CONSOLIDATED EARNINGS RELEASE COMPAÑÍA MINERA MILPO S.A.A FIRST QUARTER

Transcription

1 CONSOLIDATED EARNINGS RELEASE COMPAÑÍA MINERA MILPO S.A.A FIRST QUARTER

2 This report analyzes the most important operating and financial results related to Companía Minera Milpo S.A.A. and Subsidiaries, on the basis of accounting data included in the individual and Consolidated Financial Statements for the First Quarter 2016 ( "1Q16" ), according to International Financial Reporting Standards (IFRS). Corporate Strategy Summary During the 1Q16, Milpo continued implementing its five-pillar corporate strategy: Mining Operations and Brownfields Corporate Office Copper Projects Polymetallic Projects M&A I II III IV V A) Safety and health B) Environment C) Social Responsability and Reputation D) People 1. Mining Operations and Brownfields: At Cerro Lindo studies and activities to increase the Unit s capacity to 20,000 tpd continue. On the other hand, at El Porvenir and Atacocha, their operational integration process continues with the development of the third stage, focused on a new energy transmission line (138Kv) for both processing plants which is expected to be completed during 2016 second quarter. 2. Corporate office: This office continues with its Human Development Program, which has been designed to improve the capabilities and performance of all employees. 3. Copper projects: In the case of Magistral, Milpo is waiting for the project s Environmental Impact Assessment (EIA) approval for a 30,000 tpd capacity. With regard to Pukaqaqa, engineering studies continue for an initial 10,000 tpd stage, considering a smaller footprint and reducing the project s development risk. 4. Polymetallic projects: For Aripuaná, Whorley Parsons continues developing an engineering study for an operation at a 5,000 tpd capacity. For Shalipayco, based on its prefeasibility study to operate initially at 3,000 tpd levels, Milpo continues analyzing the best alternative for the project s commissioning, creating synergies with its Pasco operations. In the case of Bongará, the road construction continues and will help reduce logistic costs. This construction is expected to finish in M&A: Regarding the Self-Sustainable Private Initiative presented by Milpo in 2015 for the option of the Michiquillay Copper Project located in Cajarmaca, Milpo is waiting for the definition of the next steps with PROINVERSION. 1 1

3 Selected Operational and Financial Data 1Q16 - Highlights Unit 1Q16 1Q15 1Q15 Fine Metal in Concentrate Production Zinc t 66,520 75,710-12% 63,060 5% Copper t 10,344 8,892 16% 11,082-7% Lead t 12,492 11,945 5% 11,392 10% Silver Content oz 2,037,421 1,835,604 11% 2,023,793 1% Cash Cost US$/t % % Cash Cost Zn Eq. US$/t Zn eq 1,084 1,130-4% 1,051 3% Revenues US$ MM % % EBITDA US$ MM % % Net Profit US$ MM % -5.2 n.a. EBITDA Margin % 35% 33% 25% CAPEX US$ MM % % Net Debt / EBITDA x times % EBITDA Margin, greater than the 25% obtained in and the 33% obtained in 1Q15. US$ million revenues and US$ 54.6 million EBITDA, higher in 15% and 63%, respectively, with respect to, due to the higher zinc, lead and silver production, and a slight prices improvement of those metals during the quarter; however, lower in relation to 1Q15, due to a negative price effect. Cash cost of US$/t 32.4 (1,084 US$/t Zn eq), 4% below the cash cost obtained during 1Q15, due to the increase in treated ore at Cerro Lindo along with optimization initiatives. At the end of 1Q16, Milpo maintained a net cash position, with a cash balance above US$ 420 million, and a negative leverage ratio (Net Debt/EBITDA) of x. Consolidated Net income of US$ 15.0 million in 1Q16, compared to loss of US$ 5.2 million. Treated ore exceeded US$ 2.6 million tons in 1Q16, 6% above 1Q15, mainly due to the increased treatment at Cerro Lindo unit. Growth in the fine metal content in concentrate production of zinc (+5%) and lead (+10%) during 1Q16, with respect to, mainly due to higher production at Cerro Lindo. Moreover, comparing to 1Q15, increases in copper (+16%) and lead (+5) fine metal content were recorded, due to increased copper production at Cerro Lindo through higher grades and recoveries, as well as due to increased lead production at El Porvenir and Atacocha thanks to higher ore grades. Increased in silver content by 1% and 11%, compared to and 1Q15, reaching 2.0 million ounces in 1Q16, mainly due to the higher production of lead and copper, and the increased silver contents in lead in El Porvenir and Atacocha Units. 2 2

4 I. GENERAL ASPECTS MARKET CONTEXT 2015 was a year marked by a negative scenario for the mining industry due to the sustained fall in metal prices, mainly because of China s growth slowdown, the world s leading consumer of base metals. However, although 2016 began with a prices scenario even more complicated, in average during the first quarter, this scenario was slightly reversed by China s signs of stabilization. Similarly, the average lead prices in 1Q16 were reduced, although to a lesser extent, compared to the same 2015 period, by 4% (1,742 US$/t vs. 1,806 US$/t). As for precious metals like gold and silver, the US Dollar strengthening during 1Q16, with respect to 1Q15, and the FED s rising interest rates kept their prices pressed. Although the recorded prices in 1Q16 were better compared to those of, these are still in levels far below to those obtained in 1Q15, being for example the average price of zinc and copper 20% lower. Metal Prices Metal * Unit 1Q16 1Q15 MACROECONOMIC FACTORS 1Q15 Zinc (US$ / t) 1,676 2, % 1, % Copper (US$ / t) 4,669 5, % 4, % Lead (US$ / t) 1,742 1, % 1, % Silver (US$ / oz) % % * Average LME (London Metal Exchange) prices - Settlement price Exchange Rate The average exchange rate during 1Q16 was S/ per US$ while in 2015 similar period, it was S/. 3.06, which represented a 13% depreciation of the Nuevo Sol (Source: BCRP). Note that the Company maintains a low exposure to exchange rate fluctuation since functional currency is US Dollar. Additionally, much of the production costs and revenues are denominated in that currency, maintaining a proper fit of the currencies in the balance sheet, income statement and cash flow. Inflation The annualized inflation during 1Q16 was 4.30%, higher than that in the same 2015 period where it reached 3.06% (Source: BCRP) Oil At the end of March 2016, Brent oil price was at 38.3 US$/barrel, slightly higher than the 36.0 US$/barrel recorded at the end of (Source: Thomson Reuters). 3 3

5 II. FINANCIAL PERFORMANCE Income Statement Millions US$ 1Q16 1Q15 1Q15 Revenues % % Cost of Sles (90.7) (90.8) 0% (91.2) -1% Depreciation (18.4) (23.1) -20% (19.5) -6% Gross Profit % % Amortization (0.8) (2.2) -64% (1.6) -52% Selling Expenses (5.2) (8.0) -36% (4.8) 7% Administrative Expenses (6.9) (6.5) 5% (7.1) -2% Other Operating Results, net 3.3 (7.3) n.a % Operational Profit % % Financial Expenses, net (5.3) (4.2) 26% (3.9) 38% Income Tax 1 (15.1) (8.7) 74% (13.8) 10% Net Profit % (5.2) n.a. EBITDA % % EBITDA Margin (%) 35% 33% 25% (1) Includes Mining Taxes REVENUES During 1Q16, the level of sold fine tonnes of copper and lead increased by 16% and 7%, respectively, compared to that of 1Q15 due to the higher production, which offset the lower volume of zinc produced. Revenues in 1Q16 were US$ million, 9% lower than those of the same 2015 period, which is mainly explained by a negative price effect of more than US$ 9 million by the decrease in the price of base metals. However, this level was 15% higher compared to that of thanks to the increased production of zinc, lead and silver, and the slight improvement in the metal prices with respect to such quarter. It is worth mentioning that the main zinc customers during 1Q16 are Votorantim Metais Cajamarquilla S.A. and internationally renowned traders which export to major refineries in the world, such as Glencore and Trafigura. As for the production of copper and lead, the main customers are Glencore, Trafigura, Transamine and Louis Dreyfus. Like other transactions with related parties, the sale of zinc concentrates to the zinc refinery of Cajamarquilla is negotiated under market conditions, which are all subject to evaluation through transfer prices study regularly commissioned to external professionals. 4 4

6 Revenues Distribution Revenues by Mining Unit Revenues by Metal El Porvenir 21% Atacocha 13% Cerro Lindo 66% Zinc 43% Gold 3% Silver 17% Copper 27% Lead 10% Consolidated Sales by metal (fmt) Metal Unit 1Q16 1Q15 OPERATING COSTS 1Q15 Zinc fmt 67,034 75,699-11% 63,164 6% Copper fmt 10,260 8,847 16% 11,012-7% Lead fmt 12,616 11,801 7% 11,413 11% Total Milpo fmt 89,910 96,348-7% 85,589 5% During 1Q16, the cost of sales remained at a similar level compared to that of the same 2015 period despite the higher treated ore volume. However, the consolidated cash cost level was 4% lower compared to that of 1Q15 (US$/t 32.4 vs. US$/t 33.9). This reduction was mainly due to a higher treated ore volume at Cerro Lindo (+11%) due to its increased operational scale and cost optimization. Thus, it obtained a cash cost of US$/t 27.1 in 1Q16, 11% lower than the figure for the same period last year. Likewise, consolidated cash cost evolution has been showing a steadily downward trend since 2015, which coupled with the benefits of the operational integration between the Pasco Units and the increased capacity of Cerro Lindo, allow projecting the continuance of this trend, necessary to adequately address the current pricing environment. It is worth mentioning that approximately 80% of Milpo costs are denominated in Dollars, thus maintaining low exposure to currency risk since the company s income is mainly in foreign currency. OPERATING EXPENSES Overall, in terms of operating expenses, during 2016 a significant decrease with respect to 2015 was observed, thanks to activities oriented to their optimization. As for the administrative expenses, these remain aligned to more administrative efficiency and are expected to continue aligned with the implementation of the strategic pillars. As for sales expenses, a 36% reduction was obtained in 1Q16 compared to those of the same period last year, due to lower transport and storage costs. 5 5

7 PERFORMANCE Thanks to the good operating performance and costs and expenses control just explained, EBITDA during 1Q16 reached US$ 54.6 million despite the lower prices of base metals, which mean a negative price effect of US$ 9 million. On the other hand, EBITDA in 1Q16 was 63% increase over the one recorded in (US$ 33.6 millions), due to a production increase in terms of fines (+4%) and a slight improvement in prices, mainly zinc and lead. Notably, EBITDA was lower than that of 1Q15 (US$ 56.3 millions), only by 3%, having obtained a 35% margin (33% in 1Q15) In terms of Net Income, it reached US$ 15.0 million in 1Q16, reversing the net loss of US$ 5.2 million registered in. INVESTMENTS Regarding Capex, investment in sustaining projects and others was US$ 14.6 million, which mainly corresponds to the tailing dam elevation at El Porvenir, and the investment related to the new energy transmission line for the Pasco Units, botn are part of the operational integration process between these units which began in 2014 and will continue developing in 2016, as planned. Additionally, sustaining Capex included the acquisition of new loading and hauling equipment inside the mine for all operating units; and also the infrastructure modernization of Cerro Lindo s desalination plant. Capex US$ (MM) 1Q16 1Q15 1Q15 Expansion % % Sustaining and Others % % Total Milpo % % Capex distribution Capex 8% Expansion % 16 92% Sustaining and others 1Q15 1Q16 6 6

8 LIQUIDITY AND INDEBTEDNESS In March 2016, the Company closed with a cash balance of US$ 423 million after the US$ 15.8 million capex executed and despite the negative price effect already mentioned. Because of the payment of workers profit share and the increase in the accounts receivable balance due to higher sales during 1Q16 compared to 1Q15, in the quarter, the company generated a negative net cash flow of US$ 6 million. However, in the coming months, it is expected that working capital returns to its normal level. Free Cash Flow Generation Accordingly, at the end of the quarter, the Net Cash position reached US$ 79 million, maintaining a strong financial position to deal with the current situation. In terms of leverage, the ratio of net debt / EBITDA remained negative resulting in -0.42x ( -0.50x at the end of December 2015), and the average term maturity of the financial debt is seven years, having no relevant debt maturity in the short term. As for credit ratings, on March 31, 2016, Fitch Ratings downgraded the credit rating granted to Milpo from BBB to BBB-, with a negative outlook. On the other hand, on February 19, 2016, Standard & Poor's changed MILPO s credit rating from BB+ to BB with a stable outlook. In both cases, changes in rating were the result of Votorantim downgrade, also due to Brazil s sovereign debt ratings reduction. However, in both cases, the aforementioned risk rating agencies mentioned the robust financial and liquidity position of Milpo, which allow the Company to develop its future plans and address adequately the environment of volatile metal prices. Finally, as part of the repurchase of own shares, approved by the General Meeting of Shareholders on July 23, 2015, at the end of 1T16, the Company acquired 15'406,048 of own shares for an amount of US $ 8 million. 7 7

9 Liquidity and Indebtedness position Net Debt/EBITDA (US$ MM) US$ MM March 2016 December 2015 Total Cash Total Debt Q15 2Q15 3Q15 1Q x x x x x Financial Debt Financial Sources Debt Maturity 1% 1% 99% 99% Bonds LT Debt Financial Leases LT Debt (Current Portion) Milpo's financial debt mainly consists of the issuance of corporate bonds, which represent 99% of total debt and have a 2023 maturity. On the other hand, finance leases, which only represent 1% of the debt, are related to the acquisition of machinery and equipment and mature on July III. BUSINESS AND OPERATIONAL PERFORMANCE CERRO LINDO UNIT Production by metal and cash cost Unit 1Q16 1Q15 1Q15 Fine Metal in Concentrate Production Zinc t 43,980 50,780-13% 40,295 9% Copper t 10,093 8,367 21% 10,774-6% Lead t 3,901 4,260-8% 3,079 27% Silver Content oz 814, ,716 2% 781,514 4% Cash Cost US$/t % % Revenues US$ MM % % EBITDA US$ MM % % EBITDA Margin % 47% 50% 44% 8 8

10 During 1Q16, the largest volume of copper content, associated with the greater treated ore and a higher copper ore grade, offset the lower fine metal content in concentrate production of zinc and lead regarding 1Q15. Also, during the quarter, the largest total production of Cerro Lindo (+7%) compared to stands out, mainly due to a significant improvement in the production of lead and zinc. On the other hand, in 1Q16, the volume of treated ore increased 11%, compared to that of the same 2015 period which allowed diminishing significantly the cash cost through scale economies achieved by the larger treatment capacity. This has resulted in an average cash cost of US$/t 27.1 during 1Q16, compared to US$/t 30.3 in 1Q15 (-11%). With regard to the exploration activities performed at Cerro Lindo, continuing with those accomplished in 2015, the quarter closed with 17,600 meters of diamond drilling, focused on explorations to identify new bodies on the surface, re-categorization and validation of resources, geomechanics and services. PASCO MINING COMPLEX El Porvenir Unit Production by metal and cash cost Unit 1Q16 1Q15 1Q15 Fine Metal in Concentrate Production Zinc t 15,794 15,602 1% 15,778 0% Copper t % % Lead t 4,284 3,554 21% 4,726-9% Silver Content oz 681, ,886 21% 769,848-11% Cash Cost US$/t % % Revenues US$ MM % % EBITDA US$ MM % % EBITDA Margin % 28% 21% 15% In El Porvenir Mining Unit, the fine metal content in concentrate production increased in 4% during 1Q16, compared to that of the same 2015 period. This result is explained by higher grades, mainly lead and silver which increased in 21% the fine content of both metals. In terms of the cash cost, during 1Q16, the Unit had a slight increase of 2% compared to 1Q15 (US$/t 39.3 vs. US$/t 38.4), an effect that was diluted by the higher fine metal content in the concentrates production. Compared to, the obtained cash cost was lower. Regarding strategic exploration activities in El Porvenir, continuing with those carried out in 2015, during the quarter the unit performed around 16,500 meters of diamond drilling aimed to resources re-categorization and exploration of new mineralized bodies. 9 9

11 Atacocha Unit Production by metal and cash cost Unit 1Q16 1Q15 1Q15 Fine Metal in Concentrate Production Zinc t 6,746 9,328-28% 6,987-3% Copper t % 85-19% Lead t 4,308 4,131 4% 3,588 20% Silver Content oz 541, ,002 13% 472,431 15% Cash Cost US$/t % % Revenues US$ MM % % EBITDA US$ MM n.a % EBITDA Margin % -3% 16% -38% Since 3Q15, the operation in Atacocha s underground mine was reprogrammed in order to access zones with positive operating margins, either through higher grades, lower costs, or both. So, when production and costs indicators are compared to those of 1Q15, there is a 14% reduction in production volume and an increase in the cash cost of the unit (US$/t 48.5 vs. US$/t 42.6). However, as previously reported, the unit is reversing this trend, and, compared to, it obtained a 20% and 15% increase in the production of lead and silver content, respectively, which offset the lower production of zinc and copper. Moreover, the cash cost of the unit remained similar to that of in spite of the higher fine metal content in the concentrate production. On the other hand, during 1Q16 the implementation of the small open pit San Gerardo pit continued, which allowed access to mineral with higher content of lead-silver and lower mining costs. In relation to exploration activities, during 1Q16, 16,900 meters of diamond drilling were executed to improve surface knowledge of geological and intermediate site zones, in the lateral extension of intermediate and depth areas of mineralized bodies, as well as to increase inventory levels of reserves and resources

12 About Milpo Compañía Minera Milpo S.A.A. (Milpo) is a Peruvian mining company dedicated to the exploration, extraction, processing and marketing of zinc, copper and lead concentrates, with silver and gold content; it is currently one of the main polymetallic producers in Peru. Milpo develops its operations with a clear social responsibility and environmental commitment. Since 2010, Milpo is part of Votorantim Metais, the metal and mining company of Votorantim Group, a strong global industrial conglomerate and diversified that has over 90 years of history and presence in key sectors of the economy, in more than 20 countries. Currently, Milpo maintains three polymetallic underground mining units in operation, Cerro Lindo (Ica), El Porvenir (Pasco) and Atacocha (Pasco). It has also a portfolio of copper and polymetallic Greenfield projects with advanced exploration. For further information: Visit our website at: or ri.milpo.com or contact: investorrelations@milpo.com 11 11

13 1Q16 Global Conference Call 1Q16 Results Global Conference Call will be held on Tuesday, March 31, 2016 at 11 a.m. (Lima) / 12 p.m. (New York) / 5 p.m. (London). To access the call, please dial: Participants calling from USA : +1 (844) International Participants : +1 (412) Conference ID Code : Minera Milpo The Global Conference Call will be broadcast live on our Investor Relations website (ir.milpo.com). A slideshow will also be available on the same website. If for some reason you can t access the website, please use the following address: To access the replay of the 1Q16 Global Conference Call audio, please dial: Participants calling from USA : +1 (877) International Participants : +1 (412) Passcode :

14 EXHIBIT I: COMPAÑIA MINERA MILPO S.A.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME For the three-month period ended March US$ 000 US$ 000 Unaudited Unaudited Revenue 154, ,966 Cost of Sales (109,134) (113,909) Gross Profit 44,987 55,057 Selling expenses (5,175) (8,026) Administrative expenses (6,906) (6,548) Other Income (expenses),net 2,469 (9,649) Operating Profit 35,375 30,834 Finance income 1, Finance expenses (4,888) (5,033) Exchange differences, net (1,498) 50 Profit before income tax 30,052 26,622 Income tax (15,085) (8,536) Profit for the period 14,967 18,086 Profit Attributable to: Owners of the Company 17,738 17,604 Non-controlling interest (2,771) ,967 18,

15 EXHIBIT II: COMPAÑIA MINERA MILPO S.A.A. AND SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM BALANCE SHEET ASSETS At March 31, At December 31, LIABILITIES AND EQUITY At March 31, At December 31, US$ 000 US$ 000 US$ 000 US$ 000 Unaudited Audited Unaudited Audited CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents 422, ,204 Borrowings 2,930 7,622 Trade and other receivables 122,762 95,123 Trade payables 116, ,561 Derivative financial instruments 1,631 4,821 Income and mining taxes 1,365 1,719 Inventories 48,705 50,791 Other provisions 12,123 18,558 Other non-financial assets 7,427 10,129 Other payables 40,394 19,434 Total current assets 603, ,068 Total current liabilities 173, ,894 NON-CURRENT ASSETS NON CURRENT LIABILITIES Other receivables 3,544 3,544 Borrowings 341, ,478 Deferred income tax 11,899 16,688 Deferred income tax 3,448 1,878 Investments 58,440 58,018 Other provisions 102,809 99,749 Property, plant and equipment 412, ,722 Total non-current liabilities 447, ,105 Intangible assets 177, ,288 Total non-current assets 663, ,260 TOTAL LIABILITIES 620, ,999 EQUITY Capital 423, ,830 Treasury shares (4,600) (4,543) Investment shares 4,551 4,551 Other capital reserves 86,022 79,347 Other equity reserves 1,332 4,769 Retained earnings 116, ,249 Total equity attributable to owners of the Company 627, ,203 Non-controlling interest 18,660 22,126 TOTAL EQUITY 646, ,329 TOTAL ASSETS 1,267,338 1,272,328 TOTAL LIABILITIES AND EQUITY 1,267,338 1,272,

16 EXHIBIT III: COMPAÑIA MINERA MILPO S.A.A. AND SUBSIDIARIES CONDENSED INTERIM CONSOLIDATED CASH FLOW For the three-month period ended March 31, US$ 000 US$ 000 Unaudited Unaudited OPERATING ACTIVITIES Collections from inventory sale 153, ,771 Payments to suppliers of goods and services (107,279) (116,817) Payment and on behalf of employees (20,318) (29,567) Income tax paid (11,320) (7,825) Other taxes paid (5,635) (20,728) Recovery of taxes - 1,839 Other Net cash generated from operating activities 9,916 32,581 INVESTING ACTIVITIES Purchase of property, plant and equipment and investments (13,339) (9,777) Purchase of intagible assets (2,029) - Net cash used in investing activities (15,368) (9,777) FINANCING ACTIVITIES Payment of borrowings (4,148) (1,721) Interests paid of borrowings (8,015) (8,318) Payment of dividends - (27,137) Net cash used in financing activities (12,163) (37,176) Net decrease in cash and cash equivalents (17,615) (14,372) Cash and cash equivalents of cash at the beginning of the period 440, ,693 Exchange difference on cash and cash equivalents 309 (1,018) Cash and equivalent of cash at the final of the period 422, ,