Compañía de Minas Buenaventura S.A.A. (BVN) Q3 2022 Earnings Report, Transcript and Summary

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

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.

Thank you, Gabriel. Good morning to all, and thank you again for attending to this conference call. We are pleased to present the results of third quarter 2022 from Compañía de Minas Buenaventura. As always, we have prepared a PowerPoint presentation, which is available in our web page. 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 the second -- 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 this last quarter. With these tool, we know now how much CO2 we'll generate, and our next step is to develop a plan to reduce these missions. The full report can be found in 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 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 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 [indiscernible]. 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 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 ounces -- tones, 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 [Technical Difficulty] 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 upside activities progressed as planned by significant 45% and 77% respectively, relative to total target for the projection. These whereby reduces overall project uncertainty and potentially enabling the recovery of a portion of time loss related to this project relative to its targeted completion. We estimate to have commercial provision from San Gabriel during the third quarter of . 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 improving copper recovery and controlling asset consumption. Environmental impact assessment and social engagement field work progressing as planned. Thank you for your attention. I will hand the call over to the operator to open the line for questions. Operator, please go ahead.

[Operator Instructions]. And our first question today will come from Tanya Jakusconek with Scotiabank.

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.

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

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 has been a relief in the supply constraints, some are seeing lower cyanide pricing in 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.

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

Sure. So when we started this issue with the [indiscernible], 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 a common one with most of the outside communities and the authorities. So on-site work has already begun, and we have -- we are already training the people from the nearby community so they can help us move this forward at a faster pace. So far, we are at soft start process.

Okay. So as I understood it, you've started construction right now, you're only 1% complete, but you 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.

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

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?

So towards the second half of next year, we should start our concrete architectural structural job -- work. And then late second quarter 2025, we should be producing our first gold bar, this will be revised probably another quarter. We have been working on -- with no stop on engineering and procurement, so we can recover some of these delays. So probably another quarter.

I'm so sorry. So next year -- second half of next year, you're going to start your concrete and structural work. So now you're [indiscernible] moving.

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

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?

Yes.

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?

Yes, Tanya [indiscernible].

I can't hear anything. Anyone there?

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

Yes, for sure.

Yes. What we have done after the social project we have. We have approached this further located communities and villages. We've been successful in approaching them and establishing working spaces for them basically to reinforce information on 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. So this is an ongoing process, and we feel very confident on what we have accomplished so far, and we will continue on this effort to give a social sustainability to the project.

And just on the social front, what have we done? Have we -- have you implemented social programs in their communities? Or have you implemented -- I know that there's jobs for construction of this mine and working, but social have you done to help them along?

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

Okay. Perfect. Good to see that being resolved.

There are two questions left. Daniel?

Thanks, Tanya. Two additional questions from you. The first one regarding the inflation, yes, we have been we have been seeing some reductions in prices, especially in diesel, in cyanide and explosives, if we can make some [Technical Difficulty].

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

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 have that for diesel, there is a reduction of around 10%; cyanide, around 5%; and explosive, between 8% and 10%. As an overall, we would say that we can have a -- for the fourth quarter, we can have a reduction in inflation for consumable prices of around between 5% to 8%. And also, we have labor reducing due to the higher exchange rate that we have again in dollar.

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

Sorry, Tanya, I didn't get you.

Are you seeing any relief in freight, transportation, any transportation [indiscernible]?

Yes. We do, we do. We also have been -- we see a trend of a decrease in the freights. We cannot -- we don't have right now the amount of the percentage, but we do see this reduction.

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?

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

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?

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 be to construct the [indiscernible] project. And in 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 that for 2023, the CapEx should be in the order of $340 million to $350 million.

[Operator Instructions]. 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.

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

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.