Compañía de Minas Buenaventura S.A.A. (BVN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura Third Quarter 2024 Earnings Results Conference Call. [Operator Instructions]. And please note that this call is being recorded. I would now like to introduce your host for today's call, Mr. Gabriel Salas, Investor Relations Officer. Mr. Salas, you may begin.

Good morning, everyone, and thank you for joining us today to discuss our third quarter 2024 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, Vice President of Geology and Explorations; 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 the market closed. 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 October 30, 2024. Let me now turn the call to Mr. Leandro Garcia.

Thank you, Gabriel. Good morning to all, and thank you for joining us today to discuss the quarterly results of Compañía de Minas Buenaventura. On the Slide 2, this is our cautionary statement, important information that I encourage you to read. Today, we will be discussing our performance for the third quarter of 2024, highlighting key achievements and strategies moving forward. After the presentation, we will be available for our question-and-answer session, where our team will be happy to answer your questions. The next slide, please. This is a slide I would like to highlight a few key areas that contributed to our strong third quarter 2024 results. Our EBITDA from direct operations for the third quarter has increased to $132 million compared to the previous year, primarily driven by stronger sales from Yumpag and El Brocal. This performance is also reflected in a higher EBITDA margin of 40% compared to 25% in the previous year. Third quarter 2024 net income, including the sale of Chaupiloma Royalty Company reached $237 million, compared to $28 million net loss for the same period in 2023. Copper production decreased 9% year-over-year in third quarter 2023, copper production of El Brocal has increased due to higher estimated copper content mine from the open pit transactional port. In the third quarter of 2024, silver production reached 4.4 million ounces, a significant increase compared to the 1.9 million ounces produced during the same period last year. Of this total 3.2 million ounces came from Uchucchacua and Yumpag. Coal production increased 7% year-over-year, mainly explained due to increased output at Julcani and La Zanja. We are pleased to share that Buenaventura completed the sale of its Chaupiloma Royalty Company to Franco-Nevada for $210 million during third quarter 2024. Buenaventura's CapEx is in third quarter 2024, totaled $98 million, which includes $77 million allocated to the San Gabriel project, primarily allocated to the mines water down and to power line construction. Buenaventura's credit rating was upgraded by Moody's to B1 with a positive outlook. Moody's cited Buenaventura's operational improvement driven by increased production from its El Brocal, Yumpag, Uchucchacua mine as well as efficiency in cost reduction, cash flow generation and conservative liquidity management as key factor. Our cash position reached $458 million with a total debt of $675 million. We continue deleveraging the company reaching a net debt-to-EBITDA ratio of 0.5x, lowest in years and within our targeted range. Moving on to our cost structure in Slide 4. The third quarter 2024 all-in sustaining costs have been reduced by 69% year-over-year. This reduction is primarily attributed to the increased silver contribution from Uchucchacua and Yumpag. Moving on to cost applicable to sales trend. As you can see, corporate cash decreased in the quarter, mainly due to an increase in volume processed during the quarter, resulting from a stockpile ore process, the cash is in line with the third quarter 2023 figure. Silver cash has decreased year-over-year, primarily driven by the higher contribution of silver ounces from Uchucchacua and Yumpag. However, it has increased quarter-quarter due to higher exploration expenses and increased cost at Uchucchacua and Yumpag related to ground support works. Gold cash increased year-over-year, primarily driven by lower grades at Tambomayo and Orcopampa. On the next slide, we will present our free cash flow generation. The third quarter 2024 cash position increased during the quarter, driven mainly by the strong performance of El Brocal, Uchucchacua and Yumpag. The sale of Chaupiloma for $220 million and dividends received from silver [ ware ]. In addition to these drivers, the EBITDA to cash through the free cash flow reconciliation reflects Buenaventura -- Buenaventura current growth phase with significant CapEx investment related to San Gabriel. Moving on to the Slide 6. This slide shows the San Gabriel project, cumulative progress, reaching 65% overall completion by the third quarter 2024, primarily driven by the advancements in the water dam and the power line construction. A key milestone, we are closely monitoring for the next quarter is the completion of the pipeline works. Out of the $650 million total CapEx, we have already executed [ $250 million ] and committed close to $230 million, allowing us to derisk the project completion at and any cost increase. 100% of the structural steel is now on site, a major contract for planning and interferencing has been awarded. On the next slide, we are showing the processing plans progress that will operate 3,000 tonnes per day. Currently, the SAG and Ball mills mechanical works are at 60%. The primary crusher mechanical works at 90%. And finally, the CIL tank's mechanical works are at 65%. Moving on to Slide 8. We present the progress at various facilities, essential for the underground mine development, including the North Ramp portal, fan installations and the shotcrete plant. Moving to Slide 9. We are showing the progress at various infrastructure of the project. What we would consider a filtered tailing plant, the water dam, the power line and the campsite 100% completed. Finally, to our closing remarks, I would like to finish with the presentation with these comments. First, Uchucchacua exceeded expectations, reaching an average throughput of 1,500 tonnes per day earlier than expected, while Yumpag maintained a steady production and 1,000 tonnes per day, delivering 3.2 million ounces of silver in the third quarter. Second at El Brocal, we successfully processed 100% of the stockpile ore enabled us to meet our production targets for the first 9 months 2024. The underground mine reached a record average throughput of approximately 12,000 tonnes per day during the quarter. Third, the San Gabriel project achieved a 65% overall progress, meeting our planned targets. Buenaventura continues derisking the project by completing engineering and procurement. And lastly, I am pleased to report a record low leverage ratio of 0.5x for the quarter, driven by a strong EBITDA growth, the sale of noncore assets and effective debt management. Thank you for your attention, and I will hand the call back to the operator to open the line for questions. Operator, please go ahead.

[Operator Instructions]. The first question is from Cesar Perez-Novoa from BTG Pactual.

Thank you. And congratulations for your third quarter, really outstanding results and a lot of progress. If I may have 3 questions. The first one relates to El Brocal. I believe the company is on track to achieve average mining rates of around 11,000 metric tons in 2024. However, during the third quarter, copper production fell around 10%, even though your average rates for the quarter stood at 12,000 metric tons per day. Can you please comment on why the volume fell and when will El Brocal reach the targeted rate of 12,500 per day, if I recall correctly. My second question relates to San Gabriel, Alejandro mentioned the completion is already at 68%. Could you please comment on project economics now that you have fully revised CapEx. And in addition, any new update on Trapiche would be also a great deal appreciated. And finally, if I again, if you could indicate where your sources of inflows and outflows of cash will be in the next year including your dividends from San Gabriel. I asked a lot of questions, but thank you very much for taking them.

Thank you, Cesar, of course. Regarding El Brocal, we already reached the objective to treat 12,000 tonnes per day. The least objective was planned to be reached on December this year, but we reached it before. Maybe Juan Carlos -- see if you can give more explanation to the production of copper, please?

Thank you, Leandro. And thank you, Cesar, for the question. Yes, we reached 12,000 tonnes per day average rate production in the mine. We are planning to keep ramping up this rate up to 12,500 tonnes per day, probably by the first or second quarter of 2025. So we are on track to reach full capacity of the undergound mine as we plan it. The difference in between third quarter 2023 and third quarter 2024 in copper production that 10% lower production compared between quarters is because in the last year, we have production, an exceptional production of the shipping ore from the opening pit. We have like 12,000 tons is straight from the open pit, crush it and sell it directly to the market with an average of [ 20% ] copper. So you have almost 1,400 tonnes of fine copper as a spot sale on third quarter 2023. That's the main difference between the third quarter of 2023, when we have this spot production there in third quarter 2024, when -- where 100% of the production -- copper production came from the underground mine. That's the main difference of copper production between quarters.

And continuing with the second question. You were asking about the economics of San Gabriel. San Gabriel, we are planning to have an EBITDA around $100 million per year our cash cost should be around 1,300 and with sustaining CapEx yearly between $5 million and $7 million. And more important, the production will be around 130,000 ounces per year. And in terms of inflow and cash flow, Daniel, please, can you give more color to the question.

Yes, of course. Thank you, Cesar, for the question. For 2025, we expect to start the year with a cash position of around $370 million. And considering the prices for gold of $2,100 for silver, $27. And for copper, $9,000 per tonne. We estimate an EBITDA for the following year of around to $350 miliion to $380 million. In addition to this, we expect to receive $150 million of dividends from Cerro Verde. This is regarding the inflows. And regarding the outflows, we expect to spend at San Gabriel close to $240 million to $250 million, plus our sustaining CapEx, which is in the order of $100 million to $120 million. And finally, we are going to pay the taxes for the Chaupiloma sale, which we received $210 million this year, but we are going to pay the corporate tax of 29.5%, which is $45 million and will be paid in the first quarter of next year.

All right. Very good. Thank you very much for the detailed explanation.

I left [indiscernible] your question about Trapiche, any news about Trapiche. We continue with the feasibility side. And [ very pleased ] if you can give more information [ to that ].

Sure. So exactly we are in the middle of the feasibility study, and we are starting to receive the test results from our second set of column testing on-site, confirming the business case. We keep working to consolidate the write-off pass for the power line. We are probably 60% advance in that one. And in the environmental impact assessment process. We finished the public assemblies. Those are great news. We are in the process of absorbing the authority question. So hopefully, within the next 6 months, which will have an environmental impact assessment approval.

Next question is from Carlos De Alba with Morgan Stanley. Carlos, your line is open on our and perhaps you have it muted on your end.

Sorry about that. So I have several questions. The first one is on San Gabriel, just continuing the discussion there. Any expectations, any guidance on how do you see the mine ramping up to full normalized production run rate of 130,000 ounces per year. It seems that the first ore is in the second quarter of next year. So how do you see the ramp-up?

Well, Renzo, Juan Carlos, please.

Yes. So the start-up plan we're expecting to reach 65% of our production capacity by the third quarter of 2025. With commissioning activities on the mill and Russia starting in the first quarter next year. And then we're going to start -- then we're going to start the ramp-up process up to 3,000. I don't know, if Juan Carlos you can comment on that part.

Sure. We have right now the contracts are ready in the tunnels underground. We have 2 crews, 2 fleets, working for the north and the south ramp at the same pace. We are reaching an average development rate of about 500 to 600 meters per month. We are getting into the ore body right now. So we will have -- we're scheduled to have access to the [ pilot phase ] -- initial [ pilot phase ] by December this year in order to start training our people on the mining method that we're going to be using San Gabriel and continue with this training along the first half of 2025. We have been reaching the work -- close the decision to purchase all the mining equipment. That's for the mining operation. We have good delivery time. So for rented equipment and new equipment according to the plan that we have for ramping up this whole production for you. So we are well on track for the mine development side, along as Renzo mentioned, with the construction and commissioning of the processing plan.

Just to clarify, the 65% of capacity by the third quarter of 2025. Is that throughput? Or is this your final production?

No, no. That's the 65%, 6-5, 65%, which equals was 2,000 tonnes per day. That's we're going to -- that's when the project will end with a constant production of 2,000 tonnes per day for 3 weeks without major response and with a commercial product at the end. That's kind of it. That's kind of where we finish a project and we start operation.

Okay. Then the next question on Cerro Verde. Any expectations for dividends in the fourth quarter?

Well, you may see the financials Cerro Verde. And there is some cash that we expect to -- maybe we will discuss it in the next Board meeting.

How much will it be if -- your expectations?

We expect an additional $50 million or $60 million for us for Buenaventura.

$50 million to $60 million for Buenaventura in the fourth quarter, potentially?

Potentially.

Yes. All right. Great. And then on a couple of operations, what can we expect on Coimolache profitability in the coming quarters given that in spite the good prices is struggling in the third quarter?

Well, the current situation in -- that we are expecting a per month.

Coimolache.

Yes, Coimolache, we are expecting a permit for continuing our operations. Once we have the permit, the production will come as we were used to around 70,000 ounces per year, we expect to put more mineral, more ore in the leach pad that has been constructed and we are expecting that permit. We will begin production in the third quarter of -- between the third quarter and the fourth quarter and the next year, maybe more detail when Carlos can give us.

Thank you, Leandro. Yes, the real profitability were for this quarter and maybe the coming quarters close to a breakeven situation in Coimolache, we are extracting goals from the inventories that we hold on the past. As Leandro had mentioned, we already have the environmental license to do the expansion of the pads -- we will hold the land. We are currently filing for the construction permit. So to have the construction permit ready by the end of the year and early 2025. And there are some other detail on the permits, but on that sequence of ideas. We will have the chance to start putting fresh ore on top of the pad -- by the third quarter of 2025. So the idea is that we hold the situation kind of close to breakeven -- cash breakeven, and we will reach the permit for construction permits for placing fresh ore on top of the pad by the third quarter of 2025. And at that time, we will resume profitability as we had in the past.

But so basically, if you're going to resume leaking in the third quarter, probably you only see production until the fourth quarter '25 or first quarter '26 or increase the...

Yes, it will be ramping up, as you know, they used to have place in the ore and you have a leasing period, total leasing period of total ores 60 days. So usually, you need to start waiting that third quarter of next year will be a pivotal moment for Coimolache getting back in profitability because there will be some gold ounces coming from the past, the existing inventory that we have, and we are taking it out right now, plus the addition of fresh ore in the third quarter. So it will be a combination of both of them. So probably the fresher will add a lot of fuel for the profitability of Coimolache by the third quarter.

All right. Excellent. And then lastly, sorry for all these questions, but to get the math of the way on the Julcani, what is the rationale to sustain -- to keep this operation in Buenaventura portfolio given elevated costs?

Yes. Well, we are trying to make more efficient with Julcani. We have to make some -- to take some decisions there, but we are moving to the copper and gold areas that give us more production of gold in order to be more efficient with that mine. As I told you, Carlos, we are evaluating the situation and the continuity of that mine in our portfolio.

[Operator Instructions]. The next question is from Tanya Jakusconek with Scotiabank.

Sorry, I just got on a bit late. It was another call ahead of you. Just wanted to come back to San Gabriel. Can I just -- I think I heard an EBITDA of $110 million. Was that a San Gabriel EBITDA?