Compania de Minas Buenaventura S.A.A.

Transcription

1 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 EQUITY RESEARCH Update April 9th, 2014 Alberto Arispe Edder Castro Head of Research Analyst (511) (511) Mining Industry Compania de Minas Buenaventura S.A.A. Fair Value PEN BUY Cia. De Minas Buenaventura S.A.A. (LSE, NYSE: BVN) Lower value from associates impacts our Fair Value Equity's Fair Value (USD MM) Share's Fair Value (USD) Previous Fair Value - Nov (USD) Recommendation Market Capitalization (USD MM) Share's Market Price (USD) Shares Outstanding (MM)* Upside Range 52 weeks YTD Change ADTV - L12M (USD 000') Dividend Yield - LTM Trading ADTV: Average daily traded volume L12M: Last twelve months 4, Buy 3, % % 28, % NYSE, LSE (*) Include 441,677 investment shares, which quote at PEN per share. 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 (lower than our USD previous FV) is 25.4% above its USD market price, as of closing of April 8th, We value Buenaventura using a Sum of Parts methodology, considering its own operations (including Tambomayo project), subsidiaries and associates. Each part was valued using a Discounted Cash Flow to the Firm methodology (DCF). Additionally, it is worth mentioning that the value from direct operations includes Trapiche copper project s In Situ value. Conga project s value represents 4.4% of our fair value, if this value is excluded our fair value would reach USD It is worth mentioning that we apply a 50% penalty to the project, due to the uncertainty generated by social conflicts. On the other hand, Chucapaca project s value is not included in our FV. If this project s In Situ value is included, the FV would reach USD Financial Ratios e 2015e What changed in our model? P / E P / BV EV / EBIT EV / EBITDA EPS (USD) ROE ROA n.a % 5.2% 3.6% -2.2% 4.4% 3.1% We updated the equity s value from El Brocal and Cerro Verde. In Situ values from San Gregorio and Marcapunta Oeste projects decreased in El Brocal, considering the mineral inventory updated as of With regard to Cerro Verde, it was estimated a quicker approximation for copper grades towards the reserve s average, due to the 2014 s guidance, which was carried out by Freeport McMoran. NOTA: n.a. implies a negative P/E. EV: Market Cap. + Preferred equity + Total debt - Cash & Cash Eq. Source: SMV, Kallpa SAB Chart N 1: BVN vs. Gold Spot USD BVN Gold Spot USD 30 1, , , , , ,100 We included Tambomayo project within direct operations, through a DCF methodology. We considered a USD 250 MM CAPEX, an annual production of about 110,000 Au Oz. and 3 MM Ag Oz., and a production s start-up estimated in late 1H2016 (a 6 months delay with regard to BVN s guidance). We incorporated accumulated results as of 4Q2013 and 2014 s guidance. There were announced measures that represent cost savings between USD 80 MM and USD 100 MM for However, we have estimated cost savings for USD 55 MM. For these reasons, and considering the market price as of closing of April 8th, 2014, we maintain our recommendation of buy BVN s shares with a USD fair value. 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) Stakes in associates Income before taxes Taxes Net income Minority interest Net income attributable to BVN Shares outstanding - Average (MM) Earnings per share - EPS (USD) Deprec. & Amort. (excluding associates) EBITDA (excluding associates) e 2015e BALANCE SHEET (USD MM) e 2015e 1,285 1,312 1,327 Cash & Cash equivalents ,014-1,065 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 4,779 4, 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 3,748 3, Minority interest Total liabilities + Equity 4,560 4,779 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% 19.6% 16.8% Net income (including minority interest) % 12.6% 9.3% Depreciation & Amortization % 28.3% 27.0% Changes in working capital % 15.6% 11.2% Other adjustments % 2.1% 1.2% Operating cash flow % 25.4% -25.4% Investment cash flow % 16.9% -3.2% Financing cash flow % % -27.7% 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 % % 7.5% 11.6% 9% % 5.2% 3.6% -2.2% 4.4% 3.1% 55% 27% 0.4% 5.7% 4.4% Institutional investors Benavides family Pension funds Others VALUATION P / Sales P / E EV / EBIT EV / EBITDA P / BV e 2015e n.a CHART N 3: FAIR VALUE'S COMPOSITION 4% 4% 7% Ope. Directas 7% Yanacocha MANAGEMENT Roque Benavides Ganoza Carlos Gálvez Pinillos Raúl Benavides Ganoza CEO CFO Business development VP 6% 31% Cerro Verde El Brocal Tantahuatay Alejandro Hermoza Maraví Francois Muths César E. Vidal Social and environmental affairs VP Operations VP Explorations VP 40% La Zanja Conga Daniel Dominguez Investor relations Source: Buenaventura Source: Kallpa SAB Update 2

3 Update of 2013 s reserve and resource inventory Buenaventura s reserve and resource (R&R) inventory, updated as of closing of 2013, has shown an stable behavior. In general terms, the inventory per metal remained stable or increased year on year. This is outstanding, since it maintained the R&R inventory level, despite the fact that reference prices for its calculation were much more conservative. Gold price passed from USD/Oz. 1,400 to USD/Oz. 1,200 and silver price passed from USD/Oz to USD/Oz. 20.0, which is explained by a strong fall in precious metal prices registered in Zinc price passed from USD/MT 2,028 to USD/MT 1,900, lead price passed from USD/MT 2,000 to USD/MT 2,050, and finally, copper price remained in USD/MT 6,600. Next, we present a general glance regarding the reserve and resource inventory by metal for 2012 and 2013: Table Nº 1: Reserve and resource inventory ( ) Proved and probable reserves (*) The measure unit for base metals (copper, zinc, lead and molybdenum) is thousand fine short tons (Fine ST). Source: Buenaventura DMT (000') Grade (Oz/DMT) Ounces (000')* Reserves DMT (000') Lead 63, % ,221 Grade (Oz/DMT) Gold 818, , , Copper 5,336, % 18,345 5,164, % Ounces (000')* Zinc 62, % 1,495 59, % 1, , % Molybdenum 3,805, % 533 4,611, % 584 DMT (000') Grade (Oz/DMT) Silver 681, ,669 5,585, ,163 1,262, Ounces (000')* Resources DMT (000') 20,104 1,458, , , ,567 1,777, % 8,697 1,392, % 0.82% , % ,009 Grade (Oz/DMT) Ounces (000')* 17, , , ,303 6,575 6, , % 5, % 1, With regard to the reserve inventory, it is notable the silver reserve s behavior, which grew more than 100% in one year. This since it included silver reserves from Cerro Verde (oxides and sulphides) and Yanacocha, which represent more than 50% of the inventory reported as of closing of 2013 (466.2 MM silver ounces). With regard to the resource inventory, it is appreciated a 30% fall in the gold and silver resource inventory. This is explained by a lower metallic content reported in Canteras del Hallazgo project (Chucapaca) and in Yanacocha, due to the lower gold and silver reference prices previously mentioned. Given that the mineral inventory s behavior directly impacts the life of mine (LOM), the lower resource inventory reduced the estimated LOM of its direct operations and associates. With regard to direct operations, we are concerned about Orcopampa, Breapampa and Mallay, since the LOM as of closing of 2013 registers the lowest level during the last 4 years and it ensures a continuity of operations for less than 2.0 years. However, we are confident that BVN will replace the mineral that will be exploited in 2014 and that it will enlarge the LOM from its direct operations, since it has operated historically this way (see details in Chart 4). With regard to the LOM from associates, the only company which did not register a significant fall as of closing of 2013 was Cerro Verde. The LOM from other associates decreased in a range between 30.0% and 45.0% from 2012 to However, the LOM of each mine is higher than 10 years with the exception of La Zanja and Yanacocha. Chart N 4: Life of mine - Direct operations Years Orcopampa Julcani Uchuchacua Breapampa Mallay Source: Buenaventura, Kallpa SAB Table Nº 2: Life of mine - Associates El Brocal - Marcapunta Norte El Brocal - Tajo Norte La Zanja (Gold) Tantahuatay (Gold) Yanacocha Cerro Verde (Oxides) Years Cerro Verde (Sulphides) NOTE: We apply a 20% penalty to the resource inventory, since there are no details from the sub - categories. Source: Buenaventura, Kallpa SAB Update 3

4 2014's guidance Next, we present 2014 s guidance, which was provided by Buenaventura s Management and complemented by information from 2013 s Annual General Meeting: Production: It is expected the production of 848,000 gold ounces, 20.2 MM silver ounces, 72,000 copper MT and 55,000 zinc MT. Cash cost: It is expected that the cash cost from its gold mines will range between USD/Oz. 650 and USD/MT 680. On the other hand, the cash cost from its silver mines will range between USD/Oz and USD/Oz Finally, the cash cost from its zinc mines will range between USD/Lb and USD/Lb Consequently, the company expects a cost reduction between USD 80 M and USD 100 MM during Administrative expenses: Management announced that it expects administrative expenses between USD 70 MM and USD 75 MM, that is to say, 20.0% below those registered in 2013 (USD 93.5 MM). Explorations expenses: The company announced that it will assign USD 47 MM for exploration expenses, of which, USD 37 MM will be directed to brownfield projects in order to optimize the probability of success, since they are better known areas. CAPEX: It was announced a USD 280 MM CAPEX, where 70% will be assigned to its direct operations (Trapiche, Uchucchacua, Orcopampa and Tambomayo). Additionally, only 30% of the CAPEX will be assigned to maintenance purposes. Projects: The projects statuses and projections are shown below: a) Tambomayo: The company announced that it expects the operations start up in The project is related to a CAPEX between USD 200 MM and USD 250 MM and a production level of about 110,000 gold ounces and 3 MM silver ounces. b) El Brocal s expansion (Tajo Norte): The plant s construction culminated in March 2014, and it is expected a ramp up period between 3 and 6 months. Let us recall that Colquijirca mining unit s installed capacity will pass from 5,000 TPD to 11,000 TPD, which will generate a cost reduction by economies of scale. c) Huanza hydroelectric station: Unidad 1 started up the commissioning stage in March 2014, while Unidad 2 has started up producing 46.3 MW. In a consolidated way, it is expected that such hydroelectric station will add additional USD 25 MM to Buenaventura s income, annually. d) Rio Seco s plant: It is currently in a ramp up stage and it will allow to reduce the manganese content from lead and silver concentrates (it will allow to increase the extractive process recovery rate), and it will reduce penalties over the concentrates that are commercialized by the company. Additionally, it will allow to add new reserves and resources with high manganese content to the current reserve inventory. Finally, the manganese sulphide will generate additional revenues for the company. Consequently, we anticipate significant progresses in the cost reduction policy this year, which will generate cost savings for USD 55 MM in 2014 (below the guidance provided by the company). However, we remain at the expectation of prices from precious metals and their behavior (gold and silver), since it is expected that they will present a decreasing trend so far this year, as long as the US Federal Reserve continues with the so called Tapering. Nevertheless, considering the company s foundations and the upside as of closing of April 8th, 2014, we recommend to buy BVN s shares. Update 4

5 Sensitivity analysis Table N 3: 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 4: Price vector's details GOLD (USD/Oz.) SILVER (USD/Oz.) COPPER (USD/Lb.) LEAD (USD/Lb.) ZINC (US$/Lb.) LT 1,300 1,250 1,250 1,250 1, Update 5

6 Multiple Analysis Company Buenaventura Peru 3,406 n.d Barrick Gold Corp Canada 21, Goldcorp Inc Canada 20,453 n.d Newmont Mining Corp USA 12, Polyus Gold International UK 10, n.d Randgold Resources Ltd UK 7, Zijin Mining Group Co Ltd China 7, Newcrest Mining Ltd Australia 7,814 n.d Yamana Gold Inc Canada 6, Agnico Eagle Mines Ltd Canada 5,557 n.d Eldorado Gold Corp Canada 4,311 n.d Polymetal International Russia 4,109 n.d Zhongjin Gold Co Ltd China 3, n.d. Gold Fields Ltd South Africa 3,130 n.d Average 8, Country Market Cap. (USD MM) P/E 12M P/E 2014 EV/EBITDA 12M EV/EBITDA 2014 P/BV ROE ROA Dividend Yield % -2.2% 2.3% % -24.4% 1.8% % -8.9% 2.3% % -9.0% 3.8% n.d. n.d. 11.5% 7.7% 3.2% % 8.6% 0.6% % 3.2% 7.4% n.d. n.d. n.d. n.d n.d. n.d. 2.6% % -8.0% 2.2% % -8.6% 0.9% n.d. -0.2% -0.1% 3.3% % 4.8% 1.9% % -4.1% 0.5% % -3.4% 2.5% Chart N 5: P/E 2014 vs. EV/EBITDA 2014 EV/EBITDA Zhongjin Buenaventura Polymetal Gold Fields Eldorado Newmont Agnico Market Cap. P/E 2014 Chart N 6: ROE vs. ROA ROA 10% 5% 0% -5% Polymetal Gold Fields Agnico Market Cap. Zhongjin Buenaventura -10% Eldorado Newmont -15% -25% -15% -5% 5% 15% 25% ROE Update 6

7 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 non-public 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 short-term 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. Update 7

8 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) anoa@kallpasab.com mbazan@kallpasab.com rmisari@kallpasab.com INTERNAL CONTROL Elizabeth Cueva Internal Control Officer (51 1) ecueva@kallpasab.com Update 8