Earnings Call Transcript - BVN Q3 2022

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Compañía de Minas Buenaventura Third Quarter 2022 Earnings Conference Call. I would now like to introduce your host for today's call, Mr. Gabriel Salas, Investor Relations. Mr. Salas, please begin.

Gabriel Salas, Investor Relations

Good morning, everyone, and thank you for joining us today to discuss our third quarter 2022 results. Today's discussion will be led by Mr. Leandro Luis 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. Alejandro Hermoza, Vice President of Sustainability; Mr. Renzo Macher, Project Manager; 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 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 press release we filed on October 27, 2002. Let me now turn the call to Mr. Leandro Garcia.

Leandro Garcia, CEO

Thank you, Gabriel. Good morning to all, and thank you again for attending this conference call. We are pleased to present the results of the third quarter 2022 from Compañía de Minas Buenaventura. As always, we have prepared a PowerPoint presentation, which is available on our webpage. Before we go further, please take a moment to review the cautionary statement mentioned on Slide 2. Moving on to Slide 3. The highlights of this quarter were as follows: third quarter 2022 EBITDA from direct operations was $22.2 million compared with $39.5 million reported in the third quarter 2021. Third quarter 2022 operating cash flow reached USD 16.1 million compared to minus $464.3 million in the third quarter of 2021. The third quarter 2021 operating cash flow figures include a USD 544.2 million payment to SUNAT, the Peruvian tax authority. Third quarter 2022 net loss was $19.8 million compared to $91.9 million net loss for the same period in 2021. Third quarter 2022 exploration at operating units increased to $20.7 million compared to USD 17.1 million in the third quarter 2021. This increase is aligned with the company's review strategy to increase its focus on exploration in order to extend our life of mine. The results of the exploration campaign impact are very encouraging. We are outlining a high silver grade deposit, and we believe there is a potential resource that will allow us to at least double the amount of silver ounces we have reported up till now. Buenaventura's cash position reached $288 million as of September 30, 2022. Net debt decreased to $448.1 million with an average maturity of 3.6 years. Third quarter 2022 capital expenditures were $37.2 million compared to $23.9 million for the same period in 2021. Third quarter 2022 CapEx includes $5.2 million related to the San Gabriel project and $7.3 million related to the Yumpag project. Construction-related activities at San Gabriel are gradually and progressively resuming. Buenaventura has therefore stated its CapEx guidance for San Gabriel and now expects this to reach approximately USD 65 million by the year-end 2022. Moving on to Slide #4, our ESG corporate strategy. Here, we will find some key indicators regarding our ESG strategy. We have delivered our carbon footprint measurement in all units as we announced last quarter. With this tool, we now know how much CO2 we'll generate, and our next step is to develop a plan to reduce these emissions. The full report can be found on our website. Moving on to Slide 5, our financial highlights. Total revenues during the third quarter were $195 million, which is 11% lower in comparison to the third quarter of 2021. In the 9 months of the year, total revenues decreased to $578 million compared to $647 million during the 9 months of 2021. As we mentioned before, our EBITDA from direct operations for the third quarter of 2022 was $22 million in comparison to $39 million during the third quarter of 2021. EBITDA from direct operations for the 9 months of 2022 decreased to $96 million in comparison to $145 million during the first 9 months of 2021. These few years exclude the Yanacocha transaction effect. Also, our net loss in the third quarter of 2020 was $22 million in comparison to a net loss of $94 million during the same period in 2021. Net income for the first 9 months of the year reached $534 million compared to a net loss of $41 million for the same period in 2021. The increase is explained by the Yanacocha transaction. The CapEx increased to $37 million in the third quarter of 2022 compared to in the third quarter of 2021. In the first 9 months of the year, CapEx totaled $93 million, a 60% increase in comparison to the first 9 months of 2021. Moving on to Slide 6 and 7, our attributable production. Total gold attributable production in the third quarter of 2022 was 56,000 ounces, which is 2% higher than the report of the same quarter of the previous year. This increase is mainly explained by the stable production from the Pucara vein and at Orcopampa, but partially offset by lower production at certain mines. For the first 9 months of 2022, total gold attributable for production was 153,000 ounces, 10% higher than the same period in 2021. Silver attributable production for this quarter was 1.7 million ounces, which shows a decrease of 50% compared to the period reported in the third quarter of 2021. During the first 9 months of 2022, silver attributable production was 5 million ounces, 49% lower than the first 9 months of 2021. This decrease was mainly explained primarily due to the suspension of Uchucchacua’s operation as we previously announced and a change of the mine plan sequence at El Brocal. In the third quarter of 2022, 7,000 metric tons of zinc were produced, a decrease compared to the third quarter in 2021. In the first 9 months of the year, zinc production reached 22,000 metric tons, 30% lower than the same period in 2021. In the case of lead, equity production was around 4,000 metric tons in the third quarter of 2022, which is 28% lower in comparison to the third quarter of 2021. In the 9 months of 2022, lead production was approximately 12,000 metric tons, a 13% increase compared to the same period of 2021. Moving on to Slide 8, all-in sustaining costs and applicable to sales. The all-in sustaining cost from our direct operations in the first 9 months of 2022 decreased by 12% to USD 1,424 per ounce of gold. The cost applicable to sales for the first 9 months of 2022 were as follows: for gold, USD 1,126 per ounce, which is 8% lower than a year ago; for silver, USD 17.65 per ounce, which is 10% lower than a year ago; for lead, USD 1,282 per metric ton, which is 12% lower than a year ago; for copper, USD 6,675 per metric ton, which is 6% higher in comparison to a year ago; and finally, in the case of zinc, the cost applicable to sales was for USD 3,037 per metric ton, which is 43% higher than a year ago. Moving on to Slide 9, pipeline, our pipeline of projects. This is an update. Here, we are presenting in one snapshot the current development level for each one of our projects. Moving on to Slide 10, San Gabriel. Engineering and procurement work on-site activities progressed as planned by significant 45% and 77% respectively, relative to total target for the projection. This reduces overall project uncertainty and potentially enables the recovery of a portion of time lost related to this project relative to its targeted completion. We estimate to have commercial production from San Gabriel during the third quarter of next year. Moving on to Slide 11, Trapiche. We have finished the first step of on-site column metallurgical testing. The second set of column testing will aim to improve copper recovery and control asset consumption. Environmental impact assessment and social engagement fieldwork are progressing as planned. Thank you for your attention. I will hand the call over to the operator to open the line for questions.

Operator, Operator

Our first question today will come from Tanya Jakusconek with Scotiabank.

Tanya Jakusconek, Analyst

I have three questions I'd like to ask. The first one is just on San Gabriel. Can you give us an update on where we are, like in terms of actually physically starting construction? Like where are we on the social issues that were occurring, have those been resolved? And when do we actually start breaking ground? That's my first question.

Leandro Garcia, CEO

Thank You very much, Tanya. Do you want to continue with the second and third and then we answer? Or one by one?

Tanya Jakusconek, Analyst

Sure. And then my second question is that we have been hearing from other companies easing of inflation pressures in the costs. There's been a relief in fuel price and relief in the supply constraints, some are seeing lower cyanide pricing and consumable steel. I'm interested in what you are seeing in Peru in terms of easing, if any, of these inflation pressures. And then the last one, which is for Daniel, which is the easiest one is on CapEx. Should we still be modeling for 2022 $90 million to $100 million in sustaining and now only $65 million for San Gabriel? Previously, it was $100 million to $105 million. So those are my 3 questions.

Leandro Garcia, CEO

Thank You very much, Tanya. Renzo Macher, our Project Manager and Roque will give you comment on our strategy in San Gabriel. And then Daniel will help us with the answers on numbers 2 and 3.

Renzo Macher, Project Manager

Sure. So when we started this issue with the construction, we were kind of starting the preconstruction work. Currently, I would say that we are at 1% of construction, and we have resumed our activities after finding common ground with most of the outside communities and the authorities. So on-site work has already begun, and we have been training the people from the nearby community so they can help us move this forward at a faster pace. So far, we are at a soft start process.

Tanya Jakusconek, Analyst

Okay. So as I understood it, you've started construction right now, you're only 1% complete, but you've started and you've resolved the issues with the communities around that wasn't your communities, the further communities, you've resolved all of that and access to site is fine, and you're starting on that.

Renzo Macher, Project Manager

Yes. So there's already work going on on-site.

Tanya Jakusconek, Analyst

Can I ask, just remind me again of the critical milestones from today to Q1 2025, what are the critical milestones for me to look at for your construction of the site?

Renzo Macher, Project Manager

So towards the second half of next year, we should start our concrete architectural structural work. And then late in the second quarter of 2025, we should be producing our first gold bar. This will be revised probably another quarter. We have been working without stop on engineering and procurement, so we can recover some of these delays. So probably another quarter.

Tanya Jakusconek, Analyst

I'm sorry. In the second half of next year, we will begin our concrete and structural work, so you can see our progress.

Renzo Macher, Project Manager

Toward the second half, we're going to have our final component, and that's when we can bring most of the people to start construction, full construction, the complete construction, between now and then earthworks.

Tanya Jakusconek, Analyst

Earthworks, okay. And then I think I understood that we might have a bit of a slippage in the time schedule from Q1 '25 to Q2 because of this little bit of delay. Did I hear that right?

Renzo Macher, Project Manager

Yes.

Tanya Jakusconek, Analyst

Okay. Okay. No, I appreciate that. And then maybe, Daniel, if I could, just on the inflationary pressures, where are you seeing easing, if any? And then just on the CapEx?

Alejandro Hermoza, Vice President of Sustainability

Yes, Tanya, I just wanted to add something on the social issues of San Gabriel.

Tanya Jakusconek, Analyst

Yes, for sure.

Alejandro Hermoza, Vice President of Sustainability

What we have done after the social project we have approached further located communities and villages. We've been successful in approaching them and establishing working spaces for them basically to reinforce information on the project. We have opened very positive spaces with most of them, and we are confident we are strengthening the whole social climate, and that's why Renzo was explaining that with that confidence, we have resumed many of the field activities oriented to go into the ramp-up construction. This is an ongoing process, and we feel very confident in what we have accomplished so far, and we will continue this effort to give social sustainability to the project.

Tanya Jakusconek, Analyst

And regarding the social aspect, what actions have we taken? Have you introduced social programs in the communities? I understand there are jobs related to the construction of the mine, but what social initiatives have you implemented to support them?

Alejandro Hermoza, Vice President of Sustainability

Yes, along with authorities from the Minister of Mines and from the environmental authorities in most of the places, we have conducted workshops, information workshops in some cases, which have resulted in some agreements and explained our environmental management. And of course, as well, we are also working on—as Renzo explained, to build local capacities to engage more local workers into the project.

Operator, Operator

Okay. Perfect. Good to see that being resolved.

Leandro Garcia, CEO

There are two questions left. Daniel?

Daniel Dominguez, CFO

Thanks, Tanya. Two additional questions from you. The first one regarding the inflation: yes, we have been seeing some reductions in prices, especially in diesel, cyanide, and explosives.

Tanya Jakusconek, Analyst

Anything except that you saw some relief in explosive diesel and cyanide, that's it.

Daniel Dominguez, CFO

Yes, sorry, Tanya. We had a problem with the connection. So if we compare the prices of some of the consumables, the 9-month period of this year against the 9-month period of last year, we see that for diesel, there is a reduction of around 10%; cyanide, around 5%; and explosives, between 8% and 10%. Overall, we would say that we can expect for the fourth quarter a reduction in inflation for consumable prices of around between 5% to 8%. We also have labor reducing due to the higher exchange rate that we have again in dollars.

Tanya Jakusconek, Analyst

Okay. And Daniel, what about freight and transportation, are you seeing any relief there?

Daniel Dominguez, CFO

Yes. We do see a trend of a decrease in freight. We cannot—we don't have right now the percentage, but we do see this reduction.

Tanya Jakusconek, Analyst

Okay. That's great. Good color. And just on the labor side, would you say—do you see a relief? You said a relief there? Would you know how much percent?

Daniel Dominguez, CFO

Yes. In labor, we would say that it's around 3% to 4%.

Tanya Jakusconek, Analyst

Perfect. And then sorry, just lastly, I don't want to have the call, but just on the CapEx, should I still be using $90 million to $100 million for sustaining and $65 million for San Gabriel?

Daniel Dominguez, CFO

Well, we have revised our total CapEx for this year. We now can estimate around $190 million, from which $110 million will be devoted to sustained CapEx. From this sustaining CapEx, $40 million will go to construct the mine project. And for growth, we are expecting close to between $70 million and $80 million, from which $65 million will be devoted to San Gabriel and the remaining for Trapiche and other projects. This is for 2022. And preliminary, what we can say for 2023, the CapEx should be in the order of $340 million to $350 million.

Operator, Operator

And this will conclude our question-and-answer portion of today's conference call. I'd like to turn the conference back over to Mr. Garcia for closing remarks.

Leandro Garcia, CEO

Thank you, sir. Before we finish today's conference call, I will thank everyone again for making the time to join us. Please have a wonderful day.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. We'd like to thank you again for your participation, and you may now disconnect.