Buenaventura Mining Company Inc. (Compañía de Minas Buenaventura S.A.A.) — FY 2020 Form 20-F
Period and scope: Annual report for the fiscal year ended December 31, 2020, filed April 30, 2021. This is not a stand-alone fourth-quarter report. Buenaventura is a Peru-based gold, silver, copper and polymetallic mining company; it consolidates its controlled operations and accounts for Yanacocha, Cerro Verde and Coimolache using the equity method. Financial statements are prepared under IFRS in U.S. dollars.
Reporting caveat: The filing includes audited annual financial statements and unaudited operating data. The independent auditor issued an unqualified opinion on the consolidated financial statements and reported effective internal control over financial reporting.
Key financial metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total operating income | US$676.5 million | US$867.9 million |
| Sales of goods | US$637.6 million | US$821.9 million |
| Gross profit | US$23.9 million | US$68.3 million |
| Operating profit (loss) | US$(81.3) million | US$(58.0) million |
| Loss before income tax | US$(130.3) million | US$(43.5) million |
| Net loss | US$(150.3) million | US$(28.5) million |
| Net loss attributable to parent shareholders | US$(135.7) million | US$(12.2) million |
| Basic and diluted loss per share/ADS | US$(0.53) | US$(0.05) |
| Operating cash flow | US$122.9 million | US$47.1 million |
| Investing cash flow | US$(62.2) million | US$(105.6) million |
| Financing cash flow | US$(35.3) million | US$(100.6) million |
| Cash and cash equivalents at year-end | US$235.4 million | US$210.0 million |
| Total assets | US$4.0 billion | US$4.1 billion |
| Total shareholders’ equity | US$2.8 billion | US$3.0 billion |
Gross margin was approximately 3.5% of operating income and operating margin approximately negative 12.0%. Current assets were US$589.2 million and current liabilities US$360.4 million at year-end, a current ratio of about 1.63. Reported bank loans were US$65.8 million and financial obligations US$531.7 million; these figures exclude any separate assessment of contingent or guaranteed obligations. The filing’s contractual-obligations table reports total contractual cash obligations of US$879.8 million.
Material changes versus FY 2019
- Operating income fell about 22%, primarily as pandemic restrictions curtailed mining, processing and shipments. Sales of goods fell 22%; volumes sold declined 31% for gold, 43% for silver, 38% for lead, 10% for zinc and 29% for copper. Higher realized gold and silver prices partly offset lower volumes.
- Operating costs declined 18%, but included US$27.8 million of unabsorbed fixed costs from production stoppages. Gross profit contracted sharply and the operating loss widened.
- Equity-accounted results moved from income of US$47.7 million in 2019 to a loss of US$9.5 million in 2020, reflecting weaker results at Yanacocha and Cerro Verde.
- Operating cash flow improved by US$75.8 million to US$122.9 million, principally because payments to suppliers and third parties decreased. Lower sales receipts and dividends from associates partly offset the improvement.
- Cash increased by US$25.4 million during the year. Capital expenditure was US$71.5 million, down from US$102.6 million; dividends to Buenaventura’s controlling shareholders were zero in 2020 versus US$22.1 million in 2019.
- Consolidated production fell substantially: gold to 134,000 ounces from 191,281 and silver to 11.95 million ounces from 20.29 million. Yanacocha gold production declined 36% to 340,052 ounces; Cerro Verde copper production declined to 820.1 million recoverable pounds from 1,003.8 million.
Outlook, risks and unusual items
- Pandemic and operations: Peruvian restrictions interrupted or reduced operations beginning in March 2020. The company restarted units in phases during May and June; management identified unabsorbed stoppage costs and lower output as material effects. The filing cautions that the pandemic’s future impact remains uncertain.
- Liquidity and financing: Management said expected working-capital, exploration and capital needs would be funded from internal cash, cash on hand and associate dividends, with borrowing or debt securities possible if needed. It budgeted 2021 capital expenditure of approximately US$80–95 million and exploration spending of US$50–70 million. It was also assessing possible bond issuance or asset sales; the board had not approved a transaction as of the filing date.
- SUNAT tax dispute and covenant event: Tax authorities pursued claims relating to 2007–2010 tax deductions and losses. The stated collection amount was S/2.108 billion, approximately US$585.4 million including penalties and interest. Buenaventura arranged a 67-month payment plan, supported by letters of credit, and continued to appeal. The arrangement and related liens triggered a default under the US$275 million syndicated term loan; lenders initially granted forbearance, and an April 28, 2021 amendment and waiver cured past defaults and amended terms. Collateral includes shares in key subsidiaries and associates. The auditor separately described US$560.4 million of uncertain tax positions as disclosed but not accrued because recognition criteria were not met.
- Unusual operating and accounting items: The filing reports US$11.6 million of stripping-asset write-off at El Brocal, a US$2.1 million impairment reversal at Julcani, and US$27.8 million of production-stoppage costs. Mallay was sold for US$10 million; US$2.0 million had been collected by year-end, with two US$4.0 million installments due in November 2021 and November 2022.
- Projects and reserves: Yanacocha’s Quecher Main project extended the mine life to 2027. Yanacocha expected to begin construction of its Sulfides project in the second half of 2021, subject to development plans. Conga remains in care and maintenance; management said it did not anticipate development in the foreseeable future, and the asset could face impairment. Buenaventura’s reported attributable gold, silver and copper reserves declined approximately 2%, 12% and 1%, respectively, year over year.
- Other key risks: Exposure to volatile metal prices (Buenaventura and its wholly owned subsidiaries do not hedge gold and silver prices), reserve replacement and estimation, permitting, environmental obligations, tailings dams, labor and community relations, political and regulatory changes in Peru, and access to financing. Social conflicts delayed some exploration; permitting and prior consultation processes may also delay projects.
Important facts for investors to verify
- Review the SUNAT claim, payment schedule, letters of credit, pledged collateral, appeal status and post-year-end loan waiver terms; distinguish the collection amount from the unaccrued uncertain-tax-position disclosure.
- Assess whether production and shipments recovered after the 2020 shutdowns, and whether stated 2021 capex, exploration and project plans were funded and achieved.
- Examine operating performance and cash distributions from Yanacocha, Cerro Verde and Coimolache, including the effect on Buenaventura’s equity-method results and liquidity.
- Check reserve revisions, mine lives, reserve assumptions and project economics, particularly for declining or suspended operations, Conga, and the planned Yanacocha Sulfides project.
- Track debt maturities, covenant compliance, collateral restrictions, cash availability and any contemplated asset sales or new financing.
- Review the assumptions underlying mine-closure provisions, environmental contingencies and any further costs or liabilities arising from COVID-19 or Peruvian regulatory changes.