Buenaventura Mining Company Inc. (Compañía de Minas Buenaventura S.A.A.) — 2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; filed May 13, 2022. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars.
Business context and reporting period
Buenaventura explores, mines and processes gold, silver, copper and other metals in Peru. It operates mines and holds interests in associates, including a 19.58% interest in copper producer Cerro Verde. Yanacocha, in which it held 43.65% through year-end, was classified as held for sale and discontinued operations.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total operating income | $900.5 million | $676.5 million |
| Gross profit | $87.3 million | $23.9 million |
| Operating loss | $66.0 million | $81.3 million |
| Profit (loss) from continuing operations | $124.8 million | $(83.5) million |
| Net loss | $(262.8) million | $(150.3) million |
| Cash and cash equivalents at year-end | $377.0 million | $235.4 million |
| Net cash from (used in) operating activities | $(197.5) million | $142.4 million |
| Total assets | $4.562 billion | $3.980 billion |
| Total shareholders’ equity | $2.539 billion | $2.800 billion |
- Operating income rose 33%; goods sales increased 35% to $863.5 million. Copper sales benefited from higher prices and volumes, while silver and gold sales also increased. Cost of goods sold excluding depreciation and amortization rose 34% to $529.7 million; operating-unit exploration expense doubled to $56.4 million.
- Gross margin was approximately 9.7% of operating income, and operating margin was approximately negative 7.3%. Net loss was driven principally by $387.6 million of losses from discontinued operations, despite a return to profit from continuing operations. Equity-method earnings from associates and joint ventures rose to $240.5 million from $62.7 million, mainly reflecting Cerro Verde.
- Operating cash flow turned negative largely because of $552.6 million of tax-litigation payments. Investing cash outflow was $86.3 million, including $90.3 million of property, plant and equipment additions. Financing provided $425.3 million, including net proceeds from the 2021 notes issue. Year-end cash increased despite the operating cash outflow.
- Financial obligations were $1.058 billion at year-end. Buenaventura issued $550 million of 5.50% senior notes due 2026 and reported $50 million of short-term bank loans. The filing also reports debt at subsidiaries and lease obligations; see debt terms and maturity disclosures for detail.
- No cash dividends were paid to Buenaventura shareholders in 2021. The company reported a dividend policy targeting at least 20% of net income from majority-owned operations and subsidiaries, subject to approvals and available earnings.
Material changes and unusual items
- Yanacocha disposal: On February 8, 2022, after year-end, Buenaventura sold its entire interest to Newmont for $300 million cash, with potential contingent payments of up to a further $100 million tied to the Sulfides project and metal prices. Yanacocha was classified as held for sale and discontinued operations in the 2021 statements. The filing also describes related arrangements involving La Zanja, royalties and closure funding.
- Yanacocha losses and closure provision: Yanacocha reported a $967.7 million net loss for 2021, including an $823.9 million mine-closure provision, principally reflecting revised future water-treatment costs. It also recorded a $97.6 million impairment reversal and a $152.2 million loss on assets held for sale. The filing identifies the closure provision as a major unusual, largely non-cash item.
- Tax litigation: Buenaventura paid the disputed SUNAT assessments for 2007–2010 in July 2021, including interest. It continues to challenge the underlying tax positions in Peruvian courts. At year-end, the consolidated statements included a $601.1 million tax-claims receivable, including amounts paid under protest; recoverability depends on the outcome of proceedings.
- Operations: Uchucchacua temporarily suspended mining and processing activities in September 2021 following operational problems exacerbated by the pandemic. This contributed to lower silver sales and unabsorbed costs; its related Río Seco processing unit also suspended operations. The filing reports no fatal accidents in mining units in 2021, but three fatal accidents in non-mining activities.
- Cerro Verde: The associate reported 2021 sales of $4.199 billion and net income of $1.191 billion, versus $2.539 billion and $274.5 million in 2020, respectively. Buenaventura received $137.1 million in dividends from Cerro Verde during 2021.
Guidance, outlook, commentary and risks
- Management budgeted approximately $190–$210 million for 2022 capital expenditures and expected $70–$90 million for exploration: $50–$60 million at operating units and $20–$30 million in non-operating areas.
- The company expected to fund near-term working capital, capital expenditure and exploration needs through internal funds, cash and associate dividends, while cautioning that financing availability and terms are uncertain and could be affected by lower metal prices.
- Key risks include volatile gold, silver and copper prices; Buenaventura and Cerro Verde’s exposure to market prices, with Buenaventura’s wholly owned operations unhedged for gold and silver; production, reserve and cost uncertainty; permitting delays; community opposition and political instability in Peru; environmental and tailings-dam risks; labor, contractor and safety issues; climate and extreme weather; and COVID-19 impacts.
- Management paid the disputed SUNAT debt but continues appeals, and cannot assure recovery of the amounts recorded as receivables. The company also reports environmental closure obligations of $272.0 million for Buenaventura and its mining subsidiaries, apart from Yanacocha’s separate closure exposure.
- Auditors issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded disclosure controls and internal controls were effective as of December 31, 2021.
Most important facts for investors to verify
- Whether the $601.1 million tax-claims receivable is recoverable, and the status and potential costs of the continuing SUNAT disputes.
- Cash generation and liquidity after the tax payments, the $550 million notes issuance, and the subsequent repayment of the syndicated loan in early 2022.
- Final proceeds and contingent consideration from the Yanacocha sale, including related La Zanja, royalty and closure arrangements.
- Timing, cost and permitting progress for the San Gabriel and Trapiche development projects, and the company’s ability to meet its 2022 capital and exploration plans.
- Operating restart plans and performance at Uchucchacua and Río Seco, alongside reserve changes and rising unit costs at affected mines.