and the maturity is only 2.1 years. And how are you going to address this situation? We’re getting more and more questions from investors that are concerned about the balance sheet. And Seroteis is paying dividends, but probably not as much as we would have thought. So yes, just any comments, maybe, Daniel, on how you're going to address the situation? What are the plans that the company has in order to improve the balance sheet? That would be great.

Leandro Garcia, CEO

Thank you, Carlos, for your questions. First, in terms of Brocal, maybe Juan Carlos will give more color to the answer. But the thing is the order we have the stockpile there; we have a plan to process through the plant during the year. In terms of the free cash flow, we have some strategies for how to manage this negative quarter in terms of free cash flow. However, this third quarter has been characterized by the use of working capital. Now we have used more working capital. We have not treated the ore, for example, in Brocal. And that – Daniel will give you more information about how we plan to turn our strategies for this coming year and all the projects we have lined up. And finally, the dividend of Serolerde we already have received the first part of the dividend. We expect, for sure, during the year, normally, Freeport declares dividends, one in March and the second as an advance in October. So we should expect an additional dividend during the year. Please, Juan Carlos, if you can give more color to?

Juan Carlos Ortiz, Vice President of Operations

Sure. We ended up the first quarter of 2023 in Brocal with an average of 200,000 tonnes of ore in the stockpile. The focus was on stripping for this asset that we are mining in the open pit. In the coming quarters, we will increase that volume of the stockpile up to around 1 million tons in the third quarter and then coming down by the end of the year to finalize this year with around 400,000 tons of ore in stockpile. By the first quarter of 2024, we will complete the processing of this material. The material is mainly poly-metallic with areas that contain copper because we're getting closer to the underground mine that is mainly copper. This is pretty much the same transition that we see in open pit mining. The volumes of lead that we are going to be producing are in line with our guidance for the year. So it's only the sequence of mining up to September and the sequence of processing all the way down to the last quarter of this year and the first quarter of 2024. So in the first quarter of 2024, we will finalize the processing of the outstanding stockpiles from the open pit in Brocal. And our next question - sorry, the second part of the answer of the question from Carlos. Thank you, Carlos, for your question. Yes, temporarily, we are experiencing a deterioration of our leverage ratio. It's over 3 times right now. But we believe this will be reducing in the following quarters when we have better EBITDA. Last year, the second EBITDA of 2022, which is counted within the period of this ratio, we had a very low EBITDA. We believe in the second quarter and third quarter, with Brocal improving operation after treating the stockpile that Juan Carlos mentioned, we are going to recover the EBITDA. Meanwhile, to be able to fund impact and San Gabriel, we are going to use our own cash, but we will also raise a temporary facility that we have already committed to local banks. This could be between $50 million and $100 million. This will permit us to fund temporarily our obligations in Yumpaq and San Gabriel. We believe that with the dividends also that we will receive at the end of the year, after starting Uchucchacua and Yumpag in the third and fourth quarters, we will be able to finish the year with a leverage ratio of below 3.5 times. For next year, the expectation is to operate Yumpag at full capacity and to have better EBITDA; we think that the leverage ratio should go down to levels of three times.

Carlos De Alba, Analyst

Thank you. Just one question on the working capital in the quarter. Leandro alluded to that. But actually, the biggest negative impact that we can see is not on inventories. It is on trade and other accounts payables, so almost $80 million negative impact. Any particular reason why such a big delta in that line?

Juan Carlos Ortiz, Vice President of Operations

Yes, Carlos. As you remember, last year, we experienced the same situation. In December, we registered a big amount of bills from contractors, basically at El Brocal and Tambomayo. These were registered at the end of the year and were paid during the first quarter of the year. So this is a temporary effect as well.

Carlos De Alba, Analyst

Thank you.

Operator, Operator

And our next question comes from Tanya Jakusconek from Scotiabank. Please go ahead with your question.

Tanya Jakusconek, Analyst

Good morning, everyone. Thank you so much for taking my question. I actually have three. Just for Daniel, can you confirm that at your Investor Day and in your materials, you gave guidance for Sierra Verde dividend to be about $120 million per annum for you for the next sort of 3 years? Is that still a good number for us to use?

Daniel Dominguez, CFO

Yes, Tanya. We think that with the levels of the copper price right now, we are generating very important cash flow. We believe that the amount of dividend should be between $100 million and $120 million per year.

Tanya Jakusconek, Analyst

Okay. And then, Daniel, there's been no change to your capital cost guidance that you provided earlier this year?

Daniel Dominguez, CFO

Not at this point in time. We are still evaluating any effect at San Gabriel. But at this point in time, we maintain the same level of CapEx for this year.

Tanya Jakusconek, Analyst

Okay. And so can I just come back to San Gabriel? And then my final question is actually back to El Brocal. But just on San Gabriel, you mentioned that we've done the camps. You're doing the carline EIA. And then we have the third workshop. Can you remind me what the third workshop is? And am I getting a permit with this third workshop? I'm just a bit confused.

Daniel Dominguez, CFO

Thank you, Tanya, for your question. The permit; we mentioned last year the construction permits. But well, here with Renzo Macher, our Vice President of Projects, can explain in detail the following part.