Compañía de Minas Buenaventura - Q2 2024

Transcript

Operator (participant)

Good day, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura Second Quarter 2024 earnings results conference call. At this time, all participants are in a listen-only mode, and please note that the call is being recorded. I would now like to introduce your host for today's call, Mr. Sebastián Valencia, Investor Relations Analyst. Mr. Valencia, you may begin.

Sebastián Valencia (Investor Relations Analyst)

Good morning, everyone, and thank you for joining us today to discuss our second quarter 2024 results. Today's discussion will be led by Mr. Leandro García, Chief Executive Officer. Also joining our call today and available for your questions are Mr. Daniel Domínguez, 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. Raúl 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 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 these assumptions, expectations, and projections are reasonable in view of the current available information, we are cautioned not to place any 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 July 25th, 2024. Let me now turn to Mr. Leandro García.

Leandro García (CEO)

Thank you, Sebastián. Good morning to all, and thank you for joining us today to discuss the quarterly results of the company. On slide 2 is our cautionary statement, important information that I encourage you to read. Today, we will be discussing our performance for the second quarter of 2024, highlighting key achievements and strategies moving forward. After the presentation, we will be available for our Q&A session when our team will be happy to answer your questions. The next slide, please. I would like to highlight a few key areas that contributed to our strong second quarter 2024 results.

Our EBITDA from direct operations for the second quarter has increased $85 million compared to the previous year, primarily driven by the great results coming from Yumpag and El Brocal, despite that El Brocal's processing plant was voluntarily suspended for 16 days as a response to a protest by nearby communities, as announced on May 22, 2024. This is also reflected in a higher EBITDA margin of 39% compared to 13% from the previous year. Our net income in the second quarter 2024 reached $74 million compared to last year's net loss of $5 million. Copper production decreased 22% year-over-year, mainly due to the El Brocal's voluntary suspension previously mentioned. In the second quarter 2024, silver production reached 4 million ounces, a significant increase compared to the 1.7 million ounces produced during the same period last year.

Of this, a total of 29 million ounces came from Uchucchacua and Yumpag. Gold production decreased 9% year-over-year, reaching 33.8 thousand ounces since we are now mining lower grades at Orcopampa and Tambomayo mines. We are pleased to share that Cerro Verde announced a new dividend of $300 million on July 24th, of which $59 million will be distributed to Buenaventura. This dividend, expected to be paid by the end of August, will contribute to strengthening our overall financial performance. Buenaventura's CAPEX in the second quarter of this year totaled $84 million, which includes $70 million allocated to the San Gabriel project, primarily directed towards the completion of waste dams and main substation platform. Our cash position reached $172 million, with a total debt of $682 million. We continue leveraging the company, reaching a net debt/EBITDA ratio of 1.4x, lowest in years and within our targeted range.

Moving on to our cost structure in Slide 4, second quarter all-in sustaining costs have been reduced by 91% year-over-year. This reduction is primarily attributed to the increased silver contribution from Uchucchacua and Yumpag, as well as the decreased production at El Brocal. Moving on, the cost applicable to sales trend, as you can see, copper costs have also increased mainly due to El Brocal's voluntary suspension that was previously mentioned. Silver costs have decreased year-over-year, primarily driven by higher contribution of Uchucchacua and Yumpag silver ounces. Gold costs have increased year-over-year, primarily driven by lower grades at Tambomayo and Orcopampa. On the next slide, we will be presenting the free cash flow generation. Second quarter 2024 cash position was in line with the first quarter of this year.

The CAPEX from San Gabriel and the dividends paid were offset by the cash generated by the operations and dividends received from Cerro Verde that were $29 million in April. The EBITDA to free cash flow reconciliation is explained by the following breakdown of inflows and outflows. El Brocal and Yumpag have been the main contributors for the second quarter 2024. As we have mentioned before, Buenaventura is going through a growth phase with an intensive CAPEX related to San Gabriel. The additional dividends declared by Cerro Verde, $59 million, will be reported in the third quarter of 2024. Moving on to slide six, we have that in the next months, Buenaventura will be focusing most of its efforts in the San Gabriel project.

On this slide, you can see the project's cumulative progress reaching a 57% overall progress by the second quarter of 2024, primarily driven by the completion of waste dams and the main substation platform. The key milestone we are closely monitoring for the next quarter is the start of the high-voltage power line construction and the start of the electrical and instrumentation construction works. On the next slide, we are showing the processing plant's progress that will operate at 3,000 per day. Currently, the foundations are at 80% progress. The SAG and ball mechanical works are at 60%. The primary crusher mechanical works are at 40%. Finally, the CIL tanks mechanical works are at 30%. Moving on to slide 8, we are showing the water dam foundation and filtering plant civil works. Finally, I would like to finish the presentation with a couple of closing remarks.

First, in its first full quarter of operations, Uchucchacua and Yumpag have made a remarkable impact delivering 2.9 million ounces of silver. We are actively working at El Brocal to recover the production that is in a state aligned with our guidance, with a strong focus on reaching 11 tons per day by the end of this year. Third, the San Gabriel project has achieved 57% overall progress, meeting our planned targets. We remain on track to reach our goal of producing our first gold bar by the second half of 2025. Cerro Verde continues to generate robust cash flow, leading to increased dividends. For fiscal year 2024, we estimate dividends of between $120million-$150 million attributable to Buenaventura's equity. In the second quarter 2024, our leverage ratio stands at 1.4 times, reflecting our growing EBITDA and effective debt management strategies.

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 (participant)

We will now begin the question and answer section. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Carlos de Alba with Morgan Stanley. Please go ahead.

Carlos De Alba (Analyst)

Yeah, thank you. Good morning, everyone. So I have a few questions. So on dividends in Cerro Verde, I want to see what you expect to receive in the fourth quarter. There is already a dividend announced for August, but for the fourth quarter, what is the outlook given how relevant it is for the cash generation of the company? And then on San Gabriel, do you have any updates on the CAPEX figure? Clearly, you are well into the project, and we don't yet have a revised estimate for the CAPEX, so I think we all would like to get some new information. And then finally, we saw a significant increase in the cost at some of your gold mines. You had some production issues, ore grades declining.

There are explanations in the release, but I would like to understand how do you see things going forward in the coming quarters?

Leandro García (CEO)

Okay, Aldo, thank you. Thank you for your questions. First, as you know, dividends from Cerro Verde will depend on the level of prices, the level of production, but we think there will not be any major change. So our expectations, as I told before, are still between $120million and $150 million for the 2024 year, corresponding to this fiscal year. In terms of the San Gabriel project, this semester we have expensed the entire semester $108 million. We expect to invest during 2024 a total of $280 million, and the investment in 2025 will be around $200 million. I think maybe Renzo can go a little bit more further about the explanation. Please, Renzo. Go ahead.

Renzo Macher (VP of Projects)

Yes, hi. Hi. Yes, the total project cost will be updated to $650 million. This additional $180 million is mainly based on expediting prices beyond our original estimation, which was 3%-4% year-over-year. We have been having changes in the project sequence and expediting costs to mitigate the 18-month delay that we had in 2021, 2022, to secure our first gold bar by the end of the third quarter of 2025. Construction work is going as expected, as can be seen in the picture, and we're advancing as planned. The last big contractor, which is the electrical C&I, we will be starting next month. Now we have all the prices ready.

Carlos De Alba (Analyst)

Sorry. So the $280 million is the CAPEX, not for San Gabriel, but overall in 2024?

Renzo Macher (VP of Projects)

No, the $280 is for San Gabriel.

Carlos De Alba (Analyst)

Okay. $280 is just for San Gabriel in 2024, and the total CAPEX for the project is now $650 million.

Renzo Macher (VP of Projects)

Yes, that's correct.

Carlos De Alba (Analyst)

All right. Thank you.

Leandro García (CEO)

Total project cost, yes. We will continue with a margin EBITDA of the project at 50%, and we expect to give more details in OpEx and the new NPV in the third quarter of this year, in the third quarter conference call. Regarding your third question about cost and grades, as you can see, as you can read in our press release, ore grades in Orcopampa and Tambomayo are declining, and that is the main reason. Maybe Juan Carlos Ortiz can add some comments.

Juan Carlos Ortiz (VP of Operations)

Leandro, I'm having some trouble with my line. Could you please repeat the comment because I'm missing a little part of the...

Operator (participant)

The next question comes from César Pérez-Novoa with BTG Pactual. Please go ahead.

César Pérez-Novoa (Managing Director and Senior Equity Analyst)

Yes. Good morning to everyone. I have three questions from my end, if I may. Could you please comment on how we should see Buenaventura's inflows and outflows of capital for this year and the possible breakdown on what you expect to receive on the potential sale of Chaupiloma II, the Yanacocha royalties? Your dividends at Cerro Verde, where FCX already made a $300 million dividend announcement, and your CAPEX commitment budget for this year, if you could reiterate that, I would appreciate it. Then, at El Brocal, how will costs evolve in the second half of the year, noting that they increased 14% in the second quarter, and whether this copper ore that you have on inventory to support the plant's resumption will have some impact or benefit once you hit a processing rate of 15,000 tons per day?

And finally, at Coimolache, I understand that Buenaventura received the construction permit to increase leach pad capacity. Could you please comment on next steps and when will the expansion be completed?