Earnings Call Transcript - BVN Q2 2024

Operator, Operator

Good day, everyone. Welcome to the Compañía de Minas Buenaventura Second Quarter 2024 Earnings Results Conference Call. I would now like to introduce your host for today's call, Mr. Sebastián Valencia, Investor Relations Analyst. Mr. Valencia, you may begin.

Sebastián Valencia, Investor Relations Analyst

Good morning everyone, and thank you for joining us today to discuss our second quarter 2024 results. Today, a 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. Jorge Henzi, 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 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 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 July 25th, 2024. Let me now turn the call to Mr. Leandro Garcia.

Leandro Garcia, CEO

Thank you, Sebastián. Good morning to all and thank you for joining us today to discuss the quarterly results of the company. On slide two is our cautionary statement, important information that I encourage you to read. Today, we'll discuss our performance for the second quarter of 2024, highlighting key achievements and the strategies moving forward. After the presentation, we will be available for our Q&A session when our team will be happy to answer your questions. The next slide please. I would like to highlight a few key areas that contributed to our strong second quarter 2024 results. Our EBITDA from direct operations for the second quarter has increased by $85 million compared to the previous year, primarily driven by the great results coming from Yumpag and El Brocal. Despite El Brocal's processing plant being voluntarily suspended for 16 days in response to a protest by a nearby community, as announced on May 22nd, 2024. This is also reflected in a higher EBITDA margin of 39% compared to 13% from the previous year. Our net income in the second quarter of 2024 reached $74 million compared to last year's net loss of $5 million. Copper production decreased by 22% year-over-year, mainly due to El Brocal's voluntary suspension as previously mentioned. In the second quarter of 2024, silver production reached 4 million ounces, a significant increase compared to the 1.7 million ounces produced during the same period last year. A total of 29 million ounces came from Uchucchacua and Yumpag. Both production decreased by 9% year-over-year, reaching 33,800 ounces, since we are now mining lower grades at Orcopampa and Tambomayo mines. We are pleased to share that Cerro Verde announced a new dividend of $300 million on July 24th, of which $59 million will be distributed to us. This dividend is expected to be paid by the end of August and will contribute to strengthening our overall financial performance. Buenaventura's CapEx in the second quarter this year totaled $84 million, which includes $70 million allocated to the San Gabriel project, primarily directed towards the completion of waste dumps and the main substation platform. Our cash position reached $172 million with a total debt of $682 million. We continue deleveraging the company, reaching a net debt EBITDA ratio of 1.4 times, the lowest in years and within our targeted range. Moving on to our cost structure in Slide 4. Second quarter all-in sustaining costs have been reduced by 91% year-over-year. This reduction is primarily attributed to the increased silver contribution from Uchucchacua and Yumpag as well as the decreased production at El Brocal. Moving on to the cost applicable to sales strength. As you can see, copper CAS has also increased mainly due to the forecast voluntary suspension that was previously mentioned. Silver CAS has decreased year-over-year, primarily driven by the higher contribution of Uchucchacua and Yumpag silver rounds. Gold CAS has increased year-over-year, primarily driven by lower grades of Tambomayo and Orcopampa. On the next slide, we'll present the free cash flow generation. Second quarter 2024 cash position was in line with the first quarter of this year. The CapEx from San Gabriel and the dividend payment were offset by the cash generated from the operations, resulting in $29 million in April. The EBITDA to free cash flow reconciliation is explained by the following breakdown of inflow and outflow. El Brocal and Yumpag have been the main contributors for the second quarter 2024. As we have mentioned before, Buenaventura is going through a growth phase with an intensive CapEx related to San Gabriel. The additional dividend declared of $59 million will be reported in the third quarter of 2024. Moving on to Slide 6, we have that in the next month Buenaventura will be focusing most of its efforts on the San Gabriel project. On this slide, you can see the cumulative progress reaching 57% overall by the second quarter of 2024. This is primarily driven by the completion of waste dumps and the main substation platform. The key milestone we are closely monitoring for the next quarter is the start of the high voltage power line construction and the start of the electrical implementation construction works. On the next slide, we are showing the processing plant progress that will operate at 3,000 tons per day. Currently, the foundations are at 80% progress. The stack and both mechanical works are at 60%. The primary crusher mechanical works are at 40%. Finally, the seal tanks mechanical works are at 30%. Moving on to Slide 8, we are showing the water dam foundation and filtering plant civil works. Finally, I would like to finish the presentation with a couple of closing remarks. First, in its first full quarter of operations, both Uchucchacua and Yumpag have made a remarkable impact, delivering 2.9 million ounces of silver. We're actively working on recovery production that is aligned with our guidance, with a strong focus on reaching 11 tons per day by the end of this year. Third, the San Gabriel project has achieved 57% overall progress, meeting our plan targets. We remain on track to reach our goal of producing our first gold bar by the second half of 2025. Cerro Verde continues to generate gross cash flow leading to increased dividends. For fiscal year 2024, we estimate dividends of between $120 million and $150 million attributable to Buenaventura equity. In the second quarter of 2024, our leverage ratio expanded to 1.4 times, reflecting our growing EBITDA and effective debt management strategies. Thank you for your attention. I'll hand the call back to the operator to open the line for questions.

Operator, Operator

Our first question comes from Carlos De Alba with Morgan Stanley. Please go ahead.

Carlos De Alba, Analyst

Good morning everyone. I have a few questions. So on dividends in Cerro Verde, I want to see what you expect to receive in the fourth quarter. There's already a dividend announced for August, but for the fourth quarter, what is the outlook, given how relevant it is for the cash flow generation of the company? And then on San Gabriel, do you have any update on the CapEx figure? Clearly, you are well into the project and we don't yet have a revised estimate for the CapEx. I think we all would like to get some new information. And then finally, we saw a significant increase in the cost as some of your gold mines. You had some production issues or grades declining. There are explanations in the release, but I would like to understand how you see things going forward in the coming quarters?

Daniel Dominguez, CFO

Alba, thank you. Thank you for your questions. First, the dividends from Cerro Verde will depend on the level of prices and the production level. We do not anticipate any major changes. So, our expectations, as I told before, still range between $120 million and $150 million for the fiscal year 2024. In terms of the San Gabriel project, we have spent a total of $108 million this semester. We expect to invest a total of $280 million during 2024, and the investment in 2025 will be around $200 million. I think Renzo can provide further details on this explanation. Please, Renzo?

Renzo Macher, Vice President of Projects

Yes. Hi. The total project cost will be updated to $650 million. This additional $180 million is mainly due to escalating prices beyond our initial expectations, which were 3% to 4% year-over-year. We have also made changes in the project sequence and expedited costs to mitigate the 18-month delay that we experienced in 2021-2022 to secure our first gold bar by the end of the third quarter of 2025. So, construction is progressing as planned, and the last major contractor, which is electrical and signal, will be starting next month. We have finalized all the price estimations.

Carlos De Alba, Analyst

So, the $280 million is the CapEx not for San Gabriel, but overall in 2024?

Daniel Dominguez, CFO

No, just for San Gabriel.

Carlos De Alba, Analyst

Okay, $280 million is just for San Gabriel in 2024. And the total CapEx for the project is now $650 million.

Daniel Dominguez, CFO

Yes, that's correct.

Renzo Macher, Vice President of Projects

Total project cost, yes.

Leandro Garcia, CEO

We will continue with a merging EBITDA of the project at 50% and we expect to provide more details in OpEx and MPV, the new MPV in the third quarter conference call. Regarding your third question about cost and grades, as you can read in our press release, ore grades in Orcopampa and Tambomayo are declining, and that is the main reason. Perhaps Juan Carlos Ortiz can add some comments.

Juan Carlos Ortiz, Vice President of Operations

Could you please repeat the comment because it was not clear?

Operator, Operator

And the next question comes from Cesar Perez Novoa with BTG Pactual. Please go ahead.

Cesar Perez Novoa, Analyst

Good morning to everyone. I have three questions from my end if I may. Could you please comment on how we should see Buenaventura's inflows and outflows of capital for this year? And the possible breakdown on what you expect to receive from the potential sale of Orcopampa royalties? Your dividends at Cerro Verde were FCX already made a $300 million dividend announcement, and your CapEx commitment budget for this year. If you could reiterate that, I would appreciate it. Then at El Brocal, how will costs evolve in the second half of the year? Noting that the increased 14% in the second quarter, and whether the copper you have in inventory to support the plant's resumption will have some impact or benefit once you hit a processing rate of 15,000 tons per day. Finally, at Coimolache, I understand that Buenaventura received the construction permit to increase leach pad capacity. Could you please comment on the next steps and when the expansion will be completed?

Leandro Garcia, CEO

Thank you, Cesar. Regarding the sale of Chapiloma, we have sent information to the Superintendencia del Mercado de Valores regarding restricted information, and we cannot provide many details about the operation. We expect to be able to share the results of this in the coming weeks. In terms of Cerro Verde dividends, it is important for the cash inflows in Buenaventura, and we maintain our expectation to receive between $120 million and $150 million during the year. Regarding Coimolache, we have received the environmental permit, and we are currently working on securing the construction permit. We expect to receive it in the following quarter of this year. I don't know, Daniel, if you want to go into further details on the inflows and outflows?

Daniel Dominguez, CFO

No. Thank you, Cesar, for your question. Getting into the details of the inflows and outflows, we are projecting EBITDA for this year to be around $300 million to $320 million, considering a copper price of $9,000. We should be receiving dividends from Cerro Verde in the range of $120 million to $150 million. Regarding an asset sale – and I don't mean specifically Chapiloma, as we have mentioned in the past, we own a portfolio of non-core assets that we are planning to sell in the following months. We expect to receive between $150 million and $180 million this year from those sales. Regarding outflows, the total CapEx for this year should be around $380 million to $400 million, which includes the $280 million disclosed for San Gabriel. Finally, between interest and the amortization of our loans, we will incur around $70 million.

Leandro Garcia, CEO

Regarding your second question about the costs of El Brocal. As we reported, the costs were over $7,100 per tonne, specifically due to the events or the adversities we faced in May. However, for the upcoming quarters, we anticipate returning to the levels we had been operating at in the last months, focusing on the underground mine, which should be between $5,300 and $5,500 per ton. Finally, the inventory we have, 210,000 tons of copper concentrate in El Brocal, should yield an EBITDA of between $5 million and $6 million, which we expect to realize between July and August of this year.

Operator, Operator

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

Tanya Jakusconek, Analyst

Good everyone. Thank you so much for taking my question. Just, Daniel, I want to confirm, on the last conference call, you mentioned that you had put in place a revolving credit facility with three banks of $200 million, which could also help you with the financing of San Gabriel as well, which you were going to draw down in Q2, Q3. Is that still in place for us above and beyond everything else you mentioned?

Daniel Dominguez, CFO

We still have the $200 million revolving facility, and we do not expect to use it during this year.

Tanya Jakusconek, Analyst

So, maybe for 2025?

Daniel Dominguez, CFO

Possibly. But remember that next year we will have the proceeds from Yumpag for the full year, and we also expect some dividends from Cerro Verde. So, if copper prices continue at these levels of over $9,000 per ton, we likely will not need to use this revolving facility, especially with the expected asset sales from our portfolio.

Tanya Jakusconek, Analyst

It's a buffer on top of everything else. Can I just go back to San Gabriel? I appreciate the capital number. I know we have talked about it in the past. It has increased as expected, and we await your guidance on the costing side on the Q3 call. Can I ask now that you've got your major contracts in place so you have a good handle on the capital side, can I just ask about your development? I saw that you developed 2.2 kilometers of the underground. I'm just trying to understand one, your advance rate, how is that going, and the ground conditions? Number two, I’d like to understand your cost per meter of advancement, and just trying to get an understanding of productivity as you go into the underground before we can actually get to a scope for mining. So, if someone can help me on that, would be great.

Leandro Garcia, CEO

Here, Renzo, please. Go ahead.

Renzo Macher, Vice President of Projects

We have completed the second OpEx calculation, which includes focusing our development in an underground recent steel mining method because of the rock type 4 A and B. That's mainly where we are. Now we are going to be accessing the top of the deposit compared to our previous plan, which was to access the bottom and then go up. We're going to hit the top first and going down. Currently, we are developing the crossing between the two ramps and probably 50 meters below the surface at a rate of $3,000 to $4,000 per ton, depending on the ground conditions. We are navigating through a difficult section at the moment. We have so far advanced around 200 to 400 meters.

Leandro Garcia, CEO

Tanya, we also have Juan Carlos Ortiz that can add some comments about the construction on San Gabriel advances.

Juan Carlos Ortiz, Vice President of Operations

Thank you, Leandro. Yes, as mentioned by Renzo, we are developing channels at a rate of about 200 meters per month underground. The ground conditions in San Gabriel require significant support, along with shotcrete and steel reinforcement. In late August, we plan to have a second crew coming on board. We have also opened a second ramp front, so we'll have two crews working in parallel. In a couple of months, the second crew is expected to reach the 200 meters per month rate. So, by the fourth quarter, the two crews will be working at a combined rate of 400 meters per month. The average cost at this moment is around $4,000 per meter, all costs included: excavation, muck removal, and reinforcement. We expect that by the last quarter of this year, we will be able to start developing into the ore body. We are very close right now, but we are anticipating more work in the last quarter of this year to begin stockpiling in the first quarter of next year.

Tanya Jakusconek, Analyst

Thank you so much. I look forward to one day hopefully seeing this asset, as you guys have a mine tour. I would love to see it; I've heard so much about it when it was within Goldfields as well. Maybe, Daniel, can you just help me out on the capital? Just the $280 million that needs to be spent this year at San Gabriel and then $200 million next year. Can you give me the big-ticket items, like maybe what's the underground, what's infrastructure? What are some of the big-ticket items so I understand what I'm spending on?

Renzo Macher, Vice President of Projects

We are currently 70% complete with our air moving contract for the water dam, and as you can see from the pictures, we have finished the foundation, and that aspect is progressing. All the concrete, steel, mechanical, and piping contracts are also in the works and should be completed in about eight months. The electrical contractor will commence work shortly. So, we are advancing at about 10% per quarter. By early next year, we expect to finish all construction and move into the commissioning phase.

Tanya Jakusconek, Analyst

So, of the $280 million this year, how much would be for the mill? And how much is for the underground? Just a rough estimate. Finishing next year all the, I'm assuming underground; I'm just trying to understand how the surface compares to the underground. Do we have an estimate for that?

Daniel Dominguez, CFO

It's about $50 million for the underground, around that.

Tanya Jakusconek, Analyst

So, $50 million for the underground this year?

Daniel Dominguez, CFO

No, between now and I don't have the specific number per month, but between now and September next year is about one year – over the next one year, yes.

Tanya Jakusconek, Analyst

So, one year, $50 million is for the underground, and the remaining of the $380 million is all for surface infrastructure?

Daniel Dominguez, CFO

Yes.

Operator, Operator

Ladies and gentlemen, with that, we will be concluding today's audio question and answer session. I would like to turn the floor back over to Sebastián Valencia, Investor Relations Analyst for any webcast questions.

Sebastián Valencia, Investor Relations Analyst

Thank you, operator. At this time, there are no further questions. I would like to turn to Leandro Garcia.

Leandro Garcia, CEO

Thank you Sebastián. And before we finish today's conference call, again, thank you very much for making the time to join us today and have a wonderful day. Thank you very much.

Operator, Operator

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