Compania de Minas Buenaventura S.A.A.

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1 May13 Jun13 Jul13 Aug13 Sep13 Oct13 Nov13 Dec13 Jan14 Feb14 Mar14 Apr14 May14 EQUITY RESEARCH Update May 8th, 2014 Alberto Arispe Edder Castro Head of Research Analyst (511) (511) Mining Industry Compania de Minas Buenaventura S.A.A. Fair Value USD BUY Cia. De Minas Buenaventura S.A.A. (LSE, NYSE: BVN) Lower value from Cerro Verde impacts our fair value Equity's Fair Value (USD MM) 3, Share's Fair Value (USD) Previous Fair Value April 2014 (USD) Recommendation Buy Market Capitalization (USD MM) 2, Share's Market Price (USD) Shares Outstanding (MM)* Upside 41.0% Range 52 weeks YTD Change 0.4% ADTV L12M (USD 000') 27,349 Dividend Yield LTM 0.2% Trading NYSE, LSE (*) Include 441,677 investment shares which quote at PEN per share. ADTV: Average daily traded volume L12M: Last twelve months Kallpa Securities SAB updates Compania de Minas Buenaventura S.A.A. s (BVN) valuation model with a buy recommendation. Our USD fair value (FV) per BVN share is 40.9% above its USD market price as of closing of May 7th, We value Buenaventura using a Sum of Parts methodology considering direct operations (including Tambomayo project), subsidiaries and associates. Each part vas valued using a Discounted Cash Flow to the Firm methodology (DCF). Additionally, it is worth mentioning that the operations value includes Trapiche copper project s In Situ value. Conga project s value represents 4.8% of our FV, if we exclude the project from our FV it would reach USD It is worth mentioning that we apply a 50% penalty over the project due to uncertainties generated by social conflicts. On the other hand, Chucapaca project s value is not included within our FV. If we include this project s In Situ value, our FV would reach USD Financial Ratios P / E P / BV EV / EBIT EV / EBITDA EPS (USD) ROE ROA 2013 n.d % 2.2% 2014e % 2.5% 2015e % 1.1% NOTE: n.a. implies a negative P/E. EV: Market cap. + Preferred equity + Total debt Cash & Cash eq. Source: SMV, Kallpa SAB What changed in our model? We reduced Cerro Verde s equity value. We applied a 5.0% penalty over average copper price, that is to say, over the sale price, throughout our horizon period. This is due to the persistent difference between the average market price and the company s sale price during the last 4 years (a 5.3% discount in average). We considered financial results as of 1Q2014. That is to say, we incorporated the operating performance in terms of costs and production showed during the quarter. Additionally, we increased exploration expenses (both brownfield and greenfield) due to the necessity of directing funds towards this activity in order to ensure BVN s operations continuity. Chart N 1: BVN vs.gold spot USD BVN Gold Spot USD 1,500 1,400 1,300 1,200 We estimate that the company will require funds for USD 200 MM (debt) during Given that the company cannot reduce its exploration expenses significantly, we calculate that it will require such funds in order to cover its CAPEX necessities, working capital and exploration works. For these reasons, and considering the market price as of closing of May 7th, 2014, we maintain our buy recommendation over BVN s shares with a USD fair value. 10 1,100 Source: Bloomberg

2 Company's financial summary INCOME STATEMENT (USD MM) Net sales Cost of sales Exploration expenses Brownfield Gross income Administrative and sales expenses Exploration expenses Greenfield Other operating expenses, net Operating income Net interest income FX Gain (Loss) Income from stakes in associates Earnings before taxes Taxes Net income Minority interest Net income attributable to BVN Shares outstanding Average (MM) Earnings per share EPS (USD) Dep. & Amortiz. (excluding associates) EBITDA (excluding associates) e 2015e BALANCE SHEET (USD MM) e 2015e 1,285 1,312 1,327 Cash & Cash Equivalents ,009 1,060 Accounts receivable Inventory Other short term assets Current assets Fixed assets, net 1,515 1,591 1, Other long term assets 2,493 2,443 2, Non current assets 4,009 4,033 4, Total assets 4,560 4,906 4,970 7 Short term debt Accounts payable Other short term liabilities Current liabilities Long term debt Other long term liabilities Non current liabilities Net equity attributable to BVN 3,555 3,676 3, Minority interest Total liabilities + Equity 4,560 4,906 4, MARGINS AND GROWTH RATES (%) Gross margin Operating margin EBITDA margin Net margin Sales' growth Operating income's growth EBITDA's growth Net income's growth e 2015e CASH FLOW (USD MM) e 2015e 20.9% 13.9% 11.1% Net income (including minority interest) % 4.3% 1.4% Depreciation & Amortization % 19.9% 19.1% Changes in working capital % 9.2% 4.1% Other adjustments % 2.1% 1.2% Operating cash flow % 57.7% 66.5% Investment cash flow % 17.8% 2.6% Financing cash flow % 218.7% 55.4% Free cash flow FINANCIAL RATIOS Current assets / Current liabilities Total debt / Equity Total debt /EBITDA Payout ratio EPS (USD) ROE ROA ROIC e 2015e CHART N 2: SHAREHOLDERS AS OF % 0.0% 0.0% 0.0% 9% % 3.1% 1.3% 2.2% 2.5% 1.1% 55% 27% 0.4% 3.7% 2.6% Institutional investors Benavides family Pension funds Others VALUATION e 2015e P / Sales P / E CHART N 3: FAIR VALUE'S BREAKDOWN EV / EBIT EV / EBITDA % P / BV % 5% Direct Operations MANAGEMENT Roque Benavides Ganoza Carlos Gálvez Pinillos President Administration & Finance VP 7% 8% 34% Yanacocha Cerro Verde El Brocal Raúl Benavides Ganoza Alejandro Hermoza Maraví Francois Muths César E. Vidal Business development VP Social & Environmental affairs VP Operations VP Explorations VP 38% Tantahuatay La Zanja Conga Daniel Dominguez Investor Relations Source: Kallpa SAB 2

3 Table Nº 1: Sale prices from direct operations Direct operations 1Q14 1Q13 YoY 1Q2014: Lower production and lower contribution from associates generated BVN's net loss Gold (USD/Oz.) 1,312 1, % Silver (USD/Oz.) % Buenaventura reported earnings per share (EPS) for USD in Copper (USD/MT) 7,063 7, % 1Q2014, lower than our USD estimate and lower than the USD Zinc (USD/MT) 2,046 1, % EPS registered in 1Q2013. Lead (USD/MT) 2,110 2, % Chart N 4: Precious metals production (BVN including associates) With regard to our estimates, the differences were generated by two factors: i) a surprising fall in gold production (21.5% YoY) by lower mineral grades in Orcopampa and Yanacocha; and, ii) a lower contribution from associates, particularly Cerro Verde (42.3% YoY) and Yanacocha (it passed from USD 51.0 MM in 1Q2013 to USD 24.5 MM in 1Q2014). MM Oz ' Oz On the 1Q2014's results, it stands out the USD 16.1 MM net loss attributable to BVN. This is explained by a lower gold production (21.5% YoY), by a 40% increase in administrative, sales and distribution expenses; and by a lower contribution from associates, which passed from USD 84.2 MM in 1Q2013 to USD 4.5 MM as of closing of 1Q2104. Below, we present a detailed analysis regarding 1Q2014 s results (see details in page 5): Sales decreased 20.5% YoY as of closing of This occurred due to the following factors: Q13 2Q13 3Q13 4Q13 1Q14 Gold Silver 200 i. Gold sale price decreased 18.3% YoY from USD/Oz. 1,606 to USD/Oz Silver sale price decreased 32.4% YoY from USD/Oz to USD/Oz Finally, copper sale price decreased 10.5% from USD/MT 7,896 to USD/MT 7,063. Chart N 5: Gross sales 1Q2014 3% 2% Gold Silver 21% 46% Copper ii. There were registered lower productions for gold (21.5% YoY), silver (12.3% YoY), lead (34.0% YoY) and zinc ( 56.1% YoY). Lower gold and silver productions ocurred due to lower mineral grades in Orcopampa and Yanacocha and to a 7 days strike in Uchucchacua, respectively. On the other hand, zinc and lead productions decreased due to El Brocal s strategy, which is focused on copper. 28% Zinc Lead Gross income decreased 46.9% YoY, since the fall in sales was deeper than the decrease in the cost of sales (9.9% YoY). This was principally due to a 17.8% YoY increase in depreciation. Chart N 6: Cash cost Gold mines USD/Oz The cash cost from its gold and silver mines registered a significant YoY increase as of closing of 1Q2014 (see details in Charts 6 and 7). This was due to a fall in the precious metal production mentioned above. However, it stands out a 31.6% YoY decrease in brownfield exploration expenses, in line with the project prioritization policy implemented by Management from Nevertheless, these quarterly expenses were much higher than the amount indicated in early 2014 s guidance Q13 2Q13 3Q13 4Q13 1Q14 Orcopampa La Zanja Tantahuatay Breapampa Operating income decreased 94.1% YoY due to an increase in administrative, sales and distribution expenses (+40.5% YoY) by a USD 9.4 MM return regarding the provision for staff compensations. 3

4 Chart N 7: Cash cost Silver mines USD/Oz However, it stands out a decrease in greenfield exploration expenses (52.3% YoY) since the company is prioritizing brownfield projects due to its higher probability of success and a to a better knowledge regarding such prospects. Nevertheless, these expenses were also higher than the amount indicated in 2014 s early guidance. The company s EBITDA decreased 49.6% YoY, a decrease lower than the observed up to the operating income. This was due to the increase in depreciation mentioned above Q13 2Q13 3Q13 4Q13 1Q14 Uchucchacua Julcani Net income passed from USD MM in 1Q2013 to a USD 16.1 MM loss as of closing of 1Q2014, that is to say, a fall higher than 100%. This behavior is explained by the following factors: i. Chart N 8: Exploration expenses USD MM The income from stakes in associates passed from USD 84.2 MM in 1Q2013 to a USD 4.5 MM loss in 1Q2014. This is explained by the lower net income generated by Yanacocha (a USD 24.5 MM net loss during the quarter), Cerro Verde ( 42.3% YoY) and Tantahuatay (40.1% YoY). It is worth mentioning that Yanacocha applied a penalty by inventory devaluation explained by lower mineral grades, in accordance with Management ii. Paid taxes reached USD 7.1 MM in spite of a negative tax base. This was due to the tax regime structure for the mining industry and to the results from its subsidiaries during the quarter (El Brocal and La Zanja) * Brownfield Greenfield (*) Accumulated results 4

5 1Q2014's Income statement INCOME STATEMENT (USD MM) 1Q2014 1Q2013 YoY 4Q2013 QoQ Net sales Cost of sales Gross income Gross margin Sales, administrative and distribution expenses Other operating income Other operating expenses Operating income Operating margin Interest income Interest expenses FX Gain (Loss) Income from stakes in associates Earnings before taxes Taxes Net income Minority interest Net income attributable to BVN Net margin Shares outstanding Average (MM) Earnings per share EPS (USD) Depreciation & Amortization EBITDA EBITDA margin % % % % % % % % 20.5% 9.9% 46.9% 40.5% 94.9% 53.9% 94.1% 88.9% 181.9% n.s. n.s % 77.5% 109.3% 30.5% 115.7% 121.3% 17.8% 49.6% % % % % 5.7% 4.1% 12.0% 17.4% 95.8% 60.3% 74.6% 57.7% 132.3% 63.7% 98.4% 98.9% 49.5% 96.3% 27.6% 94.4% 93.9% 16.1% 7.3% 1Q2014's results vs. Kallpa SAB's estimates INCOME STATEMENT (USD MM) 1Q2014 1Q2014e % Change 2014e A 2014e N 2015e A 2015e N Net sales Cost of sales Gross income Gross margin Sales, administrative and distribution expenses Other operating income Other operating expenses Operating income Operating margin Interest income Interest expenses FX Gain (Loss) Income from stakes in associates Earnings before taxes Taxes Net income Minority interest Net income attributable to BVN Net margin Shares outstanding Average (MM) Earnings per share EPS (USD) Depreciation & Amortization EBITDA EBITDA margin A: Previous estimates N: New estimates NOTE: "n.s." implies a nonsignificant ratio Source: SMV, Kallpa SAB % % % % % % % % 10.9% 10.3% 13.2% 44.8% 0.0% 512.8% 91.1% 90.0% % 0.0% 0.0% 109.4% 103.6% 70.5% 117.3% 34.2% 131.5% 135.3% 135.2% 9.8% 45.2% 38.5% 1, , % % % % 1, , % % % % 1, , % % % % 1, , % % % % 5

6 Sensitivity analysis Table N 2: FV's sensitivity to long term gold price (USD/Oz.) and to long term silver price (USD/Oz.) Silver LT \ Gold LT 1,000 1,100 1,200 1,250 1,300 1,400 1, Source: Kallpa SAB Price vector Table N 3: Price vector's details GOLD (USD/Oz.) SILVER (USD/Oz.) COPPER (USD/Lb.) LEAD (USD/Lb.) ZINC (USD/Lb.) LT 1,300 1,250 1,250 1,250 1,

7 Multiple Analysis Company Randgold Resources Ltd UK 7, Zijin Mining Group Co Ltd China 6, Agnico Eagle Mines Ltd Canada 5, Yamana Gold Inc Canada 5,485 n.d Eldorado Gold Corp Canada 4,299 n.d Polymetal International Russia 3,732 n.d Zhongjin Gold Co Ltd China 3, n.d. Gold Fields Ltd South Afr. 3,180 n.d Average 7, Country Market cap. (USD MM) P/E 12M P/E 2014 Goldcorp Inc Canada 20,285 n.d Barrick Gold Corp Canada 19, Newmont Mining Corp USA 11, Polyus Gold International UK 9, n.d Newcrest Mining Ltd Australia 7,430 n.d EV/EBITDA 12M Buenaventura Peru 2,814 n.d EV/EBITDA 2014 P/BV ROE ROA Dividend Yield % 4.8% 0.2% % 9.3% 2.3% % 25.6% 2.0% % 9.9% 4.0% n.d. n.d. 11.5% 7.7% 3.4% n.d. n.d. n.d. n.d % 8.7% 0.7% n.d % 2.8% 6.9% n.d. n.d. 2.2% % 5.0% 3.1% % 7.6% 0.9% n.d. 0.2% 0.1% 4.6% % 0.8% 2.1% % 7.9% 0.5% % 4.2% 2.5% Chart N 9: P/E 2014 vs. EV/EBITDA 2014 EV/EBITDA Zhongjin Market Cap. Chart N 10: ROE vs. ROA ROA 5% Zijin Market Cap Zijin Buenaventura Eldorado 0% Polymetal Agnico Zhongjin 8 6 Polymetal Newmont Yamana 5% 10% Gold Fields Eldorado Buenaventura 4 2 Gold Fields P/E 2014 Newmont 15% 30% 20% 10% 0% 10% 20% ROE 7

8 Appendix Disclaimer Analyst certification The analyst that prepared this report hereby certifies that: i) the opinions and views expressed in this valuation report, in regard with the issuer and with the company s overview, reflected his/her personal opinion and ii) No part of his/her salary compensation was, is or will be related directly or indirectly to the recommendations expressed in this report. The economic compensation of the analyst that prepared this report is based in several factors, including but not limited to Kallpa Securities SAB s profitability and the profits generated by its different areas, including investment banking. In addition, the analyst does not receive any kind of economic compensation from the companies he/she covers. This valuation report was prepared by Kallpa Securities SAB s employees that maintain the position of Analyst. Persons involved in the elaboration of this report are authorized to maintain shares. Share prices in this report are based on market prices as of closing of the day prior to the publication of this report, unless it is strictly stated. General statement This document is for informative purposes only. Under no circumstances it should be used / be considered as an offer of sale or an application of purchase of shares or any other securities mentioned in this document. The information herein has been obtained from sources which are believed to be reliable, but Kallpa Securities SAB does not guarantee the trustfulness or accuracy of the content of this report, or the future market values of shares or other securities mentioned in this document. The views and opinions expressed in this document constitute our opinion at the time of this report and are subject to change without any notice. Kallpa Securities SAB does not guarantee analysis updates before any change in the circumstances of the market. The products referred in this document may not be available for purchase in some countries. Kallpa Securities SAB has reasonably designed policies to prevent or to control the exchange of nonpublic information used by areas such Research and Investment, Capital Markets, among others. Definition of qualification ranges Kallpa Securities SAB has 5 qualification ranges: Buy +, Buy, Hold, Sell and Sell. The analyst will assign the coverage one of these ranges. Sell < 30% > + 30% Buy + Sell 30% to 15% +15% to +30% Buy Hold 15% to 0% 0% to +15% Hold The range assigned to each company covered by the analyst in these reports is based on the analysis/monitoring Kallpa Securities SAB has been developing for the company. In some cases, the analyst can express his/her shortterm points of view to traders, vendors and some Kallpa Securities SAB s clients but this point of view may differ in time by market volatility and other factors. The fair value calculated by Kallpa SAB is based in one or more valuation methodologies commonly used by financial analysts, including but not limited to discounted cash flows, In Situ valuations or any other applicable methodology. It should be noted that the publication of a fair value does not imply any guarantee that the value will be achieved. 8

9 KALLPA SECURITIES SOCIEDAD AGENTE DE BOLSA MANAGEMENT Alberto Arispe CEO (511) COMMERCIAL CAPITAL MARKETS CORPORATE FINANCE Enrique Hernández Ricardo Carrión Andrés Robles Manager Manager Manager (51 1) (51 1) (51 1) EQUITY RESEARCH Marco Contreras Edder Castro Humberto León Sebastián Cruz Fiorella Torres Senior Analyst Analyst Analyst Analyst Assistant (51 1) (51 1) (51 1) (51 1) (51 1) TRADING Eduardo Fernandini Javier Frisancho Jorge Rodríguez Head Trader Trader Trader (51 1) (51 1) (51 1) CHACARILLA OFFICE MIRAFLORES OFFICE Hernando Pastor Daniel Berger Gilberto Mora Walter León Representative Representative Representative Representative (51 1) (51 1) (51 1) (51 1) AREQUIPA OFFICE Jesús Molina Ricky García Representative Representative (51 54) (51 54) OPERATIONS SYSTEMS Alan Noa Mariano Bazán Ramiro Misari Head of Operations Analyst Treasury Head of IT (51 1) (51 1) (51 1) INTERNAL CONTROL Elizabeth Cueva Controller (51 1)