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Companhia de Minas Buenaventura (NYSE:BVN)
Q3 2019 Earnings Call
Oct 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen. Welcome to Compañía de Minas Buenaventura third-quarter 2019 earnings conference call. [Operator instructions] Please note that this call is being recorded. I would now like to introduce your host for today's call, Mr.

Rodrigo Echecopar, investor relations, Mr. Echecopar, you may begin.

Rodrigo Echecopar -- Investor Relations

Good morning, and welcome, everyone. Presently on the call today is Mr. Víctor Gobitz, CEO. Also present and available for your questions are Mr.

Leandro Garcia, CFO; Mr. Juan Carlos Ortiz, vice president of operations; Raúl Benavides, vice president of business development; and Alejandro Hermoza, vice president of sustainability. Before we get started in today's call, we will make forward-looking statements that reflect the company's current expectations about the future plans and performance. These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainties.

I encourage you to read the full disclosure concerning forward-looking statements, which is in the press release we filed on October 29, 2019. With that, I will turn the call over to Mr. Gobitz. Please go ahead.

Victor Gobitz -- Chief Executive Officer

Thank you, Rodrigo. Good morning to all, and thank you for attending this conference call. We are pleased to present the results of the third quarter of 2019 from Compañía de Minas Buenaventura. We have prepared a PowerPoint presentation, which is available in our webpage.

Before we go forward, please take a moment to review the cautionary statements found on Slide No. 2. Moving on to Slide 3. Highlights were as follows.

Buenaventura generated $12 million in additional EBITDA through the company's debottlenecking program. Through this program, Buenaventura is increasing the efficiency of its Tambomayo, Uchucchacua, El Brocal and Orcopampa mines. In this third quarter, the EBITDA from our direct operations was $55.8 million, compared to $60.8 million reported in the third quarter of 2018, primarily due to a reduction in production and volumes sold at the companies of Orcopampa and La Zanja mines. However, this represents a continuous positive sequential quarterly trends.

This third quarter, EBITDA was negatively affected in the amount of $10 million due to a one-off event related to the headcount reduction at Orcopampa and more than expected inventory generated at Tambomayo mines. In the third quarter, the adjusted EBITDA, including associated companies, reached $158.5 million, compared to $150.8 million in the third quarter of 2018. In this third quarter, capital expenditures were $28 million, compared to $18.5 million for the same period in 2018. In this third quarter, net income was $4.5 million, compared to a net income of minus $10.3 million for the same period in 2018.

Our portfolio of greenfield projects continued progressing well. In San Gabriel, our gold project, and Trapiche, our copper project, we have achieved pre-feasibility stage in this third quarter. Buenaventura expects to declare ore reserves in the first quarter of 2020. At Yanacocha, Quecher Main is on budget and should achieve commercial production by fourth quarter of this year.

Cerro Verde's third quarter was primarily affected by the social unrest related to a copper project in the region, which restricted the workforce's access to the mine and the replacement of consumables. Due to this, the processing plant treated stockpiles, which negatively affected grades and recoveries. A dividend payment of $0.27 per share was approved by Buenaventura's board. Moving on to Slide 4.

We are showing our strategic map where we use, as usual, the capital B from the logo of Buenaventura as a visual index for the following slides. In the coming slides, we shall discuss the financial results of the company. Moving on to Slide 5, Financial Highlights. Total revenues during the third quarter were $230 million, which is 14% lower in comparison to the third quarter in 2018.

This was primarily due to a decrease in volumes sold of gold and silver. The EBITDA from our direct operations in the third quarter of 2019 was $55.8 million, which is 8% lower in comparison to the same quarter last year, mainly due to the reduction in volumes sold at the company's Orcopampa and La Zanja as budgeted. EBITDA, including our affiliates, in the third quarter was $158.5 million, which is 5% higher in comparison to the third quarter of 2018. The cumulative EBITDA, including associates, as of September 2019 is $444.2 million, which is 14% lower in comparison to the same period of 2018.

And the net income in the third quarter of this year was $4.5 million, compared to a net income of minus $10.3 million a year ago. In the case of our first nine months of the year, net income was $41.5 million, which is 30% lower than the same period of 2018. The capex has increased to $28 million in the third quarter of 2019, compared to the $18.5 million in 2018. During the first nine months of the year, the capex was $64.3 million, an 8% decrease compared to the same period of 2018.

It is in line with our budget target as reported at the beginning of the year. The free cash flow in the third quarter of 2019 was $11 million. So during the first nine months of this year, the free cash flow was $7 million. Moving on to Slide 6.

As you can see in this slide, we have included the updated estimates related to key financial figures, including the new estimates mentioned before. The new guidance for total revenues ranges between $850 million and $950 million. The updated guidance for EBITDA from direct operations is now between $220 million and $260 million. The EBITDA, including associates, has not been modified.

The new guidance for net income is between $70 million and $90 million. The guidance for the estimated capex remains the same. And the free cash flow has been updated to a range between $70 million and $100 million. Moving on to Slide 7.

In this slide, you can see the upward trend of the EBITDA from our direct operations, which is forecast to reach in the range of $220 million and $260 million. On the lower part of this slide, there are three graphs, showing the decreasing trend of the unit cost per metric ton in the mines as a result of the implementation of the debottlenecking program. In the case of El Brocal, the cause of decrease in this quarter was due to mechanical issues of its processing plants. Moving on to Slide 8.

Here again, you can see the capital B as a visual index for analyzing the results of our portfolio of operations. Moving on to Slide 9 and 10, attributable production. Total gold attributable production in the third quarter of 2019 was 121,000 ounces, which is 25% lower than the figure reported in the same quarter last year. In the first nine months of 2019, total gold attributable production was 350,000 ounces, 22% lower than the same period in 2018.

This reduction is mainly explained by lower production coming from Orcopampa. Silver attributable production for this quarter was 5 million ounces, which shows a decrease of 25% compared to the figure reported in the third quarter of 2018. In the first nine months of 2019, silver production was 14.5 million ounces, which is 31% lower than the total silver production in the same period of 2018. This decrease is mainly explained by low production in Uchucchacua as a result of the workers' union strike at the beginning of January and also lower silver grade than expected.

In third quarter of this year, 13,100 metric tons of zinc was produced, 15% lower in comparison to the third quarter of 2018. During the first nine months of this year, 42,000 metric tons of zinc was produced, which is 12% lower compared to the first nine months of 2018. The decrease was mainly due to low production of Uchucchacua and El Brocal mines. In the case of lead, production was 9,200 metric tons in the third quarter of this year, which is 17% lower in comparison to the third quarter of 2018.

For the first nine months of this year, lead production was 30,400 metric tons, 7% greater than the lead production in the first nine months of the previous year. Finally, our copper attributable production for the third quarter of the year was 28,700 metric tons, an 11% decrease compared to the same quarter in 2018. In the case of the first nine months of 2019, total copper attributable production was 84,600 metric tons, 6% lower than the same period of 2018. Moving on to Slide 11, the all-in sustaining costs for our Layec operations in the third quarter of the current year decreased to $914 per ounce of gold, 10% lower in comparison to the same period a year ago.

The cost of applicable sales in the third quarter of 2019 were as follows: For gold, $1,030 per ounce, which is 21% higher than a year ago. For silver, $11.76 per ounce, which is 16% higher than a year ago. For lead, $1,147 per metric ton, which is 5% lower than a year ago. For copper, $4,987 per metric ton, which is 13% lower in comparison to a year ago.

Finally, in the case of zinc, the cost applied to sales was $1,566 per metric ton, which is 47% higher than a year ago. Moving on to Slide 12, the debottlenecking program. As a result of the company's debottlenecking program, in general terms, the company was reduced -- production was reduced, but this had been offset by lower operating cost resulting in increased profitability in terms of [Inaudible] and at the same time, lowering carov cost and extending life of mine. In the specific case of El Brocal, the cost reduction program is in line with expectations.

However, this was negatively affected by a one-off event related to mechanical issues at its processing facilities which affected the results in this third quarter. This will be normalized by the end of 2019 this year. Finally, costs of Buenaventura's Orcopampa operations have not yet been stabilized due to a one-off event in the year related to the headcount reduction of Buenaventura and contracted employees. This should be also normalized by the end of this year.

Moving on to Slide 13. Once again, you can see our capital B from our logo used for analyzing in more detail the updated information regarding our portfolio of projects. Moving on to Slide 14. Here we are presenting in one snapshot the current development level for each one of our projects.

Moving on to Slide 15, it is important to highlight the following details. In San Gabriel, our gold project, we have completed pre-feasibility studies with Ausenco, and we are aiming at declaring our reserves by the first quarter of 2020. We are already starting the permitted -- the permit process to build its processing facility, and we have delayed the permit related to reinforced social acceptance. And we expect to reach both permits by the first half of 2020.

In the case of Trapiche, our copper project, this project has already completed the pre-feasibility studies. We are aiming to declare, as well, reserves by the first quarter of 2020. The Environmental Impact Assessment is in progress, and we expect to complete it by the first quarter of 2021. The permit related to social previous consultation is expected to be reached in the second quarter of 2021.

And in the case of Rio Seco, our chemical plant, the pre-feasibility stage is expected to be complete in the first half of 2020. The Environmental Impact Assessment is in progress. And we are already running our pilot test program, applying FL Smith's technology. We intend to unlock the value of our copper portfolio with this project.

And in the case of Tantahuatay sulfides project, we expect to reach the pre-feasibility stage by the first half of 2020. We are currently preparing the Environmental Impact Assessment process with initial documentation and also we have started the basic engineering for the tailing dam facilities. Moving on to Slide 19. Thank you for your attention, and we'll hand up the call back to the operator to open the line for questions.

Operator, please go ahead.

Questions & Answers:


Operator

[Operator instructions] Our first question is from Carlos De Alba with Morgan Stanley.

Carlos De Alba -- Morgan Stanley -- Analyst

So the first question is just on the guidance -- on the updated guidance. Could you please mention what are the price assumptions or price forecast that you have embedded in the updated annual guidance for revenues, EBITDA, free cash from operations? That will be the first question. The second question, if I may, we see that you have been able to make traction or gain traction in reducing production costs at Tambomayo, Uchucchacua. And El Brocal is relatively flat as a result of the debottlenecking initiatives.

However, on Slide 11, CAS for gold, silver and zinc have come down -- have increased, sorry. So when can we -- how can we reconcile these two? And when we expect the progress that you have made in production cost, in lowering production costs, to translate into lower or at least stable cost applicable to sales? And then finally, we saw that the exploration expenses, particularly nonoperating areas, declined materially year on year. Can you elaborate a little bit more and provide context to this figure? Because clearly one might say that the reduction in exploration expenses could be negative for the medium to long term. But also you could argue, and I think this is part of the debottlenecking, you could argue that you are doing exploration more efficiently.

So just maybe some color to provide context around these changing figures.

Victor Gobitz -- Chief Executive Officer

Thank you, Carlos. We have three different questions. Let me start with the last one, regarding the exploration stage. As you know, a significant part of the exploration is part of the opex of all the different mines.

And this number, with the exploration outside of the operations, it was reduced significantly this year by the effect of Yumpaq. Yumpaq is a silver project. In 2018, we spent a significant amount of money building this adit, this ramp. But this year, in 2019, we have spent more money in the in-filling drilling program.

So that explains significantly the differences between this year and a year ago. The second question is regarding the differences in terms of reduction of CAS costs and that cost attributable to sales. Let me summarize the idea and probably Juan Carlos will add more information. Through this program, this debottlenecking program, definitely, as was mentioned today, we are reducing the CAS costs, that will allow us to reduce the carov take advantage of reducing the carov, we will extend the life of mine.

But definitely, in the short term, in a quarter period, in terms of this [Inaudible] cost applicable to sales, we maintain some differences. But again, in terms of the debottlenecking program, Juan Carlos will explain with more details all the different aspects behind this program.

Juan Carlos Ortiz -- Vice President of Operations

Carlos, thank you for your question. This is Juan Carlos. Remember that, for the case of gold, we are taking into consideration the average cost, including La Zanja and Orcopampa mines. As you know, La Zanja is at the end of the operating life of the mine, and the costs are fairly high.

The same is in Orcopampa. Using part of the debottlenecking program, we mentioned in the comments here that we have a one-off fixed cost this quarter related to the debottlenecking program, related primarily to the reduction of the headcount in the last quarter of about 300 people. So that's the reason we have a high cost in La Zanja and Orcopampa. And it's meeting the average cost in the gold sector in our mine.

So there is a distribution increment compared to the last year full quarters. The case for zinc -- in the case of zinc, we are in the market for zinc. Particularly with the treatment charge, it has been very negative in the last months. It's increasing a lot compared to the last year.

But the reason for the cost increase in the case of zinc is [Inaudible] operations [Inaudible. Albeit, in the case of El Brocal, it's more linked to the commercial cost. Basically the increase in the treatment charge. It has been almost a three-fold increment in the last months, in particular if we compare it to the third quarter of the last year.

Victor Gobitz -- Chief Executive Officer

Carlos, your -- another question was related to the prices that we assumed. Leandro, could you answer?

Leandro Garcia -- Chief Financial Officer

[Foreign language] Copper price mainly is $5,800. Gold is $1,400; silver is $16.5; zinc, $2,257.

Definitely, we are assuming lower gold prices in comparison to the current market.

Operator

Our next question is from Tanya Jakusconek, Scotiabank.

Tanya Jakusconek -- Scotiabank -- Analyst

Great. Thank you very much, and good morning, everybody. I have three questions. I was going to start a follow-up on the exploration question, so that I can understand.

Are you saying that the major difference in the decline in the exploration spend this year versus last year was due to the fact that you are no longer expensing a mine ramp in 2019 versus you were expensing that in 2018?

Victor Gobitz -- Chief Executive Officer

I was trying to explain that we are spending -- a significant amount of money that we are spending in exploration is charged directly to our projects. So in our financial statements, we express all our exploration outside of the footprint of our operations. In that case, in comparison to a year ago, the main component was Yumpaq. It was Yumpaq.

So in this year, particularly in 2019, we are still maintaining -- we're investing in Yumpaq but mainly through diamond ring, in drilling -- around the drilling program, instead of declining the ramp. In addition to that, there was a significant change in the financial statement that Leandro Garcia will explain.

Leandro Garcia -- Chief Financial Officer

The main change is how we are accounting all the development for Yumpaq. Compared with the last quarter and the third quarter in 2018, it was registered as an expense. Today, we are -- in this quarter, this year, we are registering a mine development, so using the asset. But the amount expense or invested in that project, Yumpaq, is around 30.1, so it equalized the amount registered in expense last year.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So excluding that amount, you're saying that you're just still spending the same amount of money in exploration drilling?

Leandro Garcia -- Chief Financial Officer

Yes. It's an accounting difference. That's right.

Tanya Jakusconek -- Scotiabank -- Analyst

Yes. OK. And so are you comfortable that this exploration drilling is going to replace your reserves and resources this year when you report 2019 year-end reserve?

Victor Gobitz -- Chief Executive Officer

Yes. Definitely. As was mentioned today, in the first quarter of next year, we expect to announce a significant increase in our ore reserves.

Tanya Jakusconek -- Scotiabank -- Analyst

Yes, so an increase in your reserves? Sorry, the line is a bit weird.

Victor Gobitz -- Chief Executive Officer

Sorry, could you repeat please. I said that we expect to increase our ore reserves and to announce this increase in the first quarter of next year based on this expansion programs in our existing assets and also in our greenfield projects.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. And just turning to the greenfield projects, if I could, could I ask why the capital expenditures have increased at San Gabriel? And why the EBITDA has gone up?

Victor Gobitz -- Chief Executive Officer

Raúl Benavides will try to explain.

Raul Benavides -- Vice President of Business Development

We're beginning to work in San Gabriel. We need to -- we have decided that we will declare reserves in San Gabriel by the first quarter next year. For that, we are doing some diamond grading, and we will be beginning to do some preliminary work and we have to use some expenses in order to prepare ourselves. The idea is that we will initiate the decline.

We will reinitiate it by the beginning of next year. So for that, we have to do some preliminary work in this, to ensure that the rocks are stable in the decline and everything, so that we can start. And probably we will start to advance in the decline by April next year. And we're also doing some cams and of course, the exploration in order to have the reserve.

That's essentially what we were doing in San Gabriel and that explains the extra cost.

Victor Gobitz -- Chief Executive Officer

But capex has slightly increased due to the more robust engineering styles behind that number.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So my understanding is that it's an increase because of rock mechanics for the decline. Is that a correct assumption?

Raul Benavides -- Vice President of Business Development

Not exactly. We have been working with engineering so that we can be sure that what are the -- what is the mining metal that we're going to use and that the rock quality is in accordance with that. But also, we're doing all these preliminary work and some drilling in order to be able to declare reserves next year.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So more on the drilling side for reserves announcement. And can I ask, are you using the same prices that you gave before for your EBITDA forecast for the projects?

Leandro Garcia -- Chief Financial Officer

For the project, this -- we're not moving the price.

Victor Gobitz -- Chief Executive Officer

Yes, we'll maintain this number --

Raul Benavides -- Vice President of Business Development

The long-term prices.

Tanya Jakusconek -- Scotiabank -- Analyst

Those are the ones you gave. OK. And then can I just -- after finishing on on San Gabriel, can you just give us an update on the permitting and why it's being delayed a bit?

Victor Gobitz -- Chief Executive Officer

Why don't we ask Alex Hermoza to give you an update on that.

Raul Benavides -- Vice President of Business Development

There is a specific process, which is a prior consultation, which is handled and managed directly by the government. This is the one that we'll require right before we get the final authorization for the mine construction. This has been delayed. As of now, as we have been informed by the Ministry, this should be over -- they should finish this process by the first quarter of upcoming year, and this would allow us to get the authorization on the mining construction.

But this has been mostly some delays on the governmental side in handling this process.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So that's the kind of the process --

Victor Gobitz -- Chief Executive Officer

Yes. This is another step because, as you know, this project, we have some Environmental Impact Assessment approved some two years ago.

Tanya Jakusconek -- Scotiabank -- Analyst

OK, OK. And then if I could ask on the debottlenecking program. For 2019, your guidance had been $40 million to $50 million, and Q4 had been $14.6 million previously. Given -- is, number one, that $40 million to $50 million guidance still a number that you're comfortable with for this year? And is $14.6 million still the target for Q4 or has that changed?

Victor Gobitz -- Chief Executive Officer

Well, we don't see any change, Tanya. But again, probably Juan Carlos will have more details of the efforts in this third quarter.

Juan Carlos Ortiz -- Vice President of Operations

Hello, Tanya. Yes, we are keeping our guidance for the debottlenecking program for this year. We are having the benefits of some additional cost reduction, particularly in El Brocal, maturing this quarter. That's the reason we have had a little decrease than the previous one.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So looking for that $14.6 million in Q4?

Juan Carlos Ortiz -- Vice President of Operations

Yes, in the range.

Operator

Our next question is from Luis Vicente with CrediCorp Capital.

Luis Vicente -- CrediCorp Capital -- Analyst

I was just wondering if you could explain a little bit or make some breakdown on how would you get to the EBITDA guidance announced for this year, considering the company will have to make around $90 million EBITDA from direct operations in 4Q. I was wondering if maybe the the recoveries may come from Orcopampa or Tambomayo, I don't know. If you can give some color on that.

Victor Gobitz -- Chief Executive Officer

Thank you, Luis, for your question. In the last quarter of this year, we expect a significant increase in terms of profitability -- production and profitability coming from El Brocal. This is access of area with high content of metals. And specifically in the case of Tambomayo, as well, we expect a significant increase and maintain the same level that we have achieved in Uchucchacua in the third quarter.

But again, I don't know if Juan Carlos could add some more information.

Juan Carlos Ortiz -- Vice President of Operations

We expect to have that range of guidance --

Operator

We are having technical difficulties. The conference will be beginning again in a few moments.[Technical difficulty]

Victor Gobitz -- Chief Executive Officer

Luis?

Luis Vicente -- CrediCorp Capital -- Analyst

Yes. You got cut down at the Uchucchacua explanation.

Victor Gobitz -- Chief Executive Officer

Yes. Sorry for the inconvenience. Technical problem. But yes, we are having -- maintaining the core of the guidance for the full year.

The fourth quarter is going to be better than the present one. We are ramping up in production, particularly from El Brocal. We are planning to mine a particular sector of the open pit with high grades. Also no expectancy of any one-off event like we have in the past quarter in Orcopampa related to the debottlenecking program.

And also increased production in -- increased production from our operation like Tambomayo and Uchucchacua.

Luis Vicente -- CrediCorp Capital -- Analyst

OK. And just one more question to follow up this one. Considering that right now the zinc market is with this high treatment charges, are you considering to accelerate in some way the ramp-up in the copper part of El Brocal?

Victor Gobitz -- Chief Executive Officer

Yes, definitely -- thank you for your question, Luis. Definitely, in the long term, El Brocal, will become a significant copper producer. We are developing the underground mines. We are ramping up this production.

And we, clearly, in the long term, we expect to be a significant copper producer in El Brocal. But it's not easy to switch production in other industries. We maintain a positive view. You have to take into account also that in the open pit, this open pit Tajo Norte, the most important driver of value is its silver content, not zinc content.

So we're taking in account that. We'll have to follow the current market price.

Operator

Our next question is from Ursula Menendez with CrediCorp Capital. Please proceed. Ursula, please see if your line is muted. Ursula, we're unable to hear you.

Your line is live in the conference. OK. We will move on. Our next question will be from Carlos De Alba with Morgan Stanley.

Carlos De Alba -- Morgan Stanley -- Analyst

So just on Tambomayo. The ore grade decline relative to the fourth quarter, can you maybe talk a little bit, Victor, on how you see this, the ore grades in Tambomayo going forward in the next few quarters? On Orcopampa, presumably, the almost $1,700 CAS reported in the third quarter will decline just by the fact that you won't have the additional one-off expenses that we saw in the quarter, that Juan Carlos was alluding to. But if you could confirm that that will be great. And then a couple of other operations.

El Brocal. Can you talk about what is the current situation with the slope stability, the pit. Was it able to be fully addressed, the risk, and corrected, the potential issues that you faced there in the quarter, and now we can move on and have better results in the fourth quarter? And then finally, I'm sorry for jamming up all these questions in one, at Cerro Verde, can you give us an update now that the situation in the South has normalized, at least to some extent? Do you expect normal production rates from the pit at Cerro Verde or would the company still use stockpiles?

Victor Gobitz -- Chief Executive Officer

Thank you, Carlos. Let me start with Tambomayo. In the case of Tambomayo, let me put in context that Tambomayo is an ore body with high content of gold but also with high content of silver, zinc and lead. So combining these four different metals, you have to create a business plan in order to optimize the profitability.

So you have to see the gold content, but also silver, lead -- zinc and lead and silver content. So we are very confident that we are creating a long-term business plan for Tambomayo and also, it's maintaining a significant exploration program in order to extend this visibility in terms of ore reserves. Specifically, that's the case of Tambomayo. In the case of Orcopampa, as was mentioned, we have significantly reduced our headcount.

That means also a significant one-off event, paying these layoffs. And in the last quarter of this year, we expect a very positive situation with a lower production cost. In the case of El Brocal, we faced some difficulties in the slope -- stability of the wall Corno, and we solved that problem. As was mentioned, we expect to increase the grade content that fits the processing plant.

And finally, in the case of Cerro Verde according to the information, according to the current situation, we expect a significant recovery in the last quarter of this year.

Carlos De Alba -- Morgan Stanley -- Analyst

All right, perfect. And just on Orcopampa, do you expect the operation to be -- to run the black -- to make money in the fourth quarter already?

Victor Gobitz -- Chief Executive Officer

Yes. We have set a positive EBITDA. That means lower all the costs.

Operator

[Operator instructions] Our next question is from Ursula Menendez with CrediCorp Capital.

Unknown speaker

This is Eric Castro. Probably there has been a mistake taking the information, but no problem. I just have a couple of questions. The first one is, you mentioned that you see an improvement in El Brocal, Tambomayo and Uchucchacua in the last quarter of the year.

That will be a focus or that improvement will be related to an increase in production or mainly focused on costs? And the second question that I have is related to your project pipeline. We have seen some improvement in San Gabriel and Trapiche, and you also have shared more information related to EBITDA, capex. Perhaps you can tell us what is the -- between those two, which one will you prioritize for the following two years perhaps? Or what will be the trigger to decide in which project will you focus? Also, if you can add some cash cost guidance in those projects.

Victor Gobitz -- Chief Executive Officer

Thank you, Eric. Many questions. OK. Let's start with improvements.

Probably Juan Carlos Ortiz is here. He would answer that part.

Juan Carlos Ortiz -- Vice President of Operations

Eric, thank you for your question. Regarding the increasing EBITDA for these three mines, El Brocal, Tambomayo and Uchucchacua, there is a combination of two factors combined. One is the last quarter of the debottlenecking program, as Tanya was asking before. We have expected taking an additional EBITDA reduction -- or EBITDA increase by the debottlenecking program.

So that's taking into account in the last quarter. And also, in this particular case of El Brocal, we are planning to access high-grade areas in the open pit and also in the underground mine that will push up the production and, of course, the EBITDA of the operation. And your question -- another question was related to Cerro Verde. Specifically, regarding production?

Unknown speaker

Yes, it is.

Juan Carlos Ortiz -- Vice President of Operations

The political situation, as was mentioned today, that the situation is quite normal. It has been normalized. And we expect that the government, the police and all this law will put in place, and we don't expect any disruptions that could affect Cerro Verde operations. Your third question was regarding our greenfield projects.

Let me just summarize. Recently, San Gabriel, our gold project, is advancing very well. We have a pre-feasibility stage but also, as was mentioned, we have the Environmental Impact Assessment approved. So in comparison to Trapiche, it is very well advanced.

But probably also Raúl who is here, he could add some more information about these two projects.

Raul Benavides -- Vice President of Business Development

Essentially, we have been working, as I told Tanya, on the engineering and the pre-construction for San Gabriel and some exploration of [Inaudible] in order to be able to declare reserves at the first quarter next year. And we're advancing San Gabriel if permits are in time and whenever we should have the feasibility ready by the end of next year, and we would be able to initiate construction in '21 and '22. So we will be in operation probably in '23. In the case of Trapiche, we have to finish the feasibility in order to declare reserve in the first quarter next year.

And we will come to a process of optimization. We did the same in San Gabriel in order to get all our data and all our variables under control, at least the technical ones, because you know in the social and permitting-wise, it's more difficult to be that certain. And then we have been advancing in our Rio Seco project. That's a copper refinery for copper arsenic ores.

And this is something that's been advancing very nicely. We hope to have the environmental study these days submitted to the authority. And we should have it approved by next year, and we will run all the way to feasibility in order to be able to make a decision on construction in 2021. And then the Tantahuatay is still -- we're working on the engineering of the tailing dam and trying to see if we can get the pre-feasibility by the year -- next year.

It's behind the other projects, but we hope that we can advance it land purchasing permitting and all the -- there's more factors there that we don't control. So that's what we are right now in projects.

Juan Carlos Ortiz -- Vice President of Operations

Probably, we can add to that the case of Yumpaq. Sorry. We can add, in the case of Yumpaq, which is our silver project, we are developing the concept as a satellite mine in order to fit an expansion of Uchucchacua. So in this regard, also we intend to declare an increase in silver ore reserves coming from Yumpaq in the first quarter of next year.

Unknown speaker

OK. Excellent. Just to ramp up the idea, is it possible that you can share with us some guidance of cash cost for San Gabriel? Is it available?

Leandro Garcia -- Chief Financial Officer

Not yet. No.

Juan Carlos Ortiz -- Vice President of Operations

Not yet, Luis. Not yet. We are working on it. But definitely, it's a profitable business case.

Probably, when we will achieve not the pre-feasibility but the feasibility stage, clearly we will share this information with the market.

Operator

This concludes our question-and-answer session. I would now like to turn the conference call back over to Mr. Victor Gobitz for closing remarks.

Victor Gobitz -- Chief Executive Officer

Thank you. Thank you, everyone, for joining our conference call this morning. On behalf of Buenaventura, I would like to express that we are committed to developing the full potential of our existing assets through our debottlenecking program, prioritizing the long-term perspective in order to become a more profitable company in terms of production and profitability. In this respect, we consider that 2019 is a transitional year in order to achieve this goal.

Furthermore, we are implementing a disciplined process for value generation through an enhanced methodology in order to optimize our capital allocation. And in this third quarter of 2020, we intend to declare ore reserves coming from our greenfield projects. Thank you again and have a wonderful day.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Rodrigo Echecopar -- Investor Relations

Victor Gobitz -- Chief Executive Officer

Carlos De Alba -- Morgan Stanley -- Analyst

Vctor Gobitz -- Chief Executive Officer

Juan Carlos Ortiz -- Vice President of Operations

Leandro Garcia -- Chief Financial Officer

Tanya Jakusconek -- Scotiabank -- Analyst

Raul Benavides -- Vice President of Business Development

Ral Benavides -- Vice President of Business Development

Luis Vicente -- CrediCorp Capital -- Analyst

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