Buenaventura Mining Q1 2023 Earnings Call Transcript

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April 28, 2023

Key Takeaways

  • Q1 2023 EBITDA from direct operations fell to $51.6 M (–41% YoY) and net income declined to $72.2 M (–46% YoY), excluding the $300 M Yanacocha sale.
  • Gold and silver production dropped 21% and 38% YoY to 39 koz and 1.1 Moz respectively, while copper output rose 7% to 29 kt, reflecting shifts in mine mix.
  • El Brocal underground throughput ramped up to 9,350 tpd (from 7,100 tpd), and 200 kt of open-pit ore was stockpiled for Q2 processing to accelerate lead and zinc sales.
  • Liquidity and leverage: cash stood at $173.9 M versus net debt of $556.8 M (average maturity 3.1 years); management is securing a $50–100 M credit facility and expects $100–120 M in Cerro Verde dividends to reduce leverage below 3.5× by year-end.
  • CapEx and project pipeline reached $36.2 M in Q1 (vs $19.9 M), including $9.7 M on San Gabriel and $8.8 M on Yumpac, with Yumpac’s environmental permit due in May and power-line approval targeted by late 2023.
AI Generated. May Contain Errors.
Earnings Conference Call
Buenaventura Mining Q1 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the Campania 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 Celas, Investor Relations.

Operator

Mr. Celas, you may begin.

Speaker 1

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.

Speaker 1

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 Maher, Vice President of Projects Mr. Juan Carlos Salazar, Geology and Exploration Spanair Mr.

Speaker 1

Roger Enagies, Chairman and Mr. Raul Enagies, Director. Before I hand out 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 closed. Please note that today's remarks include forward looking statements that are based on management's current views and assumptions.

Speaker 1

While management believes that these 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. Landro Garcia.

Speaker 2

Thank you, Gabriel. Good morning to all and thank you for attending this conference call. We are pleased to present the results for the Q1 2023 from Compania 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 shown on slide number 2.

Speaker 2

Moving on to Slide 3, highlights were as follows. 1st quarter 2023 EBITDA from direct operations was $51,600,000 compared to the $86,900,000 reported in the Q1 of 2022. EBITDA results do not include $300,000,000 from the sale of Buenaventura stake in Yanacocha. Q1 2023 EBITDA, including adjusted company, reached 100 and $81,900,000 compared to the $233,700,000 in the Q1 of 2022. Again, EBITDA results do not include the $300,000,000 from the sale of Buenaventura stake in Yanacocha.

Speaker 2

Q1 2023 net income from continuing operations reached $72,200,000 compared to $134,700,000 net income from continuing operation for the same period in 2022. El Brocal ore mined from its open pit was stockpiled during the Q1 of 2023 and was not treated during the quarter. Underground mine production increased to 9,350 tons per day during the Q1 of 2023 compared to the 7,100 tons per day in the Q1 2022 as part of the ramp up to reach 10,000 tons per day during 2023. This stockpile lead and zinc ore will be treated at Burcal's processing plant in the Q2 of 2023. Buenaventura's cash position reached $173,900,000 as of March 31, 2023.

Speaker 2

Net debt increased to $556,800,000 with an average maturity of 3.1 years. Q1 2023 capital expenditures were $36,200,000 compared to $19,900,000 for the same period in 2022. Q1 2023 CapEx includes $9,700,000 related to the San Gabriel project and $8,800,000 related to Yumpak price. On March 24, 2023, Cerro Verde announced a total dividend distribution of $250,000,000 Buenaventura will receive $49,000,000 relative to its stake in Cerro Verde on April 28, 2023. During the Q1 of this year, operations at Operations were fully reestablished on February Operations were fully reestablished on February 16, 2023.

Speaker 2

The company plans to recover this production in subsequent quarters and expects to meet 2023 production guidance. Moving on to Slide 4, our financial highlights. Total revenues during the Q1 were $186,000,000 which is 20% lower in comparison to the Q1 of 2022. As we mentioned before, our EBITDA from direct operations for Q1 2023 was 52 $1,000,000 in comparison to $87,000,000 during the Q1 of 2022. Again, these figures exclude the Anagocha transaction effect.

Speaker 2

Also, our net income from continuing operations for the Q1 of 2022 was $73,000,000 in comparison to a net income from a continuing operations of $135,000,000 during the same period in 2022. The CapEx increased to $36,000,000 in the Q1 of 2023 compared to the $20,000,000 in the Q1 of 2022. Moving on to Slide 5, attributable production. Total gold attributable production in the Q1 of 20 23 was 39,000 ounces, 21% lower than the figure reported in the same quarter of the previous year. This decrease is mainly explained by La Zanja Mining Operations suspension since the Q4 of 2022 and lower production at Coimolache as mining and ore stockpiling were temporarily suspended in the Q4 2022.

Speaker 2

Silver attributable production for this quarter was 1,100,000 ounces, which shows a decrease of 38% compared to the figure reported on the Q1 of 2022. This decrease in production was primarily due to the Brocal underground mine being the sole producing mine during the Q1 of 2023, as with the adverse impact of the 10 day suspension of activities at Jukani due to protests as described. Finally, our copper attributable production for the Q1 of the year was close to 29,000 metric tons, a 7% increase compared to the same period in 2022. Moving on to Slide 6, all in sustaining cost and cost applicable to sales. The all in sustaining cost from our direct operations in the Q1 of 2023 increased by 44% to 19 $124 per ounce of gold.

Speaker 2

The cost applicable to sales for the Q1 of 2023 were as follows. For gold, US11.24 dollars per ounce, which is almost equal to a year ago. For silver, US21.5 dollars per ounce, which is 41% higher than a year ago. For lead, 1394 US dollar per metric ton, which is 1% higher than a year ago. For copper, US6738 dollars per metric ton, which is 2% higher in comparison to a year ago.

Speaker 2

Finally, in the case of zinc, the cost applicable to sales was US1966 dollars per metric ton, which is 31% lower than a year ago. Moving on to Slide 7, 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 8, our projects. In the case of Yumpak, our Ramfoil project, we are focused on development of main ramps and exploration tunnels.

Speaker 2

Updated geological model suggests the opportunity to increase mineable grade with less mining development. Environmental permit for underground exploration granted in February 2023, environmental permit for mining expected on May 2023. In the case of San Gabriel, our greenfield project, we have finished the organic campsite. The petar is to start in May and definite campsite to start in July. Authority admitted the PowerLine Environmental Impact Assessment, currently programming the 3rd workshop by the Q3 of 2023.

Speaker 2

Working with regional government on road maintenance and right of way, We have reached an agreement with Corire 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

Ladies and gentlemen, at this time, we'll begin the question and answer session. Our first question today comes from Carlos de Alba from Morgan Stanley. Please go ahead with your question.

Speaker 3

Thank you. Good morning, everyone. First question is, Adel Brocal, the stockpiles that you accumulated in Q1, how much and that you will process this quarter, you are processing this quarter. Can you offer some color as to how much volumes of lead and zinc will be sold during the 2nd quarter from the stockpiles? Or would you really expect to see the volumes really coming only in the Q3 given that the processing will take place during the Q2?

Speaker 3

And my second question has to do with the balance sheet and the free cash flows. 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 3.1 years. And so how do you 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 Cerro Verde is paying dividends, but probably not as much as we would have thought.

Speaker 3

So yes, just any comments maybe Daniel on how you're going to address this situation? What are the plans that the company has in order to improve the balance sheet, that would be great.

Speaker 2

Thank you, Carlo for your questions. First, in terms of Roccal, maybe Juan Carlos will give more color to the answer. But the thing is the ore that we have to stockpile there, we have a plan to pass through the plant during the year. In terms of the free cash flow, we have some strategies of how to pass this negative quarter in terms of free cash flow. However, this 3rd quarter has been characterized because of the using of working capital.

Speaker 2

We have used more working capital. We have not treated the ore, for example, in Brocal. And in that more Daniel will give you for sure more information about which are our strategies for this coming year and all the projects we have in the row. And finally, the dividend of Cerro Verde,

Speaker 4

we

Speaker 2

already have received the first part of the dividend. We expect for sure during the year, normally Freeport declared dividends, 1 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 Carlos.

Speaker 4

Sure. We ended up the Q1 of 2023 in Brocal with an average of 200,000 tons of ore in a stockpile. The focus was on stripping the upper areas of this phase that we are mining in the open pit. In the coming quarters, we will increase that volume of stockpile up to around 1,000,000 tons in the Q3 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 Q1 of 2024, we will complete the processing of this material.

Speaker 4

The material is mainly polymetallic with some areas that contain copper because we're getting closer and closer to the underground mine that is mainly copper. This is pretty much the same transition that we see in the open pit. The volumes of zinc and lead that we are going to be producing are in line with our guidance for the year. So it's only a sequence of mining up to September and the sequence of processing all the way down to the last quarter of the year and Q1 of 2024. So at the Q1 of 2024, we will finalize the processing of the outstanding stockpiles of ore from the open pit in Brokal.

Operator

And our next question?

Speaker 5

Sorry, the second part

Speaker 2

of the answer

Speaker 5

of the question from Carlos. Thank you, Carlos, for your question. Yes, temporarily, we are having 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. During last year, the second EBITDA of 2022, which is counted within the period of this ratio, we had a very low EBITDA and we believe in the second half second quarter and the third quarter with Brocal improving operation with after treating the stockpiles that Juan Carlos mentioned, we are going to recover the EBITDA.

Speaker 5

Meanwhile, to be able to fund Yumpac and San Gabriel, we are going to use our own cash, but also we are going to raise a temporary facility that we have already committed with local banks. This could be up to between $50,000,000 $100,000,000 This will permit us to fund temporarily our obligations in Yumpac and San Gabriel. And we will see if we need to extend the maturity of this loan. However, we believe that with the dividends from Cerro Verde that we will receive at the end of the year after starting Uchucchacua and Yumpac in the 3rd Q4, we will be able to finish the year with a leverage ratio of below 3.5 times. For next year, we're having to tap on Yield but working full capacity and having a better EBITDA, we think that the leverage ratio could go down to levels of 3 times.

Speaker 3

Thank you, Daniel. 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, almost $80,000,000 negative impact. Any particular reason why such a big delta in that line?

Speaker 5

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

Speaker 2

Thank you.

Operator

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

Speaker 6

Good morning, everyone. Thank you so much for taking my question. I actually have 3. Just for Daniel, can Daniel, I know at your Investor Day and in your materials, you gave guidance for Cerro Verde dividend to be about $120,000,000 per annum for you for the next sort of 3 years. Is that still a good number for us to use?

Speaker 5

Yes, Tanya. We think that with the levels of the copper price right now, so where they is generating a very important cash flow. We believe that the amount of dividend should be between $100,000,000 $120,000,000

Speaker 2

per year.

Speaker 6

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

Speaker 5

Not at this point in time. We are still evaluating any effect at San Gabriel. But at this point in time, we maintain

Speaker 2

the same level of CapEx for this year.

Speaker 6

Okay. 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 and you mentioned that we have so you've done the camps. You're doing the PowerLine EIA. And then we have the 3rd workshop.

Speaker 6

Can I thought we were totally permitted on this project? Can you remind me what this 3rd workshop is? And am I getting a permit with this 3rd workshop? I'm just very confused.

Speaker 2

Thank you, Tanya, for your question. The permit we mentioned last year was the construction permit. But well, here with us is Renzo Marje, our Vice President of Projects. So he can explain in detail the following path.

Speaker 7

Yes. Hi. So as Landry is saying, we do have the construction permits and environmental permits for the mine. What we're talking here is about the permit for the power line. We do have the process of this is first we get all the land, we already have all the we have the design ready done and now it's about the environmental impact assessment of the mine, which is different than the environmental impact assessment for a mine.

Speaker 7

So it's a different regulation. So it's 2 different permits.

Speaker 6

Okay. Sorry, I misunderstood. I had assumed we had all of the permits to go. So this is just a power line permit and that you're doing the consultation with the communities is how I'm understanding it. And that's going to be happening in Q3, 2023.

Speaker 6

When are you expecting the power permit then?

Speaker 7

Right after then. That's a different regulation. Yes, so towards the end of the year, we're going to have the construction permit for the power line.

Speaker 6

Okay. All right. Is that the last permit I need? Because you have the construction, you have the environmental. This power permit, is that pretty much it in terms of the big permits?

Speaker 7

Yes. There's a lot of operational permits, small permits and yes, but the biggest one, yes.

Speaker 6

Yes. No, I understand that, Reed, the permits here and there, but the bigger ones. Okay. And is the PowerLine permit on the critical on the timeline to get into production by mid-twenty 25?

Speaker 7

No, it is not. No? No. We do have like a 6 month lead in there, free time.

Speaker 6

Okay. So you could start up with generators is sort of what I understand?

Speaker 7

Yes. Okay. It is always optimal to do it with the power line, but yes.

Speaker 6

Yes. Okay. No, for sure. And then maybe for Daniel again, sorry, Daniel, just my understanding on El Brocal and how we should model it in our model. So I get the right cash flow coming out of this asset for you.

Speaker 6

Should I just be thinking this year like until Q3, we are mining like the copper from the underground and then the lead and zinc stockpile, which you're increasing the stock pile from 200,000 tons to 1,000,000. Should I be thinking that that then starts to majority of it get come off in Q4. So that gets processed and revenue comes in Q4 and Q1 of next year. Is that the majority of the revenue coming out from that stockpile and the copper just comes and goes through this year. So two things, copper revenue coming through the entire year, where the lead and the zinc is coming in Q3 sorry, Q3, Q4 and Q1 of next year.

Speaker 6

Is that how I should think about it?

Speaker 2

And yes, maybe Juan Carlos can explain the process of how we are going to explore work with Rural Car? Please,

Speaker 6

Just so I understand how the revenue and the cash flow is coming through quarterly.

Speaker 4

Yes. I can explain that, Tien tje. The processing of polybutylene ore is starting now in April. The speed at which we are mining is higher than the processing rate. That's the reason that we have started building up some additional stockpile, but at the same time we are processing the ore.

Speaker 4

In that situation, we will reach a peak of about 1,000,000 tons of stockpile by the Q3, then we'll stop the mining of the open pit and we'll start processing the outstanding stockpile. And as I mentioned, that the stockpile will be completed, processed by the Q1 of 2024. But we are starting now, in April, we start the processing of the polymetallic ore. So the revenue coming from the zinc and lead concentrates is starting now in April and it will continue up to the Q1 of next year.

Speaker 7

Okay.

Speaker 6

And that is the lead and zinc is already in your 2023 guidance you gave us in your pre release. So I should think about that lead and zinc, whatever the guidance is to be now sold from Q2 to year end?

Speaker 4

That's correct. That's correct.

Speaker 6

Okay. That makes sense to me. Thank you so much. I really appreciate you taking my questions. Thank

Speaker 2

you. Thank you,

Operator

Our next question is a follow-up from Carlos De Alba from Morgan Stanley. Please go ahead with your question.

Speaker 3

Yes, thank you. Just on the impact, if I may ask, what do you guys stand in terms of the permits? And what is sort of the deadline that you internally have to receive these permits and still be able to ramp up the operations in the Q4 start ramping up the operations in the Q4 or later this year?

Speaker 2

Let me ask you, which permit is your first, Yumpak, Chacua? Chacua,

Speaker 3

Chacua, really. Chacua.

Speaker 2

Okay. Okay. Well, maybe Alejandro, we are in line what we have talked explained to the market. We are in line with our times. But however, Alejandro can give you the detail of which will be the timeframe of to in order

Speaker 8

to restart Chacua and begin Yumpa? Please go ahead, Alejandro. Yes. Thank you, Carlos. Okay.

Speaker 8

We have 2 different situations. Uchucchacua has no major issues in terms of permits. We just have to, on due time, do the procedures to restart the operation. So, that's not a major issue. On the JMPAC side, what we have, we're on the final stage of getting the approval for the environment assessment study that the main environmental permit that we have.

Speaker 8

And we should be able to get that approval. We should have gotten already, but we should get it by May. Within May, we should get that approval. After that, we need to go into the Ministry of Mines to get the construction permit, and it should take us a few months more. It's just an issue of bringing all the files together.

Speaker 8

And we should have a permit for the first phase of the project. That would be by the on time as it was scheduled.

Speaker 3

Okay. And sorry, just when would you expect to get the construction permit for Yumpak?

Speaker 8

Juan Carlos?

Speaker 4

Yes. We expect to have the we already are developing the mine, Carlos. We are running the ramps, running the accesses. With the license that we expect to have in May, 4 or 6 weeks down the road, we will start to develop the ore body. In May, we will start heating the ore body and start making galleries through the ore bodies in a very high grade areas, about 20 to 25 ounces of silver.

Speaker 4

So we will start developing that. In order to transport the ore from the Jumpak area 1st kilometers to the processing plant of Chacua will be an additional permit and we expect it to have it by the end of this year, 2023 or the Q1 of 2024. Of course, we are doing our best to try to speed it up and try to get the permit by the last quarter of the year 2023. So to put this 23, 25 ounces of silver into our balance sheet by the end of the year. That's June back.

Speaker 4

And in parallel, we are doing some developments, new developments underground in Uchucchacua mine to access new areas that we have discovered in the last 12 months, 18 months. And there are different blends of silver, lead and zinc, more now into the probably zinc lead than silver. So it's more polymetallic ore, good value. And probably we will start we are doing now the developing of these stocks. We are producing some small stockpiles of ore so far and we expect to start the production of the processing plant in Uchucchacua by October.

Speaker 4

So pretty much the 2 operations, Yumpa and Uchucua, by the end of this year, we start turning into production.

Speaker 3

And just to clarify, the construction permit in Yumpak that you still need is really just for the transportation of the ore to the Uchucchacua plant?

Speaker 4

Yes. It's a permit actually for because of the we have all the permits for the mine development, for the camps, for the power line, for the access road is ongoing, is mostly done. But for the transportation between the Yumpak site to the processing plant of Puchuchakwa, 12 kilometers along the highway, we need to get an additional permit and also for processing commercialization of the concentrate that we will produce. So that's the final permit that we will require to put them officially into production.

Speaker 3

Okay, thank you.

Speaker 2

Carlos, let me add that we are somehow more positive with the government attitude for the permitting. We think they have identified that the bureaucracy and the difficulties the mining industry is facing these days, and they are somehow involved and very worried, and they are trying to do their best to accelerate all the permitting. So we are very optimistic that we are going to be granted of all the permitting we need to continue the operations and restart operations and start the June quarter. Okay.

Speaker 4

Thank you.

Operator

And ladies and gentlemen, that will conclude today's question and answer session. I'd now like to turn the floor back over to Mr. Garcia for closing remarks.

Speaker 2

Thank you. Thank you for attending this conference call. I have to mention that yesterday, we have our 7th anniversary as Compania Minna Buenaventura, and we are very proud to be part of this family. And we have to go further with our efforts through getting all our projects and all our work for our company, for our collaborators, for our country. Thank you very much and have a good day.

Operator

Ladies and gentlemen, that will conclude Buenaventura's Q1 2023 earnings results conference call. We would like to thank you again for your participation. You may now disconnect your lines.

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