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Companhia de Minas Buenaventura (NYSE:BVN)
Q1 2020 Earnings Call
May 19, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura first-quarter 2020 earnings conference call. [Operator instructions] And please note that this call is being recorded. I would now like to introduce you 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. Presenting on the call today is Mr. Víctor Gobitz, CEO. Also present and available for your questions are Mr.

Leandro Garcia, vice president and CFO; Mr. Juan Carlos Ortiz, vice president of operations; Raúl Benavides, vice president of business development; Alejandro Hermoza, vice president of sustainability. In addition, joining us today is Mr. Roque Benavides, our chairman.

Before we get started, during today's call, we will make forward-looking statements that reflect the company's current expectations about 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 within the press release we filed on May 18, 2020. It is important to note that these statements include expectations and assumptions, which will be shared, related to the impact of the COVID-19 pandemic.

As seen on Slide 2, our forward-looking statement also provides information on risk factors, including the effects related to COVID-19 that could affect our financial results. In particular, there is significant uncertainty about the duration and completed impact of the COVID-19 pandemic. This means Buenaventura's results could change at any time, and the impact of COVID-19 on the company's results and outlook is our best estimate based on information available as of today's date. Please note, in the interest of safety, we are utilizing a more virtual approach in exercising social distancing while conducting this call.

We would ask you to please bear that in mind in light of any potential technological difficulties which could occur. At this time, let me turn the call over to Víctor. Víctor, please go ahead.

Victor Gobitz -- Chief Executive Officer

Thank you, Rodrigo. Good morning to all, and thank you for attending this conference call. Before we start this presentation, we would like to wish you, your family and friends health and well-being at this difficult time. We are pleased to present the results of the first quarter of 2020 from Compañía de Minas Buenaventura.

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 shown on Slide 2. Please consider the new disclosure related to the COVID-19 pandemic. Moving on to Slide 3, highlights were as follows.

In this first quarter of 2020, results were adversely impacted by the state of emergency and related mandated lockdown distributed by the Peruvian government in order to contain the spread of the coronavirus. Due to the outbreak of COVID-19 in Peru and related restrictions imposed, Buenaventura lost 17% of its production for the first quarter of 2020. In this first quarter of 2020, EBITDA from direct operations was negative $6.8 million. And the adjusted EBITDA for the first quarter of this year, including associated companies, reached $30.6 million.

In this first quarter, capital expenditures were $10 million, compared to $8.5 million for the same period in 2019. In this first quarter, mixed loss was $75 million, compared with a net income of $27.3 million for the same period in 2019. The loss in the first quarter of this year considers COVID-19-related provisions of $9.7 million. The company's debottlenecking program continues progressing during the first quarter of this year.

Within 2020, the program focused on the company's Tambomayo, Uchucchacua and El Brocal mines. The company has a strong cash position of $222 million as of March 2020 and a monthly fixed cost of care and maintenance approximately between $12 million to $14 million. Also, we continue reflecting our current capex, sustain and growth, G&A, as well as potential dividend payment to our shareholders in order to preserve liquidity. On April 3, the company announced the successful refinancing of its $275 million syndicated loan facility.

Maturity for our new loan facility has been set for a new five-year term loan with a 30-month grace period with semiannual installments starting in October by 2022. Buenaventura has already presented the required documentation to restart operations of all its assets. We have already got all the permits to restart operations from the Ministry of Mines in all our mines. An updated guidance will be reported once we achieve full capacity of operation in all our operations.

The updated guidance is expected to be reported by the end of June. Moving on to Slide 4. The quarantine period in Peru was implemented starting in March 16 for an initial 15-day period which was subsequently extended. As of today, Peru's government-mandated quarantine is expected to end on May 24.

During the quarantine period, production on direct operations has remained on care and maintenance. All mining activities were limited to those critical activities. We continue to process ore on leach pads at Coimolache, La Zanja and Yanacocha mines. On May 11, the Peruvian government authorized mining operators to gradually restart key activities and resume operations.

Moving on to Slide 5. As you can see in this slide, we have summarized Buenaventura's current position after COVID-19 outbreak in the country. Buenaventura currently maintains a strong cash position of $222 million as of March 2020 and approximately a monthly fixed cost of care and maintenance between $12 million to $14 million. As previously announced, in April 2020, Buenaventura concluded the refinancing of its syndicated loan, and maturities have been set for a new five-year term loan with a 30-month grace period.

Buenaventura will restart operations through a two-phased approach to prioritize those mines with the most significant production. In Phase 1, starting on May 16, in this phase, Tambomayo, Uchucchacua, El Brocal, which includes Tajo Norte and Marcapunta and Coimolache, initiate operations. In Phase 2, starting on June 16, it needs to restart the operation in Orcopampa, Julcani and La Zanja. Buenaventura has already presented the required documentation for restarting operations in all of its assets and has obtained the permit from the Ministry of Mines to restart operations in all our mines.

Moving on to Slide 6. The company has decided to report an updated guidance once all the operations achieve full capacity. However, the company continues to enhance its current mining plans in order to focus on high-grade areas while maintaining a focus on exploration and cost-reduction efforts. Moving on to Slides 7 and 8.

In these slides, we show the measures taken to transport our workforce safely, keeping the highest sanitary standards and strict protocols to prevent a virus spread. Here, you can find our measures taken inside our facilities. The main one consists of organizing work cells based on task, workforce use of common spaces and accommodation. Moving on to Slide 9.

We are showing our strategic map, where we use, as usual, the capital B from the logo, Buenaventura, as additional index for the following slides. In the coming slides, we shall discuss the financial results of the company. Moving on to Slide 10. For transparency matters, we have decided to record a monthly detail of our production, so you can appreciate which way the COVID-19 has impacted our operating results.

Moving on to Slide 11. The decrease in this waterfall, you can see the decrease in revenues is partially explained by a decrease in volumes sold but in a greater magnitude to the current metal price. Moving on to Slide 12, financial highlights. Total revenues during the first quarter were $114.5 million, which is 38% lower in comparison to the first quarter of 2019.

This was primarily due to the decrease in volumes sold for gold and silver. EBITDA from our direct operations for the -- in the first quarter of 2020 was negative $6.8 million in comparison to $28.4 million in the first quarter of 2019. EBITDA, including our associates, in this first quarter was $30.6 million, which is 82% lower in comparison to the first quarter of 2019. And the net loss in this quarter was $75 million, compared to a net income of $27.3 million a year ago.

This net loss considers a provision of $10.7 million related to COVID-19. Capex has increased to $10 million in the first quarter of 2020, compared to $8.5 million in 2019. The free cash flow in this first quarter of 2020 was $22.3 million, compared to a negative $38.2 million of free cash flow in the first quarter of 2019, a significant and remarkable number when we consider the current situation. Moving on to Slide 13.

Here again, you can see the capital B as additional index for analyzing the results from our portfolio of operations. Moving on to Slide 14 and 15. Attributable production, to take in consideration that we suspended operations the last 15 days of March, in this period represents 17% of the total effective dates of the quarter. Total gold attributable production in the first quarter of 2020 was 89,000 ounces, which is 21% lower than the figure reported on the same quarter for the previous year.

The decrease was mainly explained by lower production in Tambomayo and Yanacocha. Silver attributable production for this quarter was 3.8 million ounces, which shows a decrease of 5% compared to the figure reported on the first quarter of 2019. This is mainly due to less production in Tambomayo. In the first quarter of 2020, 12,900 metric tons of zinc were produced, in line with the zinc production in the first quarter of 2019.

In the case of lead, equity production was 7,000 metric tons in the first quarter of 2020, which is 15% lower in comparison to the first quarter of 2019. Finally, our copper attributable production for the first quarter of the year was 23,700 metric tons. This production is mainly explained a 22% decrease in production at Cerro Verde. Moving on to Slide 16.

The all-in sustaining costs from our direct operations in the first quarter of the current year increased to USD 2,052 per ounce of gold, mainly due to lower gold ounces sold in the period. It was caused by lower sales in Tambomayo and Emperatriz. The costs applicable to sales in the first quarter of 2020 were as follows: for gold, USD 1,510 per ounce, which is 44% higher than a year ago; for silver, USD 16.56 per ounce, which is 38% higher than a year ago; for lead, USD 1,411 per metric ton, which is 6% greater than a year ago; for copper, USD 5,193 per metric ton, which is 12% lower in comparison to a year ago; finally, in the case of zinc, cost applied to sales was USD 1,914 per metric ton, which is 12% lower than a year ago. Moving on to Slide 17, the debottlenecking program.

As a result of the company's debottlenecking program, we are gaining mining cost efficiency that partially offsets lower production outcome. As you can see, results for the first quarter were in line with budget, generating $7.4 million of additional EBITDA. We have included three graphs where you can see a downtrend in the operating expenses from 2017 to our first-quarter 2020 estimate, considering no effects coming from COVID-19. Moving on to Slide 18.

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 19. Here, we are presenting, in one snapshot, our current development level for each one of our project. Moving on to Slide 20, San Gabriel project.

The feasibility study and construction permit documentation by Ausenco is in progress, and a prior consultation process might be affected by COVID-19 restrictions. Moving on to Slide 21, the project Trapiche. We will continue this year with on-site column testing and power line right-of-pass activities. The environmental impact assessment submission, social relations and public assembly were delayed due to COVID-19 restrictions.

Moving on to Slide 22, Rio Seco project. Our piloting is postponed to 2021 due to COVID-19 restrictions. We expect to finish the feasibility study by the end of the year. The environmental impact assessment is expected to be approved in the first quarter of 2021.

Just to recall, through this project, we intend to unlock a significant value of Buenaventura's copper portfolio. Moving on to Slide 23, Tantahuatay's sulfides project. We expect to reach prefeasibility stage by 2021, preparing the environmental impact assessment process initial documentation, and we are finishing a tailing dam basic engineering. Thank you for your attention, and we'll hand the call back to the operator to open the line for questions.

Operator, please go ahead.

Questions & Answers:


Operator

[Operator instructions] Carlos, your line is open on our end.

Carlos De Alba -- Analyst

Can you hear me?

Operator

Please go ahead with your question.

Carlos De Alba -- Analyst

Great. Thank you very much, and good morning, everyone. I hope you and your families are doing well. So the first question has to do with the restart of the two phases.

Víctor, I see that you are prioritizing those mines with more significant production. But to what extent cost and/or profitability also play a role in this two-stage strategy that you have put in place? Can you elaborate on that, as well as to what do you see as the cost, if any, of restarting the operations? I mean, the $12 million to $14 million fixed cost and care maintenance that you highlight, is that going to temporarily increase? Or are there any cost additional to those fixed costs just from the restarting point of view of the operations? And then you're talking about the 12 million to 14 million tons. Maybe, Leandro, the fixed cost, does it include COGs, SG&A, exploration expenses? Can you maybe drill down a little bit on the details as to what costs are included there? And then finally, with all the moving pieces, I know that it's very difficult to forecast the cash flows. But how do you see working capital in the second quarter given the inventory that you highlight in your press release that you accumulated during the quarter or at the end of the first quarter? Do you expect that as the economy -- economic activity normalizes in Peru, you're going to be able to ship those inventories and generate working cash out of working capital, lower working capital? Thank you very much and good luck.

Victor Gobitz -- Chief Executive Officer

Thank you, Carlos, for your question. The first one is related to the restart in two phases. Definitely, this concept is based on the dimension of our operation and also in terms of profitability as well and taking in account the logistic that we have to transport a significant number of people, workers to the sites. So definitely, it's a decision based on dimension of our assets, profitability and as well as restrictions.

In terms of costs and maintenance, probably Leandro could break down the numbers between the different mines. And definitely, this number, between 12 to 14 is not -- we are not including G&A. Leandro, please go ahead.

Leandro Garcia -- Vice President and Chief Financial Officer

Yes. Thank you for your question. The total cost, the fixed cost, this is an operational fixed cost. The subsidiaries of -- Buenaventura subsidiaries, the total of this amount is between $12.2 million and $12.5 million.

And G&A, it's -- has an average of $4.5 million. So that will be the total cost for fixed cost for Buenaventura. In the case of Coimolache, as you know, it's an affiliate, the fixed cost is 1.9 monthly. In additional COVID costs related in March, we have found -- we have around [Inaudible] between $0.5 million and $1 million of additional cost.

We foresee -- and these costs are -- all the instrumental, all the sanitary costs, all the transportation and then additional to -- for this COVID [Inaudible]. And we foresee that this figure will be at least 50% more in April. With respect of the deliveries, for this second semester, we foresee that we can -- we will be able to deliver all the production that was in our inventories in Tambomayo. And once we begin operations in Orcopampa, we will treat all the ore that we stocked because we're working Orcopampa as with campaigns, 15 days campaign, and the campaign began in the last two weeks of the month.

And this lockdown came just the 15th of March, and we could not process around 4,000 ounces of the [Inaudible] -- for Orcopampa.

Carlos De Alba -- Analyst

All right. And just --

Victor Gobitz -- Chief Executive Officer

Yes. Go ahead, please.

Carlos De Alba -- Analyst

No. Yes. Sorry, just on Orcopampa. Since that is part of Phase 2, starting on June 16, do you think that you will be able to treat the ores or the material from the first quarter that wasn't treated in March and in those two last weeks of June?

Victor Gobitz -- Chief Executive Officer

Yes. Good question. Juan Carlos -- yes. Juan Carlos Ortiz will explain with more details our strategy.

Juan Carlos Ortiz -- Vice President of Operations

Thank you for the question. Yes. We'll be able to treat the ore that sits a stockpile in front of the mine during in the incoming months. We have a spare capacity and the processing plant to do so.

Victor Gobitz -- Chief Executive Officer

Carlos, let me add that, also, we have to take into consideration that, in the last 60 days, as a company, we gained a significant experience dealing with this situation, with these barriers because we maintained at least 12% of our total workforce in terms of this care and maintenance activities, so we are confident that we are following a right approach in order to restart our operations.

Carlos De Alba -- Analyst

All the best with the ramp-up and particularly with the -- just basically, stay safe.

Victor Gobitz -- Chief Executive Officer

Thank you, Carlos.

Operator

[Operator instructions] The next question is from Thiago Ojea with Goldman Sachs. Please go ahead.

Thiago Ojea -- Goldman Sachs -- Analyst

Thanks. Thanks, everyone. Thanks for taking the questions. My first question is regarding Cerro Verde.

We saw that there was a big miss on EBITDA on Cerro Verde. I know that you are not the controlling shareholder. But if you can clarify exactly what happened with the realized prices there that were 30% down quarter over quarter when the LME prices actually were much lower at just 4% down? So if you can compare -- if you can discuss a little bit this mismatch. And second, if you can also provide some more information on why you're restarting the mines in two stages, why you're not starting everything at once.

It's a logistics problem? It's a strategy given the current copper price or the metals prices? If you can provide a little bit more granularity on that, that would be interesting. Thank you.

Victor Gobitz -- Chief Executive Officer

Thank you, Thiago. Your first question is regarding our EBITDA, our results. Definitely, there are two components, two main components. One of them is volume.

As we have [Inaudible] the opportunity to process 17% of date available. And the second part is related -- the second component of this lower EBITDA is related to the metal prices that we realized. Probably, Leandro, you could put more information regarding this metal price that we realized. And the second part is related to the process to expand operations, and Juan Carlos will explain with more details that out.

Yes. So, Leandro, could you --

Leandro Garcia -- Vice President and Chief Financial Officer

Yes. Sure. So the realized price in Cerro Verde has been affected because they choose not to sell all the material they have available, and they have inventories on hold not to -- they decide not to sell at more than -- less than $5,000 per ton. So they have been affected of the current market.

And also, they do not -- they have also an effect of -- they have not been realized sales.

Victor Gobitz -- Chief Executive Officer

[Inaudible] related -- oh, sorry?

Leandro Garcia -- Vice President and Chief Financial Officer

Excuse me?

Thiago Ojea -- Goldman Sachs -- Analyst

No. I understood the first answer. If you can provide the second one, I appreciate.

Victor Gobitz -- Chief Executive Officer

Yes. Juan Carlos, you could explain with more details why we decided to use this strategy of two phases.

Juan Carlos Ortiz -- Vice President of Operations

OK. Well, Thiago, this is basically for prioritizing the more important assets of our portfolio and also with all the constraints by the logistics side. According to the rules, the new sanitary rules set by the government, we need to bring people from their own hometown, not necessarily near the mines, it could be some 1,000 kilometers from the mine. We need to bring the people to a medical station, take a rapid test to confirm disease or not with COVID.

If he's not with COVID, he can get into the track, and then we need to bring that person one way to -- straight to the mine. So you can imagine bringing thousand people for each operation will take time. We need to go in groups of 60 to 70 people per group. That's the capacity of the health facility to attend this test.

And in order to bring up all the people, it will take a lot of logistic detail. That's the reason we put that in phases, in order to comply with the more important ones in the second half of May and the other ones in the first half of June.

Thiago Ojea -- Goldman Sachs -- Analyst

OK. Thank you.

Victor Gobitz -- Chief Executive Officer

You're welcome, Thiago.

Operator

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

Tanya Jakusconek -- Scotiabank -- Analyst

Yes. Good morning, everybody and thank you very much for the call. Just wondering, in terms of the ramp-up of the operations for both Phase 1 and Phase 2, maybe you can give us a little idea of how long it's going to take you to ramp up to full capacity on all of these assets.

Victor Gobitz -- Chief Executive Officer

OK. Thank you, Tanya. Yes. Definitely, we have a plan to obtain the full capacity around June.

We can split this information. Juan Carlos, probably you could explain the Phase 1 with more detail regarding Coimolache, Tambomayo to have the most -- to advance unit and also the program for El Brocal [Inaudible] growth rate.

Juan Carlos Ortiz -- Vice President of Operations

Perfect. The ramp-up will defer, but it will vary between two weeks to four weeks, depending on each mine. In Coimolache, we have all the camps already set, and we believe it's going to be between the two weeks time period. The same for Tambomayo because they have an isolated camp.

It will be easier. And it will take a little bit more time for the towns or the mine that are nearby population because we need to be segregated from the population. We need to be working in a close environment. So we need to change our setup, how we have all the people living around our footprint.

We need to bring them into a new closed facility or closed area. And sometimes it takes time to build these temporary facilities for the workers. So in short terms, two weeks in the Coimolache, Tambomayo mine, they are one of the most important one for us, and up to four weeks in the other mines.

Tanya Jakusconek -- Scotiabank -- Analyst

OK.

Victor Gobitz -- Chief Executive Officer

Let me put it in different way, Tanya. Right now, in Tambomayo, we have achieved 100% of our nameplate capacity right now in Tambomayo. In Uchucchacua, we have achieved today 75%; in the case of Coimolache, 50%. In a week, we could expect to achieve 100%.

In El Brocal, we earlier defined, we have 25% to date, as to date. So in one week, yes, we expect to achieve 100% in these four months.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. And then what about in Phase 2?

Victor Gobitz -- Chief Executive Officer

Yes. In Phase 2, it's -- Orcopampa, we're currently in La Zanja. Juan Carlos, also you could start explaining the situation that's around in these units and the study.

Juan Carlos Ortiz -- Vice President of Operations

OK. In La Zanja, it's also in a period of two weeks because it has an enclosed camp already built. So it's only bringing the people onboard. And in the case of Julcani and Orcopampa, more in the range of three to four weeks because we need to do some modification.

But it doesn't mean that we are starting -- we will have zero production from that point. It means that we will start by June 16, which is 50%, 60%, and we will ramp up to 100% in the next three weeks for Julcani and Orcopampa.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So by the end of June or thereabout, like July 1 or so, we should be at design capacity?

Juan Carlos Ortiz -- Vice President of Operations

Yes. That's correct.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. And can I ask just the other logistics of transportation of your concentrate from the mine site to the port, is that all open? Or are we having issue at the ports in terms of shipping out the concentrate or doré or whatever that you're doing. Is that all open?

Victor Gobitz -- Chief Executive Officer

Yes. It's a good point, Tanya. As I said, during these 60 days of quarantine or lockdown, we maintain care and maintenance, we maintain special activities or critical activities, and we were allowed to transport our concentrates and also our doré. So this is a significant achievement.

And during this period, we were reducing our inventories on site. So we don't have any issue. And we are very confident that we could maintain the flow of materials.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So the ports are open ready for transportation onto your smelters around the world?

Victor Gobitz -- Chief Executive Officer

Yes. We have maintained open during this pandemic.

Tanya Jakusconek -- Scotiabank -- Analyst

OK, OK. That's good. Thank you.

Victor Gobitz -- Chief Executive Officer

You're welcome, Tanya.

Operator

[Operator instructions] Showing no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Víctor Gobitz for his closing remarks.

Victor Gobitz -- Chief Executive Officer

Thank you, everyone, again for joining our conference call this morning. As final remarks, let me explain the following. All necessary measures and protocols are being considered to take care of the health of all our workers, contractors and neighboring committees at all levels. Buenaventura has restarted on May 16 operations through a two-phase approach, prioritizing those mines with the most significant production: in Phase 1, Tambomayo, Uchucchacua, El Brocal and Coimolache; and in Phase 2, starting in June 16, includes restarting operation of Orcopampa, Julcani and La Zanja.

It's important to note that due to the implementation of the debottlenecking program, we can reduce our operational fixed costs significantly, and that has allowed us to cope this unprecedented split, the level of monthly fixed costs to maintain care and maintenance in all our mining in Africa was in the order of $12 million to $14 million. We have a robust cash position. And in addition, we managed to refinance a significant portion of our debt, and we are preparing to do the same with the portion corresponding to the high electric plant ones. Regarding our 2020 guidance, even though our experience in the last 60 days, beginning with this unprecedented situation, we prefer to work carefully to define the new guidance 2020 and at the end of June.

Finally, the current quality of our assets and our financial position will allow us to overcome these sanitary prices and maintain our long-term business plan. Before we finish today's conference call, thank you very much for making the time to join us today. I hope you are all safe and practice all the recommendations given by the government. I look forward to seeing you in person as soon as possible.

Thank you again, and have a wonderful day.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

Rodrigo Echecopar -- Investor Relations

Victor Gobitz -- Chief Executive Officer

Carlos De Alba -- Analyst

Vctor Gobitz -- Chief Executive Officer

Leandro Garcia -- Vice President and Chief Financial Officer

Juan Carlos Ortiz -- Vice President of Operations

Thiago Ojea -- Goldman Sachs -- Analyst

Tanya Jakusconek -- Scotiabank -- Analyst

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