UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
2019
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from ___________ to __________
Commission file number 001-14370
COMPAÑÍA DE MINAS BUENAVENTURA S.A.A.
(Exact name of Registrant as specified in its charter)
BUENAVENTURA MINING COMPANY INC.
(Translation of Registrant’s name into English)
REPUBLIC OF PERU
(Jurisdiction of incorporation or organization)
LAS BEGONIAS 415 FLOOR 19,
SAN ISIDRO, LIMA 27, PERU
(Address of principal executive offices)
Carlos E. Gálvez,Leandro Garcia, Vice President and Chief Financial Officer
Telephone: (511) 419-2540
Facsimile: (511) 419-2502
Address: LAS BEGONIAS 415 FLOOR 19,
SAN ISIDRO, LIMA 27, PERU
(Name, telephone, e-mailTelephone, E-mail and/or facsimileFacsimile number and addressAddress of company contact person)Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common shares,nominal (par) value of ten Peruvian Soles per share (“Common Shares”) | BVN | New York Stock Exchange Inc.* Lima Stock Exchange | ||
| BVN | ||||
| American Depositary Shares (“ADSs”) representing one Common Share each | BVN | New York Stock Exchange Inc.٭ |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Common Shares nominal (par) value of S/.10.00 per share 274,889,924
Investment Shares nominal (par) value of S/.10.00 per share 744,640
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yesx No¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes¨ Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesx No¨
*Not for trading but only in connection with the registration of ADSs pursuant to the requirements of the Securities and Exchange Commission.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yesx¨ No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” and large accelerated filer”“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
| Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ | Emerging growth company ¨ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
| U.S. GAAP ¨
| International Financial Reporting Standards as issued by the International Accounting Standards Board x | Other ¨ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17¨ Item 18¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨ Nox
* Not for trading but only in connection with the registration of ADSs pursuant to the requirements of the Securities and Exchange Commission.
TABLE OF CONTENTS
i
| ITEM 16H. | Mine Safety Disclosure | ||
| PART III | |||
| ITEM 17. | Consolidated Financial Statements | ||
| ITEM 18. | Consolidated Financial Statements | ||
| ITEM 19. | Exhibits | ||
iii
Presentation of Financial Information
As used in this Annual Report on Form 20-F, or “Annual Report,” unless the context otherwise requires, references to “we,” “us,” “our,” “Company,” “BVN” and “Buenaventura” mean Compañía de Minas Buenaventura S.A.A. and its consolidated subsidiaries. Unless otherwise specified or the context otherwise requires, references to “$,” “US$,” “Dollars” and “U.S. Dollars” are to United States Dollars and references to “S/.,” “Sol” or “Soles” are to Peruvian Soles, the legal currency of the Republic of Peru, or “Peru.”“Peru”.
We present our consolidated financial statements (the “Consolidated Financial Statements”) in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
Unless otherwise specified, references to a value denominated in “t” or “tons” refersrefer to tons; references to a value denominated “DST” refers to dry short tons; the terms “g” or “gr” refer to metric grams; the terms “oz.” or “ounces” refer to troy ounces of a fineness of 999.9 parts per 1,000, equal to 31.1035 grams.
Until December 31, 2010, we presented our consolidated financial statements, which we refer to as our Financial Statements, in conformity with accounting principles generally accepted in Peru, or “Peruvian GAAP.” Effective January 1, 2011, we began presenting our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”).
Pursuant to the rules of the United States Securities and Exchange Commission or the SEC,(the “SEC”), this Annual Report includes certain separate financial statements and other financial information of Minera Yanacocha S.R.L., or “Yanacocha,” and Sociedad Minera Cerro Verde S.A.A., or “Cerro Verde.” Yanacocha and Cerro Verde maintain their financial books and records in U.S. Dollars and present their financial statements in accordance with IFRS as issued by the IASB.
We record our investments in Yanacocha and Cerro Verde in accordance with the equity method as described in “Item 5. Operating and Financial Review and Prospects—Buenaventura—A. Operating Results—General” and Note 2.4(f) to the Consolidated Financial Statements. Our partnership interest in Yanacocha was calculated at 43.65% for the yearsyear ended December 31, 2013, 20142019, 43.65% for the year ended December 31, 2018 and 2015.45.95% for the year ended December 31, 2017. As of December 31, 2013, 20142017, 2018 and 2015,2019, our equity interest in Cerro Verde was 19.58%.
The Company may file separate financial statements of its 40.10% equity investee, Compañía Minera Coimolache S.A.A., pursuant to Rule 3-09 of Regulation S-X, on Form 20-F/A, if required, on or before June 30, 2020.
Forward-Looking Statements
This Annual Report contains “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provided for under these sections. Our forward-looking statements are based on management’s assumptions and beliefs in light of the information currently available to it and may include, without limitation:
| our, Yanacocha’s and Cerro Verde’s costs and expenses; |
| estimates of future costs applicable to sales; |
| estimates of future exploration and production results; |
| plans for capital expenditures; |
| expected commencement dates of mining or metal production operations; and |
| estimates regarding potential cost savings and operating performance. |
The words “anticipate,” “may,” “can,” “plan,” “believe,” “estimate,” “expect,” “project,” “intend,” “likely,” “will,” “should,” “to be” and any similar expressions are intended to identify those assertions as forward-looking statements. In making any forward-looking statements, we believe that the expectations are based on reasonable assumptions. We caution readers that those statements are not guarantees of future performance and our actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include:
| 1 |
| our, Yanacocha’s and Cerro Verde’s results of exploration; |
| the results of our joint ventures and our share of the production of, and the income received from, such joint ventures; |
| commodity prices; |
| production rates; |
| geological and metallurgical assumptions; |
| industry risks; |
| timing of receipt of necessary governmental permits or approvals; |
| regulatory changes; |
| political risks; |
| inaccurate estimates of reserves or |
| anti-mining protests or other potential issues with local community relationships; |
| labor relations; |
| environmental risks; and |
| other factors described in more detail under “Item 3. Key |
Many of the assumptions on which our forward-looking statements are based are likely to change after our forward-looking statements are made, including, for example, commodity prices, which we cannot control, and our, Yanacocha’s and Cerro Verde’s production volumes and costs, some aspects of which we may or may not be able to control. Further, we may make changes to our business plans that could or will affect our results. We do not intend to update our forward-looking statements, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience or other changes, and we undertake no obligation to update any forward-looking statements more frequently than required by applicable securities laws.
Not applicable.
Not applicable.
| 2 |
| ITEM 1. |
Not applicable.
| ITEM 2. | Offer Statistics and Expected Timetable |
Not applicable.
| ITEM 3. | Key Information |
| 3 |
| A. | Selected Financial Data |
Selected Financial Information and Operating Data
This selected financial information should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements, including the notes thereto appearing elsewhere in this Annual Report. The selected financial information as of December 31, 20142018 and 20152019 and for the years ended December 31, 2013, 20142017, 2018 and 2015,2019 is derived from the consolidated statements of financial position, consolidated statements of profit or loss and consolidated statements of other comprehensive income, included in the Consolidated Financial Statements appearing elsewhere in this Annual Report. The selected financial information as of December 31, 20112015, 2016 and 2012,2017 and for the years ended December 31, 20112015 and 20122016 has been derived from a consolidated statement of financial position, consolidated statements of profit or loss and consolidated statements of other comprehensive income, respectively, which are not included in this Annual Report. The report of Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. (a member firm of Ernst & Young Global)Global Limited) on our 2013, 2014Consolidated Financial Statements as of December 31, 2018 and 2015 Financial Statements2019 and for the years ended December 31, 2017, 2018 and 2019 appears elsewhere in this Annual Report. Our 2013, 2014 and 2015The Consolidated Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB, which differs in certain respects from U.S. GAAP. The operating data presented below areis derived from our records and has not been subject to audit. The financial information and operating data presented below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects—Buenaventura,” the Consolidated Financial Statements and the related notesNotes thereto and other financial information included in this Annual Report.
| As of and for the year ended December 31, | ||||||||||||||||||||
| 2015 | 2014 | 2013(6) | 2012(6) | 2011(6) | ||||||||||||||||
| (In thousands of US$)(1) | ||||||||||||||||||||
| Statements of profit or loss data: | ||||||||||||||||||||
| Continuing operations: | ||||||||||||||||||||
| Operating income: | ||||||||||||||||||||
| Net sales of goods | 864,962 | 1,067,271 | 1,135,836 | 1,376,179 | 1,314,070 | |||||||||||||||
| Net sales of services | 54,488 | 71,642 | 79,585 | 46,664 | 42,023 | |||||||||||||||
| Royalty income | 32,414 | 36,867 | 44,185 | 67,178 | 62,742 | |||||||||||||||
| Total operating income | 951,864 | 1,175,780 | 1,259,606 | 1,490,021 | 1,418,835 | |||||||||||||||
| Operating costs: | ||||||||||||||||||||
| Cost of sales of goods, excluding depreciation and amortization | (537,713 | ) | (533,052 | ) | (513,165 | ) | (540,504 | ) | (365,831 | ) | ||||||||||
| Cost of services, excluding depreciation and amortization | (52,692 | ) | (81,487 | ) | (114,120 | ) | (30,739 | ) | (15,592 | ) | ||||||||||
| Exploration in operating units | (91,520 | ) | (97,852 | ) | (101,913 | ) | (103,215 | ) | (77,994 | ) | ||||||||||
| Depreciation and amortization | (242,465 | ) | (208,698 | ) | (159,140 | ) | (111,025 | ) | (71,392 | ) | ||||||||||
| Mining royalties | (27,407 | ) | (28,440 | ) | (30,402 | ) | (37,496 | ) | (58,546 | ) | ||||||||||
| Total operating costs | (951,797 | ) | (949,529 | ) | (918,740 | ) | (822,979 | ) | (589,355 | ) | ||||||||||
| Gross profit | 67 | 226,251 | 340,866 | 667,042 | 829,480 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Administrative expenses | (86,532 | ) | (101,102 | ) | (75,118 | ) | (94,118 | ) | (68,874 | ) | ||||||||||
| Exploration in non-operating areas | (30,610 | ) | (50,007 | ) | (32,805 | ) | (95,491 | ) | (49,568 | ) | ||||||||||
| Selling expenses | (19,481 | ) | (16,605 | ) | (14,842 | ) | (15,491 | ) | (8,214 | ) | ||||||||||
| Excess of workers’ profit sharing | - | - | (704 | ) | (2,164 | ) | (6,221 | ) | ||||||||||||
| Impairment loss of long-lived assets | (11,255 | ) | - | - | - | - | ||||||||||||||
| Other, net | 209 | 3,059 | (2,154 | ) | 19,172 | 4,523 | ||||||||||||||
| Total operating expenses | (147,669 | ) | (164,655 | ) | (125,623 | ) | (188,092 | ) | (128,354 | ) | ||||||||||
| Operating profit (loss) | (147,602 | ) | 61,596 | 215,243 | 478,950 | 701,126 | ||||||||||||||
| Other income (expenses), net: | ||||||||||||||||||||
| Share in the results of associates under equity method | (173,375 | ) | (74,600 | ) | (114,145 | ) | 478,987 | 496,769 | ||||||||||||
| Finance costs | (27,622 | ) | (11,318 | ) | (9,896 | ) | (8,290 | ) | (11,823 | ) | ||||||||||
| Net gain (loss) from currency exchange difference | (13,683 | ) | (8,452 | ) | (7,192 | ) | 1,855 | (614 | ) | |||||||||||
| Gain on business combination | - | 59,852 | - | - | - | |||||||||||||||
| As of and for the year ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (US$ in thousands)(1) | ||||||||||||||||||||
| Statements of profit or loss data: | ||||||||||||||||||||
| Continuing operations: | ||||||||||||||||||||
| Operating income: | ||||||||||||||||||||
| Net sales of goods | 821,930 | 1,106,329 | 1,187,206 | 1,015,670 | 846,269 | |||||||||||||||
| Sales of services | 23,661 | 24,001 | 29,697 | 28,782 | 50,839 | |||||||||||||||
| Royalty income | 22,297 | 20,385 | 20,739 | 24,339 | 32,414 | |||||||||||||||
| Total operating income | 867,888 | 1,150,715 | 1,237,642 | 1,068,791 | 929,522 | |||||||||||||||
| Operating costs: | ||||||||||||||||||||
| Cost of sales of goods, excluding depreciation and amortization | (512,874 | ) | (613,381 | ) | (604,650 | ) | (497,812 | ) | (513,490 | ) | ||||||||||
| Cost of sales of services, excluding depreciation and amortization | (3,378 | ) | (4,318 | ) | (12,954 | ) | (10,754 | ) | (59,612 | ) | ||||||||||
| Depreciation and amortization | (226,335 | ) | (238,879 | ) | (210,154 | ) | (192,647 | ) | (232,583 | ) | ||||||||||
| Exploration in operating units | (44,163 | ) | (89,730 | ) | (89,311 | ) | (96,149 | ) | (89,699 | ) | ||||||||||
| Mining royalties | (12,832 | ) | (21,388 | ) | (30,884 | ) | (27,611 | ) | (27,188 | ) | ||||||||||
| Total operating costs | (799,582 | ) | (967,696 | ) | (947,953 | ) | (824,973 | ) | (922,572 | ) | ||||||||||
| Gross profit | 68,306 | 183,019 | 289,689 | 243,818 | 6,950 | |||||||||||||||
| Operating expenses, net: | ||||||||||||||||||||
| Administrative expenses | (76,297 | ) | (77,099 | ) | (80,666 | ) | (81,692 | ) | (84,372 | ) | ||||||||||
| Selling expenses | (24,313 | ) | (26,948 | ) | (23,043 | ) | (21,733 | ) | (19,365 | ) | ||||||||||
| Exploration in non-operating areas | (11,879 | ) | (36,307 | ) | (18,262 | ) | (26,589 | ) | (30,610 | ) | ||||||||||
| Impairment recovery (loss) of long-lived assets | (2,083 | ) | 5,693 | (21,620 | ) | - | (3,803 | ) | ||||||||||||
| Reversal (provision) for contingences and others | 2,968 | 11,248 | (13,740 | ) | (565 | ) | (395 | ) | ||||||||||||
| Write-off of asset stripping activities | - | - | (13,573 | ) | - | - | ||||||||||||||
| Other, net | (14,715 | ) | (1,308 | ) | (13,230 | ) | 18,957 | (5,340 | ) | |||||||||||
| Total operating expenses, net | (126,319 | ) | (124,721 | ) | (184,134 | ) | (111,622 | ) | (143,885 | ) | ||||||||||
| Operating profit (loss) | (58,013 | ) | 58,298 | 105,555 | 132,196 | (136,935 | ) | |||||||||||||
| Other income (expenses), net: | ||||||||||||||||||||
| Share in the results of associates and joint ventures | 47,710 | (1,144 | ) | 13,207 | (365,321 | ) | (173,375 | ) | ||||||||||||
| Finance income | 9,675 | 9,685 | 5,517 | 6,830 | 11,026 | |||||||||||||||
| Finance costs | (42,173 | ) | (38,422 | ) | (34,551 | ) | (31,580 | ) | (27,572 | ) | ||||||||||
| Net gain (loss) from currency exchange difference | (734 | ) | (1,384 | ) | 2,939 | 2,638 | (13,693 | ) | ||||||||||||
| Total other income (expenses), net | 14,478 | (31,265 | ) | (12,888 | ) | (387,433 | ) | (203,614 | ) | |||||||||||
| Profit (loss) before income tax | (43,535 | ) | 27,033 | 92,667 | (255,237 | ) | (340,549 | ) | ||||||||||||
| Current income tax | (11,911 | ) | (16,882 | ) | (23,713 | ) | (39,444 | ) | (14,222 | ) | ||||||||||
| Deferred income tax | 37,501 | (9,997 | ) | 5,825 | (14,060 | ) | (541 | ) | ||||||||||||
| Profit (loss) from continuing operations | (17,945 | ) | 154 | 74,779 | (308,741 | ) | (355,312 | ) | ||||||||||||
| Discontinued operations: | ||||||||||||||||||||
| Loss from discontinued operations(2) | (10,514 | ) | (11,808 | ) | (10,344 | ) | (19,073 | ) | (20,233 | ) | ||||||||||
| Net profit (loss) | (28,459 | ) | (11,654 | ) | 64,435 | (327,814 | ) | (375,545 | ) | |||||||||||
| Attributable to equity owners of the parent | (12,208 | ) | (13,445 | ) | 60,823 | (323,492 | ) | (317,210 | ) | |||||||||||
| Attributable to non-controlling interest | (16,251 | ) | 1,791 | 3,612 | (4,322 | ) | (58,335 | ) | ||||||||||||
| Net profit (loss) | (28,459 | ) | (11,654 | ) | 64,435 | (327,814 | ) | (375,545 | ) | |||||||||||
| Basic and diluted profit (loss) per share attributable to equity holders of the parent(3)(4) | (0.05 | ) | (0.05 | ) | 0.24 | (1.27 | ) | (1.25 | ) | |||||||||||
| Basic and diluted profit (loss) per ADS attributable to equity holders of the parent(3)(4) | (0.05 | ) | (0.05 | ) | 0.24 | (1.27 | ) | (1.25 | ) | |||||||||||
| Basic and diluted profit (loss) per share attributable to equity holders of the parent, from continuing operations | (0.01 | ) | (0.02 | ) | 0.28 | (1.20 | ) | (1.17 | ) | |||||||||||
| Dividends per share | 0.09 | 0.09 | 0.09 | 0.03 | - | |||||||||||||||
| Average number of common and investment shares outstanding | 253,986,867 | 253,986,867 | 253,986,867 | 253,986,867 | 254,186,867 | |||||||||||||||
| Statement of financial position data: | ||||||||||||||||||||
| Total assets | 4,107,274 | 4,217,221 | 4,332,813 | 4,266,415 | 4,547,181 | |||||||||||||||
| Capital stock | 750,497 | 750,497 | 750,497 | 750,497 | 750,497 | |||||||||||||||
| Total shareholders’ equity | 2,968,200 | 3,029,565 | 3,063,627 | 3,047,213 | 3,389,236 | |||||||||||||||
| Operating data (unaudited): | ||||||||||||||||||||
| Production(5) | ||||||||||||||||||||
| Gold (oz.) | 191,281 | 338,189 | 405,646 | 357,570 | 356,367 | |||||||||||||||
| Silver (oz.) | 20,288,743 | 26,264,109 | 26,624,431 | 23,035,110 | 24,648,761 | |||||||||||||||
| Proven and probable reserves(6) | ||||||||||||||||||||
| Gold (oz.) | 2,984,673 | 1,001,169 | 1,245,213 | 1,403,029 | 1,175,724 | |||||||||||||||
| Silver (oz.) | 200,692,359 | 194,214,607 | 147,329,793 | 158,428,655 | 132,617,631 | |||||||||||||||
| As of and for the year ended December 31, | ||||||||||||||||||||
| 2015 | 2014 | 2013(6) | 2012(6) | 2011(6) | ||||||||||||||||
| (In thousands of US$)(1) | ||||||||||||||||||||
| Finance income | 11,026 | 8,408 | 6,621 | 9,486 | 11,827 | |||||||||||||||
| Total other income (expenses), net | (203,654 | ) | (26,110 | ) | (124,612 | ) | 482,038 | 496,159 | ||||||||||||
| Profit (loss) before income tax | (351,256 | ) | 35,486 | 90,631 | 960,988 | 1,197,285 | ||||||||||||||
| Current income tax | (14,225 | ) | (19,006 | ) | (57,328 | ) | (130,507 | ) | (168,191 | ) | ||||||||||
| Deferred income tax | (541 | ) | (47,006 | ) | (29,154 | ) | (12,451 | ) | (42,369 | ) | ||||||||||
| Profit (loss) from continuing operations | (366,022 | ) | (30,526 | ) | 4,149 | 818,030 | 986,725 | |||||||||||||
| Discontinued operations: | ||||||||||||||||||||
| Profit (loss) from discontinued operations(7) | (9,523 | ) | (31,114 | ) | (83,885 | ) | (57,510 | ) | 2,159 | |||||||||||
| Net profit (loss) | (375,545 | ) | (61,640 | ) | (79,736 | ) | 760,520 | 988,884 | ||||||||||||
| Attributable to equity owners of the parent | (317,210 | ) | (76,065 | ) | (107,257 | ) | 701,100 | 887,333 | ||||||||||||
| Attributable to non-controlling interest | (58,335 | ) | 14,425 | 27,521 | 59,420 | 101,551 | ||||||||||||||
| Net profit (loss) | (375,545 | ) | (61,640 | ) | (79,736 | ) | 760,520 | 988,884 | ||||||||||||
| Basic and diluted profit (loss) per share attributable to equity holders of the parent(2)(3) | (1.25 | ) | (0.30 | ) | (0.42 | ) | 2.76 | 3.49 | ||||||||||||
| Basic and diluted profit (loss) per ADS attributable to equity holders of the parent (2)(3) | (1.25 | ) | (0.30 | ) | (0.42 | ) | 2.76 | 3.49 | ||||||||||||
| Basic and diluted profit (loss) per share attributable to equity holders of the parent, from continuing operations | (1.21 | ) | (0.18 | ) | (0.09 | ) | 2.98 | 3.48 | ||||||||||||
| Dividends per share | - | 0.03 | 0.31 | 0.60 | 0.56 | |||||||||||||||
| Average number of common and investment shares outstanding | 254,186,867 | 254,186,867 | 254,186,867 | 254,232,571 | 254,442,328 | |||||||||||||||
| Statement of financial position data: | ||||||||||||||||||||
| Total assets | 4,547,181 | 4,672,274 | 4,552,267 | 4,622,447 | 3,969,613 | |||||||||||||||
| Financial obligations | 353,710 | 383,305 | 234,397 | 179,304 | 106,114 | |||||||||||||||
| Capital stock | 750,497 | 750,497 | 750,497 | 750,540 | 750,540 | |||||||||||||||
| Total shareholders’ equity | 3,389,236 | 3,762,125 | 3,824,421 | 4,011,879 | 3,470,242 | |||||||||||||||
| Operating data (unaudited): | ||||||||||||||||||||
| Production(4) | ||||||||||||||||||||
| Gold (oz.) | 371,344 | 438,426 | 462,856 | 447,472 | 524,101 | |||||||||||||||
| Silver (oz.) | 23,228,392 | 20,119,162 | 19,193,075 | 18,884,824 | 16,724,717 | |||||||||||||||
| Proven and probable reserves(5) | ||||||||||||||||||||
| Gold (oz.) | 1,718,455 | 1,119,000 | 1,036,000 | 1,385,000 | 1,485,000 | |||||||||||||||
| Silver (oz.) | 158,608,375 | 139,699,000 | 136,464,000 | 154,606,000 | 155,437,000 | |||||||||||||||
| (1) | Except per share, per ADS, outstanding shares and operating data. |
| (2) | During 2019, the Group decided to classify its Mallay mining unit as discontinued. According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, the Group reclassified revenues and expenses related to this mining unit for the years 2018 and 2017 to the “Net loss from discontinued operations attributable to equity holders of the parent” caption. |
| (3) | Profit (loss) per share has been calculated for each year as net profit (loss) divided by average number of shares outstanding during the year. As of December 31, |
| We have no outstanding options, warrants or convertible securities that would have a dilutive effect on earnings per share. As a result, there is no difference between basic and diluted earnings per share or ADS. |
| The amounts in this table reflect the total production of all of our consolidated subsidiaries, including Sociedad Minera El Brocal S.A.A., or “El Brocal,” in which we owned a |
| (6) | The amounts in this table reflect the reserves of all of our consolidated subsidiaries, including El Brocal |
Yanacocha Selected Financial Information and Operating Data
The following table presents selected financial information and operating data for Yanacocha at the dates and for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, Yanacocha’s audited consolidated financial statements as of December 31, 20142018 and 20152019 and for the years ended December 31, 2013, 20142017, 2018 and 2015,2019, or the “YanacochaYanacocha Consolidated Financial Statements.” The report of Paredes, Zaldívar,Burga & Asociados S. Civil de R.L. (a member firm of EY Global) on the Yanacocha Consolidated Financial Statements as of December 31, 2018 and 2019 and for the years ended December 31, 2017, 2018 and 2019 appears elsewhere in this Annual Report. The selected financial information for Yanacocha as of December 31, 2015, 2016 and 2017, and for the years ended December 31, 2015 and 2016 has been derived from consolidated statements of financial position, consolidated statements of profit or loss and consolidated statements of other comprehensive income, respectively, which are not included in this Annual Report. Yanacocha’s audited consolidated financial statements as of December 31, 2015, 2016, 2017, 2018 and 2019 were audited by Paredes, Burga & Asociados S. Civil de R.L. (a member firm of Ernst & Young Global) on theGlobal Limited). The Yanacocha 2015 Financial Statements appears elsewhere in this Annual Report. The 2014 and 2013 Annual Reports were audited by Gaveglio, Aparicio y Asociados Sociedad Civil de Responsabilidad Limitada, a member firm of PricewaterhouseCoopers Limited. The selected financial information as of and for the year ended December 31, 2012 has been derived from Yanacocha’s financial statements that are not included in this Annual Report. The YanacochaConsolidated Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB, which differs in certain respects from U.S. GAAP, as indicated in Note 25 to the Yanacocha Financial Statements.IASB. The operating data presented below, which are based on 100% of Yanacocha’s production and reserves, are derived from Yanacocha’s records and have not been subject to audit. The financial information presented below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects –Yanacocha,Prospects—Yanacocha,” the Yanacocha Consolidated Financial Statements and the related notesNotes thereto and other financial information included in this Annual Report. .
| As of and for the year ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (US$ in thousands)(1) | ||||||||||||||||||||
| Statement of comprehensive income: | ||||||||||||||||||||
| Operating income: | ||||||||||||||||||||
| Revenue from sales(2) | 734,526 | 658,653 | 670,905 | 784,453 | 1,056,903 | |||||||||||||||
| Other operating income | 4,776 | 21,965 | 21,870 | 17,713 | 10,625 | |||||||||||||||
| Total gross income | 739,302 | 680,618 | 692,775 | 802,166 | 1,067,528 | |||||||||||||||
| Costs applicable to sales | (692,721 | ) | (619,424 | ) | (772,647 | ) | (799,654 | ) | (783,762 | ) | ||||||||||
| Other operating costs | (1,160 | ) | (2,217 | ) | (2,062 | ) | (2,951 | ) | (2,524 | ) | ||||||||||
| Total operating costs | (693,881 | ) | (621,641 | ) | (774,709 | ) | (802,605 | ) | (786,286 | ) | ||||||||||
| Gross profit (loss) | 45,421 | 58,977 | (81,934 | ) | (439 | ) | 281,242 | |||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Operating expenses, net | (35,987 | ) | (76,155 | ) | (63,514 | ) | (71,496 | ) | (82,846 | ) | ||||||||||
| Administrative expenses | (1,744 | ) | (2,783 | ) | (4,760 | ) | (8,780 | ) | (20,028 | ) | ||||||||||
| Selling Expenses | (1,722 | ) | (2,627 | ) | (3,921 | ) | (3,695 | ) | (3,534 | ) | ||||||||||
| Impairment loss | - | - | - | (889,499 | ) | - | ||||||||||||||
| Operating profit (loss) | 5,968 | (22,588 | ) | (154,129 | ) | (973,909 | ) | 174,834 | ||||||||||||
| Other expenses, net: | ||||||||||||||||||||
| Finance income | 18,430 | 11,448 | 5,831 | 2,132 | 673 | |||||||||||||||
| Finance costs | (57,629 | ) | (39,024 | ) | (23,766 | ) | (15,107 | ) | (22,734 | ) | ||||||||||
| Net gain (loss) from currency exchange difference | 2,902 | (2,056 | ) | 3,636 | (13,741 | ) | (251 | ) | ||||||||||||
| Total other expenses, net | (36,297 | ) | (29,632 | ) | (14,299 | ) | (26,716 | ) | (22,312 | ) | ||||||||||
| Income (loss) before income tax | (30,329 | ) | (52,220 | ) | (168,428 | ) | (1,000,625 | ) | 152,522 | |||||||||||
| Income taxbenefit (expense) | (64,928 | ) | (29,297 | ) | (7,026 | ) | (43,127 | ) | (602,717 | ) | ||||||||||
| Income (loss)for the year | (95,257 | ) | (81,517 | ) | (175,454 | ) | (1,043,752 | ) | (450,195 | ) | ||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||
| Loss for the year | (95,257 | ) | (81,517 | ) | (175,454 | ) | (1,043,752 | ) | (450,195 | ) | ||||||||||
| Other comprehensive income (loss) to be reclassified as profit or loss in subsequent periods | ||||||||||||||||||||
| Changes in the fair value of available-for-sale financial asset, net of tax effect | 1,246 | (91 | ) | (3,244 | ) | 651 | (757 | ) | ||||||||||||
| Statement of financial position: | ||||||||||||||||||||
| Total assets | 2,312,072 | 2,047,472 | 2,019,395 | 2,045,885 | 2,965,430 | |||||||||||||||
| Capital stock | 378,505 | 378,505 | 398,216 | 398,216 | 398,216 | |||||||||||||||
| Total partners’ equity | 489,712 | 583,723 | 659,115 | 885,724 | 2,228,825 | |||||||||||||||
| U.S. GAAP | ||||||||||||||||||||
| Net income (loss) | 3,316 | (69,068 | ) | (131,243 | ) | (1,198,139 | ) | (260,202 | ) | |||||||||||
| Total equity | 1,666,382 | 1,661,800 | 1,683,047 | 1,865,445 | 3,394,934 | |||||||||||||||
| Operating data (unaudited) | ||||||||||||||||||||
| Gold produced (oz.) | 527,336 | 514,564 | 534,692 | 654,934 | 917,691 | |||||||||||||||
| Gold proven and probable reserves (thousands of oz.) | 6,952 | 7,420 | 3,830 | 4,362 | 5,057 | |||||||||||||||
| As of and for the year ended December 31, | ||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | |||||||||||||
| (In thousands of US$)(1) | ||||||||||||||||
| Statement of comprehensive income: | ||||||||||||||||
| Operating income: | ||||||||||||||||
| Revenue from sales (2) | 1,031,174 | 1,165,299 | 1,406,825 | 2,146,641 | ||||||||||||
| Other operating income | 10,625 | 30,300 | 37,207 | 22,861 | ||||||||||||
| Total gross income | 1,041,799 | 1,195,599 | 1,444,032 | 2,169,502 | ||||||||||||
| Costs applicable to sales | (751,736 | ) | (920,300 | ) | (991,264 | ) | (832,116 | ) | ||||||||
| Other operating costs | (2,524 | ) | (22,422 | ) | (28,672 | ) | (22,069 | ) | ||||||||
| Total operating costs | (754,260 | ) | (942,722 | ) | (1,019,936 | ) | (854,185 | ) | ||||||||
| Gross profit | 287,539 | 252,877 | 424,096 | 1,315,317 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Operating expenses, net | (82,846 | ) | (77,781 | ) | (77,534 | ) | (192,869 | ) | ||||||||
| Administrative expenses | (26,325 | ) | (38,262 | ) | (67,064 | ) | (70,916 | ) | ||||||||
| Selling Expenses | (3,534 | ) | (4,458 | ) | (3,740 | ) | (4,498 | ) | ||||||||
| Impairment loss | ― | (541,141 | ) | (1,038,548 | ) | ― | ||||||||||
| Operating profit | 174,834 | (408,765 | ) | (762,790 | ) | 1,047,034 | ||||||||||
| Other income (expense), net: | ||||||||||||||||
| Finance income | 673 | 298 | 720 | 1,019 | ||||||||||||
| Finance costs | (22,734 | ) | (23,504 | ) | (18,745 | ) | (13,135 | ) | ||||||||
| Net gain (loss) from currency exchange difference | (251 | ) | 1,142 | 2,065 | (1,216 | ) | ||||||||||
| (22,312 | ) | (22,064 | ) | (15,960 | ) | (13,332 | ) | |||||||||
| Income (loss) before income tax | 152,522 | (430,829 | ) | (778,750 | ) | 1,033,702 | ||||||||||
| Income tax benefit (expense) | (602,717 | ) | 30,491 | 203,471 | (385,827 | ) | ||||||||||
| Loss for the year | (450,195 | ) | (400,338 | ) | (575,279 | ) | 647,875 | |||||||||
| Comprehensive income (loss): | ||||||||||||||||
| Loss for the year | (450,195 | ) | (400,338 | ) | (575,279 | ) | 647,875 | |||||||||
| Other comprehensive income (loss) to be reclassified as profit or loss in subsequent periods | ||||||||||||||||
| Changes in the fair value of available-for-sale financial asset, net of tax effect | (757 | ) | (65 | ) | (226 | ) | 1,129 | |||||||||
| U.S. GAAP | ||||||||||||||||
| Gold sales | 1,070,021 | 1,210,457 | 1,457,646 | 1 | 2,201,815 | |||||||||||
| Net income (loss) | (252,159 | ) | (31,914 | ) | 140,997 | 626,540 | ||||||||||
| Statement of financial position: | ||||||||||||||||
| IFRS | ||||||||||||||||
| Total assets | 2,965,430 | 3,483,169 | 3,754,692 | 4,512,803 | ||||||||||||
| Total financial obligations | ― | ― | ― | ― | ||||||||||||
| Issued capital | 398,216 | 398,216 | 398,216 | 398,216 | ||||||||||||
| Total partners’ equity | 2,228,825 | 2,679,777 | 3,080,050 | 3,655,555 | ||||||||||||
| U.S. GAAP | ||||||||||||||||
| Total assets | 4,209,818 | 4,569,497 | 4,511,964 | 4,541,535 | ||||||||||||
| Total equity | 3,418,989 | 3,671,148 | 3,711,461 | 3,570,690 | ||||||||||||
| Operating data (unaudited) | ||||||||||||||||
| Gold produced (oz.) | 917,691 | 969,944 | 1,017,259 | 1,345,992 | ||||||||||||
| Gold proven and probable reserves (thousands of oz.) | 17,639 | 17,436 | 18,345 | 18,500 | ||||||||||||
| (1) | Except operating data |
| (2) | Royalties netted to sales |
Cerro Verde Selected Financial Information and Operating Data
The following table presents selected financial information and operating data for Cerro Verde as of the end of and for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, Cerro Verde’s audited financial statements as of December 31, 20142018 and 20152019 and for the years ended December 31, 2013, 20142017, 2018 and 2015,2019, or the “CerroCerro Verde Financial Statements.” The selected financial information as of December 31, 2015, 2016 and 2017 and for the years ended December 31, 20112015 and 2012 has2016 have been derived from Cerro Verde’s Financial Statementsfinancial statements that are not included in this Annual Report. The report of Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. (a member firm of Ernst & Young Global)Global Limited ) on Cerro Verde’s financial statements appears elsewhere in this Annual Report. The Cerro Verde Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB, which differs in certain respects from U.S. GAAP, as indicated in Note 2824 and Note 25 to the Cerro Verde Financial Statements. The operating data presented below, which are based on 100% of Cerro Verde’s production and reserves, are derived from Cerro Verde’s records and have not been subject to audit. The financial information presented below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects—Cerro Verde,” the Cerro Verde Financial Statements and the related notesNotes thereto and other financial information included in this Annual Report.
| As of and for the year ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (US$ in thousands)(1) | ||||||||||||||||||||
| Statement of comprehensive income: | ||||||||||||||||||||
| Sales of goods | 2,890,066 | 3,054,026 | 3,202,931 | 2,384,154 | 1,115,617 | |||||||||||||||
| Costs of sales of goods | (1,954,749 | ) | (2,010,972 | ) | (1,768,238 | ) | (1,553,040 | ) | (862,004 | ) | ||||||||||
| Gross profit | 935,317 | 1,043,054 | 1,434,693 | 831,114 | 253,613 | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Selling expenses | (109,483 | ) | (137,008 | ) | (141,669 | ) | (131,391 | ) | (56,215 | ) | ||||||||||
| Other operating (expenses), income net | (37,436 | ) | (68,683 | ) | (258,826 | ) | (24,107 | ) | (26,600 | ) | ||||||||||
| (146,919 | ) | (205,691 | ) | (400,495 | ) | (155,498 | ) | (82,815 | ) | |||||||||||
| Operating profit | 788,398 | 837,363 | 1,034,198 | 675,616 | 170,798 | |||||||||||||||
| Financial income | 10,356 | 28,089 | 5,350 | 954 | 512 | |||||||||||||||
| Financial expenses | (115,877 | ) | (426,733 | ) | (216,912 | ) | (80,438 | ) | (16,010 | ) | ||||||||||
| Exchange differences, net | 5,574 | 6,161 | 13,288 | 7,857 | (75,770 | ) | ||||||||||||||
| Profit before income tax | 688,451 | 444,880 | 835,924 | 603,989 | 79,530 | |||||||||||||||
| Income tax expense | (298,074 | ) | (325,170 | ) | (486,043 | ) | (263,082 | ) | (46,246 | ) | ||||||||||
| Profit for the year | 390,377 | 119,710 | 349,881 | 340,907 | 33,284 | |||||||||||||||
| Basic and diluted earnings per share | 1.115 | 0.342 | 1.000 | 0.974 | 0.095 | |||||||||||||||
| Dividends per share | 0.428503 | 0.571337 | – | – | – | |||||||||||||||
| Weighted average number of shares outstanding | 350,056,012 | 350,056,012 | 350,056,012 | 350,056,012 | 350,056,012 | |||||||||||||||
| Statement of financial position data: | ||||||||||||||||||||
| Total assets | 7,809,424 | 7,554,712 | 7,691,007 | 7,635,623 | 7,852,692 | |||||||||||||||
| Capital Stock | 990,659 | 990,659 | 990,659 | 990,659 | 990,659 | |||||||||||||||
| Total shareholder’s equity | 5,349,249 | 5,108,872 | 5,189,162 | 4,839,281 | 4,498,374 | |||||||||||||||
| U.S. GAAP | ||||||||||||||||||||
| Profit for the year | 319,714 | 53,280 | 301,431 | 345,461 | 4,097 | |||||||||||||||
| Total shareholder’s equity | 5,066,564 | 4,896,850 | 5,043,570 | 4,742,139 | 4,396,678 | |||||||||||||||
| Operating data (unaudited): | ||||||||||||||||||||
| Production: | ||||||||||||||||||||
| Copper (in thousands of recoverable pounds) | 1,003,776 | 1,049,430 | 1,062,210 | 1,107,810 | 544,482 | |||||||||||||||
| Proven and probable reserves: | ||||||||||||||||||||
| Copper Ore (in thousands of tons) | 4,265,232 | 4,324,461 | 3,577,276 | 3,673,229 | 3,855,939 | |||||||||||||||
| As of and for the year ended December 31, | ||||||||||||||||||||
| 2015 | 2014 | 2013(2) | 2012(2) | 2011(2) | ||||||||||||||||
| (In thousands of US$)(1) | ||||||||||||||||||||
| Statement of comprehensive income: | ||||||||||||||||||||
| Sales of goods | 1,115,617 | 1,467,097 | 1,811,488 | 2,127,023 | 2,520,050 | |||||||||||||||
| Costs of sales of goods | (862,004 | ) | (797,481 | ) | (795,064 | ) | (765,789 | ) | (824,700 | ) | ||||||||||
| Gross profit | 253,613 | 669,616 | 1,016,424 | 1,361,234 | 1,695,350 | |||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Selling expenses | (56,215 | ) | (54,210 | ) | (68,448 | ) | (78,674 | ) | (83,612 | ) | ||||||||||
| Excess of workers’ profit sharing | - | - | - | (21,923 | ) | |||||||||||||||
| Expense related to water plant | - | - | (19,606 | ) | (13,670 | ) | ||||||||||||||
| Other operating (expenses), income net | (26,600 | ) | (3,629 | ) | 147 | (9,898 | ) | (16,865 | ) | |||||||||||
| (82,815 | ) | (57,839 | ) | (68,301 | ) | (108,178 | ) | (136,070 | ) | |||||||||||
| Operating profit | 170,798 | 611,777 | 948,123 | 1,253,056 | 1,559,280 | |||||||||||||||
| Other income (expenses) | ||||||||||||||||||||
| Finance income | 512 | 2,443 | 2,178 | 1,886 | 1,078 | |||||||||||||||
| Finance costs | (16,010 | ) | (369 | ) | (1,843 | ) | (6,951 | ) | (165 | ) | ||||||||||
| Net gain (loss) from exchange differences | (75,770 | ) | 2,284 | (1,858 | ) | 3,149 | 1,924 | |||||||||||||
| (91,268 | ) | 4,358 | (1,523 | ) | (1,916 | ) | 2,837 | |||||||||||||
| Profit before income tax | 79,530 | 616,135 | 946,600 | 1,251,140 | 1,562,117 | |||||||||||||||
| Income tax expense | (46,246 | ) | (238,529 | ) | (333,338 | ) | (454,556 | ) | (483,718 | ) | ||||||||||
| Profit for the year | 33,284 | 377,606 | 613,262 | 796,584 | 1,078,399 | |||||||||||||||
| Basic and diluted earnings per share | 0.095 | 1.078 | 1.752 | 2.276 | 3.081 | |||||||||||||||
| Dividends per share | – | – | – | – | ||||||||||||||||
| Weighted average number of shares outstanding | 350,056,012 | 350,056,012 | 350,056,012 | 350,056,012 | 350,056,012 | |||||||||||||||
| Statement of financial position data: | ||||||||||||||||||||
| Total assets | 7,852,692 | 5,771,984 | 4,828,201 | 4,042,771 | 3,196,597 | |||||||||||||||
| Total financial obligations | 2,425,164 | 452,849 | 5,903 | – | – | |||||||||||||||
| Issued capital | 990,659 | 990,659 | 990,659 | 990,659 | 990,659 | |||||||||||||||
| Total equity, net | 4,498,374 | 4,465,090 | 4,087,484 | 3,449,708 | 2,677,638 | |||||||||||||||
| Operating data (unaudited): | ||||||||||||||||||||
| Production: | ||||||||||||||||||||
| Copper (in thousands of recoverable pounds) | 544,482 | 500,242 | 557,239 | 594,474 | 647,234 | |||||||||||||||
| Proven and probable reserves: | ||||||||||||||||||||
| Copper Ore (in thousands of tons) | 3,855,939 | 3,953,234 | 4,047,372 | 4,194,537 | 3,977,211 | |||||||||||||||
| (1) | Except per share and operating data. |
Exchange Rates
The following table sets forth the high and low month-end rates and the average and end-of-period offered rates for the sale of Soles in U.S. Dollars for the periods indicated, as published by theSuperintendencia de Banca y Seguros (Superintendent of Bank and Insurance, or the “SBS”). The Federal Reserve Bank of New York does not report a noon buying rate for Soles.
| 7 |
| Year | High(2) | Low(2) | Average(3) | Period end(4) | ||||||||||||
| 2013 | 2.820 | 2.541 | 2.702 | 2.796 | ||||||||||||
| 2014 | 2.990 | 2.761 | 2.840 | 2.989 | ||||||||||||
| 2015 | 3.413 | 2.983 | 3.187 | 3.408 | ||||||||||||
| 2015 | High(5) | Low(5) | Average(6) | Period end(7) | ||||||||||||
| October | 3.288 | 3.218 | 3.250 | 3.287 | ||||||||||||
| November | 3.385 | 3.287 | 3.339 | 3.376 | ||||||||||||
| December | 3.413 | 3.369 | 3.385 | 3.413 | ||||||||||||
| 2016 | ||||||||||||||||
| January | 3.471 | 3.417 | 3.439 | 3.471 | ||||||||||||
| February | 3.538 | 3.478 | 3.508 | 3.527 | ||||||||||||
| March | 3.522 | 3.328 | 3.410 | 3.328 | ||||||||||||
| B. |
Source: Bloomberg
On April 28, 2016, the offered rate for Dollars as published by the SBS was S/.3.29 per US$1.00.
| Capitalization and Indebtedness |
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
D. Risk Factors
Factors Relating to the Company
Our financial performance is highly dependent on the performance of our partners under our mining exploration and operating agreements.
Our participation in joint venture mining exploration projects and mining operations with other experienced mining companies is an integral part of our business strategy. Our partners, co-venturers and other shareholders in these projects generally contribute capital to cover the expenses of the joint venture or provide critical technological, management and organizational expertise. The results of these projects can be highly dependent upon the efforts of our joint venture partners and we rely on them to fulfill their obligations under our agreements. For example, our Yanacocha joint venture with Newmont Mining Corporation, a Delaware corporation, or Newmont“Newmont Mining,” depends on Newmont Peru Limited, Peruvian Branch, or “Newmont Peru,” to provide management and other expertise to the Yanacocha project. If our counterparts do not carry out their obligations to us or to third parties, or any disputes arise with respect to the parties’ respective rights and obligations, the value of our investment in the applicable project could be adversely affected and we could incur significant expenseexpenses in enforcing our rights or pursuing remedies. We cannot assure you that our current or future partners will fulfill their obligations under our agreements. In addition, we may be unable to exert control over strategic decisions made in respect of such properties. For example, we currently depend on Newmont Peru to conduct operations at Yanacocha and the Conga project, and should Yanacocha be unable to continue with the current development plan at the Conga project, our mining partners in this project may reprioritize and reallocate capital to development alternatives. See “Item 4. Information on the Company – Company—Yanacocha” and “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview – Overview—Exploration.”
Our financial performance is highly dependent on the prices of gold, silver, copper and other metals.
The results of our operations are significantly affected by the market price of specific metals, which are cyclical and subject to substantial price fluctuations. Our revenues and the revenues of Yanacocha, in which we have a material equity investment, are derived primarily from the sale of gold and silver and the revenues of Cerro Verde, in which we have a material equity investment, are derived primarily from copper sales. The prices that we, Yanacocha and Cerro Verde obtain for gold, silver, copper and ore concentrates containing such metals, as applicable, are directly related to world market prices for such metals. Such prices have historically fluctuated widely and are affected by numerous factors beyond our control, including (i) the overall demand for and worldwide supply of gold, silver, copper and other metals; (ii) levels of supply and demand for a broad range of industrial products; (iii) the availability and price of competing commodities; (iv) international economic and political trends; (v) currency exchange fluctuations (specifically, the U.S. Dollar relative to other currencies); (vi) expectations with respect to the rate of inflation; (vii) interest rates; (viii) actions of commodity markets participants; and (ix) global or regional political or economic crises.
We have in the past engaged in hedging activities, such as forward sales and option contracts, to minimize our exposure to fluctuations in the prices of gold, silver and other metals; however, we and our wholly-owned subsidiaries no longer hedge the price at which our gold and silver will be sold. In addition, neither Yanacocha nor Cerro Verde engages in hedging activities. As a result, the prices at which we, Yanacocha and Cerro Verde sell gold, silver, copper and ore concentrates, as applicable, are fully exposed to the effects of changes in prevailing market prices. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” and Note 33 to the Consolidated Financial Statements. For information on gold and silver prices for each of the years in the five-year period ended December 31, 2015,2019, see “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview –SalesOverview—Sales of Metal Concentrates.”
On December 31, 20152019 and March 31, 2016,29, 2020, the morning fixing price for gold on the London Bullion Market was US$1,060.25 1,523 per ounce and US$1,233.61,605 per ounce, respectively. On December 31, 20152019 and March 31, 2016,29, 2020, the afternoon fixing spot price of silver on the London market, or “London Spot,” was US$13.82 18.045 per ounce and US$15.3813.930 per ounce, respectively. On December 31, 20152019 and March 31, 2016,29, 2020, the London Metal Exchange Settlement pricePrice for copper was US$4,702 6,156 per ton and US$4,855.5,4,797 per ton, respectively.
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The world market prices of gold, silver and copper have historically fluctuated widely. We cannot predict whether metal prices will rise or fall in the future. A continued decline in the market price of one or more of these metals could adversely impact our revenues, net income and cash flows and adversely affect our ability to meet our financial obligations. If prices of gold, silver and/or copper should decline below our cash costs of production and remain at such levels for any sustained period, we could determine that it is not economically feasible to continue production at any or all of our mines. We may also curtail or suspend some or all of our exploration activities, with the result that our depleted reserves are not replaced. This could further reduce revenues by reducing or eliminating the profit that we currently expect from reserves. Such declines in price and/or reductions in operations could cause significant volatility in our financial performance and adversely affect the trading prices of our Common Shares and ADSs.
An outbreak of disease or similar public health threat, such as COVID-19 (coronavirus), could adversely affect our business, financial condition and results of operations.
Our operations are subject to risks related to outbreaks of infectious diseases. For example, the recent outbreak of coronavirus COVID-19 (coronavirus), a virus causing potentially deadly respiratory tract infections originating in China, has already and will continue to negatively cause further volatility in prices of precious metals. Additionally, a severe market disruption will likely entail decreased demand for our products and otherwise impact our operations and the operations of our customers, suppliers and other stakeholders. The Peruvian Government has issued a series of executive decrees declaring a national emergency and significantly restricting general circulation throughout the country.
In accordance with these restrictions and within the framework of the Company’s pandemic response plan, we have limited our operations to those which are strictly necessary to ensure that our mine pumping systems, water treatment plants, energy supply, hydroelectric substations, health services and overall minimum safety conditions remain in place. Other than in respect of these minimum back-up operations, as of the date of this annual report, our mining processing facilities are completely halted. The Company intends to immediately resume operations once it receives notice from the authorities that restrictions have been lifted. The ultimate severity of the Coronavirus outbreak is uncertain at this time and therefore we cannot predict the impact it may have on the world, the Peruvian economy, international financial markets, or ultimately on our financial condition, results of operations, production, sales, margins and cash flow from operations, our access to debt markets, covenants compliance, asset impairments, among others.
Economic, mining and other regulatory policies of the Peruvian government, as well as political, regulatory and economic developments in Peru, may have an adverse impact on our, Yanacocha’s and Cerro Verde’s businesses.
Our, Yanacocha’s and Cerro Verde’s activities in Peru require us to obtain mining concessions or provisional permits for exploration and processing concessions for the treatment of mining ores from the Peruvian Ministry of Energy and Mines (the “MEM”). Under Peru’s current legal and regulatory regime, these mining and processing rights are maintained by meeting a minimum annual level of production or investment and by the annual payment of a concession fee. A fine is payable for the years in which minimum production or investment requirements are not met. Although we are, and Yanacocha and Cerro Verde have informed us that they are, current in the payment of all amounts due in respect of mining and processing concessions, failure to pay such concession fees, processing fees or related fines for two consecutive years could result in the loss of one or more mining rights and processing concessions, as the case may be.
Mining companies are also required to pay the Peruvian government mining royalties and/or mining taxes. See “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview – Overview—Regulatory Framework – Framework—Mining Royalties and Taxes.” We cannot assure you that the Peruvian government will not impose additional mining royalties or taxes in the future or that such mining royalties or taxes will not have an adverse effect on our, Yanacocha’s or Cerro Verde’s results of operations or financial condition. Future regulatory changes, changes in the interpretation of existing regulations or stricter enforcement of such regulations, including changes to our concession agreements, may increase our compliance costs and could potentially require us to alter our operations. We cannot assure you that future regulatory changes will not adversely affect our business, financial condition or results of operations.
Environmental and other laws and regulations may increase our costs of doing business, restrict our operations or result in operational delays.
Our, Yanacocha’s and Cerro Verde’s exploration, mining and milling activities, as well our and Yanacocha’s smelting and refining activities, are subject to a number of Peruvian laws and regulations, including environmental laws and regulations.
Additional matters subject to regulation include, but are not limited to, concession fees, transportation, production, water use and discharges, power use and generation, use and storage of explosives, surface rights, housing and other facilities for workers, reclamation, taxation, labor standards, mine safety and occupational health.
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We anticipate additional laws and regulations will be enacted over time with respect to environmental matters. The development of more stringent environmental protection programs in Peru could impose constraints and additional costs on our, Yanacocha’s and Cerro Verde’s operations and require us, Yanacocha and Cerro Verde to make significant capital expenditures in the future. Although we believe that we are substantially in compliance, and Yanacocha and Cerro Verde have advised us that they are substantially in compliance, with all applicable environmental regulations, we cannot assure you that future legislative or regulatory developments will not have an adverse effect on our, Yanacocha’s or Cerro Verde’s business or results of operations. See “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview – Overview—Regulatory Framework – Framework—Environmental Matters” and “—Permits” and “Item 4. Information on the Company – Yanacocha – Company—Yanacocha—B. Business Overview – Regulation, Permit and Overview—Environmental Matters.”
Our and Yanacocha’s ability to successfully obtain key permits and approvals to explore for, develop and successfully operate mines will likely depend on our and Yanacocha’s ability to do so in a manner that is consistent with the creation of social and economic benefits in the surrounding communities. Our and Yanacocha’s ability to obtain permits and approvals and to successfully operate in particular communities or to obtain financing may be adversely impacted by real or perceived detrimental events associated with our and Yanacocha’s activities or those of other mining companies affecting the environment, human health and safety or the surrounding communities. Delays in obtaining or failure to obtain government permits and approvals may adversely affect our and Yanacocha’s operations, including our and Yanacocha’s ability to explore or develop properties, commence production or continue operations.
Our metals exploration efforts are highly speculative in nature and may not be successful.
Precious metals exploration, particularly gold exploration, is highly speculative in nature, involves many risks and is frequently is unsuccessful. We cannot assure you that our, Yanacocha’s or Cerro Verde’s metals exploration efforts will be successful. Once mineralization is discovered, it may take a number of years from the initial phases of drilling before production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable ore reserves through drilling, to determine metallurgical processes to extract the metals from the ore and, in the case of new properties, to construct mining and processing facilities. As a result of these uncertainties, we cannot assure you that our or Yanacocha’s exploration programs will result in the expansion or replacement of current production with new proven and probable ore reserves.
We base our estimates of proven and probable ore reserves and estimates of future cash operating costs largely on the interpretation of geologic data obtained from drill holes and other sampling techniques and feasibility studies. Advanced exploration projects have no operating history upon which to base estimates of proven and probable ore reserves and estimates of future cash operating costs. Such estimates are, to a large extent, based upon the interpretation of geologic data obtained from drill holes and other sampling techniques, and feasibility studies which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of the mineral from the ore, comparable facility and equipment operating costs, anticipated climatic conditions and other factors. As a result, it is possible that actual cash operating costs and economic returns based upon proven and probable ore reserves may differ significantly from those originally estimated. Moreover, significant decreases in actual over expected prices may mean reserves, once found, will be uneconomical to produce. It is not unusual in new mining operations to experience unexpected problems during the start-up phase. See “Item 4. Information on the Company – Buenaventura – D.Company—Yanacocha—C. Property, Plants and Equipment – Equipment—Our Properties – Properties—Reserves,” “– Yanacocha – D.“—Yanacocha—C. Property, Plants and Equipment – Equipment—Yanacocha’s Properties – Properties—Reserves” and “Item 5. Operating and Financial Review and Prospects – Prospects—Cerro Verde – Verde—A. Operating Results” for the price per ounce used by us, Yanacocha and Cerro Verde, respectively, to calculate our respective proven and probable reserves.
Increased operating costs could affect our profitability.
Costs at any particular mining location frequently are subject to variation due to a number of factors, such as changing ore grade, changing metallurgy and revisions to mine plans in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities, such as fuel and electricity, as well as by the price of labor. Commodity costs are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. Reported costs may be affected by changes in accounting standards. A material increase in costs at any significant location could have a significant effect on our profitability.
Our business is capital-intensive and we may not be able to finance necessary capital expenditures required to execute our business plans.
Precious metals exploration requires substantial capital expenditures for the exploration, extraction, production and processing stages and for machinery, equipment and experienced personnel. Our estimates of the capital required for our projects may be preliminary or based on assumptions we have made about the mineral deposits, equipment, labor, permits and other factors required to complete our projects. If any of these estimates or assumptions change, the actual timing and amount of capital required may vary significantly from our current anticipated costs. In addition, we may require additional funds in the event of unforeseen delays, cost overruns, design changes or other unanticipated expenses. We may also incur debt in future periods or reduce our holdings of cash and cash equivalents in connection with funding future acquisitions, existing operations, capital expenditures or in pursuing other business opportunities. Our ability to meet our payment obligations will depend on our future financial performance, which will be affected by financial, business, economic and other factors, many of which we are unable to control. There can be no assurance that we or Yanacocha will generate sufficient cash flow and/or that we will have access to sufficient external sources of funds in the form of outside investment or loans to continue exploration activities at the same or higher levels than in the past or that we will be able to obtain additional financing, if necessary, on a timely basis and on commercially acceptable terms.
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Estimates of proven and probable reserves are subject to uncertainties and the volume and grade of ore actually recovered may vary from our estimates.
The proven and probable ore reserve figures presented in this Annual Report are our, Yanacocha’s and Cerro Verde’s estimates, and there can be no assurance that the estimated levels of recovery of gold, silver, copper and certain other metals will be realized. Such estimates depend on geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which may prove to be materially inaccurate. Actual mineralization or formations may be different from those predicted. As a result, reserve estimates may require revision based on further exploration, development activity or actual production experience, which could materially and adversely affect such estimates. No assurance can be given that our, Yanacocha’s or Cerro Verde’s mineral resources constitute or will be converted into reserves. Market price fluctuations of gold, silver and other metals, as well as increased production costs or reduced recovery rates, may render proven and probable ore reserves containing relatively lower grades of mineralization uneconomic to exploit and may ultimately result in a restatement of proven and probable ore reserves. Moreover, short-term operating factors relating to the reserves, such as the processing of different types of ore or ore grades, could adversely affect our or Yanacocha’s profitability in any particular accounting period. See “Item 4. Information on the Company – Buenaventura – D.Company—Yanacocha—C. Property, Plants and Equipment – Equipment—Our Properties—Reserves” and “Item 4. Information on the Company – D.Company—Yanacocha—C. Property, Plants and Equipment – Yanacocha – Equipment—Yanacocha’s Properties – Properties—Reserves.”
We and Yanacocha may be unable to replace reserves as they become depleted by production.
As we and Yanacocha produce gold, silver, zinc and other metals, we and Yanacocha deplete our respective ore reserves for such metals. To maintain production levels, we and Yanacocha must replace depleted reserves by exploiting known ore bodies and locating new deposits. Exploration for gold, silver and the other metals produced is highly speculative in nature. Our and Yanacocha’s exploration projects involve significant risks and are often unsuccessful. Once a site is discovered with mineralization, we and Yanacocha may require several years between initial drilling and mineral production, and the economic feasibility of production may change during such period. Substantial expenditures are required to establish proven and probable reserves and to construct mining and processing facilities. There can be no assurance that current or future exploration projects will be successful and there is a risk that our depletion of reserves will not be offset by new discoveries. See “Item��“Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview—Exploration,” “– Yanacocha – “—Yanacocha—B. Business Overview – Exploration,Overview—Environmental Matters,” “– D.“—Yanacocha—C. Property, Plants and Equipment – Reserves,Equipment—Our Properties,” “– “—Yanacocha—C. Property, Plants and Equipment—Yanacocha’s Properties, – Reserves”” “—Yanacocha—C. Property, Plants and Equipment—Reserves,” and “Item 5. Operating and Financial Review and Prospects – Prospects—Cerro Verde – Verde—A. Operating Results” for a summary of our, Yanacocha’s and Cerro Verde’s estimated proven and probable reserves as of December 31, 2015.2019.
Our operations are subject to risks, many of which are not insurable.
The business of mining, smelting and refining gold, silver, copper and other metals is generally subject to a number of risks and hazards, including industrial accidents, labor disputes, unavailability of materials and equipment, unusual or unexpected geological conditions, changes in the regulatory environment, environmental hazards and weather and other natural phenomena such as earthquakes, most of which are beyond our control. Such occurrences could result in damage to, or destruction of, mining properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. We, Yanacocha and Cerro Verde each maintain insurance against risks that are typical in the mining industry in Peru and in amounts that we, Yanacocha and Cerro Verde believe to be adequate but which may not provide adequate coverage in certain circumstances. No assurance can be given that such insurance will continue to be available at economically feasible premiums or at all. Insurance against certain risks (including certain liabilities for environmental pollution or other hazards as a result of exploration and production) is not generally available to us or to other companies within the industry.
Increases in equipment costs, energy costs and other production costs, disruptions in energy supply and shortages in equipment and skilled labor may adversely affect our results of operations.
In recent years, there has been a significant increase in mining activity worldwide in response to increased demand and significant increases in the prices of natural resources. The opening of new mines and the expansion of existing ones hashave led to increased demand for, and increased costs and shortages of, equipment, supplies and experienced personnel. These cost increases have significantly increased overall operating and capital budgets of companies like ours, and continuing shortages could affect the timing and feasibility of expansion projects.
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Energy represents a significant portion of our production costs. Our principal energy sources are electricity, purchased petroleum products and natural gas and coal.gas. An inability to procure sufficient energy at reasonable prices or disruptions in energy supply could adversely affect our profits, cash flow and growth opportunities. Our production costs are also affected by the prices of commodities we consume or use in our operations, such as sulfuric acid, grinding media, steel, reagents, liners, explosives and diluents. The prices of such commodities are influenced by supply and demand trends affecting the mining industry in general and other factors outside our control and such prices are at times subject to volatile movements. Increases in the cost of these commodities or disruptions in energy supply could make our operations less profitable, even in an environment of relatively high copper, gold or silver prices. Increases in the costs of commodities that we consume or use may also significantly affect the capital costs of new projects.
We may be adversely affected by labor disputes.
Our ability to achieve our goals and objectives is dependent, in part, on maintaining good relations with our employees. A prolonged labor disruption at any of our material properties could have a material adverse impact on our results of operations. We, Compañía Minera Coimolache S.A., or “Coimolache,” Yanacocha and Cerro Verde have all experienced strikes or other labor-related work stoppages in the past. In June 2015, El Brocal experienced a two-day work stoppage at its concentrator plant in Huaraucaca in connection with the negotiation of salary and the collective bargaining agreement. Subsequently, in May and June 2015, we experienced a strike at the Uchucchacua mine that lasted for twenty-nine days and was staged by workers’ and contractors’ unions claiming unsuitable working conditions.
As of December 31, 2015,2019, unions represented approximately 39% of the employees25% of our mining companiesand our subsidiaries’ employees on a consolidated basis. Although we consider our relationship with our employees to be positive, there can be no assurance that we will not experience strikes or other labor-related work stoppages that could have a material adverse effect on our operations and/or operating results in the future.
Our, YanacochaYanacocha’s and Cerro Verde’s operations are subject to political and social risks.
Our, YanacochaYanacocha’s and Cerro Verde´sVerde’s exploration and production activities are potentially subject to political and social risks. Over the past several years, we and Yanacocha have been the target of local political protests. In recent years, certain areas in the south and northern highlands of Peru with significant mining developments have experienced strikes and protests related to the environmental impact of mining activities. Such strikes and protests have resulted in commercial disruptions and a climate of uncertainty with respect to future mining projects. As a result of local political and community protests, construction and development activities at the Conga project were largely suspended in November 2011. The results of the Peruvian Central Government’s Environmental Impact Assessment (“EIA”) independent review were reported on April 20, 2012. The review indicated the project’s EIA met Peruvian and international standards. The review made recommendations to provide additional water capacity and social funds, which Yanacocha has largely accepted. Yanacocha announced the decision to advance the project on a “water-first” basis on June 22, 2012. In the first half of 2014, a Conga Restart Studyrestart study was completed to identify and test alternatives to advancing development of the project. Following this assessment, a new plan was developed to reduce spending to focus only on the most critical work (protecting people and assets, engaging with communities and maintaining existing project infrastructure), while maintaining optionality. Newmont Mining will not proceed with the full development of the Conga project without social acceptance, solid project economics and, potentially, another partner to help defray costs and risk. It is difficult to predict when or whether such events may occur. Under the current social and political environment, we do not anticipate being able to develop the Conga project in the foreseeable future. The continued delay and evaluation of other alternatives may result in a potential accounting impairment or further reclassification of mineralized material.
There can be no assuranceDuring 2019, thePeruvian Central Governmentcontinued to support responsible mining as a vehicle for the growth and future development of Peru. However, we are unable to predict whether thePeruvian Central Governmentwill continue to take similar positions in the future. The regional government of Cajamarca and other political parties have actively opposed the Conga project in the past. We cannot predict future positions of either thePeruvian Central Governmentor regional governments towards foreign investment, mining concessions, land tenure or other regulation, or the impact that these positions or changes in law may have on Yanacocha or Conga. Such changes may include increased labor regulations, environmental and other regulatory requirements, and additional taxes and royalties. We may also be exposed to protests, community demands and road blockages. Any change in government positions or laws on these issues could adversely affect the assets and operations of Yanacocha or Conga, which could have a material adverse effect on our results of operations and financial position. Additionally, the inability to develop Conga or operate at Yanacocha could have an adverse impact on our growth and production in the region.
We cannot assure you that these types of incidents will not continue or that similar incidents will not occur in areas in which we and Yanacocha operate, or that the continuation or intensification of community protests will not adversely affect our or Yanacocha’s exploration and production activities or our or Yanacocha’s results of operations or financial condition.
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In addition, during 2011, Peru enacted Law No. 29785, the Law of Prior Consultation for Indigenous and Native Communities (Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios, Reconocido en el Convenio 169 de la Organización Internacional del Trabajo). Implementing regulations thereunder were approved by Supreme Decree No. 001-2012-MC, which became effective on April 2, 2012. This law establishes a prior consultation procedure that the Peruvian government must undertake in concert with any local indigenous communities whose collective rights may be directly affected by new legislative or administrative measures, including the granting of new mining concessions. The implementing regulations specify the form and circumstances of the required consultation and the manner in which agreements will be formalized, and cap the consultation process at 120 calendar days. Under the law, the Peruvian governmental body responsible for issuing or approving the administrative measure or decree in question, rather than the affected local indigenous community, retains the right to approve or reject the relevant legislative or administrative matter following such consultation. However, to the extent that any future projects operated by us, Yanacocha or Cerro Verde require legislative or administrative measures that impact local indigenous communities, the required prior consultation procedure may result in delays, additional expenses or failure to obtain approval for such new project.
We could face geotechnical challenges, which could adversely impact our production and profitability.
No assurances can be given that unanticipated adverse geotechnical and hydrological conditions, such as landslides and pit wall failures, will not occur in the future or that such events will be detected in advance. Geotechnical instabilities can be difficult to predict and are often affected by risks and hazards outside of our control, such as severe weather and considerable rainfall, which may lead to periodic floods, mudslides, wall instability and seismic activity, which may result in slippage of material.
Geotechnical failures could result in limited or restricted access to mine sites, suspension of operations, government investigations, increased monitoring costs, remediation costs, loss of ore and other impacts, which could cause one or more of our projects to be less profitable than currently anticipated and could result in a material adverse effect on our results of operations and financial position.
We rely on contractors to conduct a significant portion of our operations and mine development projects.
A significant portion of our operations and mine development projects are currently conducted by contractors. As a result, our operations are subject to a number of risks, some of which are outside our control, including:
| failure of a contractor to perform under its agreement; |
| interruption of operations or increased costs if a contractor ceases its business due to insolvency or other unforeseen events; |
| failure of a contractor to comply with applicable legal and regulatory requirements, to the extent it is responsible for such compliance; and |
| problems of a contractor with managing its workforce, labor unrest or other employment issues. |
In addition, we may incur liability to third parties as a result of the actions of our contractors. The occurrence of one or more of these risks could adversely affect our results of operations and financial position.
We are exposed to behaviors incompatible with our, Yanacocha and Cerro Verde’s ethics and compliance standards.
Given the large number of contracts that we are a party to with our suppliers and partners in Yanacocha and Cerro Verde, the geographic distribution of our operations and the great variety of parties that we interact with in the course of our business, we are subject to the risk that our employees, contractors and other persons having relations with us may misappropriate our assets, manipulate our assets or information or engage in money laundering or the financing of terrorism, for such person’s personal or business advantage. Our systems for identifying and monitoring these risks may not be effective to fully mitigate them in all situations. Such acts may result in material financial losses or reputational harm to us.
We are not, and do not intend to become, regulated as an investment company under the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”), and if we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to operate as contemplated.
As of December 31, 2015,2019, we owned a 43.65% partnership interest in Yanacocha and a 19.584%19.58% equity interest in Cerro Verde. These interests may constitute “investment securities” for purposes of the Investment Company Act.
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Under the Investment Company Act, an investment company is defined in relevant part to include (i) any company that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities and (ii) any company that owns or proposes to acquire investment securities having a value exceeding 40% of such company’s total assets (exclusive of certain items) on an unconsolidated basis. Issuers that are investment companies within the meaning of the Investment Company Act, and which do not qualify for an exemption from the provisions of such act, are required to register with the Securities and Exchange Commission (the “SEC”) and are subject to substantial regulations with respect to capital structure, operations, transactions with affiliates and other matters. If we were deemed to be an investment company and did not qualify for an exemption from the provisions of the Investment Company Act, we would be required to register with the SEC and would be subject to such regulations, which would be unduly burdensome and costly for us and possibly adversely impact us.
We received an order from the SEC on April 19, 1996 declaring us to be primarily engaged in a business other than that of an investment company and, therefore, not an investment company within the meaning of the Investment Company Act. We intend to conduct our operations and maintain our investments in a manner, and will take appropriate actions as necessary, to ensure we will not be deemed to be an investment company in the future. The SEC, however, upon its motion or upon application, may find that the circumstances that gave rise to the issuance of the order no longer exist, and as a result may revoke such order. There can be no assurance that such order will not be revoked.
Our or Yanacocha’s inability to maintain positive relationships with the communities in which we operate may affect our or Yanacocha’s reputation and financial condition.
Our and Yanacocha’s relationships with the communities in which we operate are critical to ensuring the future success of our existing operations and the construction and development of our projects. Adverse publicity generated by non-governmental organizations or local communities related to extractive industries generally, or our or Yanacocha’s operations specifically, could have an adverse effect on our reputations or financial condition and may impact our relationships with the communities in which we operate. In addition, following the enactment of Law No. 29785, the Law of Prior Consultation for Indigenous and Native Communities in 2011, the Peruvian government must undertake a prior consultation procedure in concert with local indigenous communities whose collective rights may be directly affected by new legislative or administrative measures, including the granting of new mining concessions. Implementing regulations under Law No. 29785 were approved by Supreme Decree No. 001-2012-MC, which became effective on April 2, 2012. The implementing regulations specify the form and circumstances of the required consultation and the manner in which agreements will be formalized, and cap the consultation process at 120 calendar days. Our and Yanacocha’s national reputation for maintaining positive relationships with the communities in which we operate may affect the outcome of any such prior consultation process involving approvals that we or Yanacocha seek for new projects. While we and Yanacocha are committed to operating in a socially responsible manner, there is no guarantee that our efforts in this regard will mitigate this potential risk. We and Yanacocha have implemented extensive community relations and security and safety initiatives to anticipate and manage social issues that may arise at our operations. See “Item 4. Information on the Company – Yanacocha – Company—Yanacocha—B. Business Overview – Social Development.Overview.”
The Conga project is located within close proximity of existing operations at Yanacocha. Due to local political and community protests, construction and development activities at the Conga project were largely suspended in November 2011. The results of the Peruvian central government-initiated Environmental Impact Study (“EIS”),EIA, independent review, announced on April 20, 2012, confirmed that Yanacocha’s initial EISEIA met Peruvian and international standards. The review made recommendations to provide additional water capacity and social funds, which Yanacocha has largely accepted. Yanacocha announced its decision to move the project forward on a “water first” basis on June 22, 2012, which consists of building the originally planned community water reservoirs before resuming any mine development. As a result, during 2013 the project was focused on building water reservoirs, completing the remaining engineering activities, and accepting delivery of the main equipment purchases. In 2013, the Chailhuagon reservoir was completed. There were no major improvements carried out in 2014 or 2015. There can be no assurance that Yanacocha will be able to continue to develop the Conga project. Should Yanacocha be unable to continue with the current development plan at the Conga project, we or our mining partners in this project may reprioritize and reallocate capital to development alternatives, which may result in a potential accounting impairment. See “Item 4. Information on the Company – Yanacocha – Company—Yanacocha—B. Business Overview – Exploration.”Overview—Environmental Matters.
Deterioration in our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs and our business relationships could be adversely affected.
Credit rating agencies could downgrade our ratings either due to factors specific to Buenaventura, a prolonged cyclical downturn in the precious metals mining industries, macroeconomic trends (such as global or regional recessions) or trends in credit and capital markets more generally. For instance, on March 22, 2016, Moody’s Investors Service downgraded our unsecured corporate rating from “Ba1” to “Ba2” due to the deterioration of the commodities markets and a downturn in the precious metals mining sector, as well as concerns about our liquidity. OurCurrently, our unsecured rating from Fitch remains a “BBB.is “BBB-.”
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A deterioration of our financial position or a further downgrade of any of our credit ratings for any reason could increase our borrowing costs and have an adverse effect on our business relationships with customers and suppliers. A subsequent downgrade could adversely affect our existing financings, limit access to the capital or credit markets, or otherwise adversely affect the availability of other new financing on favorable terms, if at all, result in more restrictive covenants in agreements governing the terms of any future indebtedness that we incur, increase our borrowing costs, or otherwise impair our business, financial condition and operating results.
We could be subject to information technology system failures, network disruptions, and breaches in data security which could negatively affect our business, financial position, results of operations, and cash flows.
As dependence on digital technologies is expanding, cyber incidents, including deliberate attacks or unintentional events have been increasing worldwide. Computers and telecommunication systems are used to conduct our exploration, development and production activities and have become an integral part of our business. We use these systems to analyze and store financial and operating data, as well as to support our internal communications and interactions with business partners. Cyber-attacks could compromise our computer and telecommunications systems and result in additional costs as well as disruptions to our business operations or the loss of our data.
A cyber-attack involving our information systems and related infrastructure, or those of our business partners, could disrupt our business and negatively impact our operations in a variety of ways, such as, among others:
| ● | an attack on the computers which control our mining operations could cause a temporary interruption of our production while contingency manual systems are brought online; |
| ● | a cyber-attack on our accounting or accounts payable systems could expose us to liability to employees and third parties if their sensitive personal information is obtained; |
| ● | possible loss of material information, which in turn could delay productive processes and selling efforts, causing economic losses; or |
| ● | a cyber-attack on a service provider could result in supply chain disruptions, which could delay or halt our major development projects. |
The laws of Peru related to anti-bribery and anti-corruption are still developing and could be less stringent than those of other jurisdictions, and our risk management and internal controls may not be successful in preventing or detecting all violations of law or of company-wide policies.
Our business is subject to a significant number of laws, rules and regulations, including those relating to anti-bribery and anti-corruption. However, the Peruvian regulatory regime related to anti-bribery and anti-corruption legislation is still developing and could be less stringent than anti-bribery and anti-corruption legislation which has been implemented in other jurisdictions.
In addition, our existing compliance processes and internal control systems may not be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our employees, contractors, agents, officers or any other persons who conduct business with or on behalf of us. We may in the future discover instances in which we have failed to comply with applicable laws and regulations or internal controls. If any of our employees, contractors, agents, officers or other persons with whom we conduct business engage in fraudulent, corrupt or other improper or unethical business practices or otherwise violate applicable laws, regulations or our own internal compliance systems, we could become subject to one or more enforcement actions by Peruvian or foreign authorities (including the U.S. Department of Justice) or otherwise be found to be in violation of such laws, which may result in penalties, fines and sanctions and in turn adversely affect our reputation, business, financial condition and results of operations.
In the past, Peru experienced significant levels of domestic terrorist activity. It is possible that a resurgence of terrorism in Peru may occur in the future, which would have a material adverse effect on the Peruvian economy and, ultimately, on us.
In the late 1980s and early 1990s, Peru experienced significant levels of terrorist activity targeted against, among others, the government and private sector. These activities were attributed mainly to two local terrorist groups,Sendero Luminoso and the Túpac Amaru Revolutionary Movement.
Both terrorist groups suffered significant defeats in the 1990s, including the arrest of their leaders, considerably limiting their activities after the 2000s. Although we believe that terrorist organizations no longer pose as significant a risk as they did in the 1980s and early 1990s, a small group of terrorists primarily engaged in drug trafficking, still operate in remote mountainous and jungle areas in central and southern Peru. Despite the suppression terrorist activity, terrorist activity and the illegal drug trade continue to be key challenges for Peruvian authorities. Any violence derived from the drug trade or a resumption of large-scale terrorist activities could hurt our operations and businesses. If a resurgence of terrorism in Peru occurs, it could affect the Peruvian economy and us.
Another source of risk is related to political and social unrest in areas where mining, oil and gas operations take place. In recent years, Peru has experienced protests against mining projects in several regions around the country. On several occasions, local communities have opposed these operations and accused them of polluting the environment and hurting agricultural and other traditional economic activities. Social demands and conflicts may occur in the future and if they do occur they may affect our business, financial condition and the Peruvian economy.
The climatic phenomenon El Niño and other natural phenomena such as earthquakes and floods may have a material and adverse effect on us.
Peru has experienced natural phenomena in the past such as earthquakes, other geologic events and flooding. For example, on January 14, 2018, an earthquake measuring 7.1 on the Richter local magnitude scale hit the southern coast of Peru. A major earthquake could damage the infrastructure necessary for our operations. In addition, increased rainfall from the weather phenomenon known as “El Niño,” which typically occurs every two to seven years, can contribute to flooding and mudslides, which could damage roads and highways providing access to our facilities. Peru has also experienced droughts caused by low rainfall. If such events occur in the future, we may suffer damage to, or destruction of, properties and equipment, or losses not covered by our insurance policies, as well as temporary disruptions to our services, which may materially and adversely affect us. If a significant number of our employees were affected by a natural disaster, our ability to conduct business could be impaired.
Factors Relating to Peru
Peruvian political conditions may have an adverse impact on our, Yanacocha’s and Cerro Verde’s business.
All of our, Yanacocha’s and Cerro Verde’s operations are conducted in Peru. Accordingly, our, Yanacocha’s and Cerro Verde’s business, financial condition or results of operations could be affected by changes in economic or other policies of the Peruvian government or other political, regulatory or economic developments in Peru.
During the past several decades, Peru has had a history of political instability that has included military coups and a succession of regimes with differing policies and programs. Past governments have frequently played an interventionist role in the nation’s economy and social structure. Among other things, past governments have imposed controls on prices, exchange rates and local and foreign investment as well as limitations on imports, restricted the ability of companies to dismiss employees, expropriated private sector assets (including mining companies) and prohibited the remittance of profits to foreign investors.
In the second quarter of 2011, Presidential and Congressional elections resulted in a change in government in Peru. During the third quarter of 2011, the new government enacted four new tax laws. During 2012, the newThe administration under President Ollanta Humala largely supported mining as a driver for the continued growth and future development of Peru. However, Peru will be holdingheld its elections for President duringin April 2016 in which President Ollanta Humala was ineligible to run due to constitutional term limits. With no candidate receiving a 50% majority of the vote, a run-off election was held in June 2016. Pedro Pablo Kuczynski ultimately defeated opponent Keiko Fujimori by less than half of a percentage point and wewas sworn in as president on July 28, 2016. However, Pedro Pablo Kuczynski resigned as President on March 21, 2018. His resignation was accepted by the Peruvian Congress on March 23, 2018 and on the same date he was replaced by the first Vice-President Mr. Martin Vizcarra, who previously served as the Peruvian ambassador in Canada. We cannot predict future government positions on mining concessions, land tenure, environmental regulation or taxation or assure you that future governments will maintain a generally favorable business climate and economic policies. Furthermore, the regional governor in Cajamarca, who was re-elected in October 2014, actively opposed the Conga project in 2012 and continues to reject the viability of its development. We cannot predict the future positions of either the central government or regional governments on foreign investment, mining concessions, land tenure or other regulation. Any change in government positions or laws on these issues could adversely affect the assets and operations of us, Yanacocha or the Conga project, which could have a material adverse effect on our business, results of operations and financial position. Regulatory changes may include increased labor regulations, environmental and other regulatory requirements and additional taxes and royalties, and we may experience future protests, community demands and road blockages. Additionally, any inability to continue to develop the Conga project or operate at Yanacocha could have a material adverse impact on our business, results of operations and financial position if Yanacocha is not able to replace its expected production.
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The resignation of former President Kuczynski and the impact to the political landscape in Peru could materially and adversely affect us.
On March 22, 2018, former President Pedro Pablo Kuczynski resigned in response to allegations of corruption for vote-buying in connection with the impeachment proceedings against him. On March 23, Congress accepted his resignation and his first vice president, Martín Vizcarra, was sworn in as acting president. If President Vizcarra and the current second vice president both resign, the president of Congress would become acting president and Congress would call for new elections, which may include both new presidential and congressional elections. The political instability caused by these events could affect macroeconomic conditions in the country, including currency volatility, as well as have a material adverse effect on our business, prospects, financial condition, results of operations or cash flows. The foregoing political uncertainty and presidential decisions could further increase interest rate and currency volatility, as well as materially and adversely affect the Peruvian economy and, as a consequence, our business and financial condition.
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Inflation, reduced economic growth and fluctuations in the Sol exchange rate may adversely affect our financial condition and results of operations.
Over the past several decades,Prior to 1994, Peru hasperiodically experienced periods of high inflation, slow or negative economic growth and substantial currency devaluation. The inflation rate in Peru, as measured by theIndice de Precios al Consumidor and published byInstituto Nacional de Estadística e Informática has fallen from a high of 7,649.7% in 1990 to 4.40%1.9% in 2015. The Peruvian currency has been devalued numerous times during the last 20 years.2019. Our revenues and operating expenses are primarily denominated in U.S. Dollars. If inflation in Peru were to increase without a corresponding devaluation of the Sol relative to the U.S. Dollar, our financial position and results of operations, and the market price of our Common Shares and ADSs, could be affected. Although the Peruvian government’s stabilization plan has significantly reduced inflation since 1999, and the Peruvian economy has experienced strong growth in recent years, there can be no assurance that inflation will not increase from its current level or that such growth will continue in the future at similar rates or at all.
Among the economic circumstances that could lead to a devaluation would be the decline of Peruvian foreign reserves to inadequate levels. Peru’s foreign reserves at December 31, 20152019 were US$61.5468.2 billion as compared to US$62.3560.1 billion at December 31, 2014.Although2018 as per the Banco Central de Reserva. Although actual foreign reserves must be maintained at levels that will allow the succeeding government the ability to manage the Peruvian economy and to assure monetary stability in the near future, there can be no assurance that Peru will be able to maintain adequate foreign reserves to meet its foreign currency denominated obligations, or that Peru will not devalue its currency should its foreign reserves decline. See “Item 3. Key Information – A. Selected Financial Data – Exchange Rates.”
Peru’s current account deficit is being funded partially by foreign direct investment. There can be no assurance that foreign direct investment will continue at current levels, particularly if adverse political or economic developments in Peru arise, a development that may also contribute to devaluation pressure.
Deterioration in economic and market conditions in Latin America, Peru and other emerging market countries could affect the prices of our Common Shares and American Depositary Receipts (“ADRs”).
Although economic conditions are different in each country, the reaction of investors to developments in one country is likely to cause the capital markets in other countries to fluctuate. For example, political and economic events, such as the crises in Venezuela, Ecuador, Bolivia, Brazil and Argentina, have influenced investors’ perceptions of risk with regard to Peru. The negative investor reaction to developments in Latin America, particularly in our neighboring countries, may adversely affect the market for securities issued by countries in the region, cause foreign investors to decrease the flow of capital into Latin America and introduce uncertainty about plans for further integration of regional economies.
Peruvian exchange and investment control policies could affect dividends paid to holders of Common Shares and ADRs.
Peruvian law currently imposes no restrictions on the ability of companies operating in Peru to transfer foreign currency from Peru to other countries, to convert Peruvian currency into foreign currency or foreign currency into Peruvian currency or to remit dividends abroad, or on the ability of foreign investors to liquidate their investment and repatriate their capital. Before 1991, Peru had restrictive exchange controls and exchange rates. During the latter part of the 1980s, exchange restrictions prevented payment of dividends to our shareholders in the United States (the “U.S.”) in U.S. Dollars. Accordingly, should such or similar controls be instituted, dividends paid to holders of Common Shares and, consequently, holders of ADRs, could be affected. There can be no assurance that the Peruvian government will continue to permit such transfers, remittances or conversion without restriction. See “Item 10. Additional Information – Information—D. Exchange Controls.”
U.S. securities laws do not require us to disclose as much information to investors as a U.S. issuer is required to disclose, and you may receive less information about us than you might otherwise receive from a comparable U.S. company.
The corporate disclosure requirements applicable to us may not be equivalent to the requirements applicable to a U.S. company and, as a result, you may receive less information about us than you might otherwise receive in connection with a comparable U.S. company. We are subject to the periodic reporting requirements of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act, that apply to “foreign private issuers.” The periodic disclosure required of foreign private issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers.
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Holders of our securities may find it difficult to enforce judgments against us outside of Peru.
We are organized under the laws of Peru. A significant majority of our directors and officers reside outside the United StatesU.S. (principally in Peru). All or a substantial portion of our assets or the assets of such persons are located outside the United States.U.S. As a result, it may not be possible for investors to effect service of process within the United StatesU.S. upon us or upon such persons or to enforce against them in federal or state courts in the United StatesU.S. judgments predicated upon the civil liability provisions of the federal securities laws of the United States.U.S. We have been advised by our Peruvian counsel that there is uncertainty as to the enforceability, in original actions in Peruvian courts, of liabilities predicated solely under the United StatesU.S. federal securities laws and as to the enforceability in Peruvian courts of judgments of United StatesU.S. courts obtained in actions predicated upon the civil liability provisions of the United StatesU.S. federal securities laws.
Factors Relating to the Common Shares and ADSs
The concentration of our capital stock ownership with certain members of the Benavides Family willmay limit our stockholders’ ability to influence corporate matters.
As of March 31, 2016, the2020, three of our directors (and/or their spouses), Roque Benavides, family, referring to certainRaul Benavides and Jose Miguel Morales, were members and their spouses, of the immediate and extended family of Elsa Ganoza Benavides, spouse of the late Alberto Benavides de la Quintana, our founder and former Chairman (collectively, the “Benavides Family”), and held 27.22%an aggregate of 16.49% of Buenaventura’s outstanding share capital (including outstanding Common Shares and Investment Shares). In addition, certain other members of Buenaventura’s outstanding share capital.the Benavides Family are believed to hold a significant number of our Common Shares in aggregate. While the Benavides Family is not, to our knowledge, acting together as a group to vote their Common Shares, there can be no assurance that the Benavides Family will not, in the future, form a group for the purpose of voting their Common Shares or exerting influence over the management and policies of Buenaventura. Because of the significant aggregate ownership interest held by individual members of the Benavides Family, holds in Common Shares, the Benavides Family hascould have the power to elect a significant number of the outstanding directors and hasexercise significant influence over the outcome of substantially all matters to be decided by a vote of shareholders.
In addition, under the terms of the Amendedamended and Restated Deposit Agreementrestated deposit agreement dated May 3, 2002 as(as further amended and restated as of November 12, 2003, the “Amended and Restated Deposit Agreement”), among us, The Bank of New York Mellon (formerly The Bank of New York), as depositary, or the “Depositary”, and the owners and beneficial owners of ADSs, or the Amended and Restated Deposit Agreement, relating to our ADSs, if holders of ADSs do not provide the Depositary with timely instructions for the voting of Common Shares represented by such ADRs, the Depositary will be deemed to be instructed to give a person designated by us, which will likelycould be a member of the Benavides Family, a discretionary proxy to vote such shares, unless we inform the Depositary that we do not wish such proxy to be given.
Shareholders’ rights under Peruvian law may be fewer and less well-defined than shareholders’ rights in other countries, including the United States.U.S.
Our shareholders have fewer and less well-defined rights under applicable Peruvian law than they might have as shareholders of a corporation incorporated in a jurisdiction of the United StatesU.S. or certain other countries. For example,- Peruvian law does not provide for proceedings by which non-controlling shareholders may file class action lawsuits or shareholder derivative actions against controlling shareholders or officers and directors, and the procedural requirements to file shareholder actions in Peru differ from those of the United States.U.S. As a result, holders of our shares may face difficulty enforcing their rights.
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A sale of a substantial number of shares by the Benavides Family could have an adverse impact on the price of our Common Shares and ADSs.
The sale of a substantial number of our shares by members of the Benavides Family, or a market perception of the intention of members of the Benavides Family to sell a substantial number of shares, could materially and adversely affect prevailing market prices for the Common Shares and ADSs. There is no contractual restriction on the disposition of shares of our share capital by our shareholders, including the Benavides Family. Furthermore, under theLey General de Sociedades Peruanas, or “Peruvian Companies Law,” any restriction on the free sale of shares in asociedad anónima abierta (open stock company) such as we are, is null and void.
Holders of ADSs may be unable to exercise preemptive rights and accretion rights available to the Common Shares underlying the ADSs.
Holders of the ADSs are, under Peruvian law, entitled to exercise preemptive rights and accretion rights on the Common Shares underlying the ADSs in the event of any future capital increase by us unless (x) the increase is approved, expressly stating that the shareholders have no preemptive rights to subscribe and pay for the Common Shares to be issued in such increase, by holders of Common Shares holding at least 40% of the Common Shares at a properly called meeting with a proper quorum and (y) the increase is not designed to improve directly or indirectly the shareholding of any shareholder. However, United StatesU.S. holders of ADSs may not be able to exercise through the Depositary for the ADSs the preemptive rights and accretion rights for Common Shares underlying their ADSs unless a registration statement under the Securities Act of 1933, as amended, or the “Securities Act,” is effective with respect to such rights or an exemption from the registration requirement thereunder is available. Any such rights offering would have a dilutive effect upon shareholders who are unable or unwilling to exercise their rights. We intend to evaluate, at the time of any rights offering, the costs and potential liabilities associated with any registration statement as well as the associated benefits of enabling the holders of ADSs to exercise such rights and will then make a decision as to whether to file such a registration statement. Therefore, no assurance can be given that we will file any such registration statement. To the extent that holders of ADSs are unable to exercise such rights because a registration statement has not been filed and no exemption from such registration statement under the Securities Act is available, the Depositary will, to the extent practicable, sell such holders’ preemptive rights or accretion rights and distribute the net proceeds thereof, if any, to the holders of ADSs, and such holders’ equity interest in us will be diluted proportionately. The Depositary has discretion to make rights available to holders of ADSs or to dispose of such rights and to make any net proceeds available to such holders. If, by the terms of any rights offering or for any other reason, the Depositary is not able to make such rights or such net proceeds available to any holder of ADSs, the Depositary may allow the rights to lapse.
| ITEM 4. | Information on the Company |
In this Item 4, we present information first with respect to Buenaventura, followed by information with respect to Yanacocha, in which we havehad a 43.65% partnership interest.interest as of December 31, 2019.
BUENAVENTURA
A. History and Development
Overview
We are Peru’s largest publicly traded precious metals company in terms of market cap and operating presence as we operate in 8 regions across the country. Also, we are engaged in the exploration, mining and processing of gold, silver, copper and, to a lesser extent, other metals in Peru. We currently operate the Orcopampa, Uchucchacua, Julcani Mallay and BreapampaTambomayo mines and have controlling interests in three other mining companies whichthat operate the Colquijirca-Marcapunta, Tantahuatay and La Zanja mines. We also own an electric power transmission company, a hydroelectric plant and a processing plant and an engineering services consulting company andas well as non-controlling interests in several other mining companies, including a significant ownership interest in Yanacocha, a Peruvian partnership that operates the largest gold mine in South America, and Cerro Verde, a Peruvian company that operates a copper mine located in the south of Peru. For the year ended December 31, 2015,2019, our consolidated net salesrevenues were US$919.4 867.888 million and our consolidated net loss was US$375.528.459 million.
Discontinued operations.In 2014,During 2016, we decided to change the Company publicly announced its decision to sell fourclassification of its mining units: Poracota, Recuperada, Antapite and Shila-Paula. As a consequence, thesethree mining units are presented in the Financial Statements as(Poracota, Recuperada and Shila-Paula) that had been mining units held for sale. Accordingsale and began the final closing process for these mines. In December 2016, we sold the Antapite mining unit. In 2016, we started the final closing process for the Breapampa mining unit. As a result, income, costs and expenses related to IFRS 5 “Non-current Assets Heldthis mining unit were classified as discontinued operations for Salethe years 2016, 2015 and Discontinued Operations,”2014. During 2017, we sold the related assetsBreapampa and liabilities are presented inRecuperada mining units.
During 2019, we decided to change the consolidated statementclassification of financial position atour Mallay mining unit as a discontinued operation for the lower of costyears 2019, 2018 and fair value less cost to sale. The disposition of these discontinued mining units is expected to be completed by December 31, 2016 through sales to third parties.2017. See NotesNote 1(e) and 2.4(x)Note 2.4(w) to the Consolidated Financial Statements.
The table below summarizes the total production and our equity share of production for the Julcani, Orcopampa, Uchucchacua, Mallay, Breapampa, Colquijirca,Julcani, Tambomayo, El Brocal, La Zanja, Tantahuatay, Yanacocha and Cerro Verde mines as well as certain small assets for divestment, for the year ended December 31, 2015:2019:
| Total Production | Buenaventura’s Equity Share of Production | Total Production (unaudited) | Buenaventura’s Equity Share of Production | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UNIT | Buenaventura’s Equity Ownership | Silver (oz.) | Gold (oz.) | Lead (t) | Zinc (t) | Copper (t) | Silver (oz.) | Gold (oz.) | Lead (t) | Zinc (t) | Copper (t) | Buenaventura’s Equity | Silver (oz.) | Gold (oz.) | Lead (t) | Zinc (t) | Copper (t) | Silver (oz.) | Gold (oz.) | Lead (t) | Zinc (t) | Copper (t) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Orcopampa | 100 | % | 562,795 | 204,629 | - | - | - | 562,795 | 204,629 | - | - | - | 100 | % | 18,791 | 41,660 | 18,791 | 41,660 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Uchucchacua | 100 | % | 13,919,922 | - | 8,433 | 5,692 | - | 13,919,922 | - | 8,433 | 5,692 | - | 100 | % | 10,640,913 | 17,635 | 19,144 | 10,640,913 | 17,635 | 19,144 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Julcani | 100 | % | 3,266,453 | 607 | 2,592 | - | 339 | 3,266,453 | 607 | 2,592 | - | 339 | 100 | % | 2,609,006 | 150 | 966 | 185 | 2,609,006 | 150 | 966 | 185 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mallay | 100 | % | 1,285,361 | - | 7,193 | 9,173 | - | 1,285,361 | - | 7,193 | 9,173 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Breapampa | 100 | % | 180,277 | 13,757 | - | - | - | 180,277 | 13,757 | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tambomayo | 100 | % | 2,556,391 | 99,245 | 7,603 | 9,672 | 2,556,391 | 99,245 | 7,603 | 9,672 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| El Brocal | 54.07 | % | 3,669,500 | 11,263 | 18,854 | 53,319 | 32,061 | 1,984,098 | 6,090 | 10,194 | 28,830 | 17,335 | 61.43 | % | 4,366,438 | 18,726 | 23,599 | 43,580 | 43,394 | 2,682,303 | 11,504 | 14,497 | 26,771 | 26,657 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| La Zanja | 53.06 | % | 331,080 | 141,071 | - | - | - | 175,671 | 74,852 | - | - | - | 53.06 | % | 97,204 | 31,500 | 51,576 | 16,714 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tantahuatay | 40.10 | % | 879,832 | 144,782 | - | - | - | 352,769 | 58,050 | - | - | - | 40.10 | % | 754,306 | 162,196 | 302,439 | 65,032 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yanacocha | 43.65 | % | 447,375 | 917,690 | - | - | - | 195,279 | 400,572 | - | - | - | 43.65 | % | 737,239 | 527,337 | 321,805 | 230,183 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cerro Verde | 19.58 | % | 1,989,059 | - | - | - | 246,973 | 389,458 | - | - | - | 48,357 | 19.58 | % | 4,685,092 | 455,305 | 917,341 | 89,149 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Small assets for divestment | 100 | % | 13,005 | 17 | 63 | 56 | - | 13,005 | 17 | 63 | 56 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Production | - | 26,544,658 | 1,433,816 | 37,135 | 68,240 | 279,373 | 22,325,087 | 758,575 | 28,476 | 43,750 | 66,032 | 100 | % | 24,465,380 | 880,814 | 49,803 | 72,396 | 498,883 | 20,100,565 | 464,488 | 40,701 | 55,587 | 115,990 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compañía de Minas Buenaventura S.A.A., asociedad anónima abierta (open stock company)(publicly held corporation) under the laws of Peru, was originally established in 1953 as asociedad anónima (stock company)(corporation) under the laws of Peru, and currently operates under the laws of Peru. Our registered office is located at Las Begonias 415 – Floor 19, Lima 27, Peru, telephone no. 511-419-2500. Our website may be found at http://www.buenaventura.com. The information on our website is not a part of, and is not incorporated into, this document.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. All of the SEC filings made electronically by the Company are available to the public on the SEC website at www.sec.gov (commission file number 1-14370).
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History
During the first several decades of our operations, we focused on the exploration and development of silver mines in Peru, including our Julcani, Orcopampa and Uchucchacua mines. Beginning in the early 1980s, we began to explore for gold and other metals in Peru to diversify our business and reduce our dependence on silver. We expanded our mineral reserves through property acquisition and intensive exploration programs designed to increase reserves and production of gold. We also conducted exploration leading to the discovery of gold mineralization and subsequent production of gold at our Orcopampa, La Zanja, Breapampa and BreapampaTambomayo mines. In addition, we made significant equity investments in Yanacocha, which operates South America’s largestan open-pit gold mine in Peru, Cerro Verde, which operates an open-pit copper mine in Peru, and Coimolache, which owns the Tantahuatay gold mine that we operate. As a result of these initiatives, the majority of our revenues are now derived from the production of gold.
In 2014, we acquired 51% of Canteras del Hallazgo S.A.C. (“CDH”), owner of the Chucapaca Project, from Minera Gold Fields Perú S.A. (“MGFPSA”). The Chucapaca Project involved a group of mining rights originally owned by MGFPSA. In 2008, Compañía de Minas Buenaventura S.A.A. entered into a contract of Mineral lease, Option of Transfer, Option to Operate a Project and Option to Acquire a Stake, with MGFPSA regarding these mineral rights.
Pursuant to this contract, Buenaventura would be the project’s operator and would retain the option to acquire 100% of the mineral rights through a payment of US$2 million. Likewise, MGFPSA would also have the option to operate a project that, during explorations conducted by Buenaventura, is identified as a project whose main mineral content is gold (a “Gold Project”), in which case a new legal entity would be created to own the mineral rights to the project. Additionally, for this new legal entity, MGFPSA is awarded the right to purchase 51% of its shares as long as it fulfills its obligation to invest in explorations a sum equivalent to three times that which Buenaventura invested during the period it was the operator.
After Buenaventura discovered the ore deposit and it was identified as a gold project, CDH was created as owner to the project’s mineral rights; at which point MGFPSA, in charge of explorations in 2009, exercised its option to purchase 51% of CDH’s shares.
In August of 2014, Buenaventura purchased the totality of MGFPSA’s shares in CDH for a sale price of US$81 million and additional payments consisting of a Net Smelter Return Royalty of 1.5% in favor of MGFPSA for mining rights constituting the Chucapaca Project. Afterwards Buenaventura merged by absorption with CDH and registered the royalties in favor of MGFPSA in the title sheet of each one of the mining rights involved. Additionally, the Chucapaca Project has been renamed the San Gabriel Project. For more information about the San Gabriel Project, see “Item 4. B. Business Overview—Exploration Projects in Non-Operating Areas.”
Business Strategy
Our strategy is to sustain our position as Peru’s largest, publicly-traded gold and silver mining company by expanding our reserves and production. We are currently engaged in an active exploration and mine development program and participate in several mining exploration projects with Newmont Mining, Southern Copper Corporation, Corporación Aceros Arequipa S.A. and Compañiaía de Minas Caudalosa S.A.C. In addition, we seek to increase the efficiency and capacity of our mining operations. We are aware of our social and environmental responsibilities and aim to excel in the prevention, mitigation and rehabilitation of mining-related disturbances.
Maintaining an Active Exploration Program
During 2015,2019, we spent US$30.611.879 million on “exploration in non-operating areas” and US$91.544.163 million on “exploration in units in operations.operating units.” Our “exploration in non-operating areas” investments mainly focused on the following exploration projects: Tambomayo, Alejandra,Yumpaq, Marcapunta and Pisacalla projects.Emperatriz. Our “exploration in units in operations”operating units” investments were mainly focused in the Orcopampa, Uchucchacua, and Julcani mining units.
In 2016,2020, we intend to invest approximately US$7025 to US$8035 million in exploration in operating units (mainly in operationsTambomayo, Orcopampa and Uchucchacua) and US$10 to US$20 million mainly in the following explorations in non-operating areas: Tambomayo, Yumpag, Palla Pallaareas at the Trapiche and Daniela,San Gabriel projects, among others.
Participation in Mining Exploration Agreements
In addition to managing and operating precious metals mines, we participate in mining exploration agreements with mining partners to reduce risks, gain exposure to new technologies and diversify revenues to include other base metals, such as copper and zinc. See “B. Business Overview – Overview—Exploration.” We believe that maintaining our focus on mining operations complements our partnership strategy because the engineering and geological expertise gained from such operations enhances our ability to participate in and contribute to those projects.
Capital Expenditures
Our capital expenditures during the past three years have related principally to the acquisition of new mining properties, construction of new facilities and renewal of plant and equipment. Capital expenditures relating to exploration are not included in the table below and are discussed separately in “B. Business Overview –Overview— Exploration.” Set forth below is information concerning capital expenditures incurred by us in respect of each of our principal operating mines (not including capital expenditures for administrative purposes or other non-mining or non-energy subsidiaries) and by category of expenditure:
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| 2013 | 2014 | 2015 | 2017 | 2018 | 2019 | |||||||||||||||||||
| (US$ in thousands) | (US$ in thousands) | |||||||||||||||||||||||
| Uchucchacua | 18,127 | 18,429 | 31,479 | |||||||||||||||||||||
| Colquijirca and Marcapunta | 61,060 | 29,572 | 28,298 | |||||||||||||||||||||
| Molle Verde | 1,656 | 10,722 | 16,179 | |||||||||||||||||||||
| San Gabriel | 12,221 | 6,419 | 10,315 | |||||||||||||||||||||
| Tambomayo | 131,119 | 18,858 | 9,641 | |||||||||||||||||||||
| La Zanja | 17,326 | 13,159 | 1,629 | |||||||||||||||||||||
| Julcani | 8,927 | 683 | 7,056 | 1,951 | 2,984 | 1,559 | ||||||||||||||||||
| Uchucchacua | 16,038 | 12,668 | 22,140 | |||||||||||||||||||||
| Río Seco | 459 | 1,816 | 1,443 | |||||||||||||||||||||
| Orcopampa | 11,023 | 8,963 | 3,340 | 12,674 | 6,225 | 1,323 | ||||||||||||||||||
| Ishihuinca | 31 | - | - | |||||||||||||||||||||
| Colquijirca and Marcapunta | 216,477 | 105,477 | 55,073 | |||||||||||||||||||||
| Mallay | 1,796 | 1,810 | - | |||||||||||||||||||||
| Conenhua | 9,700 | 670 | 4,402 | 177 | 111 | - | ||||||||||||||||||
| Mallay | 16,643 | 963 | 3,627 | |||||||||||||||||||||
| Breapampa | 16,233 | 2,394 | 3,398 | |||||||||||||||||||||
| La Zanja | 84,858 | 29,113 | 57,950 | |||||||||||||||||||||
| Huanza | 37,973 | 16,373 | 725 | 675 | 7 | 223 | ||||||||||||||||||
| Río Seco | 32,863 | 10,064 | 2,487 | |||||||||||||||||||||
| Molle Verde | 24,166 | 15,641 | 4,049 | |||||||||||||||||||||
| Others | 266 | 1,158 | 538 | |||||||||||||||||||||
| Total | 474,931 | 203,009 | 164,247 | 259,507 | 111,270 | 102,627 | ||||||||||||||||||
| 24 |
| Year Ended December 31, | ||||||||||||
| 2013 | 2014 | 2015 | ||||||||||
| (US$ in thousands) | ||||||||||||
| Machinery and equipment | 15,742 | 11,741 | 3,469 | |||||||||
| Infrastructure | 352,115 | 122,563 | 44,973 | |||||||||
| Mining | 91,407 | 61,062 | 27,431 | |||||||||
| Milling | 6,338 | 4,014 | 4,199 | |||||||||
| Transportation | 1,749 | 368 | 287 | |||||||||
| Communications | 704 | 85 | 77 | |||||||||
| Environmental | 339 | 1,251 | 64,528 | |||||||||
| Other | 6,538 | 1,925 | 19,283 | |||||||||
| Total | 474,932 | 203,009 | 164,247 | |||||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2018 | 2019 | ||||||||||
| (US$ in thousands) | ||||||||||||
| Fixed assets | 6,280 | 836 | 716 | |||||||||
| Work in progress | 165,610 | 67,096 | 44,319 | |||||||||
| Development costs | 87,617 | 43,338 | 57,592 | |||||||||
| Total | 259,507 | 111,270 | 102,627 | |||||||||
We mainly financed our capital expenditures in 2014 and 2015 with internally-generated funds. We partially funded the El Brocal Expansion and the construction of the Huanza hydroelectric power plant with leasing facilities, with aggregate amounts of US$344.4 million outstanding thereunder as of December 31, 2015 (including US$156.3 and US$188.1 million, respectively).facilities. See “Item 5. Operating and Financial Review and Prospects – Buenaventura – Prospects—Buenaventura—B. Liquidity and Capital Resources – Resources—Long-Term Debt.”
We have budgeted approximately US$25085 to US$300105 million for capital expenditures for 2016.2020. We continuously evaluate opportunities to expand our business within Peru, as well as in other countries as opportunities arise, and expect to continue to do so in the future. We may in the future decide to acquire part or all of the equity of, or undertake other transactions with, other companies involved in the same business as us or in other related businesses. However, there can be no assurance that we will decide to pursue any such new activity or transaction.
| B. |
| Business Overview |
We principallymainly produce refined gold and silver, either as concentrates or doré bars, and other metals such as lead, zinc and copper as concentrates that we distribute and sell locally and internationally. The following table sets forth the production of the Orcopampa, Tambomayo, Uchucchacua, Julcani, Mallay, Breapampa, La Zanja and Colquijirca - MarcapuntaColquijirca-Marcapunta mines by type of product for the last three years, calculated in each case on the basis of 100% of the applicable mine’s production. Production from Cerro Verde, Yanacocha and Tantahuatay are not included in these production figures.
| Year Ended December 31,(1)(2) | Year Ended December 31, (Unaudited)(1)(2) | |||||||||||||||||||||||
| 2013 | 2014 | 2015 | 2017 | 2018 | 2019 | |||||||||||||||||||
| Gold (oz.) | 462,856 | 438,426 | 371,344 | 405,004 | 338,189 | 191,281 | ||||||||||||||||||
| Silver (oz.) | 19,193,075 | 20,119,162 | 23,228,392 | 25,515,049 | 26,264,109 | 20,288,743 | ||||||||||||||||||
| Zinc (t) | 46,178 | 26,706 | 68,240 | 67,458 | 76,119 | 72,397 | ||||||||||||||||||
| Lead (t) | 29,757 | 22,185 | 37,135 | 40,915 | 44,972 | 49,803 | ||||||||||||||||||
| Copper (t) | 27,845 | 43,557 | 32,400 | 45,289 | 46,400 | 43,578 | ||||||||||||||||||
| (1) | The amounts in this table reflect the total production of all of our consolidated subsidiaries, including El Brocal and La Zanja. |
| (2) |
Exploration
We view exploration as our primary means of generating value for our shareholders maintainingand we maintain a portfolio of active exploration projects at various stages of exploration for mineral resources in Peru. During 2015,2019, we spent US$30.611.879 million inon “exploration in non-operating areas” mainly focused in the Tambomayo, Alejandra,Yumpaq and Marcapunta and Pisacallaexploration projects, and US$91.544.163 million on “exploration in units in operations”operating units” mainly focused in the Tambomayo, Orcopampa Uchucchacua and JulcaniUchucchacua mining units. During 2016,2020, we expect to invest approximately US$8025 to US$10035 million in these exploration activities.
Our exploration department develops programs and budgets for individual projects each year and we allocate, subject to board approval, the proper amount to fund each particular exploration program. Because of the nature of mining exploration and to maintain flexibility to take advantage of opportunities, we allocate budgeted amounts by property or project only in the case of high probability of success. We also allocate non-budgeted amounts over the course of the year to new projects that our technical team considers highly prospective.
We have active joint venture exploration agreements with other mining companies, including Newmont Peru S.R.L., Minera Barrick Misquichilca, Southern Copper Corporation, Corporación Aceros Arequipa S.A.Regulus Resources, Alianza Minerals and Compañia de Minas Caudalosa S.A.C.Minera Bateas. Additionally, we now hold 19.3% of the current outstanding shares of Tinka Resources Limited. In this way we have access to financing forpromising mining projects through exploration of our own mining properties as well as third-party properties withoutwhile sharing the costsexploration and development risks of outright acquisition, increasedwith recognized partners, and increasing our exposure to new exploration technologies, and expansion ofwhile expanding our knowledge and sharing of experiences of management, geologists and engineers. In these mining exploration agreements, we may be the operator, an equity participant, the manager or a combination of these and other functions.
| 25 |
The following table lists our principal exploration projects in non-operating areas, our effective participation in each project, our partners with respect to each project, the total number of hectares in each project, observed mineralization of each project and the exploration expenditures for each project during 20142018 and 2015.2019.
| Exploration Projects(1)(2) | Buenaventura’s Effective Participation | Principal Partners | Property Hectares | Observed Mineralization | Total Exploration Expenditures During 2014 | Total Exploration Expenditures During 2015 | ||||||||||||||||||||||||
| at March 31, 2016 | Total (Buenaventura and Partners) | Buenaventura | Total (Buenaventura and Partners) | Buenaventura | ||||||||||||||||||||||||||
| (US$ in millions) | (US$ in millions) | |||||||||||||||||||||||||||||
| Buenaventura’s Projects: | ||||||||||||||||||||||||||||||
| Tambomayo | 100 | % | 3,900 | Gold, silver, lead and zinc | 11.51 | 11.51 | 11.19 | 11.19 | ||||||||||||||||||||||
| San Gabriel | 100 | % | 4,600 | Gold, Silver and Copper | 0.00 | 0.00 | 1.33 | 1.33 | ||||||||||||||||||||||
| Pisacalla | 100 | % | 2,100 | Gold | 0.51 | 0.51 | 0.74 | 0.74 | ||||||||||||||||||||||
| Trapiche | 100 | % | 4,600 | Copper and Molybdenum | 1.14 | 1.14 | 0.64 | 0.64 | ||||||||||||||||||||||
| Palla Palla | 100 | % | 3,282 | Gold and Silver | 0.42 | 0.42 | 0.42 | 0.42 | ||||||||||||||||||||||
| Livitaca | 100 | % | 10,600 | Gold and Cooper | 0.64 | 0.64 | 0.35 | 0.35 | ||||||||||||||||||||||
| San Gregorio | 54.07 | % | 4,382 | Zinc | 0.00 | 0.00 | 0.03 | 0.02 | ||||||||||||||||||||||
Exploration Projects(1)(2) | Buenaventura’s Effective Participation | Property Hectares | Observed Mineralization | Total Exploration Expenditures During | ||||||||||||||
| at March 31, 2020 | 2018 | 2019 | ||||||||||||||||
| (US$ in millions) | ||||||||||||||||||
| Yumpaq | 100.00% | 4,426 | Silver | 18.05 | 2.53 | |||||||||||||
| San Gabriel | 100.00% | 57,900 | Gold, Silver and Copper | 0.93 | 0.08 | |||||||||||||
| Ccelloccasa | 100.00% | 11,123 | Gold and Silver | 0.33 | 0.03 | |||||||||||||
| Trapiche | 100.00% | 39,595 | Copper, Molybdenum | 0.31 | - | |||||||||||||
| Mayra | 100.00% | 4,767 | Silver, Gold | - | - | |||||||||||||
| San Gregorio | 61.43% | 4,303 | Zinc | - | - | |||||||||||||
| Gaby | 100.00% | 800 | Silver, Gold | - | - | |||||||||||||
| Other minor | 9.85 | 9.24 | ||||||||||||||||
| Total exploration in non-operating areas | 36.31 | 11.88 | ||||||||||||||||
| (1) | In addition to these projects, we continue to conduct exploration at all of our operating mines and our subsidiaries. |
| (2) | Only includes explorations conducted by Buenaventura. |
The following table lists the mines in which we directed our principal explorations efforts, mineralization of each mine and the exploration expenditures for 20142018 and 2015.2019.
| Operating Units | Observed Mineralization | Total Exploration Expenditures During 2014 | Total Exploration Expenditures During 2015 | Observed Mineralization | Total Exploration Expenditures During 2018 | Total Exploration Expenditures During 2019 | ||||||||||||||||||||||||||||||
| Total | Buenaventura | Total | Buenaventura | Total | Buenaventura | Total | Buenaventura | |||||||||||||||||||||||||||||
| (US$in millions) | (US$in millions) | (US$ in millions) | (US$ in millions) | |||||||||||||||||||||||||||||||||
| Buenaventura’s Units: | ||||||||||||||||||||||||||||||||||||
| Tambomayo | Gold | 20.55 | 20.55 | 11.61 | 11.61 | |||||||||||||||||||||||||||||||
| Orcopampa | Silver and Gold | 51.82 | 51.82 | 41.71 | 41.71 | Silver and Gold | 29.56 | 29.56 | 9.04 | 9.04 | ||||||||||||||||||||||||||
| Uchucchacua | Silver, lead and zinc | 26.63 | 26.63 | 27.78 | 27.78 | Silver, Lead and Zinc | 20.90 | 20.90 | 8.92 | 8.92 | ||||||||||||||||||||||||||
| Colquijirca | Copper, Zinc, Lead and Silver | 10.0 | 10.0 | 8.73 | 8.73 | |||||||||||||||||||||||||||||||
| Julcani | Silver | 10.98 | 10.98 | 12.70 | 12.70 | Silver | 8.65 | 8.65 | 5.86 | 5.86 | ||||||||||||||||||||||||||
| Mallay | Zinc, lead and silver | 7.81 | 7.81 | 7.54 | 7.54 | |||||||||||||||||||||||||||||||
| Breapampa | Gold | 0.49 | 0.49 | 1.82 | 1.82 | |||||||||||||||||||||||||||||||
| La Zanja | Gold | 0.12 | 0.12 | 0.04 | 0.04 | Gold | 0.07 | 0.07 | 0.00 | 0.00 | ||||||||||||||||||||||||||
| Marcapunta | Copper & Gold | 4.2 | 2.27 | 0.00 | 0.00 | |||||||||||||||||||||||||||||||
| Total | 89.73 | 89.73 | 44.16 | 44.16 | ||||||||||||||||||||||||||||||||
The following is a brief summary of current exploration activities conducted by Buenaventura directly and through joint exploration agreements, which we believe represent the best prospects for discovering new reserves. There can be no assurance, however, that any of our current exploration projects will result in viable mineral production or that any of the mineralization identified to date will ultimately result in an increase in our ore reserves. Set forth below is a map of our principal exploration projects in Peru as of December 31, 2015.2019.
Exploration Projects in Non-Operating Areas
Yumpaq.The Yumpaq project is located four kilometers northeast of the Uchucchacua mine. This project is an epithermal silver-manganese deposit hosted by Cretaceous limestone. Mineralization is structurally influenced by the Cachipampa fault, which also influences significant areas of silver mineralization at the Uchucchacua mine.
The exploration ramp was completed in 2019 and is 3.42 kilometers in length. This ramp provided access to facilitate an underground infill drilling program to the Camila vein and was completed in June 2019. In total, 18,606 meters were drilled as part of this program. SRK (Peru) prepared a mineral resource estimate in September 2019. We plan to invest US$1.0 million to explore other veins from the Yumpaq project.
Trapiche. The Trapiche project is operated by Molle Verde S.A.C, which is a wholly-owned subsidiary of Buenaventura. The project is located in the Apurimac region and belongs to the Andahuaylas-Yauri belt, which contains several iron, copper and gold deposits.
Exploration Projects in Non-Operating Areas
During 2019 we finished all the necessary drill holes to complete a pre-feasibility study with M3 and finished the on-site column test pilot plant that will be performing leaching confirmation testing thru out 2020. The environmental base line study is almost complete and will supporting the EIA submission on the second part of the year. Currently starting power line and access road right-of-way negotiations.
TambomayoSan Gabriel. . The TambomayoSan Gabriel project is wholly-owned by Buenaventura and encompasses 57,282 hectares of mining concessions. The project is located 50 kilometers southeast of the Orcopampa mine and includes a total of 1,600 hectares of mining properties. This project is a low sulfidation epithermal deposit with significant gold and silver mineralization in veins. As of December 31, 2015, we had estimated resources of 1.08 million tons, with 9.4 grams per ton of gold, 9.3 ounces per ton of silver, 2.0% lead and 3.0% zinc. In addition, we had estimated a non-reserve mineralization (“NRM”) of 0.77 million tons, with 9.6 grams per ton of gold, 4.1 ounces per ton of silver, 1.8% lead and 3.3 percent zinc. The project is currentlyMoquegua region in its development phase, and the construction of the mine is well advanced with seven levels completed and with encouraging drill intercepts at lower levels. Construction permits were granted in June 2015 for a 1,500 tons-per-day plant. In 2016, we will focus our exploration efforts in the Mayra and Gaby prospects. We plan to invest US$1.39 million to conduct geological mapping and sampling. In addition, we expect to obtain environmental permits and surface rights for a drilling campaign at the Asuncion vein.
San Gabriel. San Gabriel is located in the region of Moquegua and is wholly-owned by Buenaventura.southern Peru. This deposit is an intermediate sulfidation deposit hosted by diatreme breccia body at the sediment-intrusive contact. As
San Gregorio. San Gregorio is located four kilometers south of December 31, 2015 we estimated a NRM of 12.25 million tons, with an average grade of 6.5 grams per ton of gold. We began using athe Colquijirca mine ramp in June 2015 in order to explore opportunities for additional diamond drilling in the Canahuire ore body and to obtain bulk samples for metallurgical tests. In addition, we completed 3,418 meters of diamond drilling in the Pachacutec prospect without positive results. In 2016, we plan to invest US$2.69 million to conduct diamond drilling and to carry out geological mapping and sampling to define new exploration targets.
Trapiche. The Trapiche project consists of 30,591 hectarescarbonate-hosted epithermal zinc-lead deposits. We continued efforts to achieve an understanding with the local community with the aim of mining concessions, with porphyry copper and skarn mineralization in the Apurimac region, Antabamba province and Juan Espinoza Medrano district. The Apurimac region is part of a mineralized belt known as the Abancay Batholith where several iron, copper and gold deposits have been identified. As of December 31, 2015,re-activating exploration activities.
Ccelloccasa. In 2019, we estimated a NRM of 925 million tons for the Trapiche project, with an average grade of 0.39% of copper, 0.01% of molybdenum and 3.2 grams per ton of silver. During 2016 we expect to have a positive scoping study for a leach only alternative. We estimate there are 251 million tons of leachable material with an average grade of 0.54% copper in the project.
Pisaccalla. The Pisaccalla project consists of 11,331 hectares of mining concessions located in the Ayacucho region in southern Peru and is wholly-owned by Buenaventura. In 2015, we explored 822 meters of the Accocuruz project through diamond drilling without positive results. We do not plan to conduct any further work in this project and all exploratory surface work has been remediated. On the other hand, in the geological mapping and sampling for the Ccelloccasa project, we identified 5.33 kilometers of outcropping veins with encouraging results. During 2016, we plan to carry out a geophysical survey and obtainobtained the necessary environmental and social permits from Peruvian governmental authorities to begin operations in orderCcelloccasa. In 2020, we expect to conduct a drilling campaign in 2017.
Livitaca. The Livitaca project is located in the Cusco region in southern Peru, 8 kilometers northobtain authorization for commencement of the Constancia copper project owned by Hudbay. The project consists of 9,095 hectares of mining concessions owned by Corporación Aceros Arequipa S.A., which has leased those hectares to Cía. de Minas Cerro Hablador S.A.C., our newly formed wholly-owned subsidiary. The project is an iron skarn with surrounding gold and copper mineralization. In 2015, we determinedoperations from Peruvian governmental authorities, including confirmation from Peruvian governmental authorities that the project does not have adequate potential. We do not plancommunity supports the upcoming drilling program.
Tambomayo. Despite having obtained approval from the necessary environmental authorities, we were unable to carry out any additional work at this project.
Palla Palla. Palla Palla is located inoperate the Ayacucho region. The property consists in 6,894 hectares of mining concessions owned by Cia. de Minas Caudalosa S.A., which has leased those hectaresdiamond drilling program under the Mayra and Gaby projects due to Minera Azola S.A.C., our wholly-owned subsidiary.social conflicts. We are working with local governments to obtain the environmental permit needed to execute a diamond drilling campaign of 4,000 meters at the Cerro Runtus project during the second half of 2016.
San Gregorio. The drilling program at this project continues to be suspended due to the opposition of the Vicco community. We have resumed discussions with the community and, due to the active participation of the Conflict Resolution Office, an entity operatingreinstate exploration programs under the auspices of thePresidencia del Consejo de Ministros(“PCM”), in such discussions, we expect to resume the drilling program at this project.these projects.
Exploration in Operating Areas
Uchucchacua.Uchucchacua We are currently focusing ourDuring 2019, the exploration effortsprogram was mainly focused on the Yumpag project, which is located four kilometers northeast ofSocorro, Cachipampa, Carmen and Casualidad sectors. In Socorro below the Uchucchacua mine. The project is an epithermalAmy - Giovanna system, silver deposit, structurally influenced by the Cachipampa fault. This fault also influences significant areas of silver mineralization at the Uchucchacua mine. During 2015, we invested US$3.63 million and completed 8,398 meters of diamond drilling and conducted metallurgical tests with encouraging results. As of December 31, 2015 we estimated NRM of 0.63 million tons, with 26.3values greater than 15 ounces per ton of silver, 0.5% lead, 1.3% zinc and 19.3% manganese. In 2016,were discovered. By 2020, we expect exploration to invest US$2.30 millionbe focused on (where higher levels) of this silver are easily accesible, including the Rosa, Sandra and Tension veins. In addition, we will continue to explore the Amy-Giovanna system below level 4710 for resources with high silver values.
Orcopampa.During 2019, a program was implemented to centralize mining operations and was part of “debottlenecking” process that allowed us to reach a positive operating margin in the fourth quarter of 2019. The exploration program was focused on generating new targets and increasing the certainty of the resources in the Pucará Sur, Pucara Sur Piso, Pucarina, María Isabel 2, Ocoruro and Nazareno veins, between levels 3690 and 3540. In 2020, we expect explorations to be focused on Ocoruro, María Isabel and Pucará Sur sectors.
Tambomayo.Explorations made to date show economic mineralization between the 4950 and 4100 meters above sea level, which means 850 vertical meters and 1,200 horizontal meters. These explorations generated great geological potential for exploring in the structures of this main system. In 2019, the exploration program was focused on completing the recognition of the veins in the operational footprint and re-categorizing and extending the resources for this program. Three main areas, including the deepening in the area of operations, and Venturosa and Los Diques, were explored in order to conduct 8,000 metersopen new exploration fronts between levels 4540 and 4340. These new areas yielded hints of diamond drilling at this project.
Orcopampa. During 2015, our main exploration focus was in the Pucay project, located 3.5 kilometers southwest of the Chipmo mine. This project consists of 2,400 hectares of mining concessions owned by SCCO, which leased those hectares to Apu Coropuna S.R.L., our newly formed wholly-owned subsidiary. In Pucay,favorable mineralization and we focused on the Anquicha project, which shows encouraging results of epithermal gold mineralization in sandstone-hosted oxidized fractures and breccias. Preliminary column leach tests show gold recoveries of around 89%. In 2016, weexpect they will continue geological mapping and sampling at the Anquicha and Huiscatori projects.
The Alejandra - La Zanja. In April 2015, we ceased underground explorationsto be explored in the Alejandra vein. As of December 31, 2015, we estimated a NRM of 0.22 million tons, with 10.4 grams per ton of gold and 170 grams per ton of silver. Additionally, we invested US$6.6 million to conduct geological mapping, sampling and a geophysical survey in the northeast extension of the Alejandra trend, which allowed us to identify a series of echelon epithermal veins with encouraging values in gold and silver. We expect to invest US$1.5 million in order to conduct 5,000 meters of diamond drilling in the second quarter of 2016.2020.
Competition
We believe that competition in the metals market is based primarily upon cost. We also compete with other mining companies and private individuals for the acquisition of mining concessions and leases in Peru and for the recruitment and retention of qualified employees.
Sales of Metal Concentrates
All of our metal production is sold to smelters traders and banks,traders, either in concentrate or metal form, such as gold-silver concentrate, silver-lead concentrate, zinc concentrate, lead-gold-copper concentrate, gold-copper concentrate and gold and silver bullion. Our concentrates sales are made under one-one to three-year, U.S. Dollar-denominated contracts, pursuant to which the selling price is based on world metal prices as follows: generally, in the case of gold and silver-based concentrates, the London Spot settlement prices for gold, less certain allowances, and the London Spot or the United StatesU.S. Commodities Exchange settlement price for silver, less certain allowances; and, in the case of base-metal concentrates, such as zinc, lead and copper, the London Metals Exchange (“LME”) settlement prices for the specific metal, less certain allowances. Sales prices vary according to formulas that take into account agreed contractual average pricesof concentrates and metal allow for aprice adjustments based on their market price at the end of the relevant quotational period (QP), generally being the month of, the month before, or the month following the scheduled month of shipment or delivery according to the terms of the contracts. Sales of concentrates and metals at provisional prices include a gain (loss) to be received at the end of the QP, based on the spread between the actual price at the end of the QP and the agreed contractual average prices; this is considered a variable portion of the consideration. Changes in the price during the QP are recognized in the “Net of sales of goods” caption.
| 28 |
The historical average annual prices for gold and silver per ounce and our average annual gold and silver prices per ounce for each of the last fivetwo years and through March 31, 2020 are set forth below:
| Gold | Silver | |||||||||||||||
Average Annual Market Price | Our Average Annual Price(1) | Average Annual Market Price | Our Average Annual Price(1) | |||||||||||||
| US$/oz.(2) | US$/oz. | US$/oz.(3) | US$/oz. | |||||||||||||
| 2018 | 1,268.49 | 1,267.99 | 15.71 | 15.09 | ||||||||||||
| 2019 | 1,393.71 | 1,405.36 | 16.20 | 16.36 | ||||||||||||
| 2020 (through March 31, 2020) | 1,582.80 | 1,691.81 | 16.90 | 17.16 | ||||||||||||
| Gold | Silver | |||||||||||||||
| Average Annual Market Price | Our Average Annual Price(1) | Average Annual Market Price | Our Average Annual Price(1) | |||||||||||||
| US$/oz.(2) | US$/oz. | US$/oz.(3) | US$/oz. | |||||||||||||
| 2014 | 1,266.40 | 1,263.53 | 19.08 | 18.65 | ||||||||||||
| 2015 | 1,218.45 | 1,151.44 | 16.71 | 15.06 | ||||||||||||
| 2016 (through March 31, 2016) | 1,182.56 | 1,107.87 | 14.85 | 13.34 | ||||||||||||
| (1) | Our average annual price includes only the consolidated average annual price from our mines. |
| (2) | Average annual gold prices are based on the London PM fix as provided byMetals Week. |
| (3) | Average annual silver prices are based on London Spot prices. |
Most of the sales contracts we enter into with our customers state a specific amount of metal or concentrate the customer will purchase. We have sales commitments from various parties for nearly all of our estimated 20162020 production; however, concentrates not sold under any of our contracts may be sold on a spot sale basis to merchants and consumers.
Sales and Markets
The following table sets forth our total revenues from the sale of gold, silver, lead, zinc and copper in the past two fiscal years:
| Year ended December 31,(1) | Year ended December 31,(1) | |||||||||||||||
| Product | 2014 | 2015 | 2018 | 2019 | ||||||||||||
| (US$ in thousands) | (US$ in thousands) | |||||||||||||||
| Gold | 554,805 | 438,585 | 411,877 | 254,194 | ||||||||||||
| Silver | 356,021 | 316,692 | 362,122 | 298,171 | ||||||||||||
| Lead | 39,658 | 55,445 | 85,555 | 89,141 | ||||||||||||
| Zinc | 47,653 | 102,110 | 164,666 | 149,317 | ||||||||||||
| Copper | 271,282 | 131,356 | 274,761 | 238,304 | ||||||||||||
| (1) | Does not include commercial deductions for refinery charges and penalties incurred in |
Approximately 60.12%52.97% and 62.83%41.29% of our concentrate and gold bullion sales in 20142018 and 20152019 (without considering adjustments to prior periods embedded derivativesliquidations, fair value from sale of concentrate or hedge operations), were sold outside Peru. Set forth below is a table that shows the percentage of sales of concentrate and gold bullion from our mines and gold bullion that werewas sold to our various customers from 20142018 to 2015.2019.
| Percent of Concentrates and Gold Bullion Sales | ||||||||
| 2014 | 2015 | |||||||
| Export Sales: | ||||||||
| Asahi Refining Canada Ltd (former Johnson Matthey) | 49.31 | 50.58 | ||||||
| N.V. Umicore SA | 3.89 | 3.75 | ||||||
| Werco Trade AG | 3.34 | 2.07 | ||||||
| Mercuria Energy Trading SA | 0.00 | 1.43 | ||||||
| MRI Trading AG | 0.00 | 0.99 | ||||||
| Lois Dreyfus Commodities Metal Suisse SA | 0.00 | 2.06 | ||||||
| MCC non Ferrous Trading Inc. | 2.61 | 0.00 | ||||||
| Others | 0.97 | 1.98 | ||||||
| Total Export Sales | 60.12 | % | 62.86 | % | ||||
| Domestic Sales: | ||||||||
| Andina Trade S.A.C. | 0.93 | 0.36 | ||||||
| Glencore Peru S.A.C. | 15.27 | 23.43 | ||||||
| Consorcio Minero SA | 4.11 | 0.00 | ||||||
| Trafigura Peru S.A.C. | 4.59 | 6.73 | ||||||
| Sudamericana Trading SRL | 2.65 | 2.85 | ||||||
| Lois Dreyfus Commodities Peru S.R.L. | 10.21 | 2.45 | ||||||
| Optamine S.A.C. | 1.26 | 0.17 | ||||||
| Others | 0.86 | 1.16 | ||||||
| Total Domestic Sales | 39.88 | % | 37.14 | % | ||||
| Total Sales | 100 | % | 100 | % | ||||
| Percent of Concentrates and Gold Bullion Sales | ||||||||
| 2018 | 2019 | |||||||
| Export Sales: | ||||||||
| Asahi Refining Canada Ltd and Asahi Refining USA Inc. | 32.96 | 21.12 | ||||||
| IXM S.A. (formerly Louis Dreyfus Commodities Metal Suisse SA) | 1.69 | 0.3 | ||||||
| Mercuria Energy Trading SA | 3.30 | 2.9 | ||||||
| Metalor Technologies | 2.36 | 0.73 | ||||||
| N.V. Umicore SA | 0.90 | 0.8 | ||||||
| MRI Trading AG | 1.10 | 1.25 | ||||||
| Others | 10.66 | 14.19 | ||||||
| Total Export Sales | 52.97 | % | 41.29 | % | ||||
| Domestic Sales: | ||||||||
| Andina Trade S.A.C. | 1.12 | 3.26 | ||||||
| Glencore Peru S.A.C. | 17.40 | 16.27 | ||||||
| Trafigura Peru | 12.77 | 24.77 | ||||||
| Sudamericana Trading SRL | 3.61 | 0.64 | ||||||
| IXM Trading Peru S.A.C. (formerly Lois Dreyfus Commodities Peru S.R.L) | 9.89 | 11.35 | ||||||
| Others | 0.83 | 2.42 | ||||||
| Total Domestic Sales | 47.03 | % | 58.71 | % | ||||
| Total Sales | 100 | % | 100 | % | ||||
The following table shows our committed sales volumes of silver-lead, gold-silver and zinc concentrates from 20162020 to 2018:2022:
| Wet tons | Wet tons | Wet tons | Wet tons | Wet tons | Wet tons | |||||||||||||||||||
| Concentrate | 2016 | 2017 | 2018 | 2020 | 2021 | 2022 | ||||||||||||||||||
| Uchucchacua’s Silver-Lead | 68,000 | 55,800 | 28,000 | 91,200 | 25,600 | 23,000 | ||||||||||||||||||
| Uchucchacua’s Zinc | 23,800 | 23,900 | 0 | 93,000 | - | - | ||||||||||||||||||
| Julcani’s Silver-Lead | 7,600 | 3,200 | 4,000 | |||||||||||||||||||||
| Mallay’s Silver-Lead | 20,000 | 14,700 | 0 | |||||||||||||||||||||
| Mallay’s Zinc | 20,000 | 17,700 | 5,000 | |||||||||||||||||||||
| Uchucchacua’s Silver | 76,800 | 77,900 | 73,100 | |||||||||||||||||||||
| Julcani’s Silver-Lead(1) | 4,550 | 4,400 | 4,400 | |||||||||||||||||||||
| Julcani’s Silver | 3,500 | - | - | |||||||||||||||||||||
| Tambomayo’s Silver-Lead | 15,800 | 5,000 | 5,000 | |||||||||||||||||||||
| Tambomayo’s Zinc | 15,300 | 1,500 | 1,500 | |||||||||||||||||||||
| El Brocal’s Copper | 244,000 | 325,700 | 265,000 | |||||||||||||||||||||
Note: The price of the concentrate supplied under the contract is based on specified market quotations minus deductions.
| (1) | Represents committed sales volumes from 2020 to 2021. |
| (2) | Represents committed sales volumes for 2020. |
We also sell refined gold, which is derived from our operations at Orcopampa, Breapampa, CoimoloacheTambomayo, Coimolache and La Zanja and processed at a local smelter in Lima, to Johnson Matthey Public Limited Company,Asahi Refining, or Johnson Matthey,“Asahi,” which further refines the gold. During 2015,2019, the price of the gold supplied was determined based on, for the gold content, the quotation for gold at the London Gold Market PM fixing in U.S. Dollars, and for the silver content, the quotation for silver at the London Silver Market spot fixing in U.S. Dollars or at spot prices, minus, in each case, certain minimum charges, as well as charges for customs clearance and treatment of the gold (which varies depending on its gold and silver content). We may elect to have our material toll refined at Johnson Matthey’s Brampton, CanadaAsahi’s works and returned to our account for sale to third parties. Pursuant to our agreement, we are responsible for delivering the gold to Johnson Matthey’sAsahi’s designated flight at the Lima airport.
Hedging/Normal Sales Contracts
We and our wholly-owned subsidiaries are completely unhedged as to the prices at which our gold and silver will be sold. See “Item 3. Key Information—D. Risk Factors—Factors Relating to the Company—Our financial performance is highly dependent on the prices of gold, silver, copper and other metals.”
El Brocal uses derivative instruments to manage its exposure to changes in the price of metals. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
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El Brocal’s hedge is classified as a cash flow hedge. The effective portion of gain or loss on the hedging instrument is initially recognized in the consolidated statements of changes in equity, under the caption other equity reserves, while the ineffective portion is recognized immediately in the consolidated statements of profit or loss in the interest expensefinance costs caption. Yanacocha and Cerro Verde have not engaged in, and are currently not engaged in, gold or copper price hedging activities, such as forward sales or option contracts, to minimize their respective exposures to fluctuations in the price of gold and copper.
From January to December 2019, El Brocal had no outstanding hedging commitments in 2015.amounting to 2,000 metric tons of copper at an average fixed price of US$ 7,349 per ton and 6,000 metric tons of zinc at an average price of US$ 2,907 per ton.
Regulatory Framework
Mining and Processing Concessions
In Peru, as in many other countries, while surface land is owned by private landowners, while the government retains ownership of all subsurface land and mineral resources. Our right to explore, exploit, extract, process and/or produce silver, gold and other metals is granted by the Peruvian government in the form of mining and processing concessions. The rights and obligations of holders of mining and/or concessions, provisional permits and processing concessions and other similar matters are currently set forth in the General Mining Law (Single Unified Text approved by Supreme Decree 014-92-EM), which is administered by the MEM.
Pursuant to the General Mining Law, filers of mining claims must obtain a mining concession before they may explore the areas claimed.start any mining activity. Applications for mining concessions must be filed with the regional mining directors of each regional government andwhere the mining concession is located or withInstituto Geológico Minero y Metalúrgico the Geological, Mining and Metallurgical Institute of Peru (“INGEMMET”)(INGEMMET).
Mining concessions are irrevocable, provided the holder of a mining concession complies with the obligations set forth in the General Mining Law. Such concessions have an indefinite term, subject to payment of an annual concession fee per hectare claimedgranted and achievement of minimum annual production for each hectare. Failure to achieve annual production targets will result in a fine. Failure to pay concession fees or fines for two consecutive years in any mining concession could result in the losscancellation of one or more of thesuch mining rights.concession. Failure to satisfy minimum annual production thresholds for a specified period of time (currently thirty years beginning the year after the mining concessions were granted for mining concessions granted after October 10, 2008, and thirty years beginning on January 1, 2009 for mining concessions granted before October 10, 2008) could result in cancellation of the mining concessions.
Our and Yanacocha’s processing concessions enjoy the same duration and tenure as our mining rights,concessions, subject to payment of a fee based on nominal capacity forof the applicable processing plant. Failure to pay processing fees or fines for two consecutive years could result in the losscancellation of the processing concessions.
Our mining rights and processing concessions are in full force and effect under applicable Peruvian laws. We believe that we are in compliance with all material terms and requirements applicable to the mining rights and processing concessions and that we are not subject to any condition, occurrence or event that would cause the revocation, cancellation, lapse, expiration or termination thereof, except that we may, from time to time, allow to lapse, revoke, cancel or terminate mining rights and processing concessions that are not material to the conduct of our business.
In addition to obtaining mining rights from the Peruvian government, applicable Peruvian regulations require us to obtain easements or other rights from private landowners that own the surface land above the mineral resources that we intend to explore or mine. Supreme Decree 020-2008-EMNo. 042-2017-EM requires us to obtain such easements or other rights before commencing exploration activities. We have been actively seeking to acquire land surface rights, easements tofor land containing prospective geological exploration target sites, deposits that can be exploited in the future and areas suitable as plantfor plants or facility sites. In the case ofRegarding processing concessions, articleArticle 35 of Supreme Decree NºNo. 018-92-EM, as amended, requires holders of such concessions to own the land underlying the concession or to have the authorization of the owner of the land. We have been actively seeking to acquire land surface deposits that can be exploited in the future and areas suitable as plant or facility sites.
The possibility of developing mining activities in an urban area or urban expansion area is linked to the compatibility of such areas and mining activities. The Law Regulating Mining Concessions in Urban Areas and Urban Expansion Areas and related regulations set forth procedures for the granting of mining rights in urban and urban expansion areas. To grant a mining concession in an urban area and an urban expansion area, the MEM is required to receive the approval of the council of the applicable provincial municipality. The council has sixty days to issue its decision. Mining concessions in urban expansion areas are granted for 10-year terms, which may be renewed by the MEM subject to the approval of municipal authorities, but cannot exceed 100 hectares.
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Law No. 28964, which became effective on January 25, 2007, created theOrganismo Supervisor de la Inversión en Energía y Minería (“OSINERGMIN”) as the government agency in charge of regulating and auditing the electricity, hydrocarbon and mining activities of companies. Law No. 28964 provides that the overview and audit of activities related to the environment, mining safety and health regulations may be performed by companies duly certified and approved by OSINERGMIN. However, pursuant to Supreme Decree No. 001-2010-MINAM, OSINERGMIN has transferred its environmental supervisory functions to the Environmental Evaluation and Oversight Agency (“OEFA”). Beginning July 22, 2010, OEFA assumed the authority to carry out unexpected audits and levy fines on companies if they fail to comply with prescribedenforceable environmental standards. Contributions thatregulations and approved environmental assessments. According to Supreme Decree No. 128-2013-PCM, mining companies are required to make monetary contributions to OSINERGMIN were approved byand, according to Supreme Decree No. 128-2013-PCM and130-2013-PCM, monetary contributions are also required to be made to OEFA by Supreme Decree No. 130-2013-PCM.OEFA.
With respect toRegarding employee health and safety and employer liability in mining activities, Law No. 28964 has been amended and replaced by Law No. 29783. Such employee health and safety and employer liability and related matters are now audited by the Ministry of Labor and EmploymentMinisterio de Trabajo y Promoción del Empleo(“MINTRA”). Law No. 29783, as amended by Law No. 30222, establishes the minimum rules designed to prevent employee safety risks and allocate liabilities in relation to such risks. The main principle of this law is that the employer assumes the economic, legal and any other type of liability arising from accidents or diseases suffered by the employee while working and guarantees the employee’s health and safety in connection with the employee’s work. This legislation entitles labor inspectors to inspect commercial facilities and, under certain circumstances, suspend operations. By Supreme Decree No. 003-2013—TR, MINTRA transferred its security supervisory, audit and sanctioning functions to theNational Superintendence of Labour Inspection (“SUNAFIL”). Such law amended the relevant provision of the criminal code, which currently establishes that a person who intentionally breaches the safety and health provisions, and who after being required by the relevant authority, does not adopt the measures contemplated in such provisions, is deemed to jeopardize the life, health or physical integrity of such person’s employees and may be held criminally liable for such behavior.
On July 28, 2016, Supreme Decree No. 024-2016-EM, as amended by Supreme Decree No. 029-2016-EM and Supreme Decree No. 023-2017-EM, relating to Occupational Health and Safety Regulations for Mining was published. These Regulations aim to prevent the occurrence of incidents, work-related accidents and occupational diseases, aiming to promote a culture of prevention of occupational hazards in mining activities. MEM through the General Directorate of Mining, is the competent authority on Occupational Health and Safety policy and regulation. In addition, SUNAFIL is the competent authority for the supervision and enforcement of compliance with legal and technical standards related to Occupational Safety and Health in Mining; while OSINERGMIN is the competent authority to supervise compliance of the legal and technical provisions related to the safety of infrastructure in mining.
Environmental Matters
In 2005, Peru enacted the General Environmental Law (Law No. 28611), which establishes the main environmental guidelines and principles applicable in Peru. Pursuant to the General Environmental Law, the Ministry of the Environment (“MINAM”) issued national environmental standards,regulations, which have gradually replaced prior guidelines governing governmental agencies environmental competencies. OEFA, as the environmental enforcement agency, has the authority to inspect mining operations and fine companies that fail to comply with prescribed environmental standards.regulations and their approved environmental assessments.
EachIn May 1993, the regulation for environmental protection under mining companyand metallurgical activities (reglamento para la proteccion ambiental en la actividad minero - metalúrgica), was published and approved by Supreme Decree No. 016-93-EM. This regulation established that every mining unit that began operations before May 1993 was required to file a Preliminary Environmental Evaluation,Assessment (“EVAP”), followed by a Program for each of its mining unitsEnvironmental Adequacy and Management (“PAMA”). For new operations, an EIA had to disclose any pollution problems in its operations and, thereafter, to submit a follow-up Programabe submitted. In 2014, this regulation was repealed by Supreme Decree No. 040-2014-EM (reglamento de AdecuacióProtección y ManejoGestión Ambiental (“PAMA”para las Actividades de Explotación, Beneficio, Labor General, Transporte y Almacenamiento Minero) aimed at implementing measureswhich regulates mining production, processing, labor, transportation and storage and sets forth a new set of requirements for these activities. Going forward, social and technical teams from MEM will gather the baseline information to solve problems identifiedregulate these activities. Early involvement by the regulatory authority in the EVAP. Companies must correct the pollution problems relatingenvironmental assessments processes is expected to their mining activities within five years, while smelters must take corrective measures within ten years. These companies must allocate funds in an amount corresponding to no less than 1% of their annual sales to redress the problems identified in their EVAPs and contemplated in their PAMAs.shorten approval times.
In addition, the1996, MEM hasalso issued regulations that establish maximum permissible levels (“LMP”LMPs”) of (i) emissions of liquid effluents emissions and (ii) elements and compounds present in gaseous emissions resulting from the mining activities. Generally, mining rights holdersMines and processing plants that were in operation before May 1993 were required to comply with LMPLMPs within 10 years. Inyears and in the meantime, mining operators arewere required to prepare Environmental Adaptation and Management Programs, or PAMAs, that set forth plans to ensure compliance with more stringent LMP.
In May 2008, the Ministry of EnvironmentLMPs. The first General Water Law was established by legislative decree. The principal functions of the Ministry of Environment include formulating and implementing policies and regulations relating to environmental matters and controlling pollution, including regulating air and water quality standards, through supervision and education.
enacted in 1969. In 2008 and 2010, the Ministry of EnvironmentMINAM enacted new water quality standards and new LMPLMPs for liquid effluents. Ineffluents, and, in 2009, all Peruvian mining companies were required to submit updated environmental management plans to the MEM that complied with water quality standards and new LMPLMPs for liquid effluents. Ateffluents to MEM. By the end of 2015, Supreme Decree No. 015-2015 - MINAM (the “2015 Decree”) was published, which modified theenacted, modifying water quality standards and establishedestablishing supplementary provisions related to compliance.
Under the 2015 Decree, mining companies must incorporate new water quality standards into affected environmental management plans by (1) where the MEM has already approved such plan, submitting an updated plan or (2) where the MEM is currently evaluating a plan, submitting a modified plan. The Company plans to submit updated and modified plans to the MEM as required by the 2015 Decree.
On March 26, 2013, Supreme Decree No. 002-2014-MINAM became effective. It approves the In 2017, Environmental Quality Standards (Estándares de Calidad Ambiental) (“ECA”ECAs”) for water were modified by Supreme Decree No. 004-2017-MINAM. Permissible maximum limits approved in 2010 are still valid.
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In May 2008, the MINAM was created by Legislative Decree No. 1013. MINAM’s main functions include formulating and implementing policies and regulations related to environmental matters and pollution control, including regulation of air and water quality standards, through supervision and education.
Regarding soil quality, on March 26, 2013, Supreme Decree No. 002-2013-MINAM became effective. It approved the ECAs for soils, or “Standards,” which are applicable to any project or activity that may generate an environmental risk.impact. Subsequently, on March 25, 2014, supplementary provisions for the application of the Standardsstandards were approved through Supreme Decree No. 002-2014-MINAM. Operations of projects existingProjects operating at thatthe time those regulations came into force were required to submit the first phase of soil characterization within twelve months of the passage of the decree. Buenaventura and its associated companies submitted this information within the required time.
Since May 1993,In 2017, new mining and processing activities have been requiredECAs for soils were approved by Supreme Decree No. 011-2017-MINAM, replacing the ECAs approved by Supreme Decree No. 002-2013-MINAM. The new ECAs are applicable to file and obtain approval for an EISd before being authorized to commence operations. New mining and plant processing activitiesnew environmental assessments that are required to complycarry out future mining activity in accordance with the LMP frommining regulations. With respect to the initiationenvironmental assessments that were approved prior to the approval of their operations. In 2009, MINEM approved the EISd for the La Zanja, Mallay, Tantahuatay and Esperanza projects. In 2010, MINEM approved the EISd for the Angélica Rublo Chico project. In 2011, the MEM approved the EISd for our Orcopampa and Breampampa projects. MINEM approved the modified EISd for the Mallay minenew ECAs, Supreme Decree No. 002-2013-MINAM will remain applicable and the secondnew ECAs will only be enforced when the approved environmental assessments need to be modified EISdor updated. In 2017 Supreme Decree No. 012-2017-MINAM replaced Supreme Decree No. 002-2014-MINAM, approving new supplementary provisions for application of the Shila cyanidation circuit in 2012. In 2014, MINEM approved the modified EISsd of Uchucchacua. In 2015, the EISd of Tambomayo was approved.
Wenew ECAs. Buenaventura and our subsidiaries are subject to ongoing administrative and judicial proceedings relating toits associated companies have taken into consideration all new environmental matters for which we have reserved contingencies of up to US$1.2 million This amount does not include loss contingencies reserved for associates accounted for under the equity method (Yanacocha, Cerro Verde and Coimolache).regulations when executing its mining activities.
In 2012, Peru enacted Supreme Decree No. 020-2012-EM, which added Chapter XVII to the Mining Proceedings Regulations approved by Supreme Decree No. 018-92-EM. The new provisions require the approval of the General Mining Directorate of the MEM or of the relevant Regional Governmentregional government before proceeding to start and re-start exploration, development, preparation and exploitation. The authorizations to start and re-start mining activities may need to be pre-approved by MEM if the mining activities affect indigenous or native people.
In addition, in December 2017, a new regulation for Solid Waste Management was approved by Supreme Decree No. 014-2017-MINAM which brought into force the new Law for Integral Management of Solid Waste, approved by Legislative Decree No. 1278 in December 2016. This resulted in new regulations for all extractive productions and services in Peru, including mining, which prioritize the material and energy recovery of solid waste through different methods, including recycling, reuse and co-generation
Regulations governing mining explorations. In May 2008, the Peruvian government enacted DSSupreme Decree 020-2008-EM, which governs mining exploration activities and related matters. At the end of 2017, this Supreme Decree was modified by a new regulation for exploration activities. Under DS 020-2008-EM,Supreme Decree 042-2017-EM, exploration activities fall into 2two categories: Category I and Category II. Category I exploration activities are those involving no more than 2040 drilling platforms or affecting a surrounding area that measuresmeasuring less than 10 hectares in size, while Category II exploration activities are those involving more than 20between 40 and 700 drilling platforms and affecting an area largermeasuring greater than 10 hectares. For Category I exploration activities, an Environmental Impact DeclarationStatement (Declaración de Impacto Ambiental) (“EID”DIA”) is required. For Category II exploration activities, a Semi-detailed EIS (Estudio de Impacto Ambiental) (“EISsd”) which is required whichan EIAsd that incorporates technical, environmental and social matters.matters is required. In addition, the new regulation requires an Environmental Technical Report (Ficha Técnica Ambiental) (“FTA”), which is a complementary environmental assessment for exploration activities that do not have significant negative impacts. Exploration activities must start within twelve months following the date that an EIDthe DIA or EISsdEIAsd is approved. BothThe DIA, the EIDEIAsd and the EISsdFTA, as applicable, must be approved before exploration activities begin. Any commitments assumed by mining companies in an EIDa DIA, EIAsd or EISsdFTA are mandatory and, if they are not fulfilled, OEFA has the authority to fine non-compliant mining companies. The regulation also provides that during exploration programs the holder of mining concessions will perform specified closure and post closure activities.activities during exploration programs. In addition, fines can be imposed if exploration programs begin before the EIDDIA, the EIAsd and the EISsdFTA are approved, and the approval of environmental studiesassessments for exploration activities performed within protected natural areas requires the approval of the applicable watercompetent authority. Exploration in Prehispanic Archeological Sites (referred to in DS N°Supreme Decree No 004-2000-ED) is forbidden unless expressly authorized by the National InstituteMinistry of Culture.
Also inIn May 2008, MINEMMEM also enacted DS 028-2008Supreme Decree No 028-2008-EM, which regulatedregulates the citizen participation process within the framework of environmental permit approval. The EIDDIA and EISsdEIAsd provide local communities with an opportunity to engage actively engage in this process.
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The following EIDsDIAs and EISsdEIAsd were approved in 2015:2019:
| Buenaventura | ||||||
| Mine/Project | Type of Study | Approving Resolution | Date of Approval | |||
| Trapiche | EIAsd 5th Modification | 148-2019-MINEM/DGAAM | August 26, 2019 | |||
Investment Promotion Regulations.Supreme Decree 054-2013-PCM was passed to promote investment projects. It allows companies to submit a supporting technical report, ITS (Informe Técnico Sustentatorio), to modify ancillary components, capacity expansions, or introduce technological improvements. MINEMimprovements in exploration and exploitation activities. SENACE (EIAd) and MEM (DIA and EIAsd) will then issue a compliance waiver within no more than 15 working days from the date of submission. This should facilitate the approval of environmental assessments for our new exploration projects and simplify the issuance of certificates of non-existence of archeological remains required for mining projects. In 2019, 25 ITSs were approved.
Regulations governing mine closures. In 2003, Law No. 28090,Ley que Regula el Cierre de Minas (Law that Regulates the Closing of Mines), established the obligations and procedures that mining companies must follow to prepare, submit and execute plans for the closing of mines, or “Closure Plans,” and the granting of financial environmental guarantees to secure compliance with Closure Plans. We are required to submit a Closure Plan for new projects to MINEMMEM within one year following approval of an EISEIA or PAMA; and inform MINEMMEM semi-annually of any progress on the conditions established in the Closure Plan;Plan. We are also required to perform the Closure Plan consistent with the schedule approved by MINEMMEM during the life of the project; and set up ana financial environmental guarantee that covers the estimated amount of the Closure Plan.
In addition, Supreme Decree No. 020-2008-EM requires mining companies that perform exploration activities to conduct certain closing activities in accordance with the applicableapproved environmental study approved by the relevant authority,assessment, subject to deferral under certain circumstances, and contemplates a Closure Plan to be submitted by the mining company following the terms and conditions of Supreme Decree Nº 033-2005-EM. Supreme Decree Nº 036-2016-EM modified articles 12 and 17 and included articles 46-A y 66-A of the Supreme Decree Nº 033-2005-EM.
OurIn 2017, our Closure Plans were approved by MINEMMEM for all of our mines and advanced explorations. To date, MINEM has approved our Closure Plans for Julcani, Recuperada, Uchucchacua, Orcopampa, Poracota, Antapite, Caravelí, Shila, Paula, Esperanza, Pozo Rico, Mallay, Trapiche, Breapampa, Angélica Rublo Chico, Anamaray-Jancapata, La Zanja, Tantahuatay and Tambomayo.
The following mine closure plan modifications were approved in 2015:2019:
| Buenaventura | |||||||||
| Mine/Project | Type of Study | Approving Resolution | Date of Approval | ||||||
| San Gabriel | Closure Plan | 081-2019-MEM-DGAAM | Mayo 30, 2019 | ||||||
| Tambomayo | Closure Plan 1st Modification | 140-2019/MINEM-DGAAM | August 8, 2019 | ||||||
| Julcani | Closure Plan | ||||||||
| Mallay | Closure Plan | ||||||||
| Closure Plan | 199-2019/MINEM-DGAAM | ||||||||
| Mine/Project | Type of Study | Approving Resolution | Date of Approval | |||
| La Zanja | Closure Plan | |||||
| 071-2019-MEM-DGAAM | May 17, 2019 | |||||
| Colquijirca | ||||||
On November 9, 2009 Supreme Decree No. 078-2009-EM became effective, creating additional environmental obligations for mining concessions holders. Under this provision, mining concessions holders that performed mining activities, including mining exploration, production and processing activities or related activities, without having an Environmental Certification will beenvironmental certification are required to prepare and perform an Environmental Remediation Planenvironmental remediation plan to address the environmental impact in the areas in which such activities have been conducted. Environmental Remediation Plans couldremediation plans can only be filed once mining activities have ceased. Environmental Remediation Plans wouldceased and contain a detailed description of all the mining facilities and activities performed without the correspondent Environmental Certification,environmental certification, including maps and related information, a detailed description of the environmental impacts created by such activities, a detailed description of the remediation actions, a detailed description of the compensation that is proposed to be made, a budget and schedule of the remediation activities, including their costs, and a bond in favor of MINEMMEM for the cost of the execution of the measures contained in the Environmental Remediation Plan.environmental remediation plan. Once the Environmental Remediation Planenvironmental remediation plan is completed, mining concessions holders are required to inform the auditing entity so it can verify that the actions were carried out as approved. The auditing entity is required to send the respective report to the relevant authority so that the bond may be returned.
Law No. 28271, Law that Regulates the Environmental Liabilities of Mining Activities (Ley que Regula los Pasivos Ambientales de la Actividad Minera), came into force on July 7, 2004 and serves to regulate the identification of environmental liabilities and financial responsibility for remediation in mining activities, in each case to mitigate any negative impact mining may have with respect to the health of the population, environment and property. Pursuant to Law No. 28271, as amended by Law No. 28526 and Legislative Decree No. 1042, theMEM’s technical branch of MINEM will identify environmental liabilities, mining companies responsible for abandoned mining facilities, mining works and residue deposits that may be linked to such environmental liabilities and holders of inactive mining concessions with mining liabilities. Holders of inactive mining concessions with environmental mining liabilities will be required to submit a Closure Plan and enter into environmental remediation agreements with MINEMMEM to perform any studies and work necessary to control and mitigate the risk and effects of any contamination. Regulations under Law No. 28271, Regulations of Environmental Liabilities of Mining Activities(Activities (Reglamento de Pasivos Ambientales de la Actividad Minera), were approved by Supreme Decree No. 059-2005-EM. and then modified by Supreme Decree No. 003-2009-EM.
We have presented Closure Plans to the MINEMMEM for all our mining concessions with environmental mining liabilities. To date, the Hualchocopa, Lircay, Bella Unión-Paucaray, Chaquelle Ayacucho and ChaquelleRifle Rumimaqui mining units have all been closed and post-closure activities at each of these units are currently underway.
On November 12, 2014, a new Environmental Protection and Management by-law was enacted, which covers mining production, processing, common labor, transport, and storage, and sets forth a new set of requirements for these activities. Going forward, social and technical teams from MINEM will accompany the collection of baseline information. Early involvement of the statutory authority throughout the environmental studies process is expected to bring about shorter approval times.
On December 28, 2015, theServicio Nacional de Certificación Ambiental(“SENACE”), which operates under the auspices of MINAM, took responsibility for the assessment and approval of detailed EIS,EIAs submitted by private, public, or mixed-capital organizations. This development is consistent with the expansion of MINAM’s technical and regulatory capacities. In 2019 EIAs for Yumpaq and Trapiche were prepared under SENACE supervision.
Finally, the Enviromental Baseline Elaboration Guidelines
(Guía para la elaboración de la Línea Base en el marco del Sistema Nacional de Evaluación del Impacto Ambiental– SEIA) and Identification and Characterization of Environmental Impacts Guidelines (Guía para la Identificación y Caracterización de Impactos) were approved by Ministerial Resolution N0. 036-2018-MINAM in 2018.
We anticipate additional laws and regulations relating to environmental matters will be enacted over time. The development of more stringent environmental regulations in Peru could impose additional constraints and additional costs on our operations and wethat would be requiredrequire us to make significant additional capital expenditures in the future. Although we believe that we are substantially in compliance with all applicable environmental regulations of which we are now aware, there is no assurance that future legislation or regulatory developments will not have an adverse effect on our business or results of operations.
In connection with the approval of environmental studies, the Peruvian government has issued several decrees intended to simplify the issuance of permits, including Supreme Decree No. 054-2013-PCM (effective since June 2, 2013), Supreme Decree No. 060-2013-PCM (effective since May 26, 2013) and Ministerial Resolution No. 092-2014-MEM/DM (effective since May 27, 2014). We believe these provisions should facilitate the approval of environmental studies for our new exploration projects and simplify the issuance of certificates of non-existence of archeological remains required for mining projects.
Prior Consultation with Local Indigenous Communities
In 2011, Peru enacted Law No. 29785, the Law of Prior Consultation for Indigenous and Native Communities (Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios Reconocido en el Convenio– ILO 169 de la Organización Internacional del Trabajo)Convention). This law establishes a prior consultation procedure that the Peruvian government must undertake in concert with local indigenous communities whose collective rights may be directly affected by new legislative or administrative measures, including the granting of new mining concessions.measures. Under this law, the Peruvian governmental agency responsible for issuing or approving the administrative measure or decree in question, rather than the affected local indigenous community, retains the right to approve or reject the relevant legislative or administrative matter following such consultation. However, to the extent that any of our future projects require the promulgation of legislative or administrative measures that impact collective rights of local indigenous communities, the required prior consultation procedure may result in delays, additional expenses or failure to obtain approval for such new project.
Regulations under Law No. 29785 were approved by Supreme Decree No. 001-2012-MC, which became effective on April 2, 2012. These regulations specify the form and circumstances of the required consultation and the manner in which agreements will be formalized, and provide for a consultation process that lasts no more than 120 calendar days. In 2019, Ministerial Resolution No. 304-2019-MINEM/DM was issued, establishing the administrative procedures from the Mining Sector that require prior consultation - in case those procedures affect indigenous communities - which are: (i) processing concession; (ii) authorization to initiate or re-initiate exploration, development or exploitation activities; (iii) mineral transport; and (iv) mining labor.
Permits
We believe that our mines and facilities have all necessary material permits to operate. All future exploration projects will require a variety of permits. Although we believe the permits for these projects can be obtained in a timely fashion, permitting procedures are complex, time-consuming and subject to potential regulatory delay. We cannot predict whether we will be able to renew our existing permits or whether material changes in existing permitting conditions will be imposed. Non-renewal of existing permits or the imposition of additional permitting conditions could have a material adverse effect on our financial condition or results of operations.
Insurance
Insurance
We maintain a comprehensive insurance program designed to address specific risks associated with our operations, in addition to covering the insured risks common to major mining companies. Our insurance program is provided through the local Peruvian insurance market and includes employers’ liability, comprehensive third partythird-party general liability and comprehensive automobile liability, all risk property on a replacement basis, including transit risks, as well as business interruption insurance and mining equipment insurance.
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Mining Royalties and Taxes
Under Peruvian law, holders of mining concessions are required to pay the Peruvian government a mining royalty (regalia minera) for the exploitation of metallic and non-metallic resources. In accordance with Law No. 28258, as amended by Law No. 29788, mining royalties are payable either as a specified percentage of operating profit or 1% of revenues, whichever is higher. If the mining royalty is calculated as a percentage of operating profit, marginal rates ranging from 1% to 12%, increasing that increase progressively for companies with higher operating margins will apply. Percentages for the distribution of proceeds from mining royalties were amended by Law No. 28323.
Mining companies that are a party to mining stabilization agreements will not be required to pay a mining royalty during the tenure of their stabilization agreements. Although we are not party to any stabilization agreements, Yanacocha currently has effective stabilization agreements for the Yanacocha, La Quinua and Maqui Maqui mines.
In addition to mining royalties, pursuant to Law No. 29789, effective from October 1, 2011, mining operations in Peru are subject to a newan extraordinary mining tax. Mining companies that do not have taxation stability agreements with the Peruvian government, such as Buenaventura, will pay the “Special Mining Tax” (Impuesto Especial a la Minería). The Special Mining Tax is calculated each quarter as a percentage of operating profit. Marginal rates rangeranging from 2% to 8.4%, increasing that increase progressively for companies with higher operating margins.margins will apply. Mining companies that have stability agreements with the Peruvian government will pay the “Special Mining Duty” (Gravamen Especial a la Minería). created by Law No. 29790. The Special Mining Duty is calculated as a percentage of operating profit, with marginal rates ranging from 4% to 13.12%, increasing that increase progressively for companies with higher operating margins.
Safety
During 2015,2019, we experienced 70442 reportable injuries, which were comprised of 67 lost-time injuries and 3including two fatal injuries, as compared to 86 total reportablethree fatal injuries during 2014, which were comprised of 81 lost-time injuries and 5 fatal injuries.in 2018. Under Peruvian legislation, reportable injuries include: accidental injuries resulting in lost-time, fatal accidents, accidents that require medical treatment or result in a loss of consciousness, an inability to perform all job duties on any workday after the injury or the temporary assignment or transfer to another job. Injuries involving first-aid only are not reportable as they are considered minor accidents. Starting in 2017, we increased rows on classifications for lost time injuries and external non-mining projects (public roads, health and education facilities constructions) all of which were reported to the Bureau of Labor.
The following activitiestable below shows Accident Rates based on the number of fatal and programs were implemented during 2015 in order to improve safety management system:lost time accidents (Frequency) and days lost (Severity). The table shows a decreasing trend for Accident Rates between 2018 (1.90) and 2019 (1.61).
| C. | Organizational Structure |
As of March 31, 2016,2020, we conducted our mining operations, explorations projects and other activities directly and through various majority-owned subsidiaries, controlled companies and other associate companies as described in the following organizational chart:
| † | All entities in this chart, with the exception of Minera Julcani S.A. de C.V. (which is organized in Mexico), Compañía de Minas Buenaventura Chile Ltda. (which is organized in Chile), BISA Argentina S.A.( which is organized in Argentina) and Tinka Resources Limited (which is organized in Canada) are incorporated in Peru. | |
| * | Compañía Minera Condesa S.A. holds 21,160,260 |
Intermediate Holding Companies, Subsidiaries and Equity Participations
Compañía Minera Condesa S.A.
Compañía Minera Condesa S.A., or “Condesa,” which is our wholly-owned subsidiary, is a mining and facilities holding company with both direct and indirect ownership participation in Yanacocha. As a partner in Yanacocha, Condesa shares responsibility for the investments made in the Yanacocha mine. In addition, Condesa holds an equity interest in S.M.R.L. Chaupiloma Dos de Cajamarca (“Chaupiloma”) and, as a result, receives a portion of the royalty revenues paid by Yanacocha to Chaupiloma in an amount equal to its ownership interest. Condesa also holds a 7.70% interest in us.Buenaventura.
S.M.R.L. Chaupiloma Dos de Cajamarca
S.M.R.L. Chaupiloma Dos de Cajamarca, or “Chaupiloma,” is a Peruvian limited liability company that holds all of the mining rights for the areas mined by Yanacocha. Chaupiloma receives a royalty that is calculated as a percentage of the total revenues of Yanacocha. We own, directly and indirectly, through our interest in Condesa, a 60% interest in Chaupiloma. Newmont Peru owns the remaining 40% equity interest.interest
Consorcio Energético Huancavelica S.A. / Empresa de Generación Huanza S.A.
Consorcio Energético Huancavelica S.A., or “Conenhua,” is an electrical transmission company that provides a significant portion ofelectricity to our electrical needsoperations through its transmission facilities. We own 100% of Conenhua and manage its operations. Conenhua obtained its concession for power transmission in the Huancavelica area in 1983 and subsequently obtained concessions in the Cajamarca and Arequipa regions, which enabled us to transmit electric power to certain of our mining units and affiliates, as well as to other mining companies and municipalities in the area, through our own facilities.
To secure a reliable energy supply from a clean and renewable source for our direct operations and projects at competitive prices, Conenhua, through its subsidiary Empresa de Generación Huanza S.A., or “Huanza,” was commissioned to construct a 90.6 megawatt (“MW”), capacity hydroelectric power plant in the valley of Santa Eulalia. This hydroelectrical plant began operating at full capacity in June 2014.
Buenaventura Ingenieros S.A.
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Buenaventura Ingenieros S.A., or “BISA,” one of our wholly-owned subsidiaries, has provided geological, engineering, design and construction consulting services to the mining sector for over 30 years. During this time, BISA has consulted in Peru, Chile, Argentina, Mexico and Ecuador on a range of projects, operations and expansions.
Contacto Corredores de Seguros S.A.
During 2015, Buenaventura paid US$8.8 million to BISABuenaventura Ingenieros S.A. in order to obtain 99.98% ownership of Contacto Corredores de Seguros S.A., an insurance brokerage company that provides insurance brokerage and related services to us and our affiliatesaffiliates.
Minera Julcani S.A. de C.V.
Minera Julcani S.A. de C.V. is one of our wholly-owned subsidiaries and was created for the purpose of conducting mining activities in Mexico. Currently, we are conductingMinera Julcani S.A. de C.V. has had no exploration activities pursuant to ansince 2014, when the exploration agreement with Surutato Mining, S.A. de C.V., or “Surutato.” Under this agreement, Surutato granted us the exclusive right to conduct exploration activities within its property located in Sinaloa, Mexico.Mexico, was terminated.
Inversiones Colquijirca S.A. / Sociedad Minera El Brocal S.A.A.
El Brocal owns the Colquijirca and Marcapunta Norte mines and the San Gregorio exploration project. El Brocal was formed in 1956 and is engaged in the extraction, concentration and sale of concentrates of polymetallic minerals, mainly copper, zinc, lead and silver. Currently, we own 56.29%61.43% of El Brocal through both direct and indirect ownership interests.
Minera La Zanja S.R.L.
La Zanja is located 35 kilometers northwest of the city of Cajamarca. La Zanja, which is currently 53.06% owned by us, began operations in September 2010 as an open-pit mine producing gold and silver.
Compañía Minera Coimolache S.A.
Coimolache is a mining company that owns the Tantahuatay mine which is located in the province and district of Hualgayoc in the Cajamarca region, which is 35 kilometers northwest of the Yanacocha mine. We hold a 40.10% interest and operate this mine, which commenced operations in mid-2011.mid-2011 as an open-pit mine producing gold and silver.
FerrovíasFerrocarril Central Andino S.A.S.A
We hold 10% of FerrovíasFerrocarril Central Andino S.A.,S.A, a railroad company, pursuant to a concession granted to a consortium of several companies in April 2000. Ferrovías provides transportation for concentrates from El Brocal’s mining operations.
Apu Coropuna S.R.L.
Buenaventura currently owns 70% of Apu Coropuna S.R.L., is currently 70% owned by us andwith the other 30% owned by Southern Peru Copper Corporation. Apu Coropuna S.A. was created for the purpose of conducting exploration within properties situated in Castilla, Arequipa.
Compañía de Minas Cerro Hablador S.A.C.
Compañía de Minas Cerro Hablador S.A.C., is our wholly-owned subsidiary created for the purpose of conducting exploration activities pursuant to our agreement with Corporación Aceros Arequipa S.A. Under this agreement, Corporación Aceros Arequipa S.A. granted us the exclusive right to conduct exploration activities within its properties situated in Livitaca, Cusco.
Procesadora Industrial Rio Seco S.A.
Procesadora Industrial Rio Seco S.A. is our wholly-owned subsidiary that owns and operates a monohydrate manganese sulphate crystallization plant situated in Huaral, Lima. This processing plant will allowallows mining from areas with high silver and manganese content within the Uchucchacua mine, which will improveimproving silver recovery. The Rio Seco Plant produces high purity manganese sulphate that is used in agriculture and the mining industry.
El Molle Verde S.A.C.
El Molle Verde S.A.C. is our wholly-owned subsidiary that develops the Trapiche project, located in the Apurimac region. See “Item 4. “—B. Business Overview–Overview—Exploration Projects in Non-Operating Areas” above for further information ofabout this project.
Tinka Resources Limited
Buenaventura holds 19.3% of Tinka Resources Limited, an exploration and development company that owns (36%) of the Ayawilca Project, located at Daniel Alcides Carrión, Pasco.
YANACOCHA
YANACOCHA
| A. | History and Development of Yanacocha |
Yanacocha was incorporated in Peru on January 14, 1992 and commenced operations in 1993. Yanacocha is currently engaged in the production, exploration and development of gold under the mining concessions it owns or that are owned by Chaupiloma. Future projects could include the production, exploration and development of copper as well.
A. History and Development of the Company
Founded in Peru in 1992, Yanacocha is one of the largest gold producers in South America, having produced 917,691 ounces of gold in 2015. Yanacocha’s operations are located in the Andes Mountains in Northern Peru in the region of Cajamarca, located approximately 600 kilometers375 miles (604 kilometers) north of Lima and 30 miles (48 kilometers) north of the city of Cajamarca at an altitude of 4,000 meters above sea level.and is primarily accessible by paved roads. The Yanacocha property began production in 1993 and consists of the following open-pitopen pit mines: Chaquicocha, Maqui Maqui, Cerro Yanacocha,the La Quinua Complex, the Yanacocha Complex, the Carachugo Complex and Maqui Maqui. In addition, Yanacocha has four leach pads (La Quinua, El Tapado, El Tapado Oeste)Yanacocha, Carachugo and Maqui Maqui), Cerro Negro Este, Western Oxide pits (La Quinua Sur and Cerro Negro Oeste), Eastern Oxide pits (Quecherthree gold processing plants (Pampa Larga, Yanacocha Norte and Marleny)La Quinua), one limestone processing facility (China Linda) and Carachugo Alto.
Yanacocha also owns the Conga project, which is located approximately 24 kilometers northeast of the Yanacocha operating mine in the provinces of Celendin, Cajamarca and Hualgayoc. There was no exploration or development of new reserves because the Conga project's development and reserve balances reported in 2014 were reclassified to mineralized material in 2015.
As of December 31, 2015, Yanacocha’s proven and probable reserves (excluding the Conga project, for which reserves were reclassified as resources or NRM as of December 31, 2015) were estimated to be 5.1 million ounces of gold, representing a 4% increase over Yanacocha’s proven and probable reserves as of December 31, 2014, which were estimated to be 4.9 million ounces of gold. The Conga project’s reserves are excluded because they were reclassified due to the expiration of the current permit.
Proven and probable reserves are based on extensive drilling, sampling, mine modeling and metallurgical testing from which economic feasibility is determined. Under the Management Contract (as defined below), Newmont Mining, in conjunction with Yanacocha, calculates Yanacocha’s reserves by methods generally applied within the mining industry and in accordance with SEC Industry Guide 7. Reserves represent estimated quantities of proven and probable ore that, under present and anticipated conditions, may be economically mined and processed.one mill (Yanacocha Gold Mill).
In 2015,2019, Yanacocha produced 917,691527,336 ounces of gold, compared to 969,944514,564 ounces of gold produced in 2014. This decrease in gold production in 2015 as compared2018. Gold ounces produced increased 25% due primarily to 2014 was mainly attributable to:
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Silver production was 574,110 ounces in 2014 and 447,376 ounces in 2015. This decrease in silver production in 2015 as compared to 2014 was mainly attributable to beginning the deep transitional process with lower recovery on silver in the gold mill.from La Quinua heap leach.
Yanacocha is 51.35% owned by Newmont Mining owns 51.35% ofSecond Capital Corporation. A 43.65% interest in Yanacocha through its wholly-owned subsidiary Newmont Second. We own 43.65% of Yanacocha through our wholly-owned subsidiary Condesais indirectly held by Buenaventura and the remaining 5% is ownedheld by IFC. Yanacocha is managed by Newmont Peru. See “ –Summit Global Management II VB, a wholly-owned subsidiary of Yanacocha – General Manager/Management Agreement.”Sumitomo Corporation. Although Yanacocha has no fixed dividend policy, there is an understanding among the partners that the net income not required for sustaining capital expenditures or future development projects should be distributed following approval by the two major shareholders of Yanacocha, Newmont Mining and us.Yanacocha.
On December 21, 2017, Yanacocha repurchased 63,922,565 of its shares owned by International Finance Corporation (“IFC”) for US$47.9 million, which represented 5% of the capital stock of Yanacocha. On February 19, 2018, the Yanacocha partners approved the reduction of 63,922,565 of the common partnership interests. On June 14, 2018, Yanacocha’s partners approved the issue and sale of 63,922,565 partnership units to Summit Global Management II BV.
| Business Overview |
Description of Yanacocha’s Operations
Capital Expenditures
Yanacocha’s capital expenditures from its formation in 1992 through 2015 havemining activities encompass 301,000 acres (121,810 hectares) that are covered by 185 mining concessions. Yanacocha holds the mining rights related principally to:
Yanacocha’s capital expenditures from its formation through December 31, 2015 amounted to approximately US$527 million, including capital expenditures of US$311 million in 2013, US$117 million in 201496,338 acres (38,987 hectares), covered by 73 concessions. Chaupiloma holds the mining rights to the remaining acres and US$96 million in 2015.
In 2015, Yanacocha’s principal capital expenditures included:
Yanacocha anticipates that its capital expenditures for 2016 will be approximately US$79 million, of which it plans to use approximately US$39 million for Yanacocha laybacks, US$24 million to continue with the construction of a water treatment plant at La Quinua,concessions and US$4 million in connection with improvements in a residual water treatment plant. The remaining capital expenditure budget has been allocated for investment in current operations. No capital will be employed at the Conga Project in 2016.
Yanacocha expects that it will meet its working capital, capital expenditure and exploration requirements for the next several years from internally-generated funds, cash on hand and financing from banks and financial institutions, if required. There can be no assurance that sufficient funding will be available to Yanacocha from internal or external sources to finance future working capital, capital expenditures and exploration and construction requirements, or that external funding will be available for such purposes on terms or at prices favorableassigned these mining concessions to Yanacocha. A further decline in the priceEach concession has an initial term of gold would be reasonably likely17 to affect the availability of such sources of liquidity. See “Item 5. Operating and Financial Review and Prospects—Yanacocha—B. Liquidity and Capital Resources—Exploration Costs; Capital Expenditures.”
Description of30 years, which are renewable at Yanacocha’s Operations
The Yanacocha property consists of the following open-pit mines: Chaquicocha, Maqui Maqui, Cerro Yanacocha, La Quinua Complex (La Quinua, El Tapado, Tapado Oeste), Cerro Negro Este, Western Oxide pits (La Quinua Sur and Cerro Negro Oeste), Eastern Oxide pits (Quecher Norte and Marleny) and Carachugo Alto.
Leach pads are located at Carachugo (410 million ton capacity), Maqui Maqui (70 million ton capacity), Cerro Yanacocha (470 million ton capacity) and La Quinua (640 million ton capacity, including the Western Oxides). Each of these leach pads includes at least two leach solution storage ponds and storm water ponds located down gradient from each leach pad. The Cerro Yanacocha site has tworequest for an additional solution ponds for the segregation of solution generated from the treatment of transition ores. A raw water pond is used both for storm containment and17 to store excess solution during the wet season.20 year term.
Yanacocha has fourthree processing concessions from Peru’s MEM for its processing facilities: Pampa Larga,Cerro Yanacocha Norte,(La Quinua and Yanacocha leach pads, La Quinua and theYanacocha Norte gold recovery plants and Yanacocha Gold Mill. The processing facilities can be used to process gold-bearing solutions from any of theMill), Yanacocha (Carachugo and Maqui Maqui leach pads through a network of solution pumping facilitiesand Pampa Larga gold recovery plant) and China Linda (non-metallic processing concessions). Yanacocha’s gold processing plants are located adjacent to the solution storage ponds or, in the caseand are used to process gold-bearing solutions from Yanacocha’s leach pads through a network of thesolution-pumping facilities. The Yanacocha Gold Mill to processprocesses high-grade gold ore to produce a gold-bearing solution for treatment at the La Quinua processing plant. The Yanacocha Gold Mill commenced operations in March 2008, and its total annual production isprocesses between 5.5 and 6.0 million dry tons. Production attons per year.
Yanacocha’s gold processing plants are located adjacent to the solution storage ponds and are used to process gold-bearing solutions from Yanacocha’s leach pads through a network of solution-pumping facilities and the Yanacocha Gold Mill is expectedprocesses high-grade gold ore to significantly impact Yanacocha’s future production capabilities, with total production measured in life-of-mine ouncesproduce a gold-bearing solution for treatment at the Yanacocha Gold Mill representing 38% ofLa Quinua processing plant, followed by Merrill - Crowe zinc precipitation and smelting where a final doré product is poured. The ore is then shipped offsite for refining and is sold on the total ounces produced by Yanacocha. To balance mining production and Yanacocha Gold Mill total production capacity, Yanacocha has established ore stockpiles in which it deposits most of the ore from the pits, and feeds a small portion directly to the plant. The Yanacocha Gold Mill sources mill ore from the Yanacocha, Chaquicocha, El Tapado and Tapado Oeste pits.international gold markets.
Yanacocha and Chaupiloma each have mining concessions granted by Peru’s Geological, Mining consists ofand Metallurgical Institute. Mining concessions grant Yanacocha an exclusive and irrevocable right to carry out exploration and exploitation activities within a sequence of drilling, blasting, loadingspecified area. In order to maintain these concessions, Yanacocha must (i) obtain the appropriate permits and hauling. Ore containing gold is transported from each minerights over the surface lands, (ii) pay annual license fees and (iii) comply with a minimum annual production obligation. For mining concessions granted prior to 2008, concessions will expire if the nearest active leach pad while waste is taken to specially designed storage facilities. Ore is then leached by introducing diluted solutions of cyanide through an irrigation system placed on top of the ore. This solution percolates through the ore, dissolving gold and silver as AuCN and AgCN complexes, and results in a “pregnant” solution which drains to solution storage ponds to be transferred to the nearest recovery facility. The end product is doré bars comprised of approximately 65-66% gold and approximately 29% silver. The doré barsproduction obligations are transported from the processing plant by an outside security firm to be refined outside of Peru. See “—Transportation and Refining.” The solution from which the gold is removed (barren solution) is recycled to the leach pads for further heap-leaching after having been reconstituted with cyanide. The leaching process is generally a closed system. However, during periods of high rainfall, excess water must be treated at the facilities located at Yanacocha Norte and Pampa Larga, which have been designed to meet or exceed standards for drinking water and for agriculture and livestock as set outnot met by the Peruvian Ministryend of Health, the U.S. Environmental Protection Agency, the State of Nevada Regulations and World Bank guidelines. See “Regulation, Permit and Environmental Matters.”2038. Mining concessions granted on or after 2008 will expire if minimum production is not attained by 2038.
Since 1997, the energy and power supply for Yanacocha has been obtained from the Peruvian national electricity system through a 220 kilovolt (“kV”) transmission line from the Trujillo-Norte substation in Trujillo to the Cajamarca-Norte substation in Cajamarca. This transmission line is owned by Consorcio Energético Huancavelica–CONEHUA, and has a design capacity of approximately 150MW.
In August 2011, a new 220kV called Interandina line was brought online from Carhuamayo-Paracsha–Conococha-Kiman Ayllu (Huallanca) and connected to the Cajamarca-Norte substation. This line belongs to Abengoa and provides Yanacocha with energy and power, leaving the old transmission line with the energy flow to Trujillo.
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Minera Yanacocha also hasIn Peru, a 60kV double triad linerevised royalty and special mining tax was introduced in October 2011. This tax is dependent on whether or not a 220kV simple triad line. Both are connected to Cajamarca-Norte Substationstabilization agreement is in effect and is based on a sliding scale, between 1% and 12%. A stabilization agreement was in effect through December 2018 for operations in the direct supply of its process plants.La Quinua Complex.
Alternatively, in case of emergency, reduced supply or other event affecting the national electrical system, Yanacocha has its own power generators with a capacity of approximately 27MW. This system allows the Company to maintain the sustainability of its operation system and reduce its operational risks. Quecher Main Project
In connection with a bidding process carried out during 2014, the supply of energy and power for the period from 2015 to 2018 was awarded to Duke Energy (Egenor), whichThis project is expected to achieve reductionsadd oxide production at Yanacocha, leverage existing infrastructure and enable potential future growth at Yanacocha. First production was achieved in energy priceslate 2018 and result in savings of over US$25 million duringcommercial production started on October 2019. The Quecher Main extends the four-year termlife of the contract.Yanacocha operation to 2027 with average annual gold production of about 200,000 ounces unaudited per year (on a consolidated basis) between 2020 and 2025. Development capital costs (excluding capitalized interest) since approval were US$193 million (US$96.8 million for the year 2019).
Conga Project
The Conga project consists of two gold-copper porphyry deposits located northeast of the Yanacocha operating area in the provinces of Celendin, Cajamarca and Hualgayoc. There is no exploration and/or development of new reserves as the project’s development and reserve balances reported in 2014 were reclassified to mineralized material in 2015.
Environmental Matters
In 2015, Yanacocha’s power consumption was approximately 469 Giga Watt Hours at athe Peruvian government agency responsible for certain environmental regulations, the MINAM, issued water quality criteria and standards for designated beneficial uses which apply to mining companies, including Yanacocha. These criteria modify the in-stream water quality criteria pursuant to which Yanacocha has been designing water treatment processes and infrastructure. In response in February 2017, Yanacocha submitted its proposed modification to the previously approved Environmental Impact Assessment to the MEM, which remained under review in 2019 and evaluation is expected in 2020. After approval, MEM may allow up to three years to develop and implement the modifications to the water management system. In the event Yanacocha is unsuccessful in implementing the modifications in compliance with the new regulations and deadlines, it could result in fines and penalties relating to potential intermittent non-compliant exceedances. In addition, if accepted, the treatment options may result in increased costs. These impacts may adversely impact the future cost and financial performance of US$28.46 million. The maximum demand was 63.3MWour operations in July 2015.See “Item 5. Operating and Financial Review and Prospects.”Peru.
WaterThe Peruvian government agency responsible for Yanacocha’s operationsenvironmental evaluation and inspection, Organismo Evaluacion y Fiscalizacion Ambiental (“OEFA”), conducts periodic reviews of the Yanacocha site. In 2011 to 2019, OEFA issued notices of alleged violations of OEFA standards to Yanacocha and Conga relating to past inspections. OEFA has resolved some alleged violations with minimal or no findings. In 2015 and 2016, the water authority of Cajamarca issued notices of alleged regulatory violations, and resolved some allegations in 2017 with no findings. The experience with OEFA and the water authority is collectedthat in the case of a finding of violation, remedial action is often the outcome rather than a significant fine. The alleged OEFA violations currently range from rainfallzero to 17,642 units and wells. All excessthe water used byauthority alleged violations range from zero to 10 units, with each unit having a potential fine equivalent to approximately 1,260 dollars based on current exchange rates with a total potential fine amount for outstanding matters of (US$0 to US$22,200). Yanacocha undergoes treatment atand Conga are responding to all notices of alleged violations, but cannot reasonably predict the facilities described above.outcome of the agency allegations.
Set forth below are certain unaudited operating data forIn 2016 as part of the years shown for eachrequirement to submit an updated closure plan to Peruvian regulators every five years. As a result, the Company recorded increases to the reclamation obligation at Yanacocha in connection with an update to the Yanacocha closure plan, resulting in an increase to the recorded asset retirement cost related to the producing areas of Yanacocha’s mining operations that were thenthe mine and a non-cash charge to reclamation expense related to the areas of the mine no longer in operation:
| 2013 | 2014 | 2015 | ||||||||||
| Mining Operations: | ||||||||||||
| Ore mined (DST): | ||||||||||||
| Cerro Yanacocha | 1,477,391 | 883,573 | 6,379,952 | |||||||||
| Carachugo | 13,590,412 | 7,721,830 | 2,775,440 | |||||||||
| Maqui Maqui | 2,467,205 | 619,755 | 1,490,496 | |||||||||
| La Quinua | 21,098,589 | 27,414,341 | 17,312,927 | |||||||||
| San José | - | - | - | |||||||||
| Cerro Negro | 4,733,308 | 3,644,896 | 12,875,105 | |||||||||
| Total ore mined (DST) | 43,366,905 | 40,281,395 | 40,833,920 | |||||||||
| Average gold grade of ore mined (oz./DST): | ||||||||||||
| Cerro Yanacocha | 0.016 | 0.019 | 0.010 | |||||||||
| Carachugo | 0.035 | 0.031 | 0.031 | |||||||||
| Maqui Maqui | 0.020 | 0.025 | 0.066 | |||||||||
| San José | - | - | - | |||||||||
| La Quinua | 0.031 | 0.043 | 0.037 | |||||||||
| Cerro Negro | 0.015 | 0.024 | 0.018 | |||||||||
| Total average gold grade of ore mined (oz./DST) | 0.029 | 0.038 | 0.027 | |||||||||
| Gold production (oz.): | ||||||||||||
| Cerro Yanacocha | 16,393 | 30,713 | 54,677 | |||||||||
| Carachugo | 437,095 | 286,062 | 87,146 | |||||||||
| Maqui Maqui | 5,856 | 5,669 | 67,195 | |||||||||
| San José | - | - | - | |||||||||
| La Quinua | 530,437 | 595,751 | 596,638 | |||||||||
| Cerro Negro | 27,478 | 51,749 | 112,033 | |||||||||
| Total gold (oz.) | 1,017,259 | 969,944 | 917,690 | |||||||||
Explorationproduction. The increase to the reclamation obligation was primarily due to higher estimated long-term water management costs, heap leach earthworks and related support activities.
Yanacocha’s mining activities encompass 219,533 hectares,Conga Project Constitutional Claim.On October 18, 2012, Marco Antonio Arana Zegarra filed a constitutional claim against the MEM and Yanacocha requesting the Court to order the suspension of the Conga project as well as to declare the directorial resolution dated October 27, 2010 which are coveredapproved the Conga project Environmental Impact Assessment (“EIA”) not applicable. On October 23, 2012, a Cajamarca judge dismissed the claims based on formal grounds finding that: (i) plaintiffs had not exhausted previous administrative proceedings; (ii) the directorial resolution approving the Conga EIA is valid, and was not challenged when issued in the administrative proceedings; (iii) there was inadequate evidence to conclude that the Conga project is a threat to the constitutional right of living in an adequate environment and; (iv) the directorial resolution approving the Conga project EIA does not guarantee that the Conga project will proceed, so there was no imminent threat to be addressed by 328 mining concessionsthe Court. The plaintiffs appealed the dismissal of the case. The Civil Court of the Superior Court of Cajamarca confirmed the above mentioned resolution and applications. Of these 219,533 hectares, Chaupiloma holds the mining rights relatedplaintiff presented an appeal. On March 13, 2015, the Constitutional Court published its ruling stating that the case should be sent back to 102,803 hectares, which are coveredthe first court with an order to formally admit the case and start the judicial process in order to review the claim and the evidence presented by 138 mining concessions.the plaintiff. Yanacocha holdshas answered the mining rights related to 116,730 hectares underlying 190 concessions.claim. Neither the Company nor Yanacocha can reasonably predict the outcome of this litigation.1
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Yanacocha Tax Dispute. In 2000, Yanacocha paid Buenaventura and Minas Conga S.R.L. a total of US$29 million to assume their respective contractual positions in mining concession agreements with Chaupiloma has assigned theseDos de Cajamarca S.M.R.L. The contractual rights allowed Yanacocha the opportunity to conduct exploration on the concessions, but not a purchase of the concessions. The tax authority alleges that the payments to Buenaventura and Minas Conga S.R.L. were acquisitions of mining concessions torequiring the amortization of the amounts under the Peru Mining Law over the life of the mine. Yanacocha pursuant to several assignmentsexpensed the amounts at issue in the initial year since the payments were not for the acquisition of mining rights, each with an initial term of 20 years and one agreement with an extension of 17 years, which are renewable at Yanacocha’s request for additional 17, 20 or 30-year terms, as the case may be.
Yanacocha has four processing concessions from the MEM for its processing plants: Cerro Yanacocha (Yanacocha Gold Mill, Cerro Negro, La Quinua and Yanacocha), Yanacocha (Carachugo and Pampa Larga) and China Linda (non-metallic). The processing concessions have indefinite terms, subject toa concession but rather these expenses represent the payment of an annual fee based on nominal capacityintangible and therefore, amortizable in a single year or proportionally for up to ten years according to Income Tax Law. In 2010, the processing plant. Thesetax court in Peru ruled in favor of Yanacocha and the tax authority appealed the issue to the judiciary. The first appellate court confirmed the ruling of the tax court in favor of Yanacocha. However, in November, 2015, a Superior Court in Peru made an appellate decision overturning the two prior findings in favor of Yanacocha. Yanacocha has appealed the Superior Court ruling to the Peru Supreme Court. On January 18, 2019, the Peru Supreme Court issued notice that three judges support the position of the tax authority and two judges support the position of Yanacocha. Because four processing concessions includevotes are required for a final decision, an additional judge was selected to issue a decision and the Conga project, whichparties conducted oral arguments in April 2019. In early February 2020, the additional judge ruled in favor of the tax authority, finalizing a decision of the Peru Supreme Court against Yanacocha. See note 24 to the Yanacocha consolidated financial statements. Yanacocha will file an appeal in respect of the fines and interest associated with the underlying decision of the Peru Supreme Court. The potential outstanding liability in this matter amounts up to US$61 million. It is innot possible to fully predict the processoutcome of being granted.this litigation.
Advanced exploration and early-stage development expenditures for theBy-Laws of Yanacocha District during 2015 totaled US$64.2 million as compared to US$8.9 million in 2014. Expenditures focused on oxide development and advanced exploration projects which included:
During 2016, Yanacocha expects focus on continuing exploration activities in the Yanacocha district and conducting an exploration program in the Yanacocha concession block outside of its area of operations.
Yanacocha’s exploration expenditures include all of the costs associated with exploration activities such as drilling and geological and metallurgical testing. In addition, exploration costs cover engineering and project development costs on advanced stage projects. Yanacocha prepares a budget annually and allocates an amount for exploration activities based on specific projects or regions.
Yanacocha intends to continue developing other oxide and sulfide projects over the next several years, while continuing to explore the remainder of the Yanacocha district along with the adjacent Solitario mineral holdings. The Conga project currently consists of two gold-copper porphyry deposits. The Conga project is located approximately 24 kilometers northeast of Yanacocha’s operating mine in the provinces of Celendin, Cajamarca and Hualgayoc. This project, incorporated into reserves beginning in 2004 and 2005, reported 12.6 million ounces of gold reserves and 3.3 billion pounds of copper reserves as of December 31, 2015.
For 2016, Yanacocha estimates expenditures of US$3.5 million for exploration, and an additional US$4.41 million related to reserve delineation, characterization and sterilization activities for ore bodies that are currently classified as reserves. Both expenditure estimates are exclusive of significant development engineering charges. This budgeted amount will be expended mainly on oxide reserve conversion, extension drilling of known near-surface oxide inventories, sulfide exploration and early stage development within the Yanacocha district.
As of December 31, 2015, the Yanacocha district’s proven and probable reserves (excluding the Conga project’s proven and probable reserves) were estimated to be 5.1 million ounces of gold, a 4 percent increase from the Yanacocha district’s proven and probable reserves as of December 31, 2014, which were estimated to be 4.9 million ounces of gold.
As of December 31, 2015, proven and probable gold reserves were calculated using a gold price assumption of US$1,200 per ounce.
Transportation and Refining
The doré bars produced by Yanacocha are transported to refineries outside of Peru and, as a result, Yanacocha has entered into pre-established transportation contracts. Yanacocha has engaged Hermes Transportes Blindados S.A., or “Hermes,” to service its local transportation requirements. Under the terms of Yanacocha’s agreement with Hermes, the risk of loss with respect to the doré bars is assumed in its entirety by Hermes during the transportation of the doré bars from the mines to Jorge Chávez Airport in Lima. Thereafter, the responsibility for the doré bars shifts to the refiner, which has entered into a contract with an outside security firm to provide offshore transportation. The doré bars are melted, weighed and sampled in refineries abroad, which store the doré bars in strong-room vaults and assume responsibility there for the doré bars. Yanacocha pays a predetermined fee for the refining service. The final output from refineries, known as London Good Delivery gold and silver, is credited to Yanacocha’s London bullion accounts until transferred to purchasers.
Sales of Gold
Yanacocha’s gold sales are made through a monthly open-bidding process in which Yanacocha auctions its production corresponding to the next four to five weeks. This bidding process is set up by Yanacocha with approximately 10 financial institutions and trading firms before each month. Yanacocha collects bids and confirms sales. The gold is typically sold on the date of departure from Jorge Chávez Airport in Lima. If a portion of gold remains unsold, it is sold on the spot market within a few days. Silver is sold on the spot market approximately once a month to financial institutions or trading firms. The cash from such sales is received into a collection account in London against orders to the London bullion bank for deliveries of the gold and silver to the purchasers.
Delivery is made once a week and payments are collected on the day of confirmation. The payment price for the gold consists of either (i) the market price at the confirmation of the sale, or (ii) the average London PM fixing price over the tendered period plus a small premium established pursuant to the bidding process. Since 1994, Yanacocha has consistently sold to five or six financial institutions and trading firms at each auction. Such buyers are market makers and active participants in precious metal markets.
Employees
As of December 31, 2015, Yanacocha had 1,745 employees.The compensation granted by Yanacocha to its employees includes a base salary and other non-cash benefits such as a health program and life insurance. Additionally, according to the profit sharing plan required by Peruvian labor laws, Yanacocha employees have the right to receive 8% of Yanacocha’s annual profits before taxes. Fifty percent of these profits must be distributed in proportion to the number of days each employee worked during the previous year, and the remaining 50% of such profits must be distributed according to each employee’s total annual salary.
Yanacocha has agreements with independent contractors that are responsible for the security services and staffing for the execution of the Company’s projects in compliance with applicable legal regulations. As of December 31, 2015, independent contractors had hired 4,239 persons who were working in the Company’s operations, including the Conga Project.
In 2004, Yanacocha signed its first collective bargaining agreement with a union representing certain of its employees, which was created on December 9, 2003. In 2012, a new union was established. During 2013, direct collective bargaining agreements were signed with both unions for a three-year period (2013-2016). The Labor Relations Department meets with union leaders on a monthly basis to address various subjects and concerns in order to promote the creation of a productive and harmonious work environment. The parties resolve their differences through open and transparent talks. In 2016, we expect to begin negotiating an extension of the collective bargaining agreement with the two existing unions for the following period.
In order to strengthen the relations and communication process with its employees, Yanacocha’s upper management held about four face-to-face meetings with important Yanacocha stake-holders, where they had the opportunity to listen to the business plans and operating results, as well as to raise their concerns and make suggestions.
During 2015, key development programs have been implemented in order to increase technical, leadership and management skills based on talent management analysis process at all levels in our employee population. The total number of training hours in 2015 was 161,458. One program was the First Line Supervisor Program held for 216 individual collaborators and supervisors with the support of Adolfo Ibanez University. Additionally 43 managers and superintendents attended the “Talent Management during Change Environment” run by CEB Valtera.
Yanacocha offers its employees opportunities to collaborate, innovate and succeed in their careers. Its employee performance assessment system is associated with Yanacocha’s core values and measures its employees’ performance from a social responsibility, relationship management and leadership point of view. The work culture encompasses diversity, interacts with employees, encourages environmental and social responsibility, rewards outstanding performance and tries to develop great leaders at all levels.
Social Development
Since its creation, Yanacocha has focused on its relationship with the community and actively participating in its development. Since 1993, Yanacocha has invested US$444 million in social development programs including education, health, social infrastructure (schools and medical posts), productive infrastructure projects, rural electrification, roads, business promotion programs, local tourism programs and agricultural assistance programs.
Despite significant social investment, in recent years Yanacocha has experienced several conflicts that in some cases have affected the normal course of its operations. As a result of these conflicts, Yanacocha has increased its efforts to listen to and address the concerns and expectations of the local population.
To this end, in 2014 Yanacocha began implementing the legitimacy approach in its community engagement with a special emphasis on the following aspects: respect for Cajamarca, transparency and credibility, responsibility for water and environmental care and being a partner for development. Yanacocha believes this new engagement approach has been recognized by the community as a sign of positive change in Yanacocha.
During 2015, Yanacocha invested a total of US$5.25 million on social matters, US$4.61 million of which (including Conga Project and the Association Los Andes of Cajamarca - ALAC) were invested mainly in farming activities, the promotion of community capabilities, education and public infrastructure. Additionally, Yanacocha invested US$0.64 million in the mitigation of mining’s social impacts in its areas of operation and implemented agricultural and livestock projects, irrigation infrastructure, social development projects and the fulfillment of pending commitments with surrounding communities.
In addition, in 2015 Yanacocha invested US$2.38 million in contributions for social investment through the Cajamarca Mining Solidarity Fund. Also, Yanacocha has invested US$1.57 million on maintenance of the Kuntur Wasi road.
During 2016 Yanacocha will be focused on further improving its relationship with local communities and maximizing the value and recognition of its social investment to ensure the viability and legitimacy of its activities.
Security
Yanacocha has 11 security employees on its payroll, including five employees responsible for the security of the region as a whole. In addition, Yanacocha has a contracted security force of over 288 persons assigned to rotating shifts at its mines, its Lima offices and the city of Cajamarca. The Conga project has a total of 92 contracted security personnel responsible for patrolling and providing security to the project in rotating shifts.
None of Yanacocha’s employees, properties or headquarters was the target of terrorist incidents during 2015.
Mining and Processing Concessions
Yanacocha believes that the mining concessions assigned to it are in full force and effect under applicable Peruvian laws and that it is in compliance with all material terms and requirements applicable to these mining concessions. To the best of its knowledge, Yanacocha is not subject to any condition, occurrence or event that would cause the revocation, cancellation, lapse, expiration or termination of any of its concessions, except that Yanacocha and Chaupiloma may, from time to time, remake, cancel, terminate or allow to lapse mining concessions assigned to Yanacocha that are not material to the conduct of Yanacocha’s business.
Yanacocha has been actively pursuing the acquisition of the land surface rights or obtaining easements relating to land positions containing prospective geological exploration target sites, deposits that can be developed in the future or areas that would be considered for plant or facility sites. To date, Yanacocha has acquired all the surface rights with respect to 24,685.32 hectares of the surface land covering its Carachugo, Chaquicocha, Maqui Maqui, Haussing, Laboratorio, Línea de Alta Tensión, Presas, Sorpresa Mishacocha, San José, Cerro Yanacocha, Las Lagunas, the Conga project, China Linda, Amaro, Chasu, Solitario, La Carpa, Canjes and La Quinua (which includes the Cerro Negro deposit) mining operations, and a majority of the Cerro Quilish deposit and Calera China Linda.
In addition, as of December 31, 2015, Yanacocha had acquired 24,685.32 hectares, including 5,800.88 hectares of surface rights with respect to the Conga deposit, 3,588.25 hectares for Carachugo/San José/Chaquicocha, 2,153.84 hectares for Yanacocha and 1,649.94 hectares for Quilish. During 2015, the Company did not acquire any hectares. See “Yanacocha – A. History and Development of the Company.”
Regulation, Permit and Environmental Matters
Yanacocha is subject to a full range of governmental regulation and supervision generally applicable to companies engaged in business in Peru, including mining laws, labor laws, social security laws, public health, consumer protection laws, environmental laws, securities laws and antitrust laws. See “– Buenaventura – B. Business Overview – Regulatory Framework – Mining and Processing Concessions” and “– Buenaventura – B. Business Overview – Regulatory Framework – Environmental Matters” for a general description of Peruvian regulations of mining companies and environmental obligations. See “—Mining and Processing Concessions” above for a discussion of Peruvian regulations relating to the mining and processing concessions utilized by Yanacocha in its mining operations.
Yanacocha is required to submit technical documentation with respect to its mining and operations plans for the review and approval of various Peruvian government entities, including the MEM, the Ministry of Agriculture, the National and the Local Water Authorities, and the Ministry of Health. Yanacocha is required to file and obtain approval of an EIS with a Benefit Concession and Mining Permit for each of its mining operations before being authorized to operate. The EIS for the Carachugo, Maqui Maqui, San José, Cerro Yanacocha, La Quinua (including Cerro Negro) mining operations and China Linda lime plant have been reviewed and approved. Pursuant to current Peruvian regulations, Yanacocha also submits supplemental EISs each time a project’s production rate or disturbed area used is expanded. In 2006, Yanacocha filed an EIS modification to expand its operations at Yanacocha with the Supplemental Environmental Impact Assessment East (“SYE”) and in the vicinity of La Quinua with the Supplemental Environmental Impact Assessment West (“SYO”). Since 2006, two additional modifications have been submitted and approved for the original supplemental SYE EIS and one additional modification has been submitted and approved for the original supplemental SYO EIS.
The improved permit application processing times by most of the regulatory authorities observed since the third quarter of 2013 continued into 2015. A total of 31 permits of different types were approved at Yanacocha and another four permits, mainly related to environmental controls, were approved for the Conga project. The approvals of greatest significance in 2015 were a group of several minor modifications to the existing EIS pursued throughInformes Técnicos Sustentatorios (“ITS”) for the components of Marleny Open Pit, Bioleaching Plant, China Linda and Water Treatement Plant LQ. The Beneficiation Concession Permits that were approved included the construction of the north TSF phase 1 LQ, the construction of Water Treatment Plant LQ and operation of 10 hectares of the leach pad 8A LQ. ITS for exploration of the projects of Yanacocha, San Jose 2 and Maqui Maqui were also approved, the latter includes the Chaquiocha underground project, whose modification involved the relocation of the entrance portal.
Yanacocha’s corporate policy is to operate in compliance with all applicable laws and regulations and adopt and adhere to standards that are protective of both human health and the environment at the facilities it builds and operates.
Yanacocha has informed us that its management believes that its operations are conducted in accordance with applicable laws and regulations. Audits and corrective action plans are used to assure compliance. Future exploration, expansion and new projects will require a variety of permits.
On December 20, 2015, the Ministry of Environment issued a regulation that modifies the ECA and extends the deadline for compliance. The new regulation provides 60 days to notify the authority whether the company will be able to comply with the new ECA, and a year to prepare and submit a modification of EIA – Plan Integral and a total of four years for the implementation phase.
During 2005, Yanacocha became a signatory to the International Cyanide Management Code, which provides specific and strict standards on how to manage cyanide. The required audit process was completed in September 2007 and certification under the International Cyanide Management Code occurred during April 2008. Yanacocha commissioned and successfully completed recertification audits to maintain International Cyanide Code Certification. Another Cyanide Code recertification audit was conducted in 2014 and, after having addressed the recommendations accordingly, Yanacocha was re-certified in February 2015. The Yanacocha environmental laboratory was recertified under ISO 17025 in 2015.
Yanacocha has informed us that its management believes that it is in compliance with all applicable regulations and international standards concerning safety. For the year ended December 31, 2015, Yanacocha experienced five lost time injuries, the same number of lost time injuries it experienced in 2014.
Insurance
Yanacocha maintains a comprehensive insurance program designed to address the specific risks associated with its operations, in addition to covering the normal insured risks encountered by major mining companies.
Yanacocha’s insurance program consists of a “Primary Program” and an “Umbrella/Excess Program.” Coverage under the Primary Program is provided through the local Peruvian insurance market and includes employers’ liability, comprehensive third party general liability, comprehensive automobile liability, and all risk property on a replacement basis, including transit risks, business interruption insurance and mining equipment. Coverage under the Umbrella/Excess Program is provided through Newmont Mining’s master worldwide insurance program and addresses claims that the Primary Program cannot, or will not, cover.
By-Laws of Yanacocha
Yanacocha is governed by the Peruvian Companies Law and theestatutos (the combined articles of incorporation and by-laws) of Yanacocha, or the “Yanacocha By-Laws.”
Control Over Major Corporate Events
Pursuant to the Peruvian Companies Law and the Yanacocha By-Laws (including applicable quorum requirements), without the affirmative vote of the partners of Yanacocha representing at least 51% of the voting shares, none of the following may occur:
| an increase or decrease in Yanacocha’s capital; |
| the issuance of any debentures; |
| any sale of an asset whose book value is at least 50% of the paid-in capital relating to such asset; |
| any amendment to the Yanacocha By-Laws to change its business form; |
| the merger, consolidation, dissolution or liquidation of Yanacocha; or |
any other amendment of the Yanacocha By-Laws. |
Pursuant to the Shareholders Agreement among Newmont Second, Condesa,Compagnie Miniére Internationale Or S.A. and IFC, dated as of August 16, 1993, as amended by a General Amendment Letter, dated August 17, 1994, any member of the Executive Committee of Yanacocha who wishes to propose that Yanacocha’s Executive Committee authorize Yanacocha to take a Significant Action (as defined below) must (i) give written notice to each partner of such proposal before consideration thereof at a meeting of the Executive Committee and (ii) refrain from voting to approve such Significant Action until (x) the Executive Committee has received the consent of 80% of the partners of Yanacocha (a partner is deemed to have consented if no objection is received from such partner within 30 days after being notified) or (y) the Executive Committee has received the consent of at least 51% of the partners of Yanacocha and 45 days have elapsed since the member of the Executive Committee who proposed the Significant Action has responded in writing to objections received from objecting partners. “Significant Action” means:
Preemptive Rights
The Peruvian Companies Law and the Yanacocha By-Laws provide preemptive rights to all partners of Yanacocha. In the event of a capital increase, any partner has a preemptive right to pay its pro rata share of such increase to maintain such partner’s existing participation in Yanacocha.
In the event of a proposed transfer, exchange or sale, either voluntary or involuntary, of participation, collectively referred to as the “Offered Participation,” of one or more partners, any partner has a right to acquire the Offered Participation in proportion to its holdings of partners’ capital. If the entire partnership fails to exercise this right or some partners indicate their decision to acquire a smaller share than that to which they are entitled, the other partners will receive an increase, and consequently, the remaining participation will be distributed among them in proportion to such partners’ capital participation and within the maximum limit of the participation they have stated their intention to acquire. Finally, any Offered Participation remaining unsubscribed by the partners must first be offered to Yanacocha before they may be offered to third parties.
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In addition, in the event of the occurrence of a change of control (as defined) with respect to a significant partner, or the parent of a significant partner, in Yanacocha, the other significant partner will have the right to acquire the first partner’s participation interest in Yanacocha. No change of control will occur with respect to a significant partner so long as the parent of such partner is publicly traded or if such partner’s parent is acquired, the acquiring company is publicly traded.
Legal Proceedings
For a discussion of legal proceedings, see Note 2021 to the Yanacocha Consolidated Financial Statements.
Other than the legal proceedings described in the Yanacocha Consolidated Financial Statements, Yanacocha is also involved in certain legal proceedings arising in the normal course of its business, none of which individually or in the aggregate is material to Yanacocha or its operations.
Management of Yanacocha
Executive Committee
Pursuant to the Yanacocha By-Laws, Yanacocha’s Executive Committee consists of six members, all of whom are appointed by the partners of Yanacocha. Gary J. Goldberg, President and Chief Executive Officer of Newmont Mining Corporation, has been appointedis the Chairman of Yanacocha’s Executive Committee and Roque Benavides, our President and Chief Executive Officer,Chairman of the Board, serves as the Vice Chairman of Yanacocha’s Executive Committee. The Vice Chairman has the power to preside over the meetings of Yanacocha’s Executive Committee in the Chairman’s absence. The members of the Executive Committee are elected for a three-year term but may continue in their positions until the next election takes place and the newly elected members accept their positions. Alternate members are elected in the same manner as members and can act in place of and with all the authority of members when a member is unavailable, except that an alternate member may not preside over the meetings of Yanacocha’s Executive Committee. The Chairman has the right to cast the deciding vote in the event of a deadlock among Yanacocha’s Executive Committee.
General Manager/Management Agreement
The Yanacocha By-Laws provide that the Yanacocha Partners’ Meeting has the power to appoint and remove the Manager of Yanacocha; the Executive Committee has the power to appoint and remove other officers of Yanacocha, determine their duties and compensation and grant and revoke powers of attorney. Newmont Peru was named as Yanacocha’s Manager according to a publicly filed deed, and it continues to hold that position. Newmont Peru’s duties as Manager are defined in the Management Contract dated February 28, 1992, as amended, between Yanacocha and Newmont Peru.Peru (the “Management Contract”). Pursuant to the Management Contract, Newmont Peru is responsible for managing, conducting and controlling the day-to-day operations of Yanacocha and keeping Yanacocha’s Executive Committee informed of all operations through the delivery of various written reports. The Management Contract was amended as of December 19, 2000. The amendment extends the term of the Management Contract for a period of 20 years starting at the date of amendment and provides that it may be extended for additional terms of 20 years upon request by Newmont Peru. Newmont Peru, however, may cancel the Management Contract by giving six months’ prior notice to Yanacocha. The Management Contract will be deemed terminated if, due to reasons attributable to the bad management of Yanacocha, except for reasons beyond its control, Newmont Peru is unable to substantially complete the agreed work programs. In exchange for its services as Manager, Newmont Peru receives remuneration of US$2 per ounce of gold production and its equivalent for copper production paid on a quarterly basis, which amount is expected to cover the overhead and administrative expenses for the management of the operations. Also, Newmont Peru may charge Yanacocha for the salaries of employees of Newmont Peru or its affiliates who are directly involved in the operation of Yanacocha. In 2015, Yanacocha accrued fees of US$13.3 million owed to Newmont Peru and its affiliates under the Management Contract.
Control Over Major Corporate Events
See “—By-Laws of Yanacocha” above for a description of certain provisions of Peruvian law and of the Yanacocha By-Laws relating to control over major corporate events.
Preemptive Rights and Rights of First Refusal
See “—By-Laws of Yanacocha” above for a description of certain provisions of Peruvian law and of the Yanacocha By-Laws relating to preemptive rights and rights of first refusal.
| C. | Property, Plants and Equipment |
Our Properties
Introduction
We currently have fivefour wholly-owned operating mines (Orcopampa, Uchucchacua, Julcani, Mallay and Breapampa)Tambomayo) and controlling interests in twothree mining companies which operate the Colquijirca-Marcapunta, Tantahuatay and La Zanja mines. We also own an electric power transmission company, an energy generation company, a chemical processing company, an engineering services consulting company and an insurance brokerage company. We also have non-controlling interests in Yanacocha, Cerro Verde and Tantahuatay mines.See “—Buenaventura— “Buenaventura—C. Organizational Structure” and “Intermediate Holding Companies, Subsidiaries and Equity Participations.” Set forth below is a map of our principal mining operations.
Directly Operated Properties
Directly Operated Properties
Orcopampa
The Orcopampa mine is wholly-owned and operated by us.Buenaventura. We lease the rights to the mining concessions of Orcopampa from a group of private investors. This lease, which expires in 2043, requires a payment from us equal to pay 10% of production value, subject to certain conditions. Operations started inbegan at the Orcopampa mine in 1965. In 2015,2019, we made lease payments of US$21.9 million.We 4.741 million. We operated Orcopampa as a silver mine until the late 1990s, when we also began to mine gold-bearing veins.
The Orcopampa mine is located in the province of Castilla, department of Arequipa, approximately 1,350 kilometers southeast of the city of Lima, at an altitude between 3,800 and 4,500 meters above sea level.
The Orcopampa mine consists of an epithermal gold telluride deposit, hosted into lava flows and domes of Sarpane complex (calc-alkaline to high potassium), of early Miocene to Holocene, which forms part of the tertiary metallogenic belt of Southern Peru (Au-Ag).
Mining at Orcopampa is conducted underground using the mechanized bench-and-fill and cut-and-fill method.methods. Mine ore is processed by the Carbon in Leachcarbon-in-leach method in a plant located in Orcopampa, which was also outfitted for the treatment of old tailings.Orcopampa. Electric power is primarily obtained from the Peruvian national electricity grid. Water for operations at Orcopampa is obtained from a lake and rivers.
In 2015, geological exploration activities were continued on the Lucía – Julissa veins system, extension east of Prometida Ramal 1 in the Prometida mine and on the Nazareno veins system, which includes Nazareno Este, Pucará Sur, Denisse and Oliva.local river.
As of December 31, 2015,2019, proven and probable ore reserves totaled 648,353were 626,276 tons, with 51.3215.13 grams per ton of silver and 14.789.99 grams per ton of gold.
Set forth below are certain unaudited operating data for the periods shown for Orcopampa, calculated on the basis of 100% of the mine’s production.
| Year Ended December 31,(1) | Year Ended December 31,(1) | |||||||||||||||
| 2014 | 2015 | 2018 | 2019 | |||||||||||||
| Mining Operations: | ||||||||||||||||
| Ore mined (t) | 454,694 | 458,222 | 353,891 | 127,079 | ||||||||||||
| Average gold grade (g/t) | 14.15 | 14.32 | 9.98 | 10.30 | ||||||||||||
| Average silver grade (g/t) | 56.26 | 69.86 | 32.04 | 5.93 | ||||||||||||
| Production: | ||||||||||||||||
| Gold (oz.) | 203,226 | 204,629 | 115,887 | 41,660 | ||||||||||||
| Silver (oz.) | 430,494 | 562,795 | 312,250 | 18,791 | ||||||||||||
| Recovery rate (gold) (%) | 97.72 | 95.30 | 97.10 | 96.75 | ||||||||||||
| Recovery rate (silver) (%) | 51.44 | 53.64 | 81.73 | 76.76 | ||||||||||||
| Cost applicable to sales per oz. of gold(2) | US$ | 777 | US$ | 680 | US$ | 1,020 | US$ | 1,489 | ||||||||
| Cost applicable to sales per oz. of silver(2) | US$ | 11.29 | US$ | 8.85 | US$ | 12.70 | US$ | 17.98 | ||||||||
| (1) | Incorporates losses for mining dilution and recovery. |
| (2) | Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold or ounce of silver consists of cost applicable to sales for gold or silver sold, divided by the volume of gold or silver produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review and Prospects—Buenaventura— |
Uchucchacua
The Uchucchacua mine is wholly-owned and operated by us.Buenaventura. Operations began in 1975 and Uchucchacua is currentlyremains our largest producer of silver. Uchucchacuasilver producer. It is located in the province of Oyón, department of Lima, approximately 265 kilometers northeast of the city of Lima at an altitude of between 4,000 and 5,000 meters above sea level.
Uchucchacua’s
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The Uchucchacua mineral structures are hosted by Mesozoic limestone of the Jumasha Formation and are classified as a mesothermal polymetallic deposit of silver-lead-zinc with important contents of manganese. The main mineralized structures are veins and ore bodies with high-grade silver content.
Mining at Uchucchacua is conducted underground utilizingand utilizes the mechanized bench-and-fill and cut-and-fill stopping, shrinkage stopping, and sublevel stopping methods. Ore is processed at a mill located at Uchucchacua. The mill has a rated capacity of 3,8004,000 tons per day and utilizes differential flotation to obtain a lead-silver concentrate and a zinc concentrate.concentrate, using two circuits of 2,800 tons per day and 1,200 tons per day respectively. Electric power is obtained from the Peruvian national electricity grid, a hydroelectric plant and a diesel generator. We utilize a power line connecting Uchucchacua to the Peruvian national electricity grid and have electrical distribution facilities within the Uchucchacua mine. Water for operations at Uchucchacua is obtained from three local lakes.
In December 2013, we completed construction ofDuring 2019, the manganese sulfate plant of Rio Seco located 102 kilometers northtreated 32,409 tms of Lima. In January 2014, operations began with the treatment of manganese – silver concentrates from the Uchucchacua mine.During 2015, 24,065 tons were treated,mine, with 144.7ounces per ton of silver, 7.1%lead, 25.4%manganese, and following treatment 15,319 tons were obtained, with 225.067.2 ounces per ton of silver, 10.9%11.6% lead and 4.2%23.4% manganese. Following treatment, 20,692 tons were obtained, with 104.4 ounces per ton of silver, 17.9% lead and 3.8% manganese. This process also allowed for the production of 14,93518,463 tons of sulfuric acid of 98.0 percent98% purity and 12,88022,019 tons of commercial grade manganese sulfate monohydrate.
During 2015, the main exploration focused on the Socorro mine. We also explored the Huantajalla mine, Carmen mine and Casualidad mine with relative success, finding narrow structures with high contents of silver.monohydrated.
AtAs of December 31, 2015,2019, proven and probable ore reserves were 4,271,22010,425,777 tons, with 444.95294.24 grams per ton of silver, 1.30%1.19% lead and 1.80%2.03% zinc.
Set forth below are certain unaudited operating data for the periods shown for Uchucchacua, calculated on the basis of 100% of the mine’s production.
| Year Ended December 31,(1) | Year Ended December 31,(1) | |||||||||||||||
| 2014 | 2015 | 2018 | 2019 | |||||||||||||
| Mining Operations: | ||||||||||||||||
| Ore mined (t) | 1,013,633 | 1,121,474 | 1,387,775 | 1,335,018 | ||||||||||||
| Average silver grade (g/t) | 452.87 | 460.33 | 388.17 | 281.85 | ||||||||||||
| Average zinc grade (%) | 1.04 | 1.05 | 2.23 | 2.20 | ||||||||||||
| Average lead grade (%) | 0.81 | 0.82 | 1.60 | 1.52 | ||||||||||||
| Production: | ||||||||||||||||
| Silver (oz.) | 12,055,570 | 13,919,922 | 15,420,102 | 10,640,913 | ||||||||||||
| Zinc (t) | 6,349 | 5,693 | 21,840 | 19,144 | ||||||||||||
| Lead (t) | 7,605 | 7,947 | 19,122 | 17,635 | ||||||||||||
| Recovery rate (silver) (%) | 81.67 | 83.87 | 87.43 | 87.96 | ||||||||||||
| Cost applicable to sales per oz. of silver(2) | US$ | 16.34 | US$ | 13.97 | US$ | 10.37 | US$ | 12.15 | ||||||||
| Cost applicable to sales per ton of zinc(2) | US$ | 2,478 | US$ | 2,430 | US$ | 1,976 | US$ | 2,071 | ||||||||
| Cost applicable to sales per ton of lead(2) | US$ | 1,843 | US$ | 1,551 | US$ | 1,349 | US$ | 1,310 | ||||||||
| (1) | Incorporates losses for mining dilution and recovery. |
| (2) | Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of silver, ton of zinc or ton of lead consists of cost applicable to sales for silver, zinc or lead sold, divided by the volume of silver, zinc or lead produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review and Prospects—Buenaventura— |
Julcani
Julcani is an underground mine that is wholly-owned and operated by us. We acquired Julcani in 1953 as our first operating mine. Julcani is located in the province of Angaraes, department of Huancavelica, approximately 500 kilometers southeast of Lima at an altitude between 4,200 and 5,000 meters above sea level.
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Julcani is a large polymetallic deposit in Central Peru, which principally produces silver that occurspresents mainly as sulpho-salts in sulfosalts in a multitude ofmany mineralogically complex veinsveins. They are hosted in dacite domes, tuffs, breccias and other tertiary volcanic rocks.
Ore is processed by bulk flotation to obtain a concentrate of silver-lead-copper-gold. The plant has a rated capacity of 550 tons per day. Water for operations in Julcani is obtained from mine drainage that must be previously treated with lime, from seasonal streams and a small lagoon.
Electric power is generated by three hydroelectric plants, Huapa, Tucsipampa and El Ingenio. We are also connected to the Peruvian national electricity grid. Water for operations in Julcani is obtained from mine drainage, a stream and a small lagoon.
During 2015, we focused our exploration activities on the main mineralized structures As of the Acchilla and Estela mines. In the Acchilla mine, we have begun exploration to test the deepening of silver mineralization in all main veins. We have also begun to explore for silver in an area that is adjacent to the Acchilla mine called Taype-Galindo.
At December 31, 2015,2019, total proven and probable ore reserves were 288,779255,097 tons, with 648.20653.64 grams per ton of silver, 0.500.17 grams per ton of gold, 2.52%2.00% lead and 0.55%0.43% copper.
Set forth below are certain unaudited operating data for the periods shown for Julcani, calculated on the basis of 100% of the mine’s productionproduction.
| Year Ended December 31,(1) | ||||||||
| 2014(2)(3) | 2015(2)(3) | |||||||
| Mining Operations: | ||||||||
| Ore mined (t) | 167,750 | 177,948 | ||||||
| Average gold grade (g/t) | 0.25 | 0.22 | ||||||
| Average silver grade (g/t) | 600.97 | 597.66 | ||||||
| Average lead grade (%) | 1.69 | 1.55 | ||||||
| Average copper grade (%) | 0.18 | 0.21 | ||||||
| Production: | ||||||||
| Gold (oz.) | 414 | 607 | ||||||
| Silver (oz.) | 3,084,347 | 3,266,453 | ||||||
| Lead (t) | 2,619 | 2,592 | ||||||
| Copper (t) | 275 | 339 | ||||||
| Recovery rate (silver) (%) | 95.16 | 95.52 | ||||||
| Cost applicable to sales per oz. of gold(4) | US$ | 603 | US$ | 955 | ||||
| Cost applicable to sales per oz. of silver(4) | US$ | 14.14 | US$ | 12.30 | ||||
| Cost applicable to sales per ton of lead(4) | US$ | 1,603 | US$ | 1,425 | ||||
| Cost applicable to sales per ton of copper(4) | US$ | 5,195 | US$ | 4,416 | ||||
| Year Ended December 31,(1) | ||||||||
| 2018(2)(3) | 2019(2)(3) | |||||||
| Mining Operations: | ||||||||
| Ore mined (t) | 109,025 | 123,818 | ||||||
| Average gold grade (g/t) | 0.04 | 0.09 | ||||||
| Average silver grade (g/t) | 726.27 | 681.16 | ||||||
| Average lead grade (%) | 1.01 | 0.86 | ||||||
| Average copper grade (%) | 0.16 | 0.16 | ||||||
| Production: | ||||||||
| Gold (oz.) | 71 | 150 | ||||||
| Silver (oz.) | 2,482,907 | 2,609,006 | ||||||
| Lead (t) | 1,048 | 966 | ||||||
| Copper (t) | 169 | 185 | ||||||
| Recovery rate (silver) (%) | 97.41 | 96.22 | ||||||
| Cost applicable to sales per oz. of silver(4) | US$ | 14.98 | US$ | 13.49 | ||||
| Cost applicable to sales per ton of lead(4) | US$ | 2,191 | US$ | 1,585 | ||||
| Cost applicable to sales per ton of copper(4) | US$ | 7,392 | US$ | 4,788 | ||||
| (1) | Includes losses due to mining dilution and recovery. |
| (2) | Includes total Acchilla and Estela mine production. |
| (3) | Reflects total recovery percentage of Acchilla and Estela ore. |
| (4) | Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold, ounce of silver, ton of lead or ton of copper consists of cost applicable to sales for gold, silver, lead or copper sold, divided by the volume of gold, silver, lead or copper produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review and Prospects—Buenaventura— |
MallayTambomayo
The MallayTambomayo is an underground mine that is wholly-owned and operated by us and is located 21 kilometers southwest of the Uchucchacua mine in the district of Mallay, province of Oyón, department of Lima. Mallayus. It is considered an epithermal deposit with quartz veins and mineralization mainly of gold and silver with important contents of lead zinc and gold. We have recognizedzinc. It is located in the following main ore structures: Isguiz body-vein (silver, lead, zinc), Pierina (gold vein), María (silver vein)province of Caylloma, Arequipa region, at an altitude between 4,550 and Fortuna (skarn type lead, zinc, silver).5,000 meters above sea level.
During 2015, we continued geological exploration with tunnels
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The underground works on the main Mirtha vein and diamond drilling mainly focused oncarried out to date show an economic mineralization that deepens up to approximately 850 meters and it expands over 1,200 horizontal meters, increasing the Isguiz body-veinsize of the economic mineralization area to explore. Mining at Tambomayo is conducted underground and utilizes the María-Dana system silver veins. In 2016, we planmechanized bench-and-fill and cut-and-fill methods.
Tambomayo is connected to construct exploration tunnelsthe Peruvian electricity grid and conduct diamond drilling onwater for its operations comes from the Nicole areadamming of a stream with seasonal variations in the Jumasha limestones. The San Sebastian project (2.5 kilometers northeast from Isguiz) will be explored for silver, lead and zinc with at least 3,500 meters of diamond drilling in the recognized mineralized structures by geological mapping.flow.
As of December 31, 2015,2019, total proven and probable ore reserves were 86,4462,445,606 tons, with 341.21138.72 grams per ton of silver, 0.503.73 grams per ton of gold, 6.35%1.27% lead and 8.93%1.66% zinc.
Set forth below are certain unaudited operating data for the Mallay mine,periods shown for Tambomayo, calculated on the basis of 100% of the mine’s production.
| Year Ended December 31,(1)(2) | ||||||||
| 2014 | 2015 | |||||||
| Mining Operations: | ||||||||
| Ore mined (t) | 148,058 | 158,124 | ||||||
| Average silver grade (g/t) | 272.77 | 269.48 | ||||||
| Average lead grade (%) | 5.80 | 5.05 | ||||||
| Average zinc grade (%) | 7.79 | 6.60 | ||||||
| Production: | ||||||||
| Silver (oz.) | 1,216,064 | 1,285,361 | ||||||
| Lead (t) | 7,513 | 7,193 | ||||||
| Zinc (t) | 9,893 | 9,173 | ||||||
| Recovery rate (silver) (%) | 93.68 | 93.82 | ||||||
| Cost applicable to sales per oz. of silver(3) | US$ | 13.76 | US$ | 13.90 | ||||
| Cost applicable to sales per ton of lead(3) | US$ | 1,547 | US$ | 1,544 | ||||
| Cost applicable to sales per ton of zinc(3) | US$ | 1,855 | US$ | 1,794 | ||||
| Year Ended December 31,(1) | ||||||||
| 2018 | 2019(1)(2) | |||||||
| Mining Operations: | ||||||||
| Ore mined (t) | 557,364 | 640,914 | ||||||
| Average gold grade (g/t) | 7.75 | 5.80 | ||||||
| Average silver grade (g/t) | 252.25 | 141.21 | ||||||
| Average lead grade (%) | 1.49 | 1.35 | ||||||
| Average Zinc grade (%) | 2.16 | 1.99 | ||||||
| Production: | ||||||||
| Gold (oz.) | 129,172 | 99,245 | ||||||
| Silver (oz.) | 3,929,808 | 2,556,391 | ||||||
| Lead (t) | 4,220 | 7,603 | ||||||
| Zinc (t) | 8,685 | 9,672 | ||||||
| Recovery rate (silver) (%) | 85.11 | 87.76 | ||||||
| Recovery rate (gold) (%) | 91.15 | 83.10 | ||||||
| Cost applicable to sales per oz. of gold(3) | US$ | 626 | US$ | 679 | ||||
| Cost applicable to sales per oz. of silver(3) | US$ | 7.77 | US$ | 8.92 | ||||
| Cost applicable to sales per ton of lead(3) | US$ | 1,186 | US$ | 1,045 | ||||
| Cost applicable to sales per ton of Zinc(3) | US$ | 1,551 | US$ | 1,876 | ||||
| (1) |
| (2) |
| (3) | Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold, ounce of silver, ton of lead or ton of |
BreapampaLa Zanja
The Breapampa mine is wholly-owned and operated by us. It is located in the district of Chumpi, province Parinacochas, department of Ayacucho. The ore deposit consists of gold and silver mineralization in an epithermal system high-sulfidation, emplaced into breccias of tertiary volcanic rocks. We located higher concentrations of gold-silver in oxides in the following geological prospects: Cerro Parccaorcco, Senccata, Pucagallo, Andrea, Ccaccapaqui, Sancos and Grace. In July 2012, we began the production phase at Cerro Parccaorcco, where gold is contained within silica-oxides.
During the productive period of Breacampa in 2014, we performed diamond drilling to update ore distribution at Parccaorcco and define the gold ore within the colluvial deposit close to the Parccaorcco open pit, where we recognized disseminated gold that is part of current reserves.
We ceased mining activities at Breapampa in November 2014. However, in 2015 we recovered 13,757 ounces of gold from the leachpads. Currently, the mine is in closure stage.
Proven and probable ore reserves at December 31, 2015 were 519,539 tons, with 17.11 grams per ton of silver and 0.44 grams per ton of gold.
Set forth below are certain unaudited operating data for the Breapampa mine, calculated on the basis of 100% of the mine’s production.
| Year Ended December 31,(1) | ||||||||
| 2014(2) | 2015(3) | |||||||
| Mining Operations: | ||||||||
| Ore mined (t) | 2,264,111 | — | ||||||
| Average gold grade (g/t) | 1.54 | — | ||||||
| Average silver grade (g/t) | 35.02 | — | ||||||
| Production: | ||||||||
| Gold (oz.) | 74,807 | 13,757 | ||||||
| Silver (oz.) | 369,032 | 180,277 | ||||||
| Cost applicable to sales per oz. of silver(4) | US$ | 6.56 | US$ | 9.26 | ||||
| Cost applicable to sales per oz. of gold(4) | US$ | 452 | US$ | 715 | ||||
La Zanja
The La Zanja mine is located in the district of Pulan, province of Santa Cruz, department of Cajamarca, in northern Peru. La Zanja is located 48 kilometers northwest of the Yanacocha gold mine, at an average altitude of 3,500 meters above sea level. We hold a 53.06% interest in La Zanja and Newmont Holdings ULC holds a 46.94% interest. in La Zanja.
| 48 |
La Zanja is located within a large area of hydrothermal alteration, mainly related to epithermal gold deposits in high sulfidation environments, in addition to some vein systems of intermediate to low sulfidation. We have recognized two ore deposits:deposits in production: San Pedro Sur and Cerro Pampa Verde.
Mining operations are conducted through the open-pit method, the plant utilizes a carbon-in-column circuit as well as a Merrill CroweMerrill-Crowe circuit to recover gold from heap leach operations. The gold laden carbon is then transported to Yanacocha to continue processingbe processed into doré bars.
In 2013, we completed the construction2019, a total of the road to Pampa Verde, which allowed us to begin open pit mining in February 2014, coinciding with the launching2,926 meters of the Merrill Crowe plant.
During 2015, we continued tunneling and diamond drilling exploration in the Alejandra underground project. We also continued exploring with diamond drilling in other areas aroundthe explorations area were drilled, of which 2,777 meters were made in the southern sector of the copper-gold project of the Emperatriz Corridor, and 148 meters were explored by high grade gold structures in San Pedro Sur. The exploration of Emperatriz Sur Pampa Verde and Alejandra, such as Cocán and Campana.is expected to be completed in 2020.
Total proven and probable ore reserves atas of December 31, 20152019 were 11,905,137560,177 tons, with 4.048.41 grams per ton of silver and 0.620.41 grams per ton of gold.
Set forth below are certain unaudited operating data for La Zanja, calculated on the basis of 100% of the mine’s production.
| Year Ended December 31, | ||||||||
| 2014 | 2015 | |||||||
| Mining Operations: | ||||||||
| Ore treated (t) | 7,501,654 | 8,576,614 | ||||||
| Average gold grade (g/t) | 0.84 | 0.70 | ||||||
| Average silver grade (g/t) | 8.71 | 5.97 | ||||||
| Production: | ||||||||
| Gold (oz.) | 143,573 | 141,071 | ||||||
| Silver (oz.) | 422,395 | 331,080 | ||||||
| Cost applicable to sales per oz. of gold(1) | US$ | 569 | US$ | 789 | ||||
| Cost applicable to sales per oz. of silver(1) | US$ | 8.35 | US$ | 10.55 | ||||
| Year Ended December 31, | ||||||||
| 2018 | 2019 | |||||||
| Mining Operations: | ||||||||
| Ore treated (t) | 5,702,881 | 1,577,645 | ||||||
| Average gold grade (g/t) | 0.46 | 0.46 | ||||||
| Average silver grade (g/t) | 7.46 | 6.73 | ||||||
| Production: | ||||||||
| Gold (oz.) | 71,630 | 31,500 | ||||||
| Silver (oz.) | 217,174 | 97,204 | ||||||
| Cost applicable to sales per oz. of gold(1) | US$ | 891 | US$ | 1,233 | ||||
| Cost applicable to sales per oz. of silver(1) | US$ | 11.15 | US$ | 14.24 | ||||
| (1) | Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold or ounce of silver consists of cost applicable to sales for gold or silver sold, divided by the volume of gold or silver produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review and Prospects—Buenaventura— |
Tantahuatay
Tantahuatay is a gold-copper mine located in the district and province of Hualgayoc, department of Cajamarca, in northern Peru, at an average altitude of 3,900 meters above sea level. The Tantahuatay mine is operated by usBuenaventura and wholly-owned by Coimolache, in which we hold a 40.10% equity interest.
Geologically, the Tantahuatay ore deposits are located at diatremes or volcanic necks in a sequence volcano-magmatic hydrothermal predominant linked to the regional mineralized sector north of Peru.
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Tantahuatay consists of five areas of Au-Ag mineralization, contained in material of supergenic oxidation (Mirador Norte, Mirador Sur, Cienaga Norte, Cienaga Sur and Tantahuatay). We have also discovered that belowBelow the oxides level of the Cerro Tantahuatay area, there is a significant resource of Cu-Au-Ag incopper, gold and silver associated to pyrite-enargite ore (sulphides), which isare present as disseminations and fracture fillings associated with advanced argillic alteration and multiphase breccia bodies.bodies’ multiphase.
During 2015, we performed2019, drilling of oxides reached 5,417 meters of diamond drilling to updatedrill holes. The operation was focused on the reserves block model of the open pits Tantahuatay 2 and Ciénaga Norte areas. Drilling was also performed at Azufre and to explore the Mirador Sur, Mirador Norte, and Ciénaga NorteNorthwest projects to increase mineral resources.convert resources to reserves.
Total proven and probable ore reserves atas of December 31, 20152019 were 66,196,95366,858,656 tons, with 7.097.96 grams per ton of silver and 0.430.34 grams per ton of gold.
Set forth below are certain unaudited operating data for the Tantahuatay mine, calculated on the basis of 100% of the mine’s production.
| Year Ended December 31,(1)(2) | Year Ended December 31,(1)(2) | |||||||||||||||
| 2014 | 2015 | 2018 | 2019 | |||||||||||||
| Mining Operations: | ||||||||||||||||
| Ore treated (t) | 9,854,334 | 12,185,425 | 13,384,291 | 13,878,907 | ||||||||||||
| Average gold grade (g/t) | 0.57 | 0.50 | 0.58 | 0.54 | ||||||||||||
| Average silver grade (g/t) | 11.08 | 13.00 | 7.45 | 10.64 | ||||||||||||
| Production: | ||||||||||||||||
| Gold (oz.) | 143,643 | 144,782 | 173,192 | 162,196 | ||||||||||||
| Silver (oz.) | 754,357 | 879,832 | 791,181 | 754,306 | ||||||||||||
| Cost applicable to sales per oz. of gold(3) | US$ | 455 | US$ | 489 | US$ | 675 | US$ | 684 | ||||||||
| Cost applicable to sales per oz. of silver(3) | US$ | 6.71 | US$ | 6.59 | US$ | 8.39 | US$ | 8.14 | ||||||||
| (1) | Incorporates losses for mining dilution and recovery. |
| (2) | Data reflect mining operations at the Tantahuatay 2 |
| (3) | Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold or ounce of silver consists of cost applicable to sales for gold or silver sold, divided by the volume of gold or silver produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review and Prospects—Buenaventura— |
ColquijircaTajo Norte (Colquijirca) and Marcapunta Norte
The Colquijirca (also known as Tajo Norte) and Marcapunta Norte mines are wholly-owned by El Brocal. El Brocal was founded in 1956 and is engaged in the extraction, concentration and sale of concentrates of polymetallic minerals—minerals – mainly zinc, copper, lead and silver. Our aggregate direct and indirect equity interest in El Brocal was 54.07% at61.43% as of December 31, 2015.2019.
The ColquijircaTajo Norte and Marcapunta Norte mines are adjacent and are located 285 kilometers east of the city of Lima and 10 kilometers south of the city of Cerro de Pasco. El Brocal produces zinc, lead and lead/silver concentrates from the ColquijircaTajo Norte mine and copper concentrates from the Marcapunta Norte mine. The Colquijirca mine consists of three important polymetallic deposits: (1) Tajo Norte,Norte–Smelter, which contains zinc, silver and lead ore;lead; (2) Marcapunta, which contains an auriferous mineralization in breccia oxides and an arsenic copper enargite mineralization as a continuation of the mineralized mantles of the Marcapunta Norte mine; and (3) San Gregorio, which contains zinc.
Mining at Colquijirca is conducted through the open-pit method from which zinc and lead concentrates are produced. El Brocal’s zinc concentrate typically contains 50% zinc, while its lead concentrate contains 50% lead. Mining at Marcapunta Norte is conducted through the sublevel stopping method, from which copper concentrates are produced. El Brocal’s copper concentrates typically contains 26% copper, 4% silver and8% arsenic.
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The Huaraucaca concentrator plant processes ore from both mines. In 2015,2019, average treated ore at the plant reached 13,875was 17,354 tons per day as result of increased capacity from 10,732 tons per day in the first quarter of 2015 to 16,591 tons per day in the fourth quarter of 2015 due to the completion of an expansion project. day.
The Colquijirca mineTajo Norte (Colquijirca) and Marcapunta Norte mines primarily reliesrely on a power line connected to the Peruvian national electricity grid.
In 2019, El Brocal has conducted an exploration program atcontinued to focus on optimizing Marcapunta’s mining method, while also seeking the Marcapunta deposit to confirm mineralizationoptimization of productivity and find possible extensions,production costs, as well as accelerating the conversion of resources to increase reserves at the Colquijirca and Marcapunta Norte mines. This program was discontinued in 2014. At the end of 2014, El Brocal obtained approval for its EIS relating to a diamond drilling program at the Marcapunta deposit.
In 2015, we invested US$24 million in tailings capacity expansion and complementary equipment for a processing plant. The construction of the expansion project operations were completed in 2014 (which, since 2008, has cost US$500 million) and reached the full expected capacity of 18,000 tons per day in December 2015.In 2015, exploration was halted in prospective areas such as San Gregorio, Marcapunta Oeste and other areas to focus efforts on increasing the crushing, milling and flotation processes to the expected capacity.reserves.
Total proven and probable reserves of ColquijircaTajo Norte - Smelter (Colquijirca), which include the Zn-Pb-Ag zone and Cu-Ag zone, as of December 31, 20152019 were 56,200,00042,215,608 tons, with 35.1533.59 grams of silver per ton 2.3%and 1.11% of copper.
Total proven and probable reserves of Tajo Norte (Zn-Pb-Ag zone) as of December 31, 2019 were 14,756,041 tons with 2.52% of zinc and 0.85%1.17% of lead.
Total proven and probable reserves of Marcapunta Norte as of December 31, 20152019 were 21,749,70034,503,283 tons with 18.97335.77 grams of silver per ton, 0.390.72 grams of gold per ton and 2.25%1.30% of copper.
Set forth below are certain unaudited operating data for the ColquijircaTajo Norte (Colquijirca) mine, calculated on the basis of 100% of the mine’s production.
| Year Ended December 31,(1) | Year Ended December 31,(1) | |||||||||||||||
| 2014 | 2015 | 2018 | 2019 | |||||||||||||
| Mining Operations: | ||||||||||||||||
| Ore mined (t) | 481,589 | 3,101,851 | 3,429,618 | 3,407,914 | ||||||||||||
| Average silver grade (oz./t) | 1.92 | 1.34 | 1.13 | 1.38 | ||||||||||||
| Average zinc grade (%) | 3.12 | 2.77 | 2.30 | 2.42 | ||||||||||||
| Average lead grade (%) | 1.20 | 1.03 | 1.11 | 1.26 | ||||||||||||
| Production: | ||||||||||||||||
| Silver (oz.) | 603,342 | 2,811,391 | 2,518,333 | 2,974,075 | ||||||||||||
| Zinc (t) | 10,126 | 53,319 | 45,593 | 43,580 | ||||||||||||
| Lead (t) | 3,459 | 18,854 | 20,582 | 23,599 | ||||||||||||
| Recovery rate (silver) (%) | 64.30 | 67.52 | 65.25 | 63.32 | ||||||||||||
| Recovery rate (zinc) (%) | 67.06 | 61.96 | 57.78 | 55.00 | ||||||||||||
| Recovery rate (lead) (%) | 56.42 | 58.73 | 52.41 | 54.97 | ||||||||||||
| Cost applicable to sales per ton of mine(2) | 1,369 | 1,601 | 1,569 | 2,007 | ||||||||||||
| (1) | Incorporates losses for mining dilution and recovery. |
| (2) | Represents cost applicable to sales per ton of zinc for El Brocal. Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ton of zinc consists of cost applicable to sales for zinc divided by the volume of zinc produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review and Prospects—Buenaventura— |
| 51 |
Set forth below are certain unaudited operating data for the Marcapunta Norte mine, calculated on the basis of 100% of the mine’s production.
| Year Ended December 31,(1) | Year Ended December 31,(1) | |||||||||||||||
| 2014 | 2015 | 2018 | 2019 | |||||||||||||
| Mining Operations: | ||||||||||||||||
| Ore mined (t) | 2,773,738 | 1,962,627 | 3,204,262 | 2,926,124 | ||||||||||||
| Average silver grade (oz./t) | 0.84 | 0.75 | 0.71 | 0.77 | ||||||||||||
| Average gold grade (gr/t) | 0.31 | 0.35 | 0.51 | 0.54 | ||||||||||||
| Average copper grade (%) | 1.71 | 1.92 | 1.59 | 1.67 | ||||||||||||
| Production: | ||||||||||||||||
| Silver (oz.) | 1,463,872 | 858,109 | 1,383,536 | 1,392,363 | ||||||||||||
| Gold (oz.) | 14,134 | 11,263 | 21,429 | 18,726 | ||||||||||||
| Copper (t) | 43,282 | 32,061 | 46,231 | 43,394 | ||||||||||||
| Recovery rate (silver) in copper (%) | 62.36 | 58.48 | 60.95 | 62.07 | ||||||||||||
| Recovery rate (gold) in copper (%) | 56.50 | 50.27 | 39.80 | 37.03 | ||||||||||||
| Recovery rate copper (%) | 86.23 | 87.0 | 90.63 | 88.68 | ||||||||||||
| Cost applicable to sales per ton of mine(2) | 5,096 | 5,322 | 5,488 | 5,385 | ||||||||||||
| (1) | Incorporates losses for mining dilution and recovery. |
| (2) | Represents cost applicable to sales per ton of copper for El Brocal. Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ton of copper consists of cost applicable to sales for copper divided by the volume of copper produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review and Prospects—Buenaventura— |
Reserves
We calculate our ore reserves by methods generally applied within the mining industry and in accordance with SEC Industry Guide 7. All mineral reserves are estimates of proven and probable ore quantities that under present conditions may be economically mined and processed.
The proven and probable ore reserve figures presented in this Annual Report are estimates, and no assurance can be given that the level of recovery of gold, silver and certain other metals will be realized. See “Item 3. Key Information—D. Risk Factors—Factors Relating to the Company—Estimates of proven and probable reserves are subject to uncertainties and the volume and grade of ore actually recovered may vary from our estimates.”
The term “reserves” refers to mineral deposits that could be economically and legally extracted or produced at the time of reserve determination. The term “proven reserves” means ore reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, and grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. The term “probable reserves” means ore reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
As of December 31, 2015,2019, our total proven and probable reserves, including our equity share in the proven and probable reserves of El Brocal (54.07%(61.43%), La Zanja (53.06%), Coimolache (40.10%) and Yanacocha (43.65%), were estimated to be 3.526.00 million ounces of gold, representing a 60.23% decrease36% increase compared to our total proven and probable reserves as of December 31, 2014,2018, which were estimated to be 8.854.40 million ounces of gold. This decrease is primarily due to the reclassification of the Conga mine gold reserves (5.5 million ounces as of December 31, 2014) as resources or NRM as of December 31, 2015.
As of December 31, 2015,2019, our total proven and probable reserves, including our equity share in El Brocal (54.07%(61.43%), La Zanja (53.06%), Coimolache (Tantahuatay) (40.10%) and, Yanacocha (43.65%), and Cerro Verde (19.58%) were estimated to be 139.04241.67 million ounces of silver, representing a 17.29% decrease2% increase over our total proven and probable reserves as of December 31, 2014,2018, which were estimated to be 168.10237.23 million ounces of silver. This decrease is primarily due to the reclassification of the Conga mine silver reserves (37.8 million ounces as of December 31, 2014) as resources or NRM as of December 31, 2015.
The following table lists the100% of proven and probable ore reserves, as of December 31, 20152019, for each of our consolidated mining operations and the Tantahuatay mine, wherein which we have a 40.10% equity interest, the La Zanja mine, where we have a 53.06% equity interest, and the Colquijirca & Marcapunta (El Brocal) mines, where we have a 54.07% equity interest. The reserves showshown in the table below are the total reserves for each mine and do not reflect our equity share of reserves in non-wholly-owned mines.
Proven Ore Reserves atas of December 31, 20152019(1) (2) (3) (4) (5) (6)
| Orcopampa(3) | Uchucchacua(4) | Julcani(5) | Mallay(6) | Tambomayo(7) | Antapite(8) | Breapampa(9) | La Zanja(10) | Tantahuatay(11) | Colquijirca(12)(13) | Marcapunta(12)(14) | Total/ Average | Orcopampa(3) | Uchucchacua(4) | Julcani(5) | Tambomayo(6) | La Zanja(7) | Tantahuatay(8) | Colquijirca(9) | Marcapunta(10) | Total/Average | ||||||||||||||||||||||||||||||||||||||||||||||
| Ore Reserves (t) | 447,911 | 2,688,395 | 198,365 | 66,572 | 747,639 | 24,538 | 519,539 | 4,672,820 | 53,810,366 | 18,400,000 | 5,833,113 | 87,409,258 | 153,866 | 3,913,183 | 166,957 | 359,825 | 354,424 | 52,565,887 | 6,097,263 | 19,837,230 | 83,448,635 | |||||||||||||||||||||||||||||||||||||||||||||
| Grade: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gold (g/t) | 14.86 | - | 0.53 | 0.50 | 9.01 | 10.16 | 0.45 | 0.63 | 0.45 | - | 0.40 | 0.50 | 12.38 | 0.207 | 4.89 | 0.40 | 0.35 | 0.51 | 0.39 | |||||||||||||||||||||||||||||||||||||||||||||||
| Silver (g/t) | 45.97 | 433.42 | 647.91 | 338.86 | 312.92 | - | 17.18 | 4.26 | 6.42 | 30.87 | 18.35 | 29.87 | 18.64 | 266.94 | 654.09 | 104.46 | 9.05 | 6.94 | 65.61 | 25.48 | 0.95 | |||||||||||||||||||||||||||||||||||||||||||||
| Copper (%) | - | - | 0.57 | - | - | - | - | - | - | 0.09 | 2.36 | 0.13 | 0.45 | 0.16 | 1.53 | 0.38 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Zinc (%) | - | 2.00 | - | 8.91 | 2.87 | - | - | - | - | 2.68 | - | 0.99 | 2.09 | 2.00 | 2.48 | 0.29 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lead (%) | - | 1.38 | 2.70 | 6.38 | 1.86 | - | - | - | - | 0.91 | - | 0.37 | 1.25 | 2.09 | 1.48 | 1.19 | 0.16 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Content: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gold (oz.) | 213,918 | - | 3,364 | 1,076 | 216,503 | 8,017 | 7,515 | 94,920 | 782,032 | - | 75,016 | 1,402,361 | 61,261 | 1,112 | 56,514 | 4,600 | 590,658 | 322,970 | 1,037,116 | |||||||||||||||||||||||||||||||||||||||||||||||
| Silver (oz.) | 662,012 | 37,461,786 | 4,132,117 | 725,265 | 7,521,652 | - | 286,981 | 639,878 | 11,107,786 | 18,264,000 | 3,441,537 | 84,243,014 | 92,224 | 33,583,879 | 3,511,027 | 1,208,403 | 103,135 | 11,732,995 | 12,861,713 | 16,251,210 | 79,344,585 | |||||||||||||||||||||||||||||||||||||||||||||
| Copper (t) | - | - | 1,135 | - | - | - | - | - | - | 15,840 | 137,661 | 154,636 | 748 | 9,756 | 303,163 | 313,667 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Zinc (t) | - | 53,793 | - | 5,931 | 21,490 | - | - | - | - | 492,720 | - | 573,934 | 81,791 | 7,186 | 151,029 | 240,006 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lead (t) | - | 37,177 | 5,346 | 4,250 | 13,882 | - | - | - | - | 168,160 | - | 228,815 | 48,753 | 3,490 | 5,318 | 72,842 | 130,403 | |||||||||||||||||||||||||||||||||||||||||||||||||
Probable Ore Reserves atas of December 31, 20152019(1) (2) (3) (4) (5) (6)
| Orcopampa(3) | Uchucchacua(4) | Julcani(5) | Mallay(6) | Tambomayo(7) | Antapite(8) | Breapampa(9) | La Zanja(10) | Tantahuatay(11) | Colquijirca(12)(13) | Marcapunta(12)(14) | Total/ Average | Orcopampa(3) | Uchucchacua(4) | Julcani(5) | Tambomayo(6) | La Zanja(7) | Tantahuatay(8) | Colquijirca(9) | Marcapunta(10) | Total/Average | ||||||||||||||||||||||||||||||||||||||||||||||
| Ore Reserves (t) | 200,442 | 1,582,825 | 90,414 | 19,874 | 333,392 | 13,009 | - | 7,232,317 | 12,386,587 | 37,800,000 | 15,916,645 | 75,575,505 | 472,409 | 6,512,595 | 88,140 | 2,085,782 | 205,741 | 14,292,769 | 8,658,777 | 42,125,621 | 74,441,833 | |||||||||||||||||||||||||||||||||||||||||||||
| Grade: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gold (g/t) | 14.64 | - | 0.45 | 0.55 | 10.41 | 10.91 | - | 0.61 | 0.35 | - | 0.39 | 0.57 | 9.219 | 0.113 | 3.549 | 0.423 | 0.32 | 0.48 | 0.49 | |||||||||||||||||||||||||||||||||||||||||||||||
| Silver (g/t) | 63.69 | 464.58 | 648.82 | 349.19 | 231.88 | - | - | 4.02 | 9.99 | 37.17 | 18.97 | 35.63 | 13.98 | 310.50 | 652.78 | 144.50 | 7.31 | 11.78 | 55.81 | 30.07 | 1.86 | |||||||||||||||||||||||||||||||||||||||||||||
| Copper (%) | - | - | 0.50 | - | - | - | - | - | - | 0.42 | 2.21 | 0.93 | 0.38 | 0.11 | 1.47 | 0.84 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Zinc (%) | - | 1.45 | - | 9.01 | 3.31 | - | - | - | - | 2.11 | – | 0.09 | 2.00 | 1.60 | 2.54 | 0.52 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lead (%) | - | 1.12 | 2.14 | 6.23 | 2.31 | - | - | - | - | 0.82 | – | 0.08 | 1.16 | 1.84 | 1.23 | 1.16 | 0.27 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Content: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gold (oz.) | 94,338 | - | 1,295 | 350 | 111,561 | 4,564 | - | 140,705 | 138,450 | - | 199,575 | 690,838 | 140,015 | 320 | 238,012 | 2,801 | 146,383 | 649,502 | 1,177,033 | |||||||||||||||||||||||||||||||||||||||||||||||
| Silver (oz.) | 410,457 | 23,641,913 | 1,886,037 | 223,118 | 2,485,514 | - | - | 933,664 | 3,979,665 | 45,169,000 | 9,709,154 | 88,438,522 | 212,387 | 65,013,963 | 1,849,828 | 9,689,847 | 48,386 | 5,412,208 | 15,535,733 | 40,730,615 | 138,492,966 | |||||||||||||||||||||||||||||||||||||||||||||
| Copper (t) | - | - | 454 | - | - | - | - | - | - | 157,510 | 351,758 | 509,722 | 338 | 9,525 | 617,273 | 627,136 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Zinc (t) | - | 23,013 | - | 1,790 | 11,028 | - | - | - | - | 799,270 | – | 835,101 | 130,148 | 33,459 | 220,323 | 383,929 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Lead (t) | - | 17,743 | 1,931 | 1,239 | 7,688 | - | - | - | - | 308,560 | – | 337,161 | 75,606 | 1,618 | 25,684 | 100,442 | 203,350 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (1) |
| (2) | For the year ended December 31, |
| (3) | Variable metallurgical recovery assumptions (as a function of grade and relative metal distribution in individual concentrates). |
| (4) | Commercial terms based on historical data. |
| (5) | Variable cut-offs estimated by mining method and mining area and based on historical data and costs. |
| (6) | Variable modifying factors (dilution and mining recoveries) based on ground conditions and proposed mining method. |
Yanacocha’s Properties
Operating Properties
For operating data (including ore mined, average gold grade of ore mined and gold production) for each of Yanacocha’s operating properties and a description of how ore is processed and the source of electricity and water for each of Yanacocha’s operating properties, see “—Yanacocha— B. Business Overview” and “—Overview—Description of Yanacocha’s Operations.”
Yanacocha is located approximately 375 miles (604 kilometers) north of Lima and 30 miles (48 kilometers) north of the city of Cajamarca and is primarily accessible by paved roads. The Yanacocha property began production in 1993 and consists of the following open pit mines: the La Quinua Complex, the Yanacocha Complex, the Carachugo – ChaquicochaComplex and Maqui Maqui. In addition, Yanacocha has four leach pads (La Quinua, Yanacocha, Carachugo and Maqui Maqui), three gold processing plants (Pampa Larga, Yanacocha Norte and La Quinua), one limestone processing facility (China Linda) and one mill (Yanacocha Gold Mill).
ChaquicochaYanacocha’s mining activities encompass 301,000 acres (121,810 hectares) that are covered by 185 mining concessions. Yanacocha holds the mining rights related to 96,338 acres (38,987 hectares), covered by 73 concessions. Chaupiloma holds the mining rights to the remaining acres and concessions and has assigned these mining concessions to Yanacocha. Each concession has an initial term of 17 to 30 years, which are renewable at Yanacocha’s request for an additional 17 to 20 year term.
The La Quinua Complex is currently mining material from the La Quinua Sur and the Tapado Oeste Layback and is an 85-hectare gold deposit (ultimate pit)scheduled to finish mining operations in 2020.
The Yanacocha Complex mines material from the Yanacocha Layback and Yanacocha Pinos, which liesare scheduled to finish mining operations in 2020. The Yanacocha Complex began operations in 1997 and has had limited mining operations in recent years.
The Carachugo Complex and Maqui Maqui mined material from multiple mines that are no longer in operation. In addition, the east-central partCarachugo leach pad processes oxide material from the Quecher Main project, which is a new open pit within the existing footprint of Yanacocha. This project went into commercial production in October 2019 and will extend the life of the Yanacocha district, approximately one kilometer southeast of the mined out Carachugo deposit and 300 meters south of the Chaquicocha Norte pit. Mining at this deposit was completed in late 2015.operation to 2027.
Carachugo is a 90-hectareYanacocha has three processing concessions from Peru’s MEM for its processing facilities: Cerro Yanacocha (La Quinua and Yanacocha leach pads, La Quinua and Yanacocha Norte gold deposit with a leach pad that covers approximately 306 hectares. Carachugo, Yanacocha’s first mine, commenced operations in August 1993. Mining was conducted by the open-pit method. The Carachugo open-pit mine ceased mining operations in 2004, although one ore processing facility remains in operation.
Maqui Maqui
recovery plants and Yanacocha Gold Mill), Yanacocha (Carachugo and Maqui Maqui is a 75-hectare gold deposit with a leach pad covering 67 hectares, located five kilometers northeast of the Carachugo pit. Mining operations at Maqui Maqui began in October 1994pads and used the open-pit mining method. Although mining operations at Maqui Maqui ceased in September 2000,Pampa Larga gold recovery from the leach pad continues. The Maqui Maqui East expansion commenced operations in 2010plant) and mining at this deposit was completed in late 2015.
San José
San José is a 100-hectareChina Linda (non-metallic processing concessions). Yanacocha’s gold deposit, located 1.5 kilometers southwest of the Carachugo pit, that shares the leach pad located at Carachugo. Mining operations at San José began in January 1996 using the open-pit mining method. Mining operations at San José temporarily ceased during the fourth quarter of 2002 and reopened in 2005 to complete San José East. San José West started operations in early 2010 and ceased operations in November 2012.
Cerro Yanacocha
Cerro Yanacocha is a 247-hectare gold deposit (ultimate pit) with a leach pad covering approximately 310 hectares. The Cerro Yanacocha pit is located two kilometers northwest of the Carachugo pit. Operations began in the fourth quarter of 1997 using the open-pit mining method. Cerro Yanacocha includes a carbon column gold recovery plant and a Merrill-Crowe-type ore processing facility. Cerro Yanacocha temporarily ceased operations in October 2010 and restarted operations in 2015 with mining in the layback area and the deep transitional stockpiles located inside the current open pit. Mining activities are scheduled to cease by 2019.
La Quinua
La Quinua is a 450-hectare gold deposit (ultimate pit) with a leach pad covering 426 hectares. The La Quinua, El Tapado and El Tapado Oeste pitsplants are located three kilometers southwestadjacent to the solution storage ponds and are used to process gold-bearing solutions from Yanacocha’s leach pads through a network of the Cerrosolution-pumping facilities. The Yanacocha pit. Operations began in the fourth quarter of 2001 using the open-pit mining method. AllGold Mill processes high-grade gold ore to produce a gold-bearing solution processing occurs at the Cerro Yanacocha plant followingfor treatment at the La Quinua leach padprocessing plant. The Yanacocha Gold Mill processes between 5.5 and carbon column facility.6.0 million tons per year.
The La QuinuaYanacocha is an epithermal type deposit of high sulfidation hosted in volcanic rock formations. Gold is associated with iron-oxides and pyrite. Material is evaluated for gold grade and cyanide solubility and then placed on leach pads or in stockpiles for processing through the Yanacocha Gold Mill accordingly. Yanacocha’s available mining operation included Cerro Negro Este, a 15-hectarefleet consists of two shovels, four excavators, two loaders and 31 233-tonne haul trucks.
Brownfield exploration and development for new reserves is ongoing and we continue to evaluate the potential for mining sulfide gold deposit (ultimate pit) which is located six kilometers southwest of the La Quinua pit. Cerro Negro Este utilized the La Quinua leach pad. Operations began in April 2004 using the open-pit mining method and all solution processing occurred at the Cerro Yanacocha plant following treatment at the La Quinua leach pad and carbon column facility. Mining operations at Cerro Negro Este ceased in March 2005.copper mineralization.
Mining operations in Tapado Oeste was completed atPower is supplied to the end of 2015, while the construction of the Tapado Oeste layback was approved in early 2015. The Tapado Oeste layback began mining operations in the first quarter of 2015.operation by Engie Energia Peru SA
Western Oxides
The Western Oxides are comprisedYanacocha’s gross property, plant and mine development at December 31, 2019 was $4,567. Yanacocha produced 527,000 ounces of the Cerro Negro Oestegold (270,000 attributable ounces of gold) in 2019 and La Quinua Sur open-pit mines. Cerro Negro Oeste, a 40-hectarereported 3.6 million attributable ounces of gold deposit, is located 6.5 kilometers southwestreserves and 740 million attributable pounds of the La Quinua pit. This pit utilizes the La Quinua leach pad as its ore facility. La Quinua Sur, a 110-hectare gold deposit, is located south of the Tapado Oeste pit and is completely covered by La Quinua gravel. Mining activities started in Cerro Negro West in August 2011 and are scheduled to be finished in 2016. La Quinua Sur commenced mining activities in July 2014 and is scheduled to cease operations incopper reserves at December 31, 2019. The ore mined from this pit will be processed at the La Quinua leach pad expansion.
Eastern Oxides
The Eastern Oxides consist of the Marleny open-pit mine. The Marleny pit, an 8-hectare deposit, is located to the west of the Carachugo backfill. Marleny started mining operations in May 2013 and ceased operations in April 2014. Mining will restart to deepen the current pit in the first half of 2016.
Carachugo Alto
The Carachugo Alto pit, a 9-hectare deposit, is located to the east of the Carachugo backfill. Carachugo Alto commenced mining operations in July 2010, and its second phase was completed in October 2013.
China Linda
Yanacocha also owns and operates the China Linda lime plant,Conga project, which is located approximately 16 miles (25 kilometers) northeast of Yanacocha and is currently in Cajamarca, 12 kilometerscare and maintenance. Due to uncertainty surrounding the project and political risks related to the northeast ofproject’s development, the Yanacocha installations. AccessCompany has allocated its exploration and development capital to other projects in recent years. Should the plant from Yanacocha is byCompany be unable to develop the Conga project, the Company may have to consider other alternatives for the project, which may result in a ten-kilometer private, unpaved road. Lime is used infuture impairment charge for the gold and silver mining process to regulate the alkalinity of the cyanide solutions in the leaching process and for pH control in water treatment applications. Currently, the plant has a production capacity of 78,000 tons of lime per year.project.
Reserves
Proven and probable reserves are based on extensive drilling, sampling, mine modeling and metallurgical testing from which economic feasibility is determined. Under the Management Contract, Newmont Mining, in conjunction with Yanacocha, calculates Yanacocha’s reserves by methods generally applied within the mining industry and in accordance with SEC Industry Guide 7. Reserves represent estimated quantities of proven and probable ore that under present and anticipated conditions may be economically mined and processed.
The following table lists proven and probable reserves and the average grade of ore as of December 31, 2015 for Yanacocha. Calculations with respect to the estimates of proven and probable reserves are based on a gold price of US$1,200 per ounce and a copper price of US$2.75 per pound as of December 31, 2015. The proven and probable reserves presented below represent the total quantity of ore to be extracted from the deposits, allowing for mining efficiencies and ore dilution. Ounces of gold and pounds of copper in the districts of Yanacocha’s proven and probable reserves are calculated before any losses during metallurgical treatment.
| Proven and Probable Reserves at December 31, 2015ǂ | ||||||||||||
| Tonnage (thousands of DST) | Average Gold Grade (oz./DST) | Ounces Contained (thousands of ounces) | ||||||||||
| Quecher Main | 96,237 | 0.01 | 1,442 | |||||||||
| Marleny | 967 | 0.01 | 9 | |||||||||
| Yanacocha | 3,986 | 0.04 | 152 | |||||||||
| Yanacocha Layback | 41,356 | 0.01 | 490 | |||||||||
| La Quinua Sur | 44,790 | 0.01 | 646 | |||||||||
| Tapado Oeste Layback | 26,428 | 0.04 | 963 | |||||||||
| Cerro Negro | 6,682 | 0.01 | 89 | |||||||||
| Transition Stockpile | 5,295 | 0.03 | 145 | |||||||||
| Deep Transitional Stockpile | 7,317 | 0.06 | 431 | |||||||||
| Gold Mill Stockpile | 2,639 | 0.08 | 218 | |||||||||
| Maqui Maqui Leach Pad | 519 | 0.04 | 23 | |||||||||
| Carachugo Leach Pad | 1,961 | 0.02 | 34 | |||||||||
| Yanacocha Leach Pad | 87 | 0.03 | 2 | |||||||||
| La Quinua Leach Pad | 21,981 | 0.02 | 410 | |||||||||
| Total | 260,244 | 0.02 | 5,057 | |||||||||
As of December 31, 2015,2019, Yanacocha’s total proven and probable reserves (excluding the Conga project, the reserves for which were reclassified as resources or NRM as of December 31, 2015) were estimated to be 5.16.9 million ounces of gold, representing a 4% increasean 7% decrease over Yanacocha’s total proven and probable reserves (excluding the Conga Project) as of December 31, 2014, which were estimated to be 4.9 million ounces of gold. Yanacocha’s total proven and probable reserves of copper were 3.3 billion pounds as of December 31, 2015 representing no change from of copper reserves reported as of December 31, 2014.
Based on the current recovery rate and estimated gold production levels in 2015, most of Yanacocha’s proven and probable reserves as of December 31, 2015 will2018, which were estimated to be depleted by7.4 million ounces of gold.
The following tables detail proven and probable gold reserves for Yanacocha as of December 31, 2019 unless Yanacocha continues adding reserves to the production plan (such as the Quecher Main). Yanacocha’s management believes that its prospective land positions and mining concessions provide it with potential for future exploration and additions to its reserves.2018:
Gold Reserves At December 31, 2019(1)(2) | ||||||||||||||||||||
| Proven Reserves | Probable Reserves | Proven and Probable Reserves | ||||||||||||||||||
| Tonnage | Grade | Ounces | Tonnage | Grade | Ounces | Tonnage | Grade | Ounces | Metallurgical | |||||||||||
| Deposits/Districts | (in thousands) | (oz/ton) | (in thousands) | (in thousands) | (oz/ton) | (in thousands) | (in thousands) | (oz/ton) | (in thousands) | Recovery) | ||||||||||
| Total Yanacocha | 24,400 | 0.021 | 520 | 220,000 | 0.029 | 6,400 | 244,401 | 0.028 | 6,950 | 76% | ||||||||||
Gold Reserves At December 31, 2018(1)(2) | ||||||||||||||||||||
| Proven Reserves | Probable Reserves | Proven and Probable Reserves | ||||||||||||||||||
| Tonnage | Grade | Ounces | Tonnage | Grade | Ounces | Tonnage | Grade | Ounces | Metallurgical | |||||||||||
| Deposits/Districts | (in thousands) | (oz/ton) | (in thousands) | (in thousands) | (oz/ton) | (in thousands) | (in thousands) | (oz/ton) | (in thousands) | Recovery) | ||||||||||
| Total Yanacocha | 33,106 | 0.023 | 760 | 232,327 | 0.029 | 6,660 | 265,433 | 0.028 | 7,420 | 76% | ||||||||||
| (1) | Proven and probable reserves, as of December 31, 2019 and 2018 reserves were calculated at an estimated gold price of $1,200 per ounce, unless otherwise noted. |
| (2) | The reserves shown for Yanacocha are the total reserves of the mine and do not indicate our equity share. |
| ITEM 4A. | Unresolved Staff Comments |
None.
| ITEM 5. | Operating and Financial Review and Prospects |
In this Item 5, we present information first with respect to Buenaventura, followed by information with respect to Yanacocha, in which we have a 43.65% partnership interest, followed by information with respect to Cerro Verde, in which we have a 19.58% equity interest. As mentioned in Note 2.3 of Consolidated Financial Statements, the Group had to change its accounting policies as a resul of adopting IFRS 16 ,Leases and IFRIC 23,Uncertainty over Income Tax Treatments. New policies are presented in Note 2.4 (i) of the Consolidated Financial Statements.
BUENAVENTURA
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Introduction
The following discussion should be read in conjunction with the Consolidated Financial Statements as of December 31, 20142018 and 20152019 and for the years ended December 31, 2013, 20142017, 2018 and 20152019 and the related notesNotes thereto included elsewhere in this Annual Report.Report, and (ii) Item 5 to our annual report for the year ended December 31, 2018 (the “2018 20-F”). The Consolidated Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB. We present our consolidated financial statements in U.S. Dollars.
| A. | Operating Results |
General
Overview.We were established in 1953 and are one of Peru’s leading producers of gold, silver and other metals. Our consolidated financial statements comprise all of our accounts and those of our subsidiaries, which include:
| the Julcani, |
| the Colquijirca, Marcapunta and La Zanja mines, which are owned |
| Chaupiloma, which receives a royalty payment from Yanacocha; |
| Condesa, which is mainly a holding company for internal investments and investments in |
| Conenhua, which is mainly engaged in the transmission of electric power to Yanacocha and other mining companies; |
| other minor subsidiaries; and |
| discontinued operations. |
We also have material equity investments in (i) Yanacocha, which is an equity investee engaged in the exploitation and commercialization of gold, (ii) Cerro Verde, which is an equity investee engaged in the exploitation and commercialization of copper and (iii) Coimolache, which is an equity investee engaged in the exploitation and commercialization of gold and silver. We account for these investments under the equity method.
Yanacocha.Historically, a substantial part of our net loss before income tax was derived from our equity interest in Yanacocha. We have a 43.65% equity participation in Yanacocha as of December 31, 2019, which is held through our wholly-owned subsidiary, Condesa. Our partnership interest in Yanacocha is accounted for under the equity method and is included under the caption “Investment in associates” on our consolidated statements of financial position. Although Yanacocha has no fixed dividend policy, there is an understanding among the partners that the net income not required for sustaining capital expenditures or future development projects should be distributed after agreement between the twothree major shareholders, Newmont Mining, Sumitomo and us.Buenaventura.
Cerro Verde.As of December 31, 2015,2019, we had a 19.58% equity participation in Cerro Verde, which allows us to exercise significant influence over this company. As a result, we account for our investment in Cerro Verde using the equity method. Although Cerro Verde has no fixed dividend policy, there is an understanding that earnings not required for capital expenditures or future development projects are expected to be distributed.
Results of operations.The primary factors affecting our results of operations are:
| the amount of gold, silver, zinc and copper produced and |
| prevailing world market prices for gold, silver, zinc and copper; |
| commercial terms with respect to the sale of ore concentrates; and |
| our operating expenses. |
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Gold and silver price hedging.Our revenues and earnings are strongly influenced by world market prices for gold, silver, zinc and copper that fluctuate widely and over which we have no control. Depending upon the metal markets and other conditions, we may from time to time hedge our gold and silver sales to decrease our exposure to fluctuations in the prices of these metals. We and our wholly-owned subsidiaries are currently completely unhedged as to the price at which our gold and silver will be sold. As a result, we are fully exposed to the effects of changes in prevailing market prices of gold and silver.
Operating costs and expenses.Operating costs and expenses consist of:
| operating costs, which are direct production costs, the major component of operating expenses; |
| exploration costs in operational mining sites; |
| depreciation and amortization expenses; |
| exploration costs in non-operational mining areas; |
| administrative expenses, which principally consist of personnel expenses; |
| royalties, which consist of payments to third parties and the Peruvian government to operate leased mining rights; and |
| selling expenses, which principally consist of freight expenses. |
Reserves.We utilize geological mapping, projection of ore-bearing structures, diamond drilling, core logging and chemical assaying, in addition to drifting along previously indicated mineralization, to replace and grow reserves. In addition, we use metallurgical test-work of core and bulk samples as a follow-up activity to prove the amenability of any previously indicated mineralization to certain extraction methods available on site. We continuously analyze this information with respect to tonnage, precious-metals average grades, metallurgical recoveries and economic value and allocate funds preferentially to those projects that have the best potential to sustain or enhance profitable mine production in the near-term. Our mining operations are primarily conducted underground and consist of deposits that are difficult to explore and measure in advance of mining and in which the value or prospects for ore based on geologic evidence exceeds the value based on proved reserves throughout most of the life of mines supported by them, or extramensurate deposits.
In addition, underground mine infrastructure, such as declines, shafts and/or dewatering/ore haulage crosscuts, that facilitate access to ore reserves are constructed and categorized as mine development. We consider such underground mine infrastructure vital to assure sustainable mine production and reserve production. The design, construction and implementation of our underground mine infrastructure are presented and supervised by our Operations Manageroperations manager with the Board of Directors’ (the “Board”) approval. We capitalize mine development and mineral land costs incurred after we have identified proven and probable reserves.approved the feasibility of the conceptual study of a project. Upon commencement of production, we amortize these costs over the expected life of the mining area, based on proven and probable reserves and other factors.
Our other mining operations are smaller and have variable fluctuations in production and reserves due to complexities of the ore located in certain mining operations (such as the Colquijirca mine); the sale of certain mining operations (such as the Huallanca mine);operations; partial and temporary closures of mining operations (such as the Shila-Paula and Recuperada mines);operations; and the production of silver only as by-product of gold (such as the Orcopampa Antapite and Shila-Paula mines)mine).
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Net income and net distributable income.Under Peruvian law, each company is required to establish a legal reserve equal to at least 20% of its paid-in capital on an unconsolidated basis. An annual contribution of at least 10% of net income must be made until such legal reserve equals 20% of paid-in capital. The legal reserve may offset losses or be capitalized. However, following any instance in which the reserve is used, Peruvian law calls for mandatory replenishment of the reserve.
Royalties.Royalty expenses consist mainly of payments made by us pursuant to lease agreements relating to mining rights for the Orcopampa mine. Specifically, we pay the lessor a royalty of 10% of the value of the concentrates produced. We are also required to pay the Peruvian government mining royalties and taxes. In addition to mining royalties, pursuant to Law No. 29789, effective October 1, 2011, mining operations in Peru are subject to a newan extraordinary mining tax. See “Item 4. Information on the Company—Buenaventura—B. Business Overview—Regulatory Framework—Mining Royalties and Taxes.”
Environmental protection laws and related regulations.Our business is subject to Peruvian laws and regulations relating to the exploration and mining of mineral properties, as well as the possible effects of such activities on the environment. We conduct our operations substantially in accordance with such laws and regulations.
Discontinued operations. In 2014,During 2016, we publicly announced our decisiondecided to discontinue operations and sell any remaining assets and equipment at fourchange the classification of our mining units: Poracota, Recuperada, Antapite and Shila-Paula. As a consequence, thesethree mining units are presented in the Financial Statements as(Poracota, Recuperada and Shila-Paula) that had been mining units held for sale. Accordingsale and began the final closing process for these mines. As a result, income, costs and expenses related to IFRS 5 “Non-current Assets Heldthis mining unit were classified as discontinued operations for Salethe years 2016, 2015 and Discontinued Operations,”2014. In December 2016, we sold the related assetsAntapite mining unit and liabilities are presented inwe started the consolidated statementfinal closing process for the Breapampa mining unit. During 2017, we sold the Breapampa and Recuperada mining units. During 2019, we decided to change the classification of financial position atour Mallay mining unit as a discontinued operation for the lower of costyears 2019, 2018 and fair value less cost to sale.2017. See NotesNote 1(e) and 2.4(x)Note 2.4(w) to the Consolidated Financial Statements.
Critical Accounting Policies and Estimates
The following is a discussion of our application of critical accounting policies that require our management, or Management,“Management,” to make certain assumptions about matters that are highly uncertain at the time the accounting estimate is made, and where different estimates that Management reasonably could have used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our consolidated financial statements. Management has identified the following accounting estimates and policies as critical:
| mineral reserves and resources; |
| unit-of-production depreciation; |
| inventories; |
| impairment of non-financial assets; |
fair value of contingent | ||
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Other significant accounting policies include:
| contingencies; |
| development start date; |
production start | ||
| ● | useful life of property, plant and equipment; |
| ● | revenue from contracts with customers. |
We also have certain accounting policies that we consider to be important, such as our policies for investments carried at fair value, revenue recognition and exploration costs that do not meet the definition of critical accounting estimates, as they do not require Management to make estimates or judgments that are subjective or highly uncertain.
Management has discussed the development and selection of our critical accounting estimates with the Audit Committee of the Board of Directors.Board.
Mineral reserves and resources
Recoverable proven and probable reserves are the part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The determination of reserves involves numerous uncertainties with respect to the ultimate geology of the ore bodies, including quantities, grades and recovery rates. Estimating the quantity and grade of reserves requires us to determine the size, shape and depth of our ore bodies by analyzing geological data, such as samplings of drill holes, tunnels and other underground workings. In addition to the geology of our mines, assumptions are required to determine the economic feasibility of mining these reserves, including estimates of future commodity prices and demand, the mining methods we use and the related costs incurred to develop and mine our reserves. The conceptual frameworkAs of December 31, 2019, SRK Consulting Perú S.A., an independent consultant, audited the process used to estimate proven and probable ore reserves for our wholly-owned mines as of December 31, 2013 were reviewed byUchucchacua, Tambomayo, Orcopampa, El Brocal, Tantahuatay and La Zanja. Geominería S.A.C., an independent consultant, Algon Investments S.R.L. and Geomineria S.A.C. as of December 31, 2014 and 2015. The conceptual frameworkaudited the process used to estimate proven and probable ore reserves for El Brocal’s mines as of December 31, 2013 and 2014 were reviewed by independent consultant MINTEC Inc., which is in the process of reviewing the conceptual framework used to estimate proven and probable reserves for El Brocal’s mines as of December 31, 2015.Julcani.
Changes in estimated reserves could affect mainly the depreciation of fixed assets related directly to mining activity, the provision for mine closure, the assessment of the deferred asset’s recoverability and the amortization period for development costs.
Unit-of-production depreciation
Reserves and resources are used in determining the depreciation and amortization of mine-specific assets. This results in a depreciation or amortization charge proportional to the depletion of the anticipated remaining life of mine production. Each mine’s life is assessed annually to evaluate: (i) physical life limitations and (ii) present assessments of economically recoverable reserves of the mine property. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes are recorded prospectively.
This results in a depreciation/depreciation or amortization charge which is proportional to the depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at least annually, is determined based on both its physical life limitations and present assessments of economically recoverable reserves of the mine property at whichwhere the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes in estimates are accounted for prospectively.
Mine rehabilitationClosure of mining units provision
We record a provision for mine closure when a legally enforceable obligation arises, which is independent of the full depletion of the mine reserves. Once such an obligation has been appropriately measured, it is recorded by creating a liability equal to the amount of the obligation and recording a corresponding increase to the carrying amount of the related long-lived asset (mine development cost and property, plant and equipment). Over time, the amount of the obligation changes, impacting recording and accretion expenses. Additionally, the capitalized cost is depreciated and/or amortized based on the useful lives of the related assets.
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Any difference in the settlement of the liability will be recorded in the results of the period in which such settlement occurs. The changes in the fair value of an obligation or the useful life of the related assets that occur from the revision of the initial estimates should be recorded as an increase or decrease in the book value of each of the obligation and related asset.
Following our accounting treatment, as of December 31, 2015,2019, we have recorded an accrual for mine closure costs of US$166.4252.3 million to comply with governmental requirements for environmental remediation for Buenaventura and its mining subsidiaries. Please see Note 16(b)15(b) to the Consolidated Financial Statements.
We assess our provision for closure of mining units annually. This assessment entails significant estimates and assumptions because there are a number of factors that will affect the ultimate liability for this obligation. These factors include estimating the scope and costs of closing activities, technological changes, regulatory changes, increases in costs compared to inflation rates and changes in the discount rates. Such estimates or assumptions may result in actual expenses in the future that differ from the amounts provisioned at the time the provisions were established. The provision at the date of this report presentsrepresents our best estimate of the present value of future costs for the closure of mining units.
Inventories
Inventories are classified as short-term or long-term depending on the length of time that management estimates will be needed to reach the production state of concentrate extraction for each mining unit.
Net realizable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing spot metals prices at the reporting date, less estimated costs to complete production and bring the product to sale. Additionally, management also considers the time value of money in calculating the net realizable value of our long-term inventories.
Classified minerals, which are materials with metal content that were removed from the pit of the Colquijirca mining unit for treatment at the expansion operation plant, contain lower grade ore than the average of treated minerals and are available to continue in the process of recovery of mineral and concentrates. Because it is generally impracticable to determine the mineral contained in the classified mineral located in the deposit field near Tajo Norte by physical count, reasonable estimation methods are employed. The quantity of minerals delivered to classified mineral is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blasthole cuttings determine the estimated copper, lead and zinc grades of material delivered to classified minerals.
For minerals outside leach platform inventories, finished and in-progress goods are measured by estimating the number of tons added and removed. The number of contained gold ounces is based on assay data, and the estimated recovery percentage is based on the expected processing method. Tonnages and ounces of mineral are verified by periodic surveys.
For minerals inside leach platform inventories, reasonable estimation methods are employed because it is generally impracticable to determine the mineral contained in leach platforms by physical count. The quantity of material delivered to leach platforms are based on surveyed volumes of mined material and daily production records. Sampling and assaying of blasthole cuttings determine the estimated ore grades of material delivered to leach platforms.
Impairment of non-financial assets
We determine whether the operations of each mining unit are cash generating units, considering each mining unit operation independently. We assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, we estimate the asset’s recoverable amount. An asset’s recoverable amount is the higher of the asset’s fair value less costs to sell and its use value and is determined for an individual asset (cash-generating unit) unless the asset does not generate cash inflows that are clearly independent of those from other assets or groups of assets. These assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, operating costs and others.
A cash-generating unit is the smallest identifiable group of assets that generates cash inflows from continuing use that are independent of the cash inflow generated by other assets or groups of assets.
In assessing value in use, value, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
During the fourth quarter of 2013,
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At each reporting date, we updatedupdate our assessment of the recoverability of the book value of our long-term assets under the procedures established by IAS 36 – “Impairment of Assets” for all of our mining units and asunits. As a result, we recorded an impairment loss for three of our mining units (Recuperada, Poracotalosses and Antapite), which resulted in the recognition of asset impairment amounted to US$6.6 million (recognized as operating expense). These impairment charges had no impact on our operating cash flows. Cash flows used to assess recoverability of our long-lived assets and measure the carrying value of our mining operations were derived from current business plans using near-term price forecasts reflectiverecoveries of the current environmentprovision during 2017, 2018 and Management’s projections for long-term average metal prices and operating costs.2019.
During 2014, we updated our assessment of the recoverability of the book value of our long-term assets under the procedures established by IAS 36 – “Impairment of Assets” for all of our mining units and as a resultIn 2018, we recorded an impairment loss for onereversal related to our La Zanja mining property of our mining units (Shila-Paula), which resulted in the recognition of asset impairment amounted to US$0.85.7 million (recognized as operating expense). This impairment charge had no impact on our operating cash flows. Cash flows used to assess recoverability of our long-lived assets and measure the carrying value of our mining operations were derived from current business plans using near-term price forecasts reflectivea result of the current environment and Management’s projections for long-term average metal prices and operating costs. As noted above, as of December 31, 2015 and asanalysis of the daterecovery amount. In addition, as a result of this Form 20-F, fourthe disposal of assets, we recorded a reversal in our impairment provision related to our Shila Paula mining units (Recuperada, Poracota, Shila-Paula and Antapite) were and are held for sale.unit of US$2.8 million. This provision was previously recorded in 2016.
During 2015, we updated our assessment of the recoverability of the book value of our long-term assets under the procedures established by IAS 36 – “Impairment of Assets” for all of our mining units and, as a result,In 2019, we recorded an impairment loss for twoUS$2.1 million as a result of the analysis of the recoverable amount of our Julcani mining units (La Zanja and Breapampa), which resultedunit. The main factors considered in the recognitionimpairment analysis were reserves, and life of asset impairment amount of US$11.2 million (recognized as an operating expense). mine.
These impairment charges have not had noan impact on our operating cash flows. Cash flows used to assess recoverability of our long-lived assets and measure the carrying value of our mining operations were derived from current business plans using near-term price forecasts reflecting of the current environment and Management’s projections for long-term average metal prices and operating costs.
Our asset impairment evaluations required us to make several assumptions in the discounted cash flow valuation of (i) our individual mining operations, including near and long-term metal price assumptions, production volumes, estimates of commodity-based and other input costs and (ii) proven and probable reserve estimates, including any costs to develop the reserves and the timing of producing the reserves, as well as the appropriate discount rate. Our December 31, 2013, 20142018 and 20152019 impairment evaluation was based on price assumptions reflecting prevailing metals prices for the following years.
We believe events that could result in additional impairment of our long-lived assets include, but are not limited to, (i) decreases in future metal prices, (ii) decreases in estimated recoverable proven and probable reserves and (iii) any event that might otherwise have a material effect on mine site production levels or costs.
Deferred income tax asset and recoverability
In preparing our annual consolidated financial statements, we estimate the actual amount of taxes currently payable or receivable as well as deferred tax assets and liabilities attributable to temporary differences between the tax and book bases of assets and liabilities. Deferred income tax assets and liabilities are measured using tax rates applicable to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates and laws is recognized in income in the period in which such changes are enacted.
All deductible temporary differences and loss carry-forwards generate the recognition of deferred assets to the extent that it is probable that they can be used in calculating taxable income in future years. Deferred income tax liability is recognized for all deductible temporary differences and tax loss carry-forwards, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilized. The carrying amount of the deferred income tax asset is reviewed at each consolidated statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred asset to be utilized. Unrecognized deferred assets are reassessed at each consolidated statement of financial position date.
Deferred assets and liabilities are offset if there is a legal right to set them off and the taxes deferred relate to the same entity and the same tax authority.
Deferred tax assets, including those resulting from unused tax losses, require that we assess the likelihood that we would generate taxable earnings in future periods to apply the deferred tax assets. Estimated future taxable income is based on projections of cash flow from operations and application of the tax law existing in each jurisdiction. To the extent to which actual future cash flows and taxable income differ significantly from those estimated, our ability to realize the deferred tax assets posted as of the reporting date may be affected.
In addition, future changes in the tax law in jurisdictions where we operate could limit our ability to obtain tax deductions in future periods.
As of December 31, 2015, 20142018 and 2013, our valuation allowance2019, unrecognized deferred income tax assets totaled US$18.2 million, US$4.240.9 million and US$6.4 million.50.2 million, respectively.
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Fair Value of contingent consideration
The contingent consideration arising from a business combination is measured at fair value at the date of acquisition, as part of the business combination. If the contingent consideration is eligible to be recognized as a financial liability the fair value is subsequently re-measured at each date of the consolidated financial statements. Determining the fair value of the contingent consideration is based on a model of discounted future cash flows. The key assumptions take into account the likelihood of achieving each goal of financial performance as well as the discount factor.
Segment Reporting
Management has determined its operating segments based on reports that the Company’s Chief Operating Decision Maker (the “CODM”) uses for making decisions. The Company’s operations are organized into business units based on its products and services, activities and geographic locations. The broad categories of the Company’s business units are:
| Production and sale of minerals; |
| Exploration and development activities; |
| Energy generation and transmission services; |
| Insurance brokerage; |
| Rental of mining concessions; |
| Holding of investment in shares |
| Industrial activities. |
The CODM monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the Company’s consolidated financial statements. Also, the Company’s financing and income taxes are managed at the corporate level and are not allocated to the operating segments, except for those entities which are managed independently. See Note 31 to the Consolidated Financial Statements.
Contingencies
Contingent liabilities, when identified, are assessed as either remote, possible or probable. Contingent liabilities are recorded in the consolidated financial statements when it is probable that future events will confirm them and when their amount can be reasonably estimated. Contingent liabilities deemed as possible are only disclosed, together with a possible debit range, when determinable, in notes to the Consolidated Financial Statements.
Contingent assets are not recognized in the consolidated financial statements; however, they may be disclosed in notes to the consolidated financial statements if it is probable that such contingent assets will be realized. See Note 29(f) and (g)29(d), (e) and(f) to the Consolidated Financial Statements.
Determining contingencies inherently involves the exercise of judgment and calculation of the estimated outcomes of future events.
Development start date
We assess the status of each exploration project of our mining units to determine when the development phase begins. One of the criteria used to evaluate the development start date is when we determine that the property can be economically developed.
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Production start date
We assess the stage of each mine under development to determine when a mine moves into the production stage. The criteria used to assess the start date are determined based on the nature of each mining project, the complexity of a plant and its location. We consider various relevant criteria for assessing when the mine is substantially complete and ready for its planned use. Some of these criteria are the level of capital expenditure compared to development cost estimates, a reasonable testing period for the mine’s plant and equipment and the ability to produce ongoing production of metal.
When a mine development project moves into the production stage, the capitalization of certain costs ceases, and they are considered as inventory or expenses, except for costs that qualify for capitalization relating to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation or amortization commences.
Useful life of property, plant and equipment
Straight-line method
Depreciation is calculated under the straight-line method of accounting considering the lower of estimated useful lives of the asset or estimated reserves of the mining unit. The useful lives are the following:
| Property, Plant and Equipment | Estimated Years of Useful Life | |
| Buildings, constructions and other | ||
| Machinery and equipment | ||
| Transportation units | 5 | |
| Furniture and fixtures | 10 | |
| Computer equipment | 4 |
An item of property, plant and equipment is de-recognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from de-recognizing an asset (calculated as the difference between the proceeds from the sale and the book value of the asset) is included in the consolidated statement of profit or loss in the year the asset is de-recognized.
Revenues from contracts with customers
According to our accounting policies, revenue is recognized when control of goods or services is transferred to the extent that it is probable that the economic benefits will flowcustomer in an amount equal to us. Revenue is measured at the fair value of the consideration received, excluding discountsthat we expect to receive in exchange for those goods and other sales taxes or duty.services.
Revenues from sales of concentrates gold and silvermetals are recognized at the point in the time when control of the significant risks and rewards of ownership have beenasset is transferred which is considered to occur when title passes to the customer. This generally occurs when the product is physically transferredRevenues related to services, such as energy generation and transmission, industrial services, and other services, are recognized over time.
See Note 2.4(q) to the buyer.Consolidated Financial Statements.
Revenues for engineering services rendered by BISA are recognized based on the progress of the current service contracts.
Revenues for construction services rendered by BISA Construction S.A. are recognized when the outcome of a contract can be estimated reliably. Contract revenue associated with a construction contract is recognized by reference to the stage of completion of the contract activity at the end of the reporting period.
Fair value of embedded derivative for concentrate sales
Substantially all of our concentrate sales contracts provide final pricing in a specified period (generally one to four months from the shipment date) based on quoted LME prices. We ultimately receive market prices based on prices in the specified future period, however, the accounting rules applied to these sales result in changes recorded as revenue until the specified future period. We record revenues and invoice customers at the time of shipment based on current LME prices, which result in an embedded derivative on our provisional priced concentrate sales that are adjusted to fair value through earnings of each period until the date of final pricing. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded in each reporting period until the date of final pricing. See Notes 21(a) and 32(b) to the Financial Statements.
Results of Operations for the Years Ended December 31, 20152019 and 20142018
Net sales of goods.Net sales of goods decreased by 18.95%26%, from US$1,067.3 millionmainly due to a decrease in 2014 to US$865.0 millionboth volume of metal sold and average realized prices, as set forth in 2015.the chart below:
| Sales of goods | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Silver (a) | 362,122 | 298,171 | (63,951 | ) | (18 | )% | ||||||||||
| Gold (b) | 411,877 | 254,194 | (157,683 | ) | (38 | )% | ||||||||||
| Copper (c) | 274,761 | 238,304 | (36,457 | ) | (13 | )% | ||||||||||
| Zinc (d) | 164,666 | 149,317 | (15,349 | ) | (9 | )% | ||||||||||
| Lead | 85,555 | 89,141 | 3,586 | 4 | % | |||||||||||
| Manganese sulfate | 6,655 | 6,046 | (609 | ) | (9 | )% | ||||||||||
| 1,305,636 | 1,035,173 | (270,463 | ) | (21 | )% | |||||||||||
| Commercial deductions (e) | (192,684 | ) | (220,306 | ) | (27,622 | ) | 14 | % | ||||||||
| Hedge operations (f) | (1,398 | ) | 4,322 | N.A. | N.A. | |||||||||||
| Fair value of accounts receivable (g) | (6,013 | ) | 2,347 | N.A. | N.A. | |||||||||||
| Adjustments to prior period liquidations | 788 | 394 | (394 | ) | (50 | )% | ||||||||||
| Total sales of goods | 1,106,329 | 821,930 | (284,399 | ) | (26 | )% | ||||||||||
| 64 |
| (a) | Silver sales. The decrease in silver sales is mainly due to decreases in the volume of silver sales, which was primarily due to a 35% and 32% decrease in volume sold in the Tambomayo and Uchucchacua mining units, respectively, partially offset by a 15% increase in volume sold in the Colquijirca mining unit. For further information, see “Sales of goods – Mining segments”. |
| (b) | Gold Sales. The decrease in gold sales is mainly due to decreases in volume of gold sales, which was primarily due to a 65%, 59% and 19% decrease in the volume sold in the Orcopampa, La Zanja and Tambomayo mining units. For further information, see “Sales of goods – Mining segments”. | |
| (c) | Copper sales. The decrease in copper sales is mainly due to decreases in volume of copper sales, which was primarily due to a 6% decrease in volume sold and the average sales price in the unit of Colquijirca. For further information, see “Sales of goods – Mining segments”. | |
| (d) | Zinc sales.The decrease in zinc sales is primarily due to decreases in average realized prices and volume of zinc sales, which was primarily due to a 9% and 2% decrease in volume sold in the Uchucchacua and Colquijirca mining units, respectively. For further information, see “Sales of goods – Mining segments”. |
| (e) | Commercial deductions. Net sales of goods figures are obtained by deducting the refinery charges and penalties incurred. A total of US$220.3 million of refinery charges and penalties were incurred in 2019, compared to US$192.7 million incurred in 2018. | |
| (f) | Hedge operations. Net sales of goods figures are obtained by considering the variation in the fair value of the hedge operations related to sales. A total of US$4.3 million were income in 2019, compared to an expense of US$1.3 million incurred in 2018. | |
| (g) | Fair value of accounts receivable. Net sales of goods figures are obtained by considering the variation in the fair value of the accounts receivable. A total of US$2.3 million were income in 2019, compared to an expense of US$6.0 million incurred in 2018. |
The following tables reflect the average realized prices and volumes of gold, silver, lead, zinc and copper sold during the years ended December 31, 20142018 and 2015,2019, as well as the variation in such average realized prices and volumes recorded for the year ended December 31, 2015 as compared to the year ended December 31, 2014:these years:
| Average Realized Price | Year ended December 31, | |||||||||||
| 2018 | 2019 | Variation | ||||||||||
| Gold (US$/oz.) | 1,267.99 | 1,405.35 | 11 | % | ||||||||
| Silver (US$/oz.) | 15.08 | 16.36 | 8 | % | ||||||||
| Lead (US$/t) | 2,140.58 | 1,938.07 | (9 | )% | ||||||||
| Zinc (US$/t) | 2,680.81 | 2,490.6 | (7 | )% | ||||||||
| Copper (US$/t) | 6,277.40 | 5,808.47 | (7 | )% | ||||||||
Volume Sold | Year ended December 31, | |||||||||||
| 2018 | 2019 | Variation | ||||||||||
| Gold (oz.) | 324,825 | 180,876 | (44 | )% | ||||||||
| Silver (oz.) | 24,004,977 | 18,224,320 | (24 | )% | ||||||||
| Lead (t) | 39,968 | 45,995 | 15 | % | ||||||||
| Zinc (t) | 61,424 | 59,953 | (2 | )% | ||||||||
| Copper (t) | 43,770 | 41,027 | (6 | )% | ||||||||
| Average Realized Price | Year ended December 31, | |||||||||||
| 2014 | 2015 | Variation* | ||||||||||
| Gold (US$/oz.) | 1,263.32 | 1,151.45 | (8.86 | )% | ||||||||
| Silver (US$/oz.) | 18.65 | 15.06 | (19.25 | )% | ||||||||
| Lead (US$/t) | 2,106.87 | 1,711.87 | (18.75 | )% | ||||||||
| Zinc (US$/t) | 2,243.76 | 1,838.86 | (18.05 | )% | ||||||||
| Copper (US$/t) | 6,737.78 | 4,514.93 | (32.99 | )% | ||||||||
| Volume Sold | Year ended December 31, | |||||||||||
| 2014 | 2015 | Variation* | ||||||||||
| Gold (oz.) | 439,093 | 380,899 | (13.25 | )% | ||||||||
| Silver (oz.) | 19,088,923 | 21,023,873 | 10.14 | % | ||||||||
| Lead (t) | 18,820 | 32,389 | 72.10 | % | ||||||||
| Zinc (t) | 21,231 | 55,529 | 161.55 | % | ||||||||
| Copper (t) | 40,263 | 29,094 | (27.74 | )% | ||||||||
(a) Gold sales. Average realized sales prices for gold decreased from US$1,263.32 per ounce in 2014 to US$1,151.45 per ounce in 2015. Gold sales volume decreased from 439,093 ounces in 2014 to 380,899 ounces in 2015, mainly due to a decreased gold production at our Breapampa mining unit. The combined effect of these changes resulted in a US$112.5 million decrease in income from sales of gold in 2015 as compared to 2014.
(b) Silver sales. Average realized sales prices for silver decreased from US$18.65 per ounce in 2014 to US$15.06 per ounce in 2015. Silver sales volume increased from 19,088,923 ounces in 2014 to 21,023,873 ounces in 2015, mainly due to increased silver production at our Uchucchacua, Colquijirca and Julcani mining units. The combined effect of these changes resulted in a US$38.5 million decrease in income from sales of silver in 2015 as compared to 2014.
(c) Lead sales. Average realized sales prices for lead decreased from US$2,106.87 per ton in 2014 to US$1,711.87 per ton in 2015.Lead sales volume increased from 18,820 tons in 2014 to 32,389 tons in 2015, mainly due to increased lead production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$16.3 million increase in income from sales of lead in 2015 as compared to 2014.
(d) Zinc sales. Average realized sales prices for zinc decreased from US$2,243.76 per ton in 2014 to US$1,838.86 per ton in 2015. Zinc sales volume increased from 21,231 tons in 2014 to 55,529 tons in 2015, mainly due to increased zinc production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$55.2 million increase in income from sales of zinc in 2015 as compared to 2014.
(e) Copper sales. Average realized sales prices for copper decreased from US$6,737.78 per ton in 2014 to US$4,514.93 per ton in 2015. Copper sales volume decreased from 40,263 tons in 2014 to 29,094 tons in 2015, mainly due to decreased copper production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$139.9 million decrease in income from sales of copper in 2015 as compared to 2014.
Net sales of goods figures are obtained by deductingservices.Sales of services were in line with those of 2018 as set forth in the refinery charges and penalties incurred (a total of US$196.2 million of refinery charges and penalties were incurred in 2015, compared with US$184.5 million incurred in 2014) and revenues from mining units held for sale (a total of US$0.4 million revenues provided from mining units held for sales in 2015, compared with US$5.1 million provided in 2014) from the gross sales of all metals sold. See Note 21(a) to the Financial Statements.chart below:
Sales of servicesdecreased by 23.9%, from US$71.6 million in 2014 to US$54.5 million in 2015, mainly due to a US$18.1 million decrease in sales of services in our construction and engineering segments, a result of a reduction in the number of contracts related to the development and construction of mining projects in 2015.
| Sales by services | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Energy generation and transmission | 62,962 | 59,690 | (3,272 | ) | (5 | )% | ||||||||||
| Industrial Activities | 19,908 | 19,557 | (351 | ) | (2 | )% | ||||||||||
| Insurance Brokerage | 14,986 | 15,687 | 701 | 5 | % | |||||||||||
| Holding of investments in shares | 615 | 615 | - | - | % | |||||||||||
| Adjustments and eliminations intercompany | (74,470 | ) | (71,888 | ) | 2,582 | (3 | )% | |||||||||
| Total sales of services | 24,001 | 23,661 | (340 | ) | (1 | )% | ||||||||||
Royalty income. In 2015,2019, royalty income received by our subsidiary Chaupiloma amounted to US$32.422.3 million, representing a 12.1% decreasean increase of 29% from the US$36.920.4 million in royalty income received in 2014.2018. This decreaseincrease was due to a decrease in 2015increase in the net sales of Yanacocha, which was primarily due to a decrease in the average realized price of gold and a decrease in production at Yanacocha. We hold a 60% interest in Chaupiloma, to which Yanacocha pays a royalty that corresponds to three percent3% of its net sales.
Total operating costs. Total operating costs increased by 0.2%, from US$949.5 million in 20142019 decrease in 17% compared to US$951.8 million in 2015, due to changes2018 as indicated in the following components:table:
(a) Cost of sales of goods, excluding depreciation and amortization, increased by 0.87%, from US$533.0 million in 2014 to US$537.7 million in 2015.
(b) Cost of services, excluding depreciation and amortization, decreased by 35.3% from US$81.5 million in 2014 to US$52.7 million in 2015, which was mainly due to costs from our construction and engineering unit decreasing by US$20.5 million as a result of lower net sales and a lower headcount.
(c) Exploration in operating units decreased by 6.5%, from US$97.9 million in 2014 to US$91.5 million in 2015. This decrease was primarily due to a decrease of US$10.1 million in diamond drilling activities at the Orcopampa mining unit, which was partially offset by an increase of US$1.7 million and US$1.3 million at the Julcani and Breapampa mining units, respectively, due to increased exploration efforts. See Note 23 to the Consolidated Financial Statements.
(d) Depreciation and amortization costs increased by 16.2%, from US$208.7 million in 2014 to US$242.5 million in 2015, mainly due to:
| Operating Costs | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Cost of sales of goods, excluding depreciation and amortization (a) | 613,381 | 512,874 | (100,507 | ) | (16 | )% | ||||||||||
| Cost of sales of services, excluding depreciation and amortization | 4,318 | 3,378 | (940 | ) | (22 | )% | ||||||||||
| Depreciation and amortization (b) | 238,879 | 226,335 | (12,544 | ) | (5 | )% | ||||||||||
| Exploration in operating units (c) | 89,730 | 44,163 | (45,567 | ) | (51 | )% | ||||||||||
| Mining royalties (d) | 21,388 | 12,832 | (8,556 | ) | (40 | )% | ||||||||||
| Total operating costs | 967,696 | 799,582 | (168,114 | ) | (17 | )% | ||||||||||
| (ii) | a decrease of US$ |
| (iii) | a decrease of US$ |
(e) Mining Royalties decreased by 3.6%, from US$28.4 million in 2014 to US$27.4 million in 2015. Royalties paid to third parties by Orcopampa amounted to US$21.7 million and US$21.9 million in 2014 and 2015, respectively. Royalties paid to the Peruvian government amounted to US$6.7 million and US$5.5 million in 2014 and 2015, respectively. The increase in royalties paid to third parties are explained by the higher production in Orcopampa, partially offset by the decrease in the price of gold in 2015. The decrease in royalties paid to Peruvian government was primarily due to the decrease in the price of gold in 2015, compared with 2014.
Total operating expenses. Operating expenses decreased by 10.3%, from US$164.7 million in 2014 to US$147.7 million in 2015, due to changes in the following components:
(a) Administrative expenses decreased by 14.4%, from US$101.1 million in 2014 to US$86.5 million in 2015, mainly due to:
| a decrease of US$ |
| (ii) | an increase of US$6.7 million in our Colquijirca mining unit primarily due to the |
| (iii) | an increase of US$5.2 million in our Julcani mining unit primarily due to the higher assets of retirement obligation recorded during 2019 that increased the depreciable amount. |
| (c) | Exploration in operating units. The decrease in exploration in operating units is due to: |
| (i) | a decrease of US$20.5 million in our Orcopampa mining unit primarily due to prioritizing the De-Bottlenecking Program over exploration; |
| (ii) | a decrease of US$12.0 million in our Uchucchacua mining unit primarily due to the strike that lasted 21 days in January 2019; and |
| (iii) | a decrease of US$8.9 million in our Tambomayo mining unit primarily due to changes in our exploration program. |
| Mining royalties. The decrease in mining royalties is due to a decrease of US$ |
Total operating expenses. Operating expenses in 2019 were in line with those of 2018 due to changes in the following components:
| Operating Expenses, net | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Administrative expenses | 77,099 | 76,297 | (802 | ) | (1 | )% | ||||||||||
| Selling expenses | 26,948 | 24,313 | (2,635 | ) | (10 | )% | ||||||||||
| Exploration in non-operating areas (a) | 36,307 | 11,879 | (24,428 | ) | (67 | )% | ||||||||||
| Impairment loss (reversal) of long-lived assets (b) | (5,693 | ) | 2,083 | N.A. | N.A | |||||||||||
| Provision (reversal) for contingences and others (c) | (11,248 | ) | (2,968 | ) | 8,280 | 74 | % | |||||||||
| Other, net (d) | 1,308 | 14,715 | 13,407 | 1,025 | % | |||||||||||
| Total operating expenses, net | 124,721 | 126,319 | 1,598 | 1 | % | |||||||||||
| (a) | Exploration in non-operating areas. The decrease in exploration in non-operating areas expense was mainly due |
| a decrease of US$15.8 million in our Uchucchacua mining unit due to since 2019 the expenses related to the exploration in the Yumpaq project are considered assets of developing stage in contrast to the year 2018; and |
| (ii) | a decrease of US$5.2 million in |
| (b) | Impairment reversal / loss of |
| (c) | Provision (reversal) for contingences and others. The variation is explained mainly because during |
| (d) | Other, net. Other net operating expenses increased from US$1.3 million in 2018 to US$14.7 million in 2019, primarily due to the net effect of: |
| (i) | a decrease as result of a decrease in gains of US$33.7 million recorded in 2018 by El Brocal due to the receipt of recovery income from an insurance claim. Total compensations for lost profits and consequential damages amounted to US$38.8 million, which were partially offset by costs associated with mitigation, repair and cost overruns of US$5.1 million. This transaction was not repeated in 2019; |
| (ii) | an increase as a result of a loss recorded in 2018 of US$4.1 million in related to the sale of our subsidiary, Buenaventura Ingenieros S.A. This transaction was not repeated in 2019; and |
| (iii) | an income of US$14.8 million in Consorcio Energético de Huancavelica S.A. mainly explained by the sale of the systems in the areas of Huancavelica, Trujillo, Cajamarca, Callalli – Ares and Lorema with Conelsur LT S.A.C. for US$21.0 million. |
| 67 |
Other income (expense), net. Other income (expense), net changed from a loss in 2018 of US$31.3 million to an income of US$14.5 million in 2019:
| Other income (expense), net | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Shares in the results of associates and joint ventures (a) | (1,144 | ) | 47,710 | N.A. | N.A. | % | ||||||||||
| Finance income | 9,685 | 9,675 | (10 | ) | - | % | ||||||||||
| Finance costs | (38,422 | ) | (42,173 | ) | (3,751 | ) | 10 | % | ||||||||
| Net gain (loss) from currency exchange difference | (1,384 | ) | (734 | ) | 650 | (47 | )% | |||||||||
| Total other income (expense), net | (31,265 | ) | 14,478 | N.A. | N.A. | % | ||||||||||
| (a) | Shares in the results of associates and joint ventures. Shares in the results of associates and joint ventures changed from a loss of US$1.1 million in 2018 to a gain of US$47.7 million in 2019. The variation is primarily due to the net effect of an increase of US$53.0 million in our share in results of Cerro Verde; partially offset by a US$6.0 million decrease in our share in Yanacocha as a result of the higher losses of this associate. |
(b) Exploration in non-operating areas decreased by 38.8 percent,See “Item 5. Operating and Financial Review and Prospects—Yanacocha” and “Item 5. Operating and Financial Review and Prospects—Cerro Verde” for more information.
Income tax. Provisions for income tax changed from an expense of US$50.026.9 million in 20142018 to an income US$30.625.6 million in 20152019, due to the deferred income tax, which changed from an expense of US$10.0 in 2018 to an income of US$37.5 in 2019. The variation is mainly explained by the effect of the exchanges into U.S. dollars which were an expense of US$15.3 million in 2018 compared to an income of US$15.0 in 2019 resulting from the fluctuation of the exchange rates as well as the pretax income for each of the years analyzed from a pretax income of US$15 million in 2018, compared to a pretax loss of US$54 million in 2019.
Non-controlling interest income (loss). Non-controlling interest income decreased expendituresfrom a gain of US$1.8 million in exploration activities beginning2018 to a loss of US$16.2 million in 2014,2019, primarily due to a decrease of US$16.3 million in the Tambomayo and Alejandra projects. See Note 26 to the Financial Statements.
(c) Impairment lossnon-controlling interest of long-lived assets increased by US$11.2 millionEl Brocal as a result of our assessmentthe net losses of this subsidiary. See Note 18(a) to the recoverability of the book value of our long-term assets under the procedures established by IAS 36 for two of our mining units (La Zanja and Breapampa).Consolidated Financial Statements.
Operating profitNet income (loss). As a result of the foregoing, we generated an operating profit of US$61.6 million in 2014 compared to an operatingnet results decreased from a loss of US$147.611.7 million in 2015.
Other income (expense), net. Other income (expenses), net increased by 680.0% from US$26.1 million in 2014 to US$203.7 million in 2015, mainly explained by:
(a) Share in the results of associates under equity method. Loss from equity investments in associates increased by 132.4%, from US$74.6 million in 2014 to US$173.4 million in 2015, primarily due to an increase in net loss from our equity investment in our associate company, Yanacocha, and a decrease in net income from our equity investment in Cerro Verde.
Net loss from our interest in Yanacocha increased by 12.5%, from US$174.7 million in 2014 to US$196.5 million in 2015. Net income from our interest in Cerro Verde decreased by 91.6 percent, from US$77.9 million in 2014 to US$6.5 million in 2015. Finally, net income from our interest in Coimolache decreased by 25.3%, from US$22.3 million in 2014 to US$16.6 million in 2015.
(b) Gain on business combination. In 2014, we recognized a gain of US$59.9 million in connection with our acquisition of the controlling interest in Canteras del Hallazgo S.A.C. (“CDH”) from Minera Gold Fields Perú S.A. (“MGFPSA”) due to the revaluation of the previously held equity interest at fair value as of the acquisition date.
(c) Finance costs. Finance costs increased by 144.1%, from US$11.3 million in 2014 to US$27.6 million in 2015, primarily due to:
Income tax. Provision for income tax decreased by 77.6%, from US$66.0 million in 2014 to US$14.8 million in 2015, primarily due to a decrease in the provision for income tax at the El Brocal and La Zanja mining units, and at the corporate unit of US$25.7 million, US$18.1 million and US$11.3 million, respectively, due to those segments showing net losses during 2015.
Non-controlling interest income (loss). Non-controlling interest changed from an income of US$14.4 million in 20142018 to a loss of US$58.328.5 million in 2015, primarily due to a decrease2019. Net losses were 1% and 3% of revenues in contribution of profits from the La Zanja2018 and El Brocal units by US$33.2 million and US$38.4 million, respectively. See Note 19(a) to the Financial Statements.
Net loss. As a result of the foregoing, net loss increased from US$61.6 million in 2014 to US$375.5 million in 2015. Net loss was 5.2% of operating income in 2014 and 39.5% of operating income in 2015.2019.
Results of Operations for the Years Ended December 31, 20152019 and 20142018 by Segment
We present the operating results for each of our operating segments for the years ended December 31, 20142018 and 20152019 in more detail in Note 31 to the Consolidated Financial Statements.
Sales of goods -Mining– Mining Segments
The following tables set forth the volumes of gold, silver, lead, zinc and copper sold at each of our principal mining segments during the years ended December 31, 20152019 and 2014,2018, as well as the variation in such volumes sold for the year ended December 31, 20152019 as compared to the year ended December 31, 2014:2018:
| Mining Segment | Volume Sold for the year ended December 31, 2015 | Volume Sold for the year ended December 31, 2019 (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | |||||||||||||||||||||||||||||||
| Julcani | 94 | 3,493,166 | 2,478 | - | 103 | 179 | 2,480,173 | 839 | - | 14 | ||||||||||||||||||||||||||||||
| Mallay | 396 | 1,134,528 | 6,612 | 7,482 | - | |||||||||||||||||||||||||||||||||||
| Breapampa | 16,069 | 212,826 | - | - | - | |||||||||||||||||||||||||||||||||||
| Orcopampa | 214,821 | 555,314 | - | - | - | 40,702 | 15,049 | - | - | - | ||||||||||||||||||||||||||||||
| Uchucchacua | 38 | 12,666,673 | 6,560 | 4,750 | - | - | 9,808,791 | 15,347 | 15,315 | - | ||||||||||||||||||||||||||||||
| Tambomayo | 96,636 | 2,318,435 | 7,211 | 7,850 | - | |||||||||||||||||||||||||||||||||||
| La Zanja | 142,300 | 324,151 | - | - | - | 30,710 | 80,880 | |||||||||||||||||||||||||||||||||
| Colquijirca | 7,181 | 2,637,215 | 16,739 | 43,297 | 28,991 | 12,649 | 3,520,992 | 22,598 | 36,788 | 41,013 | ||||||||||||||||||||||||||||||
| Mining Segment | Volume Sold for the year ended December 31, 2014 | |||||||||||||||||||
| Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | ||||||||||||||||
| Julcani | 12 | 2,851,318 | 2,057 | - | 64 | |||||||||||||||
| Mallay | - | 1,121,202 | 7,253 | 8,609 | - | |||||||||||||||
| Breapampa | 80,358 | 383,733 | - | - | - | |||||||||||||||
| Orcopampa | 204,862 | 401,782 | - | - | - | |||||||||||||||
| Uchucchacua | - | 11,940,167 | 6,530 | 4,288 | - | |||||||||||||||
| La Zanja | 143,151 | 418,565 | - | - | - | |||||||||||||||
| Colquijirca | 7,874 | 1,928,243 | 2,759 | 8,007 | 40,198 | |||||||||||||||
| Mining Segment | 2015 vs 2014 Change (%) | |||||||||||||||||||
| Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | ||||||||||||||||
| Julcani | 683 | % | 23 | % | 20 | % | - | 61 | % | |||||||||||
| Mallay | 100 | % | 1 | % | (9 | )% | (13 | )% | - | |||||||||||
| Breapampa | (80 | )% | (45 | )% | - | - | - | |||||||||||||
| Orcopampa | 5 | % | 38 | % | - | - | - | |||||||||||||
| Uchucchacua | 100 | % | 6 | % | - | 11 | % | - | ||||||||||||
| La Zanja | (1 | )% | (23 | )% | - | - | - | |||||||||||||
| Colquijirca | (9 | )% | 37 | % | 507 | % | 441 | % | (28 | )% | ||||||||||
Julcani. Net sales of goods increased by US$0.5 million in 2015 as compared to 2014 due to increases in the volume of silver and lead sold at that unit, partially offset by a decline in the average realized price of silver.
Mallay. Net sales of goods decreased by US$11.0 million in 2015 as compared to 2014 due to a decline in the average realized price of silver, partially offset by an increase in the amount of silver sold at that unit.
Breapampa.Net sales of goods decreased by US$86.1 million in 2015 as compared to 2014 due to a decrease in the volume of silver and gold sold and a decline in the average realized price of those minerals.
Orcopampa. Net sales of goods decreased by US$9.9 million in 2015 as compared to 2014 due to a decline in the average realized prices of gold and silver, partially offset by a 5% increase in gold sold (from 204,862 ounces sold in 2014 to 214,821 ounces sold in 2015) and a 38% increase in silver sold (from 401,782 ounces sold in 2014 to 555,314 ounces sold in 2015) at that unit.
Uchucchacua. Net sales of goods decreased by US$36.5 million in 2015 as compared to 2014 due to a decline in the average realized prices of lead and silver, partially offset by an increase in the amount of lead and silver sold at that unit.
La Zanja. Net sales of goods decreased by US$24.3 million in 2015 as compared to 2014 due to a decline in gold and silver prices, and a decrease in the volume of silver sold from 418,565 ounces sold in 2014 to 324,151 ounces sold in 2015 and gold sold from 143,151 ounces sold in 2014 to 142,300 ounces sold in 2015.
Colquijirca. Net sales of goods decreased by US$38.7 million in 2015 as compared to 2014 due to a decline in mineral prices, partially offset by an increase in tons of lead and zinc and ounces of silver sold during 2015.
Sales of services - construction and engineering segment.Net sales for the construction and engineering segment decreased by US$18.1 million in 2015 as compared to 2014 due to a reduction in the development and construction of mining projects.
Sales of services - insurance brokerage segment.Net sales for the insurance brokerage segment increased by US$1.3 million in 2015 as compared to 2014 due to an increase in the number of clients in the insurance portfolio due to our strategic associations with smaller brokers.
Sales of services - energy generation and transmission segment. Net sales for the energy and transmission segment increased by US$9.4 million in 2015 as compared to 2014 due to the increase in the demand of energy from our other operating segments.
Total operating expenses- Mining Segments
Orcopampa. During 2015, total operating expenses decreased by US$4.9 million due to a decrease in other income as a result of lower sales to third parties.
Julcani. During 2015, total operating expenses decreased by US$4.2 million due to other expenses of US$4.6 million compared to 2014.
Breapampa. During 2015, total operating expenses increased by US$1.7 million due to an impairment loss recorded during 2015 of US$7.5 million, offset by a decrease in administrative expenses compared to 2014 of US$5.2 million.
Colquijirca. During 2015, total operating expenses increased by US$3.7 million due to increases in administrative expenses and selling expenses, which were partially offset by an increase in other expenses-net, each as compared to 2014.
La Zanja. During 2015, total operating expenses decreased by US$12.9 million due to a decrease in exploration in non-operating areas of US$10.7 million which were partially offset by an increase an impairment loss by US$3.8 million, each as compared to 2014.
Uchucchacua. During 2015, total operating expenses decreased by US$2.0 million due to a decrease in administrative expenses as compared to 2014, as a result of a cost reduction plan adopted in 2014.
Mallay. During 2015, total operating expenses increased by US$0.1 million due to increases in other expenses as compared to 2014, which was partially offset by a decrease in administrative expenses and selling expenses.
Total operating expenses—construction and engineering segment. During 2015, total operating expenses for the construction and engineering segment decreased by US$7.6 million for the year ended December 31, 2015 as compared to 2014 due to decrease in administrative expenses.
| Mining Segment | Unaudited Volume Sold for the year ended December 31, 2018 | |||||||||||||||||||
| Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | ||||||||||||||||
| Julcani | 11 | 2,368,497 | 915 | - | 17 | |||||||||||||||
| Orcopampa | 116,719 | 335,761 | - | - | 42 | |||||||||||||||
| Uchucchacua | 216 | 14,443,456 | 17,071 | 16,811 | - | |||||||||||||||
| Tambomayo | 119,211 | 3,570,382 | 3,268 | 7,143 | - | |||||||||||||||
| La Zanja | 74,370 | 228,894 | - | - | - | |||||||||||||||
| Colquijirca | 14,297 | 3,058,987 | 18,713 | 37,470 | 43,710 | |||||||||||||||
| Mining Segment | 2019 vs 2018 Change (%) | |||||||||||||||||||
| Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | ||||||||||||||||
| Julcani | 1527 | % | 5 | % | -8 | % | % | -18 | % | |||||||||||
| Orcopampa | -65 | % | -96 | % | % | % | -100 | % | ||||||||||||
| Uchucchacua | -100 | % | -32 | % | -10 | % | -9 | % | % | |||||||||||
| Tambomayo | -19 | % | -35 | % | 121 | % | 10 | % | % | |||||||||||
| La Zanja | -59 | % | -65 | % | % | % | % | |||||||||||||
| Colquijirca | -12 | % | 15 | % | 21 | % | -2 | % | -6 | % | ||||||||||
The change in sales of goods for the year ended December 31, 2019 as compared to the year ended December 31, 2018 is mainly explained by the changes in volume sold, as presented in the following chart:
| Sales of goods – Mining Segments | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Julcani (a) | 34,104 | 40,082 | 5,978 | 18 | % | |||||||||||
| Orcopampa (b) | 153,003 | 58,902 | (94,101 | ) | (62 | )% | ||||||||||
| Ucchuchacua (c) | 257,282 | 186,016 | (71,266 | ) | (28 | )% | ||||||||||
| Tambomayo (d) | 225,281 | 188,175 | (37,106 | ) | (16 | )% | ||||||||||
| La Zanja (e) | 96,611 | 43,520 | (53,091 | ) | (55 | )% | ||||||||||
| Colquijirca (f) | 333,560 | 299,252 | (34,308 | ) | (10 | )% | ||||||||||
| (a) | Julcani. Net sales of goods increased by US$6.0 million in 2019 as compared to 2018 due to an 11% increase in the average realized price and a 5% increase in the quantity of silver sold at that unit mainly explained by the higher ore milled in 14% partially offset by a 6% decrease in the ore grade (23.35 oz/mt in 2018 compared to 21.90 oz/mt in 2019). |
| (b) | Orcopampa. Net sales of goods decreased by US$94.1 million in 2019 as compared to 2018 due to a 96% and 65% decrease in the amount of silver and gold sold, respectively, at that unit, mainly explained by our strategy to prioritize Orcopampa’s De-Bottlenecking Program over ore extraction. |
| (c) | Uchucchacua. Net sales of goods decreased by US$71.3 million in 2019 as compared to 2018. The decreased is explained by aan 8% decrease in the average realized price and a 32% decrease in the quantity of silver sold at that unit mainly explained by the lower ounces produced due to the 21-day strike in January 2019. |
| (d) | Tambomayo. Net sales of goods decreased by US$37.1 million in 2019 as compared to 2018. The decreased is explained by a 19% and 35% decrease in the amount of gold and silver sold at that unit mainly explained by the lower ore grades in 2019 of 25%, compared to 44% in 2018. |
| 69 |
| (e) | La Zanja. Net sales of goods decreased by US$53.1 million in 2019 as compared to 2018 due to the effect of a 59% decrease in the quantity of gold sold mainly explained by a 65% decrease in ounces produced. |
Total operating expenses—insurance brokerage segment. During 2015, totalexpenses – Mining Segments. The change in operating expenses for the insurance brokerage segment increased by US$2.5 millionyear ended December 31, 2019 as compared to 2014 due to an increase in administrative expenses.the year ended December 31, 2018 is mainly explained by:
| Operating Expenses – Mining Segments | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Julcani | 2,983 | 6,971 | 3,988 | 134 | % | |||||||||||
| Orcopampa (a) | 19,382 | 13,570 | (5,812) | (30) | % | |||||||||||
| Ucchuchacua (b) | 49,840 | 29,855 | (19,985) | (40) | % | |||||||||||
| Tambomayo | 25,204 | 24,092 | (1,112) | (4) | % | |||||||||||
| La Zanja | 4,254 | 6,545 | 2,291 | 54 | % | |||||||||||
| Colquijirca (c) | 452 | 26,221 | 25,769 | 5,701 | % | |||||||||||
Total operating expenses—energy generation and transmission segment. During 2015, total operating expenses for the energy and transmission segment decreased by US$7.6 million as compared to 2014 due to a decrease of US$8.0 million in other expenses-net.
| (a) | Orcopampa. The decrease in total operating expenses was mainly due to the net effect of
(i) lower administrative expenses in US$9.9 million; partially offset by (ii) higher expenses in the others net caption in US$4.7 million mainly related to the expenses incurred as a result of the cease mine production of January 2019. |
| (b) | Uchucchacua. The decrease in total operating expenses was mainly due to the net effect of (i) lower exploration in non-operating areas expenses in US$15.8 million due to expenses of the Yumpaq project are capitalized and considered as part of the caption “Mining concessions, development costs, right-of-use asset, property, plant and equipment, net” since 2019. (ii) lower administrative expenses in US$8.0 million; partially offset by (iii) a reversal of US$7.0 million related to negotiations made with communities. |
| (c) | Colquijirca. The increase in total operating expenses was mainly due to the net effect of (i) the increase in total operating expenses in 2019 was mainly due to the recovery income of the insurance claim that occurred in El Brocal during 2018. During 2018, El Brocal recorded a recovery income of the insurance claim that occurred in the rotor 2 of the 20x30 mill and the conveyor belt related to the incident that occurred in May 2017. Total compensations, lost profits and consequential damages is US$38.8 million. Because of the associated cost for mitigation, repair and cost overruns of US$5.1 million, El Brocal recorded a net gain of US$33.7 million. (ii) a reversal of US$2.1 million in the provision for contingences of 2019 compared with a provision of US$3.7 million in 2018. (iii) lower explorations in non-operating areas expenses in US$5.2 million compared with 2018. |
Total operating expenses - Other Segments
| Operating expenses (income) – Other Segments | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| Insurance brokerage segment | 11,900 | 11,607 | (293 | ) | 2 | % | ||||||||||
| Corporate (a) | 4,060 | 11,005 | 6,945 | 171 | % | |||||||||||
| Exploration and development mining projects | 242 | 2,965 | 2,723 | 1,125 | % | |||||||||||
| Energy generation and transmission segment (b) | 4,639 | (8,791 | ) | N.A. | N.A. | |||||||||||
| Industrial activities | 2,355 | 2,293 | (62 | ) | 3 | % | ||||||||||
| Holding of investment in shares | 2,261 | 284 | (1,977 | ) | 87 | % | ||||||||||
| Rental of mining concessions | 220 | 53 | (167 | ) | (76 | )% | ||||||||||
| 70 |
| (a) | Corporate.The increase was mainly due to the net effect of higher administrative expenses of US$7.3 million; mainly explained by the higher billing of 2018 in the administrative services rendered to others compared to 2019. | |
| (b) | Energy generation and transmission segment. The variation from an expense to an income in total operating expenses was mainly due to the effect of the sale of energy transmission systems in the areas of Huancavelica, Trujillo, Cajamarca, Callalli – Ares and Lorema resulting in a net sale of US$13.3 million recorded in the “Others, net” caption in the Consolidated Financial Statements. |
Results of Operations for the Years Ended December 31, 20142018 and 2013
2017
Net sales of goods. Sales of goods decreased by 6%, from US$1,135.8 million in 2013 to US$1,067.2 million in 2014. The following tables reflect the average realized prices and volumes of gold, silver, lead, zinc and copper sold during the years ended December 31, 2013 and 2014:
| Average Realized Price | Year ended December 31, | |||||||||||
| 2013 | 2014 | Variation | ||||||||||
| Gold (US$/oz.) | 1,392.18 | 1,263.32 | (9.26 | )% | ||||||||
| Silver (US$/oz.) | 22.33 | 18.65 | (16.48 | )% | ||||||||
| Lead (US$/t) | 2,104.63 | 2,106.87 | 0.11 | % | ||||||||
| Zinc (US$/t) | 1,869.22 | 2,243.76 | 20.04 | % | ||||||||
| Copper (US$/t) | 7,179.50 | 6,737.78 | (6.15 | )% | ||||||||
| Volume Sold | Year ended December 31, | |||||||||||
| 2013 | 2014 | Variation | ||||||||||
| Gold (oz.) | 458,499 | 439,093 | (4.23 | )% | ||||||||
| Silver (oz.) | 16,329,314 | 19,088,923 | 16.90 | % | ||||||||
| Lead (t) | 26,584 | 18,820 | (29.21 | )% | ||||||||
| Zinc (t) | 38,084 | 21,231 | (44.25 | )% | ||||||||
| Copper (t) | 25,406 | 40,263 | 58.48 | % | ||||||||
(a) Gold sales. Average realized sales prices for gold decreased from US$1,392.18 per ounce in 2013 to US$1,263.32 per ounce in 2014. Gold sales volume decreased from 458,499 ounces in 2013 to 439,093 ounces in 2014, mainly due to a decreased gold production at our Orcopampa and Breapampa mining units. The combined effect of these changes resulted in a US$85.9 million decrease in income from sales of gold in 2014 as compared to 2013.
(b) Silver sales. Average realized sales pricesSee “Item 5. Operating and Financial Review and Prospects” in our 2018 20-F for silver decreased from US$22.33 per ounce in 2013 to US$18.65 per ounce in 2014. Silver sales volume increased from 16,329,314 ounces in 2013 to 19,088,923 ounces in 2014, mainly due to increased silver production ata comparative discussion of our Uchucchacua, Colquijirca and Julcani mining units. The combined effect of these changes resulted in a US$7.6 million decrease in income from sales of silver in 2014 as compared to 2013.
(c) Lead sales. Average realized sales prices for lead increased from US$2,104.63 per ton in 2013 to US$2,106.87 per ton in 2014. Lead sales volume decreased from 26,584 tons in 2013 to 18,820 tons in 2014, mainly due to decreased lead production at our Colquijirca and Uchucchacua mining units. The combined effect of these changes resulted in a US$16.8 million decrease in income from sales of lead in 2014 as compared to 2013.
(d) Zinc sales. Average realized sales prices for zinc increased from US$1,869.22 per ton in 2013 to US$2,243.76 per ton in 2014. Zinc sales volume decreased from 38,084 tons in 2013 to 21,231 tons in 2014, mainly due to decreased zinc production at our Colquijirca and Uchucchacua mining units. The combined effect of these changes resulted in a US$24.3 million decrease in income from sales of zinc in 2014 as compared to 2013.
(e) Copper sales. Average realized sales prices for copper decreased from US$7,179.50 per ton in 2013 to US$6,737.78 per ton in 2014. Copper sales volume increased from 25,406 tons in 2013 to 40,263 tons in 2014, mainly due to increased copper production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$88.9 million increase in income from sales of copper in 2014 as compared to 2013.
Sales of goods figures are obtained by deducting the refinery charges and penalties incurred (a total of US$184.5 million of refinery charges and penalties were incurred in 2014, compared with US$178.9 million incurred in 2013) and revenues from mining units held for sale (a total of US$5.1 million revenues provided from mining units held for sales in 2014, compared with US$25.8 million provided in 2013) from the gross sales of all metals sold. See Note 21(a) to the Financial Statements.
Net sales of services.Sales of Servicesdecreased by 10%, from US$79.6 million in 2013 to US$71.6 million in 2014, mainly explained by the decrease of US$29.6 million in 2014 as compared to 2015 due to a reduction in the development and construction of mining projects and an increase of US$5.1 million in 2014 as compared to 2013 due to an increase in the energy generation and transmission.
Royalty income. In 2014, royalty income received by our subsidiary Chaupiloma amounted to US$36.9 million, representing a 17% decrease from the US$44.2 million in royalty income received in 2013. This decrease was due to a decrease in 2014 in the net sales of Yanacocha, which was primarily due to a decrease in the average realized price of gold and a decrease in production at Yanacocha. We hold a 60% interest in Chaupiloma, to which Yanacocha pays a royalty that corresponds to 3% of its net sales.
Total operating costs. Total operating costs increased by 3%, from US$918.7 million in 2013 to US$949.5 million in 2014, due to changes in the following components:
(a) Cost of sales of goods, excluding depreciation and amortization, increased by 3.9%, from US$513.2 million in 2013 to US$533.0 million in 2014, due to:
(b) Cost of sales of services, excluding depreciation and amortization, decreased by 28.6%, from US$114.1 million in 2013 to US$81.5 million in 2014, mainly due to:
(c) The cost of exploration of units in operation decreased by 4%, from US$101.9 million in 2013 to US$97.9 million in 2014. This decrease was primarily due to a decrease of US$6.1 million and US$2.5 million in diamond drilling activities at the Orcopampa and Breapampa mining units, respectively, which was partially offset by an increase of US$3.9 million at the Julcani mining unit due to increased exploration efforts at Acchilla. See Note 23 to the Financial Statements.
(d) Depreciation and amortization costs increased by 31%, from US$159.1 million in 2013 to US$208.7 million in 2014, due to:
(e) Mining royalties decreased by 6.6%, from US$30.4 million in 2013 to US$28.4 million in 2014. Royalties paid to third parties by Orcopampa amounted to US$23.8 million and US$21.7 million in 2013 and 2014, respectively. Royalties paid to the Peruvian government amounted to US$6 million and US$6.8 million in 2013 and 2014, respectively. The decrease in royalties paid to third parties and the Peruvian government was primarily due to a 10% decrease in gold production at the Orcopampa mining unit from 224,671 ounces produced in 2013 to 203,226 ounces produced in 2014, and the decrease in the price of gold in 2014, compared with 2013.
Total operating expenses. Operating expenses increased by 31.1%, from US$125.6 million in 2013 to US$164.7 million in 2014, due to changes in the following components:
(a) Administrative expenses increased by 35%, from US$75.1 million in 2013 to US$101.1 million in 2014, due to an increase of administrative expenses at the corporate unit of US$21.2 million from the reversal of expenses by US$20.2 million recorded in 2013 for long-term officers’ compensation (stock appreciation rights), and an increase of US$7.9 million in the construction and engineering unit due to increased labor costs, which was partially offset by a decrease of US$4.3 million in the Orcopampa mining unit due to a decrease in labor expenses. See Note 25 to the Financial Statements.
(b) Exploration in non-operating areas increased by 52%, from US$32.8 million in 2013 to US$50.0 million in 2014, due to increased expenditures in exploration activities beginning in 2014, primarily in the Alejandra and Tambomayo projects. See Note 26 to the Financial Statements.
Operating profit. As a result of the foregoing, operating income decreased by 71% from US$215.2 million in 2013 to US$61.6 million in 2014.
Other income (expense), net. Other income (expenses), net decreased by 79.0% from US$124.6 million in 2013 to US$26.1 million in 2014, mainly explained by:
(a) Share in theconsolidated results of associates under equity method. Loss from equity investments in associates decreased by 35%, from US$114.1 million in 2013 to US$74.6 million in 2014, primarily due to a decrease in net loss from our equity investment in our associate company, Yanacocha, which was partially offset by a decrease in net income from our equity investment in Cerro Verde. Net loss from our interest in Yanacocha decreased by 30%, from US$251.1 million in 2013 to US$174.7 million in 2014. Net income from our interest in Cerro Verde decreased by 33%, from US$116.2 million in 2013 to US$77.9 million in 2014. Finally, net income from our interest in Coimolache increased by 7%, from US$20.8 million in 2013 to US$22.3 million in 2014.
(b) Gain on business combination. In 2014, we recognized a gain of US$59.9 million in connection with our acquisition of the controlling interest in CDH from MGFPSA due to the revaluation of the previously held equity interest at fair value as of the acquisition date.
(c) Finance costs. Finance costs increased by 14%, from US$9.9 million in 2013 to US$11.3 million in 2014, primarily due to an increase in the cost of the financial leasing facility related to the construction of the Huanza hydroelectric plant.
Income tax. Provision for income tax decreased by 24%, from US$86.5 million in 2013 to US$66.0 million in 2014, primarily due to a decrease in the provision for income tax at the corporate unit of US$18.1 million caused by a decrease in taxable income of that unit, a decrease in the provision for income tax at the La Zanja mining unit of US$16.8 million and a decrease in other units of US$1.1 million, which was partially offset by an increase of US$16.6 million at the Colquijirca mining unit due to higher sales.
Non-controlling interest. Non-controlling interest income decreased by 48%, from US$27.5 million in 2013 to US$14.4 million in 2014, primarily due to a decrease in contribution of profits from the La Zanja and Chaupiloma units by US$18.0 million and US$2.1 million, respectively. See Note 19(a) to the Financial Statements.
Net profit (loss). As a result of the foregoing, net loss decreased by 23%, from US$79.7 million in 2013 to US$61.6 million in 2014. Net loss was 7% of operating income in 2013 and 5% of operating income in 2014.
Results of Operations for the Years Ended December 31, 2014 and 2013 by Segment
We present the operating results for each of our operating segments for the years ended December 31, 2013 and 2014 in more detail in Note 31 to the Financial Statements.
Sales of goods - Mining Segments
The following tables set forth the volumes of gold, silver, lead, zinc and copper sold at each of our principal mining segments during the years ended December 31, 2014 and 2013, as well as the variation in such volumes soldoperations for the year ended December 31, 2014 as compared to the year ended December 31, 2013:
| Mining Segment | Volume Sold for the year ended December 31, 2014 | |||||||||||||||||||
| Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | ||||||||||||||||
| Julcani | 12 | 2,851,318 | 2,057 | - | 64 | |||||||||||||||
| Mallay | - | 1,121,202 | 7,253 | 8,609 | - | |||||||||||||||
| Breapampa | 80,358 | 383,733 | - | - | - | |||||||||||||||
| Orcopampa | 204,862 | 401,782 | - | - | - | |||||||||||||||
| Uchucchacua | - | 11,940,167 | 6,530 | 4,288 | - | |||||||||||||||
| La Zanja | 143,151 | 418,565 | - | - | - | |||||||||||||||
| Colquijirca | 7,874 | 1,928,243 | 2,759 | 8,007 | 40,198 | |||||||||||||||
| Mining Segment | Volume Sold for the year ended December 31, 2013 | |||||||||||||||||||
| Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | ||||||||||||||||
| Julcani | 378 | 2,227,960 | 1,713 | - | 140 | |||||||||||||||
| Mallay | - | 1,146,442 | 6,570 | 7,614 | - | |||||||||||||||
| Breapampa | 80,178 | 311,634 | - | - | - | |||||||||||||||
| Orcopampa | 221,322 | 516,033 | - | - | - | |||||||||||||||
| Uchucchacua | - | 9,748,206 | 6,977 | 6,340 | - | |||||||||||||||
| La Zanja | 132,992 | 381,091 | - | - | - | |||||||||||||||
| Colquijirca | 4,619 | 1,460,681 | 8,392 | 20,011 | 25,266 | |||||||||||||||
| Mining Segment | 2014 vs 2013 Change (%) | |||||||||||||||||||
| Gold (oz.) | Silver (oz.) | Lead (t) | Zinc (t) | Copper (t) | ||||||||||||||||
| Julcani | (97 | )% | 28 | % | 20 | % | - | (54 | )% | |||||||||||
| Mallay | - | (2 | )% | 10 | % | 13 | % | - | ||||||||||||
| Breapampa | 0 | % | 23 | % | - | - | - | |||||||||||||
| Orcopampa | (7 | )% | (22 | )% | - | - | - | |||||||||||||
| Uchucchacua | - | 22 | % | (6 | )% | (32 | )% | - | ||||||||||||
| La Zanja | 8 | % | 10 | % | - | - | - | |||||||||||||
| Colquijirca | 70 | % | 32 | % | (67 | )% | (60 | )% | 59 | % | ||||||||||
Julcani. Net sales of goods increased by US$3.8 million in 2014 as compared to 2013 due to increases in the volume of silver2018 and lead sold at that unit.2017.
Mallay. Net sales of goods decreased by US$1.9 million in 2014 as compared to 2013 due to a decrease in the amount of silver sold at that unit and a decline in the average realized price of silver.
Breapampa. Net sales of goods decreased by US$11.4 million in 2014 as compared to 2013 due to a decline in gold and silver prices.
Orcopampa. Net sales of goods decreased by US$60.3 million in 2014 as compared to 2013 due to a 7% decline in gold sold at that unit, from 221,322 ounces sold in 2013 to 204,862 ounces sold in 2014, and a decline in the average realized prices of gold and silver.
Uchucchacua. Net sales of goods decreased by US$2.7 million during 2014 as compared to 2013 due to decreases in the amount of lead and zinc sold at that unit.
La Zanja. Net sales of goods decreased by US$8.0 million in 2014 as compared to 2013 due to decreases in the amount of lead and zinc sold at that unit.
Colquijirca. Net sales of goods increased by US$22.2 million in 2014 as compared to 2013 due to a 59% increase in the volume of copper sold from 25,266 mt. sold in 2013 to 40,198 mt. sold in 2014.
Sales of services - construction and engineering segment.Nets sales for the construction and engineering segment decreased by US$29.7 million in 2014 compared to 2013 due to a reduction in the development and construction of mining projects.
Sales of services - insurance brokerage segment.Net sales for the insurance brokerage segment increased by US$2.1 million in 2015 as compared to 2014 due to an increase in the number of clients in the insurance portfolio due to our strategic associations with smaller brokers.
Sales of services - energy generation and transmission segment.Net sales for the energy and transmission segment increased by US$5.1 million in 2014 as compared to 2013 due to the increase in the demand of energy from our other operating segments, in particular the Colquijirca mining unit.
Total operating expenses- Mining Segments
Orcopampa.During 2014, total operating expenses increased by US$5.1 million due to an increase in exploration in non-operating areas of US$7.2 million, which was partially offset by a decrease in administrative expenses, each as compared to 2013.
Julcani.During 2014, total operating expenses increased by US$6.5 million due to increases in administrative expenses and selling expenses, each as compared to 2013.
Breapampa.During 2014, total operating expenses increased by US$0.57 million due to increases in administrative expenses and selling expenses, each as compared to 2013.
Colquijirca.During 2014, total operating expenses decreased by US$0.68 million due to decreases in administrative expenses and selling expenses, which were partially offset by an increase in other expenses-net, each as compared to 2013.
La Zanja.During 2014, total operating expenses increased by US$20.3 million mainly due to an increase in the exploration in non-operating areas of US$13.1 million.
Uchucchacua.During 2014, total operating expenses increased by US$1.9 million due to increases in administrative expenses and selling expenses, each as compared to 2013.
Mallay. During 2014, total operating expenses decreased by US$0.37 million due to an increase in other expenses-net, which was partially offset by increases in administrative expenses and selling expenses, each as compared to 2013.
Total operating expenses—construction and engineering segment.During 2014, total operating expenses for the construction and engineering segment increased by US$0.21 million for the year ended December 31, 2014 as compared to 2013 due to an increase in administrative expenses due to increased labor costs.
Total operating expenses—insurance brokerage segment.During 2014, total operating expenses for the insurance brokerage segment increased by US$1.1 million as compared to 2013 due to an increase in administrative expenses.
Total operating expenses—energy generation and transmission segment.During 2014, total operating expenses for the energy and transmission segment decreased by US$5.6 million as compared to 2013 due to a decrease of US$7.7 million in other expenses-net, which was partially offset by increases in administrative expenses and selling expenses.
| B. | Liquidity and Capital Resources |
As of December 31, 20152019 and 2014,2018, we had cash and cash equivalents of US$78.5 million.210.0 million and of US$369.2 million, respectively.
The Group believes that maintains suitable levels of cash and cash equivalents and has sufficient credit capacity to get access to lines of credit in leading financial entities. In addition, On April 2, 2020, we entered into a second amendment to the Syndicated Term Loan of US$ 275 million with a 30-month grace period and semiannual installments starting in October 2022.
Cash provided by operating activities for the years ended December 31,, 2015 2019 and 2014.2018. Net cash and cash equivalents provided by operating activities weredecreased by US$127.3299.2 million, in 2015, compared with US$162.5 million in 2014. This decrease in net cash flow provided by operating activities was primarily due to:to the changes shown in the chart below:
| Operating activities cash flows | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Proceeds from sales (a) | 1,216,294 | 783,000 | (433,294 | ) | (36 | )% | ||||||||||
| Value-added tax and other taxes recovered (b) | 106,656 | 45,712 | (60,944 | ) | (57 | )% | ||||||||||
| Dividends received (c) | 46,792 | 33,388 | (13,404 | ) | (29 | )% | ||||||||||
| Royalty received | 20,013 | 23,001 | 2,988 | 15 | % | |||||||||||
| Interest received | 2,383 | 4,265 | 1,882 | 79 | % | |||||||||||
| Proceeds from insurance claim (d) | 38,793 | - | (38,793 | ) | (100 | )% | ||||||||||
| Payments to suppliers and third parties (e) | (861,282 | ) | (610,737 | ) | 250,545 | (29 | )% | |||||||||
| Payments to employees (f) | (151,602 | ) | (137,300 | ) | 14,302 | (9 | )% | |||||||||
| Payments for tax litigation (g) | - | (36,322 | ) | (36,322 | ) | 100 | % | |||||||||
| Interest paid | (27,699 | ) | (28,266 | ) | (567 | ) | 2 | % | ||||||||
| Income tax paid (h) | (30,898 | ) | (24,935 | ) | 5,963 | (19 | )% | |||||||||
| Payments of mining royalties (h) | (13,190 | ) | (4,741 | ) | 8,449 | (64 | )% | |||||||||
| Net cash and cash equivalents provided by (used in) operating activities | 346,260 | 47,065 | (299,195 | ) | 86 | % | ||||||||||
| (a) | The decrease in the proceeds from sales was mainly due to lower sales and production of the Company’s mining units, as described in Results of Operations for the Years Ended December 31, 2019 and 2018 by Segment. |
| 71 |
| (b) | The recovery of the value-added tax is affected by the variations in foreign sales. During 2019, the recovery of value-added tax decrease was a result of the Company’s lower sales from |
| (c) |
These changes in net cash flow were partially offset by:
(d)
| During 2018, El Brocal recorded a recovery income from an insurance claim that occurred in May 2017. Total compensation and lost profits and consequential damages is US$38.8 million. As a result of the associated cost for mitigation, repair and cost overruns of US$5.1 million, El Brocal recorded a net gain of US$33.7 million. | |
| (e) |
Cash provided by operating activities for the years ended December 31, 2014 and 2013. Net cash and cash equivalents provided by operating activities were US$162.5 million in 2014, compared with US$408.7 million in 2013. This decrease in net cash flow provided by operating activities was primarily due to:
These changes were partially offset by:
| (f) | |
| (g) | Corresponds mainly to payments made by Buenaventura related to claims with the Tax Administration mainly with for US$ |
| (h) | The decrease in |
Cash used in investing activities for the years ended December 31, 20152019 and 2014.2018.Net cash and cash equivalents used in investing activities weredecreased by US$341.711.9 million in 2015, compared with US$292.7 million in 2014. The increase in net cash flow used in investing activities was primarily due to:to the changes shown in the chart below:
| Investing activities cash flows | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation % | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Proceeds from sale of mining concessions, development costs, property, plant and equipment (a) | 2,240 | 726 | (1,514 | ) | (68 | )% | ||||||||||
| Additions to mining concessions, development costs, property, plant and equipment (b) | (111,270 | ) | (102,627 | ) | 8,643 | (8 | )% | |||||||||
| Payments for acquisition of other assets | (8,529 | ) | (3,700 | ) | 4,829 | (57 | )% | |||||||||
| Net cash and cash equivalents provided by (used in) investing activities | (117,559 | ) | (105,601 | ) | 11,958 | (10 | )% | |||||||||
| (a) | The proceeds from sale of assets decrease despite the sale of assets increased during 2019 (see Note 26(a) of the Consolidated Financial Statements). This is explained because during 2018 the Group (through its subsidiary Compañía Minera Condesa S.A.) sold and collect a sale of a property during the same year. During 2019, the Group (through its subsidiary Consorcio Energético de Huancavelica S.A.) sold energy transmission systems in the areas of Huancavelica, Trujillo, Cajamarca, Callalli – Ares and Lorema for US$21.0 million, which were collected in January 2020. |
| (b) | The decrease in additions to mining concessions, development costs, property, plant and equipment was mainly due to the decrease in La Zanja and Tambomayo mining units for US$11.5 million and US$9.2 million, which was partially offset by an increase in the investments in Uchucchacua mining units for US$13.0 million. See “Item 4: Information on the Company—Buenaventura—A. History and Development—Capital Expenditures.” |
These changes were partially offset by:
Cash used in investing activities for the years ended December 31, 2014 and 2013. Net cash and cash equivalents used in investing activities were US$292.7 million in 2014, compared with US$428.1 million in 2013. The decrease in net cash flow used in investing activities was primarily due to:
These changes were partially offset by:
Cash provided by financing activities for the years ended December 31, 2015 and 2014. Net cash and cash equivalents provided by financing activities were US$214.4 million in 2015, compared with US$157.4 million in 2014. The increase in net cash flow provided by financing activities was primarily due to:
These changes were partially offset by:
Cash provided by (used in) financing activities for the years ended December 31, 20142019 and 2013.2018.Net cash and cash equivalents provided by (used in) financing activities wereincrease from a negative net amount of US$157.474.0 million in 2014, compared with2018 to US$116.1100.6 million used in financing activities in 2013. The increase in net cash flow provided by financing activities was2019, primarily due to:to the changes shown in the chart below:
| Financing activities cash flows | Year ended December 31, | |||||||||||||||
| 2018 | 2019 | Variation | Variation | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Proceeds from bank loans | 95,000 | 55,000 | (40,000 | ) | (42 | )% | ||||||||||
| Payments of bank loans | (95,000 | ) | (95,000 | ) | - | - | % | |||||||||
| Proceeds from financial obligations | - | 161,894 | 161,894 | 100 | % | |||||||||||
| Payments of financial obligations | (45,222 | ) | (186,152 | ) | (140,930 | ) | 312 | % | ||||||||
| Short-term lease payments | - | (7,596 | ) | (7,596 | ) | 100 | ||||||||||
| Dividends paid to controlling shareholders | (22,860 | ) | (22,098 | ) | 762 | (3 | )% | |||||||||
| Dividends paid to non-controlling shareholders | (5,560 | ) | (6,500 | ) | (940 | ) | 17 | % | ||||||||
| Increase of restricted bank accounts | (410 | ) | (166 | ) | 244 | (60 | )% | |||||||||
| Net cash and cash equivalents used in financing activities | (74,052 | ) | (100,618 | ) | (26,566 | ) | 36 | % | ||||||||
Short-Term Debt
We borrow, from time to time, short-term unsecured loans from local Peruvian banks to supplement our working capital needs at favorable short-term interest rates. As of December 31, 20152019 and 2014,2018, the amount outstanding under such short-term loans was US$344.555.0 million and US$40.095.0 million, respectively. In 2015,2019, we used the proceeds of such short-term loans to fund the construction of the Tambomayo project, to loan funds to Cerro Verde, to increase capital in El Brocal and for other general working capital purposes.
Long-Term Debt
On December 2, 2009 Banco de CreditoCrédito del PeruPerú executed a financial lease agreement with Conenhua, Huanza and us in the amount of US$119.0 million for the construction of a hydroelectric power station. The lease was executed in favor of Huanza as lessee. The term of the lease is six years from August 2014 and the interest rate is three-month LIBOR plus 4.00%. As2.75% as of December 31, 20152019 and 2014, the amount outstanding under this lease was US$104.1 million and US$114.2 million, respectively.
2018. On June 30, 2014, Banco de CreditoCrédito del Perú extended this financial lease agreement with Conenhua, Huanza and us in the amount of US$108.8103.4 million. The term of the lease is six years from August 2014 and the interest rate is three-month LIBOR plus 4.20%.2.75% as of December 31, 2019 and 2018. As of December 31, 20152019 and 2014,2018, the amount outstanding under this lease was US$84.0130.5 million and US$85.0147.2 million, respectively.
On September 25, 2013, El Brocal began the process of entering into a financing arrangement with Banco de Crédito del Perú in an aggregate amount of US$180.0 million in the form of a series of sale and leaseback agreements relating to certain specified El Brocal assets, including equipment, machinery and production plants located in the Colquijirca mining unit. The first disbursement of US$116.5 million was received in November 2013, which was used to repay El Brocal’s medium term loan with Banco de Crédito del Perú during the fourth quarter of 2013. The second disbursement of US$63.5 million was received in January 2014. The renewable arrangement had a term of five years that commenced on the first lease payment date in March 2014. During the term of the arrangement, El Brocal has the right to repurchase the assets. On June 9, 2015, the Boardboard of Directorsdirectors of El Brocal approved the modification of the saledebt and financenew payment schedule of the 2013 leaseback contract in an aggregate amount of US$166.5 million. The new arrangement hashad a term of five years that commenced on the payment date in June 2015. The quarterly lease payments have an embedded interest rate of three-month LIBOR plus 4.7%. The agreements contain certain covenants, including several financial covenants such asOn October 23, 2017, El Brocal signed a limitation onmid-term loan agreement with the payment of dividends by El Brocal. El Brocal’s obligations under the agreements are supported by trust contracts, which, among other things, relate to collection rights, sales contracts and cash flows granting Banco de Crédito del Perú the right to receive all cash flows before any funds are made available to El Brocal. The obligationsfor US$80.0 million, which accrued interest at an annual rate of 3.6% over a 5-year term. On October 29, 2019, El Brocal under these agreements are not recourseentered into a new financial obligation of US$161,893,850 with Banco de Crédito del Perú in order to or guaranteedrepay a financial leaseback and a mid-term financial obligation. The new financial obligation has the following terms and conditions:
| Tranche A | Tranche B | |
| Principal | US$113,325,695 | US$48,568,155 |
| Annual interest rate | 3.76 percent | Three-month LIBOR plus 2.39 percent |
| Term | 5 years since October 2019 until October 2024 | 7 years since October 2019 until October 2026 |
According to the lease contract mentioned above, El Brocal is required to maintain the following financial ratios:
| (i) | Debt service coverage ratio: Higher than 1.3. |
| (ii) | Leverage Ratio: Less than 1.0 times. |
| (iii) | Indebtedness ratio: Less than 2.25 times. |
| 73 |
This new financial obligation is collateralized by Buenaventura or anya security agreement in respect of its other subsidiaries. The compliance with the financial ratios described above is monitored byassets; certain contractual rights, flows and account balances, a real estate mortgage; and a mortgage on certain mining concessions. El Brocal’s management. In 2015, Management oversees the compliance of the terms described above. El Brocal’s management managed and obtained from Banco de Crédito del Perú a waiver for any possible breach of the financial ratiosratio that occur untiloccurred for the last quarter of 2019. In December 31, 2016.of 2019, El Brocal’s management managed to obtain a waiver for the year 2020.
On March 28, 2014,June 27, 2016, in order to repay short-term contracts held as of December 31, 2015, we entered into a long-term finance contract (the “Syndicated Term Loan”), in the amount of US$275 million among us, as borrower, Condesa, Inversiones Colquijirca S.A. and Conenhua as guarantors, Banco de Crédito del Perú executed a financial lease agreement with BISA in, as administrative agent, and the amount of US$14.9 millionlenders party thereto. Obligations under the Syndicated Term Loan are guaranteed by Condesa and Conenhua, our wholly-owned subsidiaries, and Inversiones Colquijirca S.A., for the construction of a building with administrative offices.which we own 100%. The term loan agreement governing the Syndicated Term Loan contains certain customary covenants, including certain financial maintenance covenants, and events of default. See Exhibit 2.1. On April 2, 2020 we entered into a second amendment to the Syndicated Term Loan, pursuant to which, as of the lease is five years and four months starting April 2014 anddate of this annual report, borrowings under the Syndicated Term Loan bear interest at a rate is three-monthper annum equal to LIBOR plus 4.60%1.90%. Principal under the Syndicated Term Loan shall be payable in five consecutive and semi-annual installments of US$41,250,000 beginning in October 2022 and one final payment of US$68,750,000 in April 2025 (on which date all amounts outstanding shall be payable).
Exploration Costs and Capital Expenditures
We have budgeted approximately US$250 85 to US$300 105 million for capital expenditures for 2016.2020. These budgeted capital expenditures mainly include finishing the construction of the Tambomayo projectsustaining capital expenditures, and continuing with the development of the San Gabriel project.and Trapiche projects.
During 2015,2019, we spent US$30.6 11.9 million on “exploration in non-operating areas” and US$91.5 44.2 million on “exploration in units in operations.operating units.” Our “exploration in non-operating areas” investments mainly focused on the following exploration projects: Tambomayo, Alejandra,Yumpaq, Marcapunta and PisacallaEmperatriz projects. Our “exploration in units in operations”operating units” investments were mainly focused in the Orcopampa, Uchucchacua, and Julcani mining units.
In 2016,2020, we intend to invest approximately US$70 million25 to US$8035 million in exploration of units in operation and US$10 million to US$20 million mainly in exploration of non-operating areas, including Tambomayo, Yumpag, Palla Palla and Daniela, among others.operating units.
We expect that we will meet our working capital, capital expenditure and exploration expense requirements for the next several years from internally generated funds, cash on hand and dividends received from our investments in non-consolidated mining operations, including Yanacocha. Additional financing, if necessary for the construction of any project, is expected to be obtained from borrowings under bank loans and the issuance of debt securities. There can be no assurance, however, that sufficient funding will be available to us from the internal or external sources to finance any future capital expenditure program, or that external funding will be available to us for such purpose on terms or at prices favorable to us. A very significant decline in the prices of gold and silver would be reasonably likely to affect the availability of such sources of liquidity. In addition, if we fund future capital expenditures from internal cash flow, there may be fewer funds available for the payment of dividends.
Recent Accounting Pronouncements
Amendments to IFRS 3:
We prepare and presentIn October 2018, the Financial Statements in accordance with IFRS asIASB issued by the IASB. For periods up to and including the year ended December 31, 2010, we prepared our financial statements in accordance with Peruvian GAAP. Our consolidated financial statements for the year ended December 31, 2011 were the first that we prepared in accordance with IFRS. We applied IFRS 1 “First-Time Adoption of International Financial Reporting Standards”amendments to the opening balance asdefinition of January 1, 2010,a “Business” in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a Business. The amendments clarify the minimum requirements to be considered a Business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a Business and of outputs and introduce an optional fair value concentration test. New illustrative examples were also provided with the amendments. Because the amendments apply prospectively to transactions or other events that occur on or after the date of our transition to IFRS. The IFRS 1first application, implies that all the standards are applied retrospectively at the transition date, including certain mandatory exceptions and voluntary exemptions defined in the standard. In addition, as a foreign private issuer in the United States, we are subject to less intensive reporting requirements and information regarding us maywill not be as readily disseminatedaffected by these amendments on the date these amendments go into the market.effect.
The standardsAmendments to IAS 1 and interpretations that are issued, but not yet effective, up to the date of issuance of our Financial Statements are disclosed below. We intend to adopt these standards, if applicable, when they become effective:IAS 8:
IFRS 9, “Financial Instruments: Classification and Measurement” In July 2014,October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the final versiondefinition of IFRS 9 Financial Instruments which reflects all phases of“Material” across the financial instruments projectstandards and replaces IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all threeclarify certain aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required, butdefinition. Under the provision of comparativenew definition, information is not compulsory. For hedge accounting,deemed Material “if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the requirements are generally applied prospectively, with some limited exceptions. The adoptionprimary users of IFRS 9 would have not significant effectgeneral purpose financial statements make on the classification and measurementbasis of those financial statements, which provide financial information about a specific reporting entity”. The amendments to the definition of Material is not expected to have a significant impact on our consolidated financial assets and liabilities. IFRS 15, “Revenues from Contracts with Customers”
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. We are currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.statements.
Amendments to IFRS 10 and IAS 28, Sale or contributions of assets between an investor and its associate or joint venture.
The amendments address the conflict between IFRS 10 Consolidated Financial Statements and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. These amendments must be applied prospectively and are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments will impact us to the extent that it undertakes future transactions of this nature, as this accounting approach differs from that which it would currently apply.
| Research and Development |
Not applicable.
| Trend Information |
Other than as disclosed in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to be not necessarily indicative of future operating results or financial condition.
For our exploration activities, there is no production, sales or inventory in a conventional sense. Our financial success is dependent upon the extent to which we are capable of discovering mineralization and the economic viability of exploration properties. The construction and operation of such properties may take years to complete and the resulting income, if any, cannot be determined with certainty. Further, the sales value of mineralization discovered by us is largely dependent upon factors beyond our control, including the market value of the metals produced at any given time of the metals produced.time.
| Off-Balance Sheet Arrangements |
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
| Tabular Disclosure of Contractual Obligations |
The following table shows our contractual obligations as of December 31, 2015:2019:
| Payments due by Period (US$ in millions) | ||||||||||||||||||||
| Total | Less than 1 year | 1-2 years | 2-5 years | More than 5 years | ||||||||||||||||
| Long-Term Debt (principal and interest) | – | – | – | – | – | |||||||||||||||
| Capital Lease Obligations (*) | 414.6 | 47.9 | 92.5 | 274.2 | – | |||||||||||||||
| Open Purchase Orders | – | – | – | – | – | |||||||||||||||
| Other Long-Term Obligations | – | – | – | – | – | |||||||||||||||
| Total Contractual Cash Obligations | 414.6 | 47.9 | 92.5 | 274.2 | – | |||||||||||||||
| Payments due by Period (US$ in millions) | |||||||||||||||||||
| Total | Less than 1 year | 1-2 years | 2-5 years | More than 5 years | |||||||||||||||
| Bank loans (principal and interest) | 55,486 | 55,486 | - | - | - | ||||||||||||||
| Trade and other payables | 152,686 | 152,070 | 616 | - | - | ||||||||||||||
| Financial obligation – capital | 567,398 | 262,088 | 131,588 | 125,154 | 48,568 | ||||||||||||||
| Financial obligation – interest | 47,151 | 22,597 | 11,225 | 11,880 | 1,449 | ||||||||||||||
| Lease – capital | 7,503 | 3,692 | 1,514 | 2,297 | - | ||||||||||||||
| Lease – interest | 620 | 73 | 143 | 404 | - | ||||||||||||||
| Contingent consideration liability | 40,071 | - | - | 4,905 | 35,166 | ||||||||||||||
| Total Contractual Cash Obligations | 870,915 | 496,006 | 145,086 | 144,640 | 85,183 | ||||||||||||||
As of December 31, 2015,2019, we had no other commercial commitments.
| Reconciliation of Costs Applicable to Sales and Cost Applicable to Sales per Unit Sold |
Cost applicable to sales and Cost applicable to sales per unit of mineral sold are not measures of financial performance under IFRS, and may not be comparable to similarly titled measures of other companies. We consider Cost applicable to sales and Cost applicable to sales per unit of mineral sold to be key measures in managing and evaluating our operating performance. These measures are widely reported in the precious metals industry as a benchmark for performance, but do not have standardized meanings. You should not consider Cost applicable to sales or Cost applicable to sales per unit of mineral sold as alternatives to cost of sales determined in accordance with IFRS as indicators of our operating performance. Cost applicable to sales and Cost applicable to sales per unit of mineral sold are calculated without adjusting for by-product revenue amounts.
In calculating these figures, we utilize financial records maintained with respect to the various mining units and subsidiaries, each on a standalone basis. Within the stand-alone accounts for each mining unit or subsidiary, we then allocate cost of sales (excluding depreciation and amortization), exploration in operating units in operation and selling expenses in the proportion to each mineral’s commercial value (realized price multiplied by volume sold).
| 75 |
The tables below set forth (i) a reconciliation of consolidated Cost of sales, excluding depreciation and amortization to consolidated Cost applicable to sales, (ii) reconciliations of the components of Cost applicable to sales (by mine and mineral) to the corresponding consolidated line items set forth on our consolidated statements of profit or loss for the years ended December 31, 20142017 and 2015,2018 and (iii) reconciliations of Cost of sales, excluding depreciation and amortization to Cost applicable to sales for each of our mining units. The amounts set forth in Cost applicable to sales and Cost applicable to sales per unit sold for each mine and mineral indicated in the tables below can be reconciled to the amounts set forth on our consolidated statements of profit or loss for the years ended December 31, 20142017 and 20152018 by reference to the reconciliations of Cost of sales, excluding depreciation and amortization (by mine and mineral), Selling Expenses (by mine and metal) expenses and Exploration in operating units in operations (by mine and mineral) to consolidated Cost of sales, excluding depreciation and amortization, consolidated Selling Expenses and consolidatedConsolidated Exploration in operating units in operations expenses, set forth below.
Set forth below is a reconciliation of consolidated Cost of sales, excluding depreciation and amortization, to consolidated Cost applicable to sales:
| For the year ended December 31, | ||||||||
| 2014 | 2015 | |||||||
| (in thousands of US$) | ||||||||
| Consolidated Cost of sales excluding depreciation and amortization | 614,539 | 590,405 | ||||||
| Add: | ||||||||
| Consolidated Exploration in units in operation | 97,853 | 91,520 | ||||||
| Commercial Deductions | 184,483 | 196,211 | ||||||
| Consolidated Selling expenses | 16,605 | 19,481 | ||||||
| Consolidated Cost applicable to sales | 913,480 | 897,618 | ||||||
| For the year ended December 31, | ||||||||
| 2018 | 2019 | |||||||
| (in thousands of US$) | ||||||||
| Consolidated Cost of sales excluding depreciation and amortization | 617,699 | 516,252 | ||||||
| Add: | ||||||||
| Consolidated Exploration in operating units | 89,730 | 44,163 | ||||||
| Commercial Deductions* | 192,683 | 220,306 | ||||||
| Consolidated Selling Expenses | 26,948 | 24,313 | ||||||
| Consolidated Cost applicable to sales | 927,060 | 805,034 | ||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization (by mine and mineral) to consolidated cost of sales Cost of sales, excluding depreciation and amortization:
| For the year ended December 31, | ||||||||||||||||
| 2014 | 2015 | For the year ended December 31, | ||||||||||||||
| Cost of sales by mine and mineral | (US$ in thousands) | 2018 | 2019 | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Julcani, Gold | 3 | 49 | 19 | 166 | ||||||||||||
| Julcani, Silver | 23,117 | 23,135 | 23,608 | 24,405 | ||||||||||||
| Julcani, Lead | 1,891 | 1,906 | 1,335 | 971 | ||||||||||||
| Julcani, Copper | 190 | 242 | 86 | 47 | ||||||||||||
| Mallay, Gold | 0 | 201 | ||||||||||||||
| Mallay, Silver | 8,135 | 8,014 | ||||||||||||||
| Mallay, Lead | 5,959 | 5,190 | ||||||||||||||
| Mallay, Zinc | 7,497 | 6,256 | ||||||||||||||
| Breapampa, Gold | 35,389 | 9,780 | ||||||||||||||
| Breapampa, Silver | 2,459 | 1,681 | ||||||||||||||
| Orcopampa, Gold | 107,550 | 104,603 | 88,942 | 51,154 | ||||||||||||
| Orcopampa, Silver | 3,070 | 3,525 | 3,127 | 228 | ||||||||||||
| Orcopampa, Copper | 0 | 0 | ||||||||||||||
| Uchucchacua, Gold | 0 | 25 | 5 | 0 | ||||||||||||
| Uchucchacua, Silver | 132,110 | 110,724 | 98,991 | 79,562 | ||||||||||||
| Uchucchacua, Lead | 8,115 | 6,377 | 16,470 | 14,815 | ||||||||||||
| Uchucchacua, Zinc | 5,618 | 4,841 | 20,540 | 19,004 | ||||||||||||
| Tambomayo, Gold | 58,475 | 47,741 | ||||||||||||||
| Tambomayo, Silver | 20,969 | 13,540 | ||||||||||||||
| Tambomayo, Lead | 2,597 | 4,979 | ||||||||||||||
| Tambomayo, Zinc | 7,050 | 7,058 | ||||||||||||||
| La Zanja, Gold | 79,713 | 110,848 | 65,128 | 37,445 | ||||||||||||
| La Zanja, Silver | 3,426 | 3,367 | 2,499 | 1,140 | ||||||||||||
| El Brocal, Gold | 3,491 | 4,258 | 7,771 | 8,429 | ||||||||||||
| El Brocal, Silver | 12,331 | 21,024 | 19,391 | 26,966 | ||||||||||||
| El Brocal, Lead | 2,051 | 15,244 | 17,108 | 20,388 | ||||||||||||
| El Brocal, Zinc | 6,478 | 42,157 | 42,658 | 42,537 | ||||||||||||
| El Brocal, Copper | 96,934 | 68,711 | 115,771 | 110,979 | ||||||||||||
| Non Mining Units | 69,011 | 38,246 | 5,160 | 4,697 | ||||||||||||
| Consolidated Cost of sales, excluding depreciation and amortization | 614,539 | 590,405 | 617,699 | 516,252 | ||||||||||||
Set forth below is a reconciliation of Exploration in operating units in operation expenses (by mine and mineral) to consolidated Exploration in operating units in operation expenses:
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| Exploration in units in operation by mine and mineral | 2014 | 2015 | ||||||||||||||
| Exploration in operating units by mine and mineral | 2018 | 2019 | ||||||||||||||
| (US$ in thousands) | (US$ in thousands) | |||||||||||||||
| Julcani, Gold | 2 | 25 | 6 | 38 | ||||||||||||
| Julcani, Silver | 10,072 | 11,598 | 8,149 | 5,593 | ||||||||||||
| Julcani, Lead | 824 | 956 | 461 | 223 | ||||||||||||
| Julcani, Copper | 83 | 121 | 30 | 11 | ||||||||||||
| Mallay, Gold | 0 | 77 | ||||||||||||||
| Mallay, Silver | 2,942 | 3,073 | ||||||||||||||
| Mallay, Lead | 2,155 | 1,990 | ||||||||||||||
| Mallay, Zinc | 2,711 | 2,399 | ||||||||||||||
| Breapampa, Gold | 463 | 1,554 | ||||||||||||||
| Breapampa, Silver | 32 | 267 | ||||||||||||||
| Orcopampa, Gold | 50,378 | 40,307 | 28,558 | 9,000 | ||||||||||||
| Orcopampa, Silver | 1,438 | 1,358 | 1,004 | 40 | ||||||||||||
| Orcopampa, Copper | 0 | 0 | ||||||||||||||
| Uchucchacua, Gold | 1 | 6 | 1 | 0 | ||||||||||||
| Uchucchacua, Silver | 24,125 | 25,222 | 15,210 | 6,257 | ||||||||||||
| Uchucchacua, Lead | 1,482 | 1,453 | 2,531 | 1,165 | ||||||||||||
| Uchucchacua, Zinc | 1,026 | 1,103 | 3,156 | 1,495 | ||||||||||||
| Tambomayo, Gold | 13,490 | 7,562 | ||||||||||||||
| Tambomayo, Silver | 4,838 | 2,145 | ||||||||||||||
| Tambomayo, Lead | 599 | 789 | ||||||||||||||
| Tambomayo, Zinc | 1,626 | 1,118 | ||||||||||||||
| La Zanja, Gold | 115 | 11 | 71 | 2 | ||||||||||||
| La Zanja, Silver | 5 | 0 | 3 | 0 | ||||||||||||
| El Brocal, Gold | 0 | 0 | 383 | 351 | ||||||||||||
| El Brocal, Silver | 0 | 0 | 956 | 1,124 | ||||||||||||
| El Brocal, Lead | 0 | 0 | 844 | 850 | ||||||||||||
| El Brocal, Zinc | 0 | 0 | 2,104 | 1,774 | ||||||||||||
| El Brocal, Copper | 0 | 0 | 5,710 | 4,627 | ||||||||||||
| Non Mining Units | 0 | 0 | 0 | 0 | ||||||||||||
| Consolidated Exploration in units in operation | 97,853 | 91,520 | ||||||||||||||
| Consolidated Exploration in operating units | 89,730 | 44,163 | ||||||||||||||
Set forth below is a reconciliation of Commercial deductionsDeductions (by mine and mineral) to consolidated Commercial deductionsDeductions in operation expenses:
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| Commercial Deductions in units in operation by mine and mineral | 2014 | 2015 | ||||||||||||||
| Commercial Deductions in operating units by mine and mineral | 2018 | 2019 | ||||||||||||||
| (US$ in thousands) | (US$ in thousands) | |||||||||||||||
| Julcani, Gold | 2 | 14 | 3 | 19 | ||||||||||||
| Julcani, Silver | 6,148 | 7,258 | 3,390 | 3,084 | ||||||||||||
| Julcani, Lead | 502 | 591 | 191 | 122 | ||||||||||||
| Julcani, Copper | 53 | 81 | 12 | 8 | ||||||||||||
| Mallay, Gold | 0 | 89 | ||||||||||||||
| Mallay, Silver | 3,687 | 4,098 | ||||||||||||||
| Mallay, Lead | 2,620 | 2,655 | ||||||||||||||
| Mallay, Zinc | 5,153 | 4,313 | ||||||||||||||
| Breapampa, Gold | 99 | 62 | ||||||||||||||
| Breapampa, Silver | 0 | 5 | ||||||||||||||
| Orcopampa, Gold | 288 | 255 | 778 | 201 | ||||||||||||
| Orcopampa, Silver | 1 | 0 | 107 | 1 | ||||||||||||
| Orcopampa, Copper | (11) | 0 | ||||||||||||||
| Uchucchacua, Gold | 0 | 7 | 0 | -1 | ||||||||||||
| Uchucchacua, Silver | 35,786 | 37,753 | 29,986 | 29,088 | ||||||||||||
| Uchucchacua, Lead | 2,248 | 2,161 | 3,092 | 3,324 | ||||||||||||
| Uchucchacua, Zinc | 3,850 | 5,457 | 8,367 | 10,197 | ||||||||||||
| Tambomayo, Gold | 644 | 7,786 | ||||||||||||||
| Tambomayo, Silver | 1,211 | 4,265 | ||||||||||||||
| Tambomayo, Lead | 590 | 1,497 | ||||||||||||||
| Tambomayo, Zinc | 2,164 | 6,170 | ||||||||||||||
| La Zanja, Gold | 240 | 194 | 319 | 102 | ||||||||||||
| La Zanja, Silver | 4 | 18 | 21 | 2 | ||||||||||||
| El Brocal, Gold | 3,777 | 4,847 | 7,369 | 7,438 | ||||||||||||
| El Brocal, Silver | 12,345 | 13,583 | 9,125 | 14,730 | ||||||||||||
| El Brocal, Lead | 1,317 | 6,669 | 2,446 | 5,495 | ||||||||||||
| El Brocal, Zinc | 4,105 | 24,622 | 11,459 | 27,302 | ||||||||||||
| El Brocal, Copper | 102,258 | 81,479 | 111,419 | 99,477 | ||||||||||||
| Non Mining Units | 0 | 0 | 0 | 0 | ||||||||||||
| Consolidated Commercial Deductions in units in operation | 184,483 | 196,211 | ||||||||||||||
| Consolidated Commercial Deductions in operating units | 192,683 | 220,306 | ||||||||||||||
Set forth below is a reconciliation of Sellingselling expenses (by mine and mineral) to consolidated selling expenses:
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| Selling expenses by mine and mineral | 2014 | 2015 | 2018 | 2019 | ||||||||||||
| (US$ in thousands) | (US$ in thousands) | |||||||||||||||
| Julcani, Gold | 0 | 2 | 0 | 3 | ||||||||||||
| Julcani, Silver | 979 | 963 | 336 | 384 | ||||||||||||
| Julcani, Lead | 80 | 79 | 19 | 15 | ||||||||||||
| Julcani, Copper | 8 | 10 | 1 | 1 | ||||||||||||
| Mallay, Gold | 0 | 15 | ||||||||||||||
| Mallay, Silver | 661 | 580 | ||||||||||||||
| Mallay, Lead | 484 | 376 | ||||||||||||||
| Mallay, Zinc | 609 | 453 | ||||||||||||||
| Breapampa, Gold | 367 | 99 | ||||||||||||||
| Breapampa, Silver | 26 | 17 | ||||||||||||||
| Orcopampa, Gold | 929 | 823 | 749 | 257 | ||||||||||||
| Orcopampa, Silver | 27 | 28 | 26 | 1 | ||||||||||||
| Orcopampa, Copper | 0 | 0 | ||||||||||||||
| Uchucchacua, Gold | 0 | 1 | 0 | 0 | ||||||||||||
| Uchucchacua, Silver | 3,099 | 3,228 | 5,596 | 4,278 | ||||||||||||
| Uchucchacua, Lead | 190 | 186 | 931 | 797 | ||||||||||||
| Uchucchacua, Zinc | 132 | 141 | 1,161 | 1,022 | ||||||||||||
| Tambomayo, Gold | 1,999 | 2,566 | ||||||||||||||
| Tambomayo, Silver | 717 | 728 | ||||||||||||||
| Tambomayo, Lead | 89 | 268 | ||||||||||||||
| Tambomayo, Zinc | 241 | 379 | ||||||||||||||
| La Zanja, Gold | 1,382 | 1,172 | 755 | 312 | ||||||||||||
| La Zanja, Silver | 59 | 36 | 29 | 9 | ||||||||||||
| El Brocal, Gold | 204 | 255 | 468 | 437 | ||||||||||||
| El Brocal, Silver | 722 | 1,258 | 1,167 | 1,399 | ||||||||||||
| El Brocal, Lead | 120 | 912 | 1,030 | 1,057 | ||||||||||||
| El Brocal, Zinc | 379 | 2,522 | 2,568 | 2,206 | ||||||||||||
| El Brocal, Copper | 5,677 | 4,110 | 6,969 | 5,756 | ||||||||||||
| Non Mining Units | 470 | 2,217 | 2,097 | 2,439 | ||||||||||||
| Consolidated Selling expenses | 16,605 | 19,481 | 26,948 | 24,313 | ||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to Cost applicable to sales and Cost applicable to sales per unit of mineral for the Julcani mine:
| JULCANI | JULCANI | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COPPER (t) | GOLD (oz.) | LEAD (t) | SILVER (oz.) | COPPER (t) | GOLD (oz.) | LEAD (t) | SILVER (oz.) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (US$ in thousands except operating and per unit data) | (US$ in thousands except operating and per unit data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 190 | 242 | 3 | 49 | 1,891 | 1,906 | 23,117 | 23,135 | 86 | 47 | 19 | 166 | 1,335 | 971 | 23,608 | 24,405 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Add: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exploration in units in operation | 83 | 121 | 2 | 25 | 824 | 956 | 10,072 | 11,598 | 30 | 11 | 6 | 38 | 461 | 223 | 8,149 | 5,593 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Deductions | 53 | 81 | 2 | 14 | 502 | 591 | 6,148 | 7,258 | 12 | 8 | 3 | 19 | 191 | 122 | 3,390 | 3,084 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Selling expenses | 8 | 10 | 0 | 2 | 80 | 79 | 979 | 963 | 1 | 1 | 0 | 3 | 19 | 15 | 336 | 384 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost applicable to sales | 335 | 454 | 7 | 90 | 3,297 | 3,533 | 40,316 | 42,954 | 128 | 66 | 28 | 225 | 2,006 | 1,585 | 35,483 | 33,467 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Divide: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Volume Sold | 64 | 103 | 12 | 94 | 2,057 | 2,478 | 2,851,318 | 3,493,166 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5,195 | 4,416 | 603 | 955 | 1,603 | 1,425 | 14.14 | 12.30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Volume Sold (unaudited) | 17 | 14 | 11 | 179 | 915 | 839 | 2,368,497 | 2,480,173 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 7,392 | 4,788 | 2,507 | 1,259 | 2,191 | 1,585 | 14.98 | 13.49 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the Mallay mine:
| MALLAY | ||||||||||||||||||||||||
| LEAD (t) | SILVER (oz.) | ZINC (t) | ||||||||||||||||||||||
| For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | ||||||||||||||||||||||
| 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | |||||||||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 5,959 | 5,190 | 8,135 | 8,014 | 7,497 | 6,256 | ||||||||||||||||||
| Add: | ||||||||||||||||||||||||
| Exploration in units in operation | 2,155 | 1,990 | 2,942 | 3,073 | 2,711 | 2,399 | ||||||||||||||||||
| Commercial Deductions | 2,620 | 2,655 | 3,687 | 4,098 | 5,153 | 4,313 | ||||||||||||||||||
| Selling expenses | 484 | 376 | 661 | 580 | 609 | 453 | ||||||||||||||||||
| Cost applicable to sales | 11,217 | 10,211 | 15,425 | 15,766 | 15,970 | 13,421 | ||||||||||||||||||
| Divide: | ||||||||||||||||||||||||
| Volume Sold | 7,253 | 6,612 | 1,121,202 | 1,134,528 | 8,609 | 7,482 | ||||||||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 1,547 | 1,544 | 13.76 | 13.90 | 1,855 | 1,794 | ||||||||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the Breapampa mine:
| BREAPAMPA | ||||||||||||||||
| GOLD (oz.) | SILVER (oz.) | |||||||||||||||
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| 2014 | 2015 | 2014 | 2015 | |||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 35,389 | 9,780 | 2,459 | 1,681 | ||||||||||||
| Add: | ||||||||||||||||
| Exploration in units in operation | 463 | 1,554 | 32 | 267 | ||||||||||||
| Commercial Deductions | 99 | 62 | - | 5 | ||||||||||||
| Selling expenses | 367 | 99 | 26 | 17 | ||||||||||||
| Cost applicable to sales | 36,318 | 11,495 | 2,517 | 1,970 | ||||||||||||
| Divide: | ||||||||||||||||
| Volume Sold | 80,358 | 16,069 | 383,733 | 212,826 | ||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 452 | 795 | 6.56 | 9.26 | ||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the Orcopampa mine:
| ORCOPAMPA | ||||||||||||||||
| GOLD (oz.) | SILVER (oz.) | |||||||||||||||
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| 2014 | 2015 | 2014 | 2015 | |||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 107,550 | 104,603 | 3,070 | 3,525 | ||||||||||||
| Add: | ||||||||||||||||
| Exploration in units in operation | 50,378 | 40,307 | 1,438 | 1,358 | ||||||||||||
| Commercial Deductions | 288 | 255 | 1 | 0 | ||||||||||||
| Selling expenses | 929 | 823 | 27 | 28 | ||||||||||||
| Cost applicable to sales | 159,144 | 145,988 | 4,536 | 4,912 | ||||||||||||
| Divide: | ||||||||||||||||
| Volume Sold | 204,862 | 214,821 | 401,782 | 555,314 | ||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 777 | 680 | 11.29 | 8.85 | ||||||||||||
| ORCOPAMPA | ||||||||||||||||
| GOLD (oz.) | SILVER (oz.) | |||||||||||||||
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| 2018 | 2019 | 2018 | 2019 | |||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 88,942 | 51,154 | 3,127 | 228 | ||||||||||||
| Add: | ||||||||||||||||
| Exploration in units in operation | 28,558 | 9,000 | 1,004 | 40 | ||||||||||||
| Commercial Deductions | 778 | 201 | 107 | 1 | ||||||||||||
| Selling expenses | 749 | 257 | 26 | 1 | ||||||||||||
| Cost applicable to sales | 119,027 | 60,612 | 4,264 | 271 | ||||||||||||
| Divide: | ||||||||||||||||
| Volume Sold (unaudited) | 116,719 | 40,702 | 335,761 | 15,049 | ||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 1,020 | 1,489 | 12.70 | 17.98 | ||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the Uchucchacua mine:
| UCHUCCHACUA | ||||||||||||||||||||||||
| LEAD (t) | SILVER (oz.) | ZINC (t) | ||||||||||||||||||||||
| For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | ||||||||||||||||||||||
| 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | |||||||||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 8,115 | 6,377 | 132,110 | 110,724 | 5,618 | 4,841 | ||||||||||||||||||
| Add: | ||||||||||||||||||||||||
| Exploration in units in operation | 1,482 | 1,453 | 24,125 | 25,222 | 1,026 | 1,103 | ||||||||||||||||||
| Commercial Deductions | 2,248 | 2,161 | 35,786 | 37,753 | 3,850 | 5,457 | ||||||||||||||||||
| Selling expenses | 190 | 186 | 3,099 | 3,228 | 132 | 141 | ||||||||||||||||||
| Cost applicable to sales | 12,035 | 10,177 | 195,120 | 176,927 | 10,626 | 11,543 | ||||||||||||||||||
| Divide: | ||||||||||||||||||||||||
| Volume Sold | 6,530 | 6,560 | 11,940,167 | 12,666,673 | 4,288 | 4,750 | ||||||||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 1,843 | 1,551 | 16.34 | 13.97 | 2,478 | 2,430 | ||||||||||||||||||
| UCHUCCHACUA | ||||||||||||||||||||||||
| LEAD (t) | SILVER (oz.) | ZINC (t) | ||||||||||||||||||||||
| For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | ||||||||||||||||||||||
| 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |||||||||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 16,470 | 14,815 | 98,991 | 79,562 | 20,540 | 19,004 | ||||||||||||||||||
| Add: | ||||||||||||||||||||||||
| Exploration in units in operation | 2,531 | 1,165 | 15,210 | 6,257 | 3,156 | 1,495 | ||||||||||||||||||
| Commercial Deductions | 3,092 | 3,324 | 29,986 | 29,088 | 8,367 | 10,197 | ||||||||||||||||||
| Selling expenses | 931 | 797 | 5,596 | 4,278 | 1,161 | 1,022 | ||||||||||||||||||
| Cost applicable to sales | 23,024 | 20,101 | 149,784 | 119,184 | 33,225 | 31,718 | ||||||||||||||||||
| Divide: | ||||||||||||||||||||||||
| Volume Sold (unaudited) | 17,071 | 15,347 | 14,443,456 | 9,808,791 | 16,811 | 15,315 | ||||||||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 1,349 | 1,310 | 10.37 | 12.15 | 1,976 | 2,071 | ||||||||||||||||||
| 79 |
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to Cost applicable to sales and Cost applicable to sales per unit of mineral for the Tambomayo mine:
| TAMBOMAYO | ||||||||||||||||||||||||||||||||
| GOLD (oz.) | SILVER (oz.) | LEAD (t) | ZINC(t) | |||||||||||||||||||||||||||||
| For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||
| 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |||||||||||||||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 58,475 | 47,741 | 20,969 | 13,540 | 2,597 | 4,979 | 7,050 | 7,058 | ||||||||||||||||||||||||
| Add: | ||||||||||||||||||||||||||||||||
| Exploration in units in operation | 13,490 | 7,562 | 4,838 | 2,145 | 599 | 789 | 1,626 | 1,118 | ||||||||||||||||||||||||
| Commercial Deductions | 644 | 7,786 | 1,211 | 4,265 | 590 | 1,497 | 2,164 | 6,170 | ||||||||||||||||||||||||
| Selling expenses | 1,999 | 2,566 | 717 | 728 | 89 | 268 | 241 | 379 | ||||||||||||||||||||||||
| Cost applicable to sales | 74,608 | 65,655 | 27,734 | 20,677 | 3,875 | 7,532 | 11,080 | 14,725 | ||||||||||||||||||||||||
| Divide: | ||||||||||||||||||||||||||||||||
| Volume Sold (unaudited) | 119,211 | 96,636 | 3,570,382 | 2,318,434 | 3,268 | 7,211 | 7,143 | 7,850 | ||||||||||||||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 626 | 679 | 7.77 | 8.92 | 1,186 | 1,045 | 1,551 | 1,876 | ||||||||||||||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the La Zanja mine:
| LA ZANJA | ||||||||||||||||
| GOLD (oz.) | SILVER (oz.) | |||||||||||||||
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| 2018 | 2019 | 2018 | 2019 | |||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 65,128 | 37,445 | 2,499 | 1,140 | ||||||||||||
| Add: | ||||||||||||||||
| Exploration in units in operation | 71 | 2 | 3 | 0 | ||||||||||||
| Commercial Deductions | 319 | 102 | 21 | 2 | ||||||||||||
| Selling expenses | 755 | 312 | 29 | 9 | ||||||||||||
| Cost applicable to sales | 66,274 | 37,861 | 2,552 | 1,151 | ||||||||||||
| Divide: | ||||||||||||||||
| Volume Sold (unaudited) | 74,370 | 30,710 | 228,894 | 80,880 | ||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 891 | 1,233 | 11.15 | 14.24 | ||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the La Zanja mine:
| LA ZANJA | ||||||||||||||||
| GOLD (oz.) | SILVER (oz.) | |||||||||||||||
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| 2014 | 2015 | 2014 | 2015 | |||||||||||||
| (US$ in thousands except operating and per unit data) | ||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 79,713 | 110,848 | 3,426 | 3,367 | ||||||||||||
| Add: | ||||||||||||||||
| Exploration in units in operation | 115 | 11 | 5 | 0 | ||||||||||||
| Commercial Deductions | 240 | 194 | 4 | 18 | ||||||||||||
| Selling expenses | 1,382 | 1,172 | 59 | 36 | ||||||||||||
| Cost applicable to sales | 81,450 | 112,224 | 3,495 | 3,421 | ||||||||||||
| Divide: | ||||||||||||||||
| Volume Sold | 143,151 | 142,299 | 418,565 | 324,151 | ||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 569 | 789 | 8.35 | 10.55 | ||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the El Brocal mine:
| EL BROCAL | EL BROCAL | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COPPER (t) | GOLD (oz.) | LEAD (t) | SILVER (oz.) | ZINC (t) | COPPER (t) | GOLD (oz.) | LEAD (t) | SILVER (oz.) | ZINC (t) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (US$ in thousands except operating and per unit data) | (US$ in thousands except operating and per unit data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 96,934 | 68,711 | 3,491 | 4,258 | 2,051 | 15,244 | 12,331 | 21,024 | 6,478 | 42,157 | 115,771 | 110,979 | 7,771 | 8,429 | 17,108 | 20,388 | 19,391 | 26,966 | 42,658 | 42,537 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Add: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exploration in units in operation | - | - | - | - | - | - | - | - | - | - | 5,710 | 4,627 | 383 | 351 | 844 | 850 | 956 | 1,124 | 2,104 | 1,774 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Deductions | 102,258 | 81,479 | 3,777 | 4,847 | 1,317 | 6,669 | 12,345 | 13,583 | 4,105 | 24,622 | 111,419 | 99,477 | 7,369 | 7,438 | 2,446 | 5,495 | 9,125 | 14,730 | 11,459 | 27,302 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling expenses | 5,677 | 4,110 | 204 | 255 | 120 | 912 | 722 | 1,258 | 379 | 2,522 | 6,969 | 5,756 | 468 | 437 | 1,030 | 1,057 | 1,167 | 1,399 | 2,568 | 2,206 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost applicable to sales | 204,869 | 154,300 | 7,472 | 9,359 | 3,488 | 22,826 | 25,398 | 35,865 | 10,962 | 69,301 | 239,869 | 220,840 | 15,991 | 16,656 | 21,428 | 27,790 | 30,640 | 44,219 | 58,789 | 73,818 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Divide: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Volume Sold | 40,198 | 28,991 | 7,874 | 7,181 | 2,759 | 16,739 | 1,928,243 | 2,637,215 | 8,007 | 43,297 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Volume Sold (unaudited) | 43,710 | 41,013 | 14,297 | 12,648 | 18,713 | 22,598 | 3,058,987 | 3,520,992 | 37,470 | 36,788 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost applicable to sales per unit of mineral sold (US$) | 5,096 | 5,322 | 949 | 1,303 | 1,264 | 1,364 | 13.17 | 13.60 | 1,369 | 1,364 | 5,488 | 5,385 | 1,118 | 1,317 | 1,145 | 1,230 | 10.02 | 12.56 | 1,569 | 2,007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for non-mining units:
| NON-MINING UNITS | NON-MINING UNITS | |||||||||||||||
| TOTAL | TOTAL | |||||||||||||||
| For the year ended December 31, | For the year ended December 31, | |||||||||||||||
| 2014 | 2015 | 2018 | 2019 | |||||||||||||
| (US$ in thousands) | (US$ in thousands) | |||||||||||||||
| Cost of Sales, excluding depreciation and amortization | 69,011 | 38,246 | 5,160 | 4,697 | ||||||||||||
| Add: | ||||||||||||||||
| Exploration in units in operation | 0 | 0 | 0 | 0 | ||||||||||||
| Commercial Deductions | 0 | 0 | 0 | 0 | ||||||||||||
| Selling expenses | 470 | 2,217 | 2,097 | 2,439 | ||||||||||||
| Total Cost applicable to sales | 69,481 | 40,463 | 7,257 | 7,136 | ||||||||||||
YANACOCHA
Introduction
The following discussion should be read in conjunction with (i) the Yanacocha Consolidated Financial Statements as of December 31, 20142018 and 20152019 and for the years ended December 31, 2013, 20142017, 2018 and 20152019 and the related Notes thereto included elsewhere in this Annual Report.Report, and (ii) Item 5 to our 2018 20-F. The Yanacocha Consolidated Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB and in U.S. Dollars.
| A. | Operating Results |
Overview
Yanacocha the largest gold producer in South America, was established in Peru in January 1992 and commenced production activities in August 1993. Yanacocha’s operations are located in the Andes mountainsMountains in Northern Peru, in the area of Cajamarca which is located approximately 600 kilometers north of Lima and north of the city of Cajamarca, at an altitude of 4,000 meters above sea level. Yanacocha is 51.35% owned by Newmont Mining, through its wholly-owned subsidiary Newmont Second Capital Corporation, 43.65% owned by usBuenaventura through our wholly-owned subsidiary Condesa and 5% owned by IFC.Summit Global Management II VB. Yanacocha is managed by Newmont Peru S.R.L.International Services. See “Item 4. Information on the Company—Yanacocha—B. Business Overview—Management of Yanacocha—General Manager/Management Agreement.”
The table below highlights Yanacocha’s key financial and operating results:
Summary of Financial and Operating Performance
| Year Ended December 31, | ||||||||||||
| 2015 | 2014 | 2013 | ||||||||||
| Gold sales (in thousands of US$) | 1,070,035 | 1,210,457 | 1,458,145 | |||||||||
| Gold sold (oz.)(*) | 924,175 | 967,970 | 1,023,173 | |||||||||
| Average gold price received (US$/oz.) | 1,159 | 1,250 | 1,425 | |||||||||
| Costs applicable to sales (US$/oz.) | 819 | 949 | 983 | |||||||||
| Other expenses, net (in thousands of US$) | 82,846 | 77,781 | 77,534 | |||||||||
| Net income (loss) (in thousands of US$) | (450,195 | ) | (400,338 | ) | (575,279 | ) | ||||||
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Gold sales (in thousands of US$) | 734,526 | 658,653 | ||||||
| Gold sold (oz.) | 529,307 | 522,213 | ||||||
| Average gold price received (US$/oz.) | 1,388 | 1,261 | ||||||
| Other operating expenses, net (in thousands of US$) | (35,987 | ) | (76,155 | ) | ||||
| Loss for the year (in thousands of US$) | (95,257 | ) | (81,517 | ) | ||||
(*) Ounces sold included El Tapado Oeste Pit, Cerro Negro Pit, Marleny Pit production and Verde Bioleach Demonstration Facility.
Gold sales. Gold sales decreased byincreased 12%, or US$14076 million, from 20142018 to 2015,2019, due to a decrease in the number ofhigher realized gold price and higher ounces sold and a decreased average realized price of gold. Lower ounces sold were proportionate to lower gold production.sold. Gold ounces produced decreased 4.5%increased 25% due primarily to lower leach grade material placed on the leach pads containing fewer ounces. Yanacocha has not engaged in gold price hedging activities, such as forward sales or option contracts, to minimize its exposure to fluctuations in the price of gold.higher recovery from La Quinua heap leach.
Costs applicable to sales. Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatment of the ore, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8% of pre-tax profits based on Peruvian labor legislation,depreciation and amortization, (iii) write downs of ore on leach pads to net realizable value expense, (iv) reclamation expenses and (iv)(v) other costs. Costs applicable to sales decreased 19%increased by 12% or US$17073 million from 20142018 to 2015. Ounces sold decreased by 4.5% from 2014 to 2015. Costs applicable to sales per ounce of gold decreased by 14%, from US$949 in 2014 to US$819 in 2015.2019.
Other expense (net).operating expenses, net.Other expense (net) increased 20%operating expenses, net decreased by 53% or US$15.740 million from 20142018 to 2015,2019, primarily due to higher losses associated with asset sales incurred in 2015 compared to 2014.lower exploration and advanced projects expense and lower severance expense.
Income tax benefit (expense).Yanacocha’s financial and operating results included an income and mining tax benefitexpense of US$602.765 million in 20152019 compared to an expense of US$30.529 million in 2014.2018. The difference was primarily due to Yanacocha’s decreased profitabilitydriven by a lower loss before income tax in 2019 for US$ 30 million as the result of lower expenses compared to a loss before tax of US$ 52 millio in 2018 higher valuation allowance on deferred income tax assets in 2019 for US$ 46 million (US$ 24 million in 2018)as well as a increase of non deductible expenses in 2019 for US$13 million (US$ 7 million in 2018), as well the prior year.current income includes the income tax contingencies .
Dividends. During the years ended December 31, 2014 and 2015, Yanacocha did not pay dividends to its partners and did not reserve any money related to reinvestment programs.
Critical Accounting Policies
Yanacocha has furnished us with a discussion of its critical accounting policies or methods used in the preparation of its financial statements. Critical accounting policies are those that are reflective of significant judgments and uncertainties and could potentially impact results under different assumptions and conditions. See Note 24 to the Yanacocha Consolidated Financial Statements for a more complete listing Yanacocha’s accounting policies.
Currencyof standards issued but not effective.
The Yanacocha Financial Statements are stated in U.S. Dollars, Yanacocha’s functional currency, as most of its transactions are traded, collectedstandards and paid in such currency. Transactions in other currencies are recorded in U.S. Dollars based on exchange rates prevailing at the time of such transactions. Monetary assets and liabilities denominated in other currencies are translated into the U.S. Dollar at exchange rates prevailing at the balance sheet dates, and any resulting gains or losses are reflected in current earnings.
Stockpiles, Ore on Leach Pads and Inventories
Costsinterpretations that are incurred in or benefit the productive process are accumulatedissued as stockpiles, ore on leach pads and inventories. Stockpiles, ore on leach pads and inventories are carried at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price of the product baseddate of Yanacocha’s financial statements but not yet effective and are reasonably expected to have an impact on currentits disclosures, financial position or performance when applied at a future date, are disclosed below. Yanacocha intends to adopt these standards, if applicable, when they become effective. The standards and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiles, ore on leach pads and inventories to net realizable value are reported as a component ofCosts applicable to sales. The current portion of stockpiles, ore on leach pads and inventories is determined based on the expected amounts to be processed within the next twelve months. Stockpiles, ore on leach pads and inventoriesinterpretations not expected to be processed within the next twelve monthsimpact Yanacocha’s disclosures, financial position or performance are classified as long-term. The major classifications are as follows:
Stockpile.Stockpiles represent ore that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained ounces (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred upnot listed below. See Note 2.4 to the point of stockpiling the ore, including applicable overhead and amortization relating to mining operations, and removed at each stockpile’s average cost per recoverable unit.
Ore on Leach Pad.The recovery of gold from certain gold oxide ores is achieved through the heap leaching process. Under this method, ore is placed on leach pads where it is treated withYanacocha Consolidated Financial Statements for a chemical solution, which dissolves the gold contained in the ore. The resulting gold-bearing solution is further processed in a plant where the gold is recovered. Costs are added to ore on leach pads based on current mining costs, including applicable overhead and amortization relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per recoverable ounce of gold on the leach pad.
The estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads (measured tons added to the leach pads), the grade of ore placed on the leach pads (based on assay data) and a recovery percentage (based on ore type). In general, the leach pads recover approximately 50% to 95% of the ultimate recoverable ounces in the first year of leaching, declining each year thereafter until the leaching process is complete.
Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Historically, Yanacocha’s operating results have not been materially impacted by variations between the estimated and actual recoverable quantities of gold on its leach pads. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.
In-process Inventory.In-process inventories represent materials that are currently in the process of being converted to a saleable product. Yanacocha’s conversion processes vary depending on the nature of the ore and the specific processing facility, and include mill in-circuit and leach in-circuit. In-process material is measured based on assays of the material fed into the process and the projected recoveries of the respective plants. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable amortization relating to the process facilities incurred to that point in the process.
Precious Metals Inventory.Precious metals include gold doré and/or gold bullion. Precious metals that result from Yanacocha’s mining, processing and refining activities are valued at the average cost of the respective in-process inventories incurred before the refining process, plus applicable refining costs.
Mine Development.Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified asExploration orAdvanced projects expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.
Drilling and related costs are capitalized for an ore body where proven and probable reserves exist; the activities are directed at obtaining additional information on the ore body or converting mineralized material to proven and probable reserves. All other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component ofCosts applicable to sales.
The cost of removing overburden and waste materials to access the ore body at an open pit mine before the production phase are referred to as “pre-stripping costs.” Pre-stripping costs are capitalized during the development of an open pit mine. Where multiple open pits exist at a mining complex utilizing common processing facilities, pre-stripping costs are capitalized at each pit. The removal and production of de minimis saleable materials may occur during development and are recorded asOther income, net of incremental mining and processing costs.
The production phase of an open pit mine commences when saleable minerals, beyond a de minimis amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized inCosts applicable to sales in the same period as the revenue from the sale of inventory. Yanacocha’s definition of a mine and the mine’s production phase may differ from that of other companies in the mining industry resulting in incomparable allocations of stripping costs to deferred mine development and production costs. Other mining companies may expense pre-stripping costs associated with subsequent pits within a mining complex. Other mining companies may capitalize stripping costs incurred in connection with the production phase.
Mine development costs are amortized using the units-of-production (“UOP”) method based on estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore block or area.
Stripping activity asset.Stripping costs are incurred during the production phase of surface mining in accordance with IFRIC 20 “Stripping costs in the production phase of as surface mine,” whereby a stripping asset is recognized only if all of the following criteria are met:
(i) It is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity;
(ii) The entity can identify the component of the ore body for which access has been improved; and
(iii) The costs relating to the stripping activity associated with that component can be measured reliably.
The primary components of the ore body on a pit by pit basis, as well as within major pits are identified. Based on these components, stripping activities are analyzed and costs are assigned based on whether they pertained to current inventory production or improved access to future ore bodies (or components of an ore body).
Based on this analysis, Yanacocha allocates the costs associated with improved access to production stripping assets. This allocation is based on the volume of waste and ore extracted in the period compared to expected volume life-of-mine per component of ore body.
Costs allocated to the production stripping activity asset basis in the “waste-to-ore ratio” are subsequently depreciated using the method over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping costs. This depreciation is a production cost and included in the adjustments in inventories.
Mineral Interests.Mineral interests include acquired interests in production, development and exploration stage properties. The mineral interests are capitalized at their fair value at the acquisition date, either as an individual asset purchase or as part of a business combination.
The value of such assets is primarily driven by the nature and amount of mineralized material believed to be contained in such properties. Production stage mineral interests represent interests in operating properties that contain proven and probable reserves. Development stage mineral interests represent interests in properties under development that contain proven and probable reserves. Exploration stage mineral interests represent interests in properties that are believed to potentially contain mineralized material consisting of (i) mineralized material such as inferred material within pits; measured, indicated and inferred material with insufficient drill spacing to qualify as proven and probable reserves; and inferred material in close proximity to proven and probable reserves; (ii) around-mine exploration potential such as inferred material not immediately adjacent to existing reserves and mineralization, but located within the immediate mine area; (iii) other mine-related exploration potential that is not part of measured, indicated or inferred material and is comprised mainly of material outside of the immediate mine area; (iv) greenfield exploration potential that is not associated with any other production, development or exploration stage property, as described above; or (v) any acquired right to explore or extract a potential mineral deposit. Yanacocha’s mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. Yanacocha has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material.
Asset Impairment.Yanacocha reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting units at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of gold or other commodities that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from such exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. Yanacocha’s estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties.
Income and Mining Taxes and Profit Sharing
Yanacocha accounts for income and mining taxes and legally required profit sharing using the liability method, recognizing certain temporary differences between the financial reporting basiscomplete listing of Yanacocha’s liabilities and assets and the related income tax basis for such liabilities and assets. This method generates a net deferred income tax liability and profit sharing liability or net deferred income tax asset and profit sharing asset for Yanacocha, as measured by the statutory tax and profit sharing rates in effect as enacted. Yanacocha derives its deferred income tax charge or benefit and profit sharing charge or benefit by recording the change in the net deferred income tax liability and profit sharing liability or net deferred income tax asset and profit sharing asset balance for the year, based on Peruvian income and mining tax and profit sharing rates.
Yanacocha’s deferred income tax assets include certain future tax benefits. Yanacocha records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Reclamation and Remediation Costs
Reclamation obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost (“ARC”) is capitalized as part of the asset’s carrying value and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. The estimated retirement obligation is based on when spending for an existing environmental disturbance is expected to occur. Yanacocha reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site.
Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.
Recently Adopted Accounting Pronouncements
Reporting of Amounts reclassified out of Accumulated Other Comprehensive Income
In February 2013, ASC guidance was issued related to items reclassified from Accumulated Other Comprehensive Income (Loss). The new standard requires the disclosure, either in a single note or parenthetically on the face of the financial statements, of: (i) the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and (ii) the income statement line items affected by the reclassification. Adoption of the new guidance, effective for Yanacocha’s fiscal year beginning January 1, 2013, had no impact on the consolidated financial position, results of operations or cash flows.
Disclosures about Offsetting Assets and Liabilities
In November 2011, ASC guidance was issued related to disclosures about offsetting assets and liabilities. The new standard requires disclosures to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. In January 2013, an update was issued to further clarify that the disclosure requirements are limited to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (i) offset in the financial statements or (ii) subject to an enforceable master netting arrangement or similar agreement.
Adoption of the new guidance, effective for the fiscal year beginning January 1, 2013, had no impact on the consolidated financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
Presentation of an Unrecognized Tax Benefit
In July 2013, Accounting Standards Codification (“ASC”) guidance was issued related to the presentation of an unrecognized tax benefit when a net operating loss carry forward, a similar tax loss or a tax credit carry forward exists. The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for all same jurisdiction net operating loss carry forward, a similar tax loss, or tax credit carry forwards. A gross presentation will be required only if such carry forwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax position. The update is effective prospectively for the Yanacocha’s fiscal year beginning January 1, 2014. Yanacocha is still evaluating the impact of the updated guidance on the consolidated financial position, results of operations or cash flows.accounting policies.
Results of Operations for the Years Ended December 31, 20152019 and 20142018
Sales
Gold sales. Gold sales decreased byincreased 12%, or US$14076 million, from 20142018 to 2015,2019, due to a decrease in the number ofhigher realized gold price and higher ounces sold and a decreased average realized price of gold. The decline in ounces sold was proportionate to lower gold production.sold. Gold ounces produced decreased 5.2%increased 25% due primarily to a decrease in the amount of leach grade material placed on the leach pads compared to prior year as well as lower mill grade and recovery.higher recovery from La Quinua heap leach. Yanacocha has not engaged in gold price hedging activities, such as forward sales or option contracts, to minimize its exposure to fluctuations in the price of gold. Production by mine was as follows:
| Mine (1) | 2015 | 2014 | ||||||
| (ounces) | ||||||||
| Cerro Yanacocha | 52,020 | 30,713 | ||||||
| Carachugo | 89,635 | 286,062 | ||||||
| Maqui Maqui | 47,712 | 5,669 | ||||||
| La Quinua | 728,324 | 647,500 | ||||||
| Total | 917,691 | 969,944 | ||||||
Costs relatedapplicable to sales
Costs relatedapplicable to sales for the year ending December 31, 20152019 and 2014 comprise:2018 comprised:
| 2015 | 2014 | 2019 | 2018 | |||||||||||||
| US$(000) | US$(000) | (US$ in thousands) | ||||||||||||||
| Beginning balance of inventories | 497,669 | 522,596 | ||||||||||||||
| Beginning balance of finished goods and in-process | 341,213 | 345,489 | ||||||||||||||
| Beginning balance of provision for net realizable value | (89,127) | (62,540 | ) | |||||||||||||
| Royalties to related parties | 22,297 | 20,385 | ||||||||||||||
| Mining royalties to the government | 9,255 | 2,875 | ||||||||||||||
| Consumption of supplies | 210,384 | 246,106 | 200,036 | 215,863 | ||||||||||||
| Personnel expenses | 102,867 | 87,290 | 72,325 | 82,645 | ||||||||||||
| Other services | 76,490 | 82,805 | 41,120 | 43,672 | ||||||||||||
| Maintenance | 38,646 | 38,526 | 26,645 | 22,585 | ||||||||||||
| Power | 27,713 | 24,942 | 23,619 | 24,203 | ||||||||||||
| Depreciation and amortization | 223,142 | 360,334 | 144,862 | 156,212 | ||||||||||||
| Workers' profit participation | 28,852 | 35,055 | ||||||||||||||
| Reclamation expenses related to Yanacocha leach pad | - | 20,315 | ||||||||||||||
| Net realizable value adjustment | 64,497 | 95,859 | ||||||||||||||
| Ending balance of inventories | (518,524 | ) | (593,528 | ) | ||||||||||||
| Workers’ profit participation | 12,804 | 3,837 | ||||||||||||||
| Reclamation expenses | 142,129 | 16,284 | ||||||||||||||
| Ending balance of provisions for net realizable value | 47,925 | 89,127 | ||||||||||||||
| Ending balance of finished goods and in-process | (302,382) | (341,213) | ) | |||||||||||||
| 692,721 | 619,424 | |||||||||||||||
| 751,736 | 920,300 | |||||||||||||||
Costs applicable to sales. Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatment of the ore, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8% of pre-tax profits based on Peruvian labor legislation,depreciation and amortization, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreased 19%increased by 12% or US$17073 million from 20142018 to 2015. Ounces sold decreased 4.5% from 2014 to 2015.2019. Costs applicable to sales per ounce of gold decreasedincreased by 14%,10% from US$9491,186 per ounce in 20142018 to US$8191,309 per ounce in 2015.2019.
Operating costs decreased by 32%6% from US$674.6385 million in 20142018 to US$456.0363 million in 2015.2019. Operating costs consist primarily of drilling, blasting, loading, hauling, leaching, milling and millingmetal recovery costs. These costs decreased
Reclamation expenses of US$142 million are due to a non-cash charge to reclamation expenses for the year ended December 31, 2019 related to the areas of Yanacocha’s operations no longer in 2015 primarily as a resultproduction. The increase to the reclamation obligation of lower expenses relatingUS$126 million in 2019 is mainly due to surface mining costs (lower diesel price and lower repairs and maintenance) and lower heap leaching costs, partially offset by higher milling costs (related to cyanide and lime consumption).water treatment costs.
| 83 |
Workers’ profit participation decreasedincreased by 18%234%, from US$353.8 million in 20142018 to US$2913 million in 2015.2019. This decreaseincrease was directly related to the decrease in Yanacocha’s taxable income from 2014 to 2015.driven by higher revenues .. Workers’ profit participation expense is calculated based on taxable net income, and in accordance with Peruvian labor legislation.
The portion of leach pad inventory write-downs associated with costs applicable to sales decreasedincreased from US$95.826.5 million in 2014 to US$64.541.2 million in 2015 due to lower costs of inventory compared to the prior year.
Inventory variation decreased by 39%, from US$70.9 million in 2014 to US$20.9 million in 2015, due to lower stock of ounces at the beginning of year and lower costs per ounce compared to the prior year.higher stripping ratio.
Depreciation, depletion and amortization decreased by 38%7% from US$360156 million in 20142018 to US$223145 million in 2015.2019. This decrease was attributable principally to lower depreciation associated withnet book value assets retirement costs and deferred mine development.lower remain useful life.
Administrative expenses
Administrative expenses for the years ended December 31, 20152019 and 2014 where comprised2018 were composed of:
| 2019 | 2018 | |||||||||||||||
| 2015 | 2014 | (US$ in thousands) | ||||||||||||||
| Management expenses | $ | 18,108 | $ | 19,938 | 1,341 | 1,317 | ||||||||||
| Community development expenses and | ||||||||||||||||
| external affairs | 6,297 | 15,653 | ||||||||||||||
| Other | 1,920 | 2,671 | 403 | 1,466 | ||||||||||||
| $ | 26,325 | $ | 38,262 | 1,744 | 2,783 | |||||||||||
Other operating expenses, net
Other operating expense (net)
Other expenses, net for the years ended December 31, 20152019 and 20142018 were as follows:
| 2015 | 2014 | 2019 | 2018 | |||||||||||||
| (US$ in thousands) | ||||||||||||||||
| Exploration and advance project | $ | 64,223 | $ | 58,880 | 33,669 | 62,643 | ||||||||||
| Severance program | 14,904 | 16,438 | 2,210 | 8,678 | ||||||||||||
| Disposal of fixed assets | (135 | ) | 13,530 | |||||||||||||
| Other expenses | (671 | ) | (6,149 | ) | ||||||||||||
| Cost of sales from the sale of fixed assets | 2,092 | 5,445 | ||||||||||||||
| Tax fine | 2,019 | 3,954 | ||||||||||||||
| Write-off of fixed assets | 1,204 | - | ||||||||||||||
| Revenue from sale of fixed assets | (8,088) | (4,821) | ||||||||||||||
| Others, net | 4,525 | (4,918 | ) | 2,881 | 256 | |||||||||||
| $ | 82,846 | $ | 77,781 | 35,987 | 76,155 | |||||||||||
Advanced projectsExploration and advanced project costs also increaseddecreased from US$16.563 million in 20142018 to US$2234 million in 2015.2019. This increasedecrease was primarily due to lower activitiesreserves declaration in 2014 than 2015December 2018 of Sulfides project, therefore this project is in development stage and all the cost incurred were capitalized as part of mine development.
Impairment of long-lived assets
In 2019, Yanacocha Management identified as an impairment indicator the significant increase of the asset retirement and mine closure, as a result the Company had to determinate the recoverable amount for projects suchits CGU Yanacocha. Regarding to CGU Conga the Management did not identify any important indicator. As a result of this analysis the Company concluded that no additional impairment loss on CGU Yanacocha was required to be recorded as the Chaquicocha tunnel and Quecher main.
Impairment.recoverable amount exceeded the carrying amount of the CGU’s assets.
Impairment calculations were conducted for Yanacocha and the Conga project for the 2015 financial statements. Despite the lower market prices for gold and the water first approach at the Conga project, the calculations yielded no write-downs for 2015.
Income tax provision.
Yanacocha’s financial and operating results included income and mining tax expense of US$(602.7)65 million in 20152019 compared to US$30.529 million in 2014. The difference2018. This increase was primarily due toby favorable taxable income driver by higher revenues, as well the write-off ofcurrent income includes the deferred income tax asset of US$510 million.contingencies.
Net income.
| 84 |
Net income decreasedloss
Net loss increased by US$49.913.7 million, from net loss of US$(400.3)81.5 million in 20142018 to net loss of US$(450.2)95.2 million in 2015,2019, mainly explained by lower by-products, higher reclamation expenses inrelated to non-operating areas and income tax provision due to a the write-off of the deferred income tax assetcontingencies, partially offset by higher revenues and lower revenues from sales due to lower production, offset by reduction in operating costs and the lack of asset impairments during 2015.
Results of Operations for the Years Ended December 31, 20142018 and 20132017
Sales
Gold sales. Gold sales decreased by 17%, or US$247 million, from 2013 to 2014, due toSee “Item 5. Operating and Financial Review and Prospects” in our 2018 20-F for a decrease in the numbercomparative discussion of ounces sold and a decreased average realized priceYanacocha’s consolidated results of gold. The decline in ounces sold was proportionate to lower gold production. Gold ounces produced decreased 5% due to a decrease in the amount of leach grade material placed on the leach pads compared to prior year as well as lower mill grade and recovery. Yanacocha has not engaged in gold price hedging activities, such as forward sales or option contracts, to minimize its exposure to fluctuations in the price of gold. Production by mine was as follows:
| Mine | 2014 | 2013 | ||||||
| (ounces) | ||||||||
| Cerro Yanacocha | 30,713 | 16,393 | ||||||
| Carachugo | 286,062 | 437,095 | ||||||
| Maqui Maqui | 5,669 | 5,858 | ||||||
| La Quinua | 647,500 | 557,914 | ||||||
| Total | 969,944 | 1,017,259 | ||||||
Ounces produced included El Tapado Oeste Pit, Cerro Negro Pit, Marleny Pit production and Verde Bioleach Demonstration Facility.
Costs related to sales
Costs related to sales for the year ending December 31, 2014 and 2013 comprise:
| 2014 | 2013 | |||||||
| US$(000) | US$(000) | |||||||
| Beginning balance of inventories | 522,596 | 545,183 | ||||||
| Consumption of supplies | 246,106 | 300,792 | ||||||
| Personnel expenses | 87,290 | 120,568 | ||||||
| Other services | 82,805 | 66,670 | ||||||
| Maintenance | 38,526 | 52,486 | ||||||
| Power | 24,942 | 29,142 | ||||||
| Depreciation and amortization | 360,334 | 349,760 | ||||||
| Workers' profit participation | 35,055 | 49,259 | ||||||
| Reclamation expenses related to Yanacocha leach pad | 20,315 | - | ||||||
| Net realizable value adjustment | 95,859 | 146,051 | ||||||
| Ending balance of inventories | (593,528 | ) | (668,647 | ) | ||||
| 920,300 | 991,264 | |||||||
Costs applicable to sales. Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatment of the ore, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8% of pre-tax profits based on Peruvian labor legislation, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreased 7% or US$70.9 million from 2013 to 2014. Ounces sold decreased 5.4% from 2013 to 2014. Costs applicable to sales per ounce of gold increased by 2%, from US$974 in 2013 to US$949 in 2014.
Operating costs decreased by 13% from US$776.1 million in 2013 to US$674.6 million in 2014. Operating costs consist primarily of drilling, blasting, loading, hauling and milling costs. These costs decreased in 2014 primarily as a result of lower expenses in supplies, (including a decline in diesel prices beginning in the third quarter of 2014 and minor usage of CAT 785 for advance works in Marleny Pit Mining) and lower personnel expenses due to lower headcount. The volume of commercial tons mined decreased from 161.8 million DST in 2013 to US$118.8 million DSToperations for the year ended December 31, 2014.2018 and 2017.
Workers’ profit participation decreased by 29%, from US$49 million in 2013 to US$35 million in 2014. This decrease is directly related to the decrease in Yanacocha’s taxable income from 2013 to 2014. Workers’ profit participation expense is calculated based on taxable net income and in accordance with Peruvian labor legislation
The portion of leach pad inventory write-downs associated with costs applicable to sales decreased from US$146 million in 2013 to US$95.8 million in 2014 due to lower costs of inventory compared to the prior year.
Inventory variation decreased by 43%, from US$123.5 million in 2013 to US$70.9 million in 2014, due to lower stock of ounces at the beginning of year and lower costs per ounce compared to the prior year.
Depreciation, depletion and amortization increased by 3% from US$349.7 million in 2013 to US$360 million in 2014. This increase was attributable principally to leach pad inventory write-downs combined higher depreciation associated with assets retirement costs and deferred mine development.
Administrative expenses
Administrative expenses for the year ended December 31, 2014 and 2013 where comprised of:
| 2014 | 2013 | |||||||
| Management expenses | $ | 19,938 | $ | 17,480 | ||||
| Community development expenses and | ||||||||
| external affairs | 15,653 | 46,482 | ||||||
| Other | 2,671 | 3,102 | ||||||
| $ | 38,262 | $ | 67,064 | |||||
Other operating expense (net)
Other expenses, net for the years ended December 31 were as follows:
| 2014 | 2013 | |||||||
| Exploration and advance project | $ | 58,880 | $ | 64,510 | ||||
| Severance program | 16,438 | 19,323 | ||||||
| Disposal of fixed assets | 13,530 | 6,562 | ||||||
| Other expenses | (6,149 | ) | (8,924 | ) | ||||
| Others, net | (4,918 | ) | (3,966 | ) | ||||
| $ | 77,781 | $ | 77,534 | |||||
Exploration costs decreased by 23%, from US$20.0 million in 2013 to US$15.4 million in 2014. This decrease was attributable principally to lower drilling works in 2014 for Chaquicocha Underground and other minor exploration activities.
| B. | Liquidity and Capital Resources |
Advanced projects costs also decreased from US$44.5 million in 2013 to US$43.5 million in 2014. This decline was primarily due to lower activities in 2014 than in 2013 for projects as Geotechnical Investigation Project and Verde Stage 2 Study project.
Impairment.
The 2014 financial results included an impairment loss of US$541million related exclusively to the Conga project, compared to US$1,038.5 million in 2013 (Yanacocha and Conga). The discount interest rate used in the impairment calculations under the fair value less costs of sale methodology was 8.04% after taxes, which was based on a peer group of mining companies adjusted for Peru country risk. The rate is a “real” versus “nominal” rate as the cash flow models were not escalated for inflation. This discount rate was used for both segments Yanacocha and Conga.
Income tax provision.
Yanacocha’s financial and operating results included income and mining tax expense of US$30.5 million in 2014 compared to US$203.5 million in 2013. The difference was primarily due to Yanacocha’s increased profitability as the result of lower expenses compared to the prior year.
Net income.
As a consequence of the foregoing, net loss decreased by US$175 million, from US$(575) million in 2013 to US$(400) million in 2014.
B. Liquidity and Capital Resources
As of December 31, 2015,2019, Yanacocha had cash and cash equivalents of US$944819 million, substantially all of which were held in U.S. Dollars, as compared to US$787723 million as of December 31, 2014.2018.
Cash provided by operating activities
Yanacocha’s operationsYanacocha generated a net cash flow from operations of US$275272 million in 20152019 and US$372.2161 million in 2014.2018. The net cash flow from operations in 20152019 was 34%69% or US$101111 million lowerhigher than in 2014.2018. The decreaseincrease was primarily driven by decrease inhigher gold sales and lower operating assets as a provision for reclamation and remediation, the write-off of fixed assets and the write-down of ore on leach pads to realizable value.costs.
Cash used in investing activities
Net cash used in investing activities was US$117.3 million in 2015 and US$176 million in 2014.2019 compared to US$161 million in 2018. The increase in cash used in investing activities was mainly due to investment in Quecher Main project and Yanacocha Sulfides project.
Yanacocha’s capital expenditures from its formation in 1992 through 2015 have related principally to:
Yanacocha’s capital expenditures from its formation through December 31, 2014 totaled approximately US$5,821 million, including capital expenditures of US$311 million in 2013, US$117 million in 2014 and US$96.2 million in 2015.
In 2015, Yanacocha’s principal capital expenditures included:
Cash used in financing activities
Net cash used in financing activities was US$00.3 million in both 20152019, as compared to cash generated was US$48 million in 2018. The decrease was due to on June 14, 2018, Yanacocha’s partners approved the issue and 2014. In 2015 and 2014, Yanacocha carried no debt and accordingly had no financing costs.sale of 63,922,565 shares to Summit Global Management II BV.
C. Research and DevelopmentCapital Expenditures
Yanacocha is a mining explorationIn 2019, Yanacocha’s principal capital expenditures of US$184 million were mainly related to Sulfides project, Quecher Main development capital spend and production company and does not engage in research and development activities.components assets.
| C. | Research and Development |
D. Trend Information
Not applicable.
| D. | Trend Information |
Other than as disclosed in this Annual Report and the Yanacocha Consolidated Financial Statements (included elsewhere in this Annual Report), Yanacocha has informed us that it is not aware of any trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon Yanacocha’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating results or financial condition.
E. Off-Balance Sheet Arrangements
| E. | Off-Balance Sheet Arrangements |
Yanacocha has informed us that there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on Yanacocha’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
F. Tabular Disclosure of Contractual Obligations
| F. | Tabular Disclosure of Contractual Obligations |
The following table shows Yanacocha’s contractual obligations as of December 31, 2015:2019:
| Payments due by Period (US$ in millions) | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
| Long-Term Debt | - | - | - | - | - | |||||||||||||||
| Capital Lease Obligations | - | - | - | - | - | |||||||||||||||
| Reclamation and Remediation Liability | 578.9 | 6.7 | 86.5 | 145.7 | 340. | |||||||||||||||
| Open Purchase Orders receipt | - | - | - | - | - | |||||||||||||||
| Other Long-Term Obligations(*) | 29.1 | - | 23.2 | 5.9 | - | |||||||||||||||
| Total Contractual Cash Obligations | - | - | - | - | - | |||||||||||||||
| Payments due by Period (US$ in millions) | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
| Debt instruments | 43 | - | 43 | - | - | |||||||||||||||
| Right of use liability | 0.3 | 0.3 | - | - | - | |||||||||||||||
| Trade accounts payable | 46 | 46 | - | - | - | |||||||||||||||
| Other Short-Term Obligations | 11 | 11 | - | - | - | |||||||||||||||
| Total Contractual Cash Obligations | 100.3 | 57.3 | 43 | . | - | |||||||||||||||
CERRO VERDE
Introduction
The following discussion should be read in conjunction with the Cerro Verde Financial Statements as of December 31, 20142018 and 20152019 and for the years ended December 31, 2013, 2014,2017, 2018 and 20152019 and the related notesNotes thereto included elsewhere in this Annual Report.Report, and (ii) Item 5 to our 2018 20-F. The Cerro Verde Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB.
A.
| A. | Operating Results |
Overview
Overview
We hold a 19.58% interest in Cerro Verde, which operates an open-pit copper and molybdenum mining complex located 20 miles southwest of Arequipa, Peru. The site is accessible by paved highway. The Cerro Verde mine has been in operation since 1976, and was previously owned by the Peruvian government before its privatization in 1993. Freeport-McMoRan Inc. holds a majority interest in Cerro Verde.
The Cerro Verde mine is a porphyry copper deposit that has leachable oxide and secondary sulfide mineralization, and millable primary sulfide mineralization. The predominant oxide copper minerals are brochantite, chrysocolla, malachite and copper “pitch.” Chalcocite and covellite are the most important secondary copper sulfide minerals. Chalcopyrite and molybdenite are the dominant primary sulfides.
In September 2015, Cerro Verde’s current operations consistexpansion project commenced operations. The project achieved full capacity operating rates during the first quarter of 2016. The project, with a cost of US$5.3 billion, expanded the processing capacity from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day.
Cerro Verde’s operation consists of an open-pit copper mine, with a 120,000processing capacity of 548,500 metric tons-per-day that includes (i) concentrator facilities with a 409,500 metric ton-per-day concentratorcapacity (361,500 metric tons-per-day prior to the expansion approved by the MEM during 2018), (ii) solution extraction and electrowinning (SX/EW) leaching facilities. Leach-copperfacilities with leach copper production is derived from a 39,000 metric ton-per-day crushed leach facility and (iii) a run-of-mine (ROM) leach system.system with a capacity of 100,000 metric tons-per-day. This SX/EW leaching operation has a production capacity of approximately 200 million pounds of copper per year.
Cerro Verde has sufficient equipment to move an average of 308,000947,000 tons of material per day using a fleet of haul trucks. Copper cathodes and concentrate production are transported approximately 70 miles by truck and rail to the Pacific Port of Matarani for shipment to international markets.
Cerro Verde receives electrical power under long-term contracts with electric utility companies. Water for Cerro Verde’s processing operations comes from renewable sources through a series of storage reservoirs, which Cerro Verde believes will be sufficient to support its currently planned operations.
Presented in the table below are certain summary financial and operating data regarding Cerro Verde for the years ended December 31, 2013, 2014,2017, 2018 and 2015:2019:
| As of and for the year ended December 31, | ||||||||||||
| 2013 | 2014 | 2015 | ||||||||||
| Income statement data(1) | ||||||||||||
| Sales of goods (US$ in thousands) | 1,811,488 | 1,467,097 | 1,115,617 | |||||||||
| Profit for the year (US$ in thousands) | 613,262 | 377,606 | 33,284 | |||||||||
| Proven and Probable Reserves(2) | ||||||||||||
| Proven: | ||||||||||||
| Leachable ore reserves (tons in thousands) | 52,676 | 46,426 | 47,603 | |||||||||
| Millable ore reserves (tons in thousands) | 1,123,205 | 881,338 | 925,365 | |||||||||
| Probable: | ||||||||||||
| Leachable ore reserves (tons in thousands) | 114,990 | 121,954 | 104,963 | |||||||||
| Millable ore reserves (tons in thousands) | 2,756,501 | 2,903,516 | 2,778,009 | |||||||||
| Average copper grade of leachable ore reserves (%) | 0.33 | 0.37 | 0.35 | |||||||||
| Average copper grade of millable ore reserves (%) | 0.37 | 0.38 | 0.38 | |||||||||
| Production(3) | ||||||||||||
| Cathodes (in thousands of recoverable pounds) | 104,314 | 124,804 | 105,077 | |||||||||
| Concentrates (in thousands of recoverable pounds) | 452,925 | 375,438 | 439,405 | |||||||||
| Average realized price of copper sold (US$ per pound payable) | 3.24 | 2.93 | 2.26 | |||||||||
| As of and for the year ended December 31, | ||||||||
| 2018 | 2019 | |||||||
| Income statement data(1) | ||||||||
| Sales (US$ in thousands) | 3,054,026 | 2,890,066 | ||||||
| Profit for the year (US$ in thousands) | 119,710 | 390,377 | ||||||
| Proven and Probable Reserves(2) | ||||||||
| Proven: | ||||||||
| Leachable ore reserves (metric tons in thousands) | 44,000 | 65,000 | ||||||
| Millable ore reserves (metric tons in thousands) | 830,000 | 809,000 | ||||||
| Probable: | ||||||||
| Leachable ore reserves (metric tons in thousands) | 89,000 | 31,000 | ||||||
| Millable ore reserves (tons in thousands) | 3,361,000 | 3,361,000 | ||||||
| Average copper grade of leachable ore reserves (%) | 0.25 | 0.23 | ||||||
| Average copper grade of millable ore reserves (%) | 0.36 | 0.35 | ||||||
| Production(3) | ||||||||
| Cathodes (in thousands of recoverable pounds) | 87,583 | 88,098 | ||||||
| Concentrates (in thousands of recoverable pounds) | 961,846 | 915,678 | ||||||
| Average realized price of copper sold (US$ per ton payable) | 6,422 | 6,360 | ||||||
| (1) | Derived from Cerro Verde’s financial |
| (2) | Reserve calculations are derived from |
| (3) | Derived from |
Cerro Verde Mining Royalties
Superintendencia Nacional de Administración Tributaria (“SUNAT”)On June 23, 2004, Law 28528 was approved, which requires the holder of a mineral concession to pay a royalty in return for the exploitation of metallic and non-metallic minerals. The royalty is calculated using rates ranging from 1% to 3% of the value of concentrate or its equivalent according to the international price of the commodity published by the MEM. As described in Note 13(a), prior to January 1, 2014, the Company determined that these royalties were not applicable because it operated under the 1998 Stability Agreement with the Peruvian nationalgovernment. However, beginning January 1, 2014, the Company began paying royalties calculated on operating income with rates between 1% to 12% and a new special mining tax authority, hasfor its entire production base under its current 15-year stability agreement, which became effective January 1, 2014. See Note 13(b) for a summary of amounts recognized by the Company for special mining tax and mining royalties for the years ended December 31, 2019 and 2018.
SUNAT assessed mining royalties on orematerials processed by the Cerro VerdeCompany’s concentrator, which commenced operations in late 2006. These assessments cover the period December 2006 to December 2007 and the years 2008 and 2009. In July 2013, the Peruvian Tax Tribunal, or the “Tax Tribunal,” issued two decisions affirming SUNAT's assessments for the period December 2006 through December 2008. Decisions by the Tax Tribunal end the administrative stage2013. The Company contested each of the appeal procedures for the assessments. In September 2013, Cerro Verde filed judiciary appeals related to thethese assessments because it continues to believebelieves that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concession, from royalties, irrespective of the method used for processing thosesuch minerals. No assessments can be issued for years after 2013, as the Company began paying royalties on all of its production in January 2014 under its new 15-year stability agreement
On October 29, 2019, the Company completed the payments of disputed assessments related to mining royalties for the period December 2006 to December 2008 that were under an installment program since 2014, Under that installment program, the Company made payments totaling S/711.1 million (US$221.9 million based on the date of payment exchange rate and US$214.4 million based on the December 31, 2019, exchange rate). With respect to the judiciary appeal related to the assessmentdisputed royalty assessments for the year 2008,2006-2007, on December 17, 2014,August 9, 2017, the EighteenthCompany filed a cassation appeal before the Supreme Court against the resolution issued by the Seventh Contentious Administrative Court, rendered itswhich was admitted in December 2017. The oral hearing before the Supreme Court took place on November 20, 2018 and their decision upholding Cerro Verde’s positionis pending.
In September 2018, the Peruvian Tax Tribunal confirmed SUNAT’s resolution that ordered the payment of royalties and nullifying SUNAT’s assessmentdenied the Company’s request to waive penalties and interest for the period January 2009 through September 2011. The Company elected not to appeal the Tax Tribunal’s resolution (S/.106.4 million). On December 31, 2014, SUNAT and the Tax Tribunal appealed this decision. The court’s position also invalidates all penalties and interest assessed by SUNAT for that period (S/. 139.7 million). On January 29, 2016 the Sixth Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court. Cerro Verde will appeal the decision to the Supreme Court.Peruvian Judiciary and is assessing alternative mechanisms to defend its rights.
OnIn October 1, 2013,2018, SUNAT served Cerro Verde with a demandnotified the Company demands for payment totaling S/.492 million (US$144 million based on exchange rates as of December 31, 2015, including interest and penalties of US$85 million)payments based on the Tax Tribunal’s decisions for the period January 2009 to September 2011. The Company requested, and was granted two installment payment programs, including a six-month deferral and 66 equal monthly payments for each one, for the period January 2009 through September 2011. Total debt as of December 2006 through31, 2019 is S/1.0 billion (approximately US$314.1 million based on the December 2008.31, 2019, exchange rate, including deferred interest, interest and penalties of US$202.8 million). As permitted by law, Cerro Verdeof December 31, 2019, the Company has made payments totaling S/315.1 million (US$94.7 million based on the date of payment exchange rate and US$95.0 million based on the December 31, 2019, exchange rate).
| 88 |
On January 18, 2018, the Company received assessments from SUNAT related to mining royalties for the fourth quarter of 2011, on February 15, 2018, the Company appealed these assessments and SUNAT issued resolutions denying this appeal. On November 21, 2018, the Company appealed SUNAT’s resolution to the Tax Court. On December 4, 2019, the Company received a resolution denying the appeal of assessments for the fourth quarter of 2011. On December 18, 2019, SUNAT notified the Company of its demands for payment and on December 26, 2019, the Company paid the total debt of S/57.6 million (US$17.3 million based on the date of payment exchange rate and US$17.4 million based on the December 31, 2019, exchange rate). Also, on January 18, 2018, the Company received assessments from SUNAT related to special mining tax from the fourth quarter of 2011 to the fourth quarter of 2012. The Company appealed these assessments and SUNAT issued resolutions denying this appeal. Consequently, the Company appealed these assessments to the Tax Court which was also denied the appeal in July 2019. The Company then requested, and was granted an installment payment program, that defers payment for six monthsincluding a six-month deferral and thereafter satisfies the amount via sixty-six66 equal monthly payments. Aspayments, for the fourth quarter of 2011 through the fourth quarter of 2012. Total debt as of December 31, 2015, Cerro Verde had made payments totaling2019, is S/. 219255.8 million (US$64(approximately US$77.1 million based on the December 31, 20152019, exchange rates) under therate, including deferred interest, interest and penalties of US$40.5 million). Payments for this installment program which are presentedwill start in the long-term portionfirst quarter of other non-financial assets in2020.
On April 18, 2018, the statementCompany received assessments from SUNAT related to mining royalties for the year 2012. On May 17, 2018, the Company appealed these assessments. On January 23, 2019, the Company received a resolution issued by SUNAT denying the appeal of financial position. See Note 7assessments for the year 2012. The Company decided not to the Cerro Verde Financial Statements for further discussion. Based on the results rendered by the Eighteenth Contentious Administrative Court, as described in the previous paragraph, Cerro Verdeappeal these resolutions. The Company requested, and was granted an injunction, which modifiedinstallment payment program, including a six-month deferral and 66 equal monthly payments, for the installment program by excludingyear 2012. Total debt as of December 31, 2019, is S/266.1 million (approximately US$80.2 million based on the 2008 portion through SUNAT’s resolution provided to Cerro VerdeDecember 31, 2019, exchange rate, including deferred interest, interest and penalties of US$45.7 million). The Company has made payments totaling S/65.7 million (US$19.5 million based on October 29, 2015.the date of payment exchange rate and US$19.8 million based on the December 31, 2019, exchange rate).
In July 2013, a hearing on SUNAT’s assessmentOn October 10, 2018, the Company received assessments from SUNAT related to mining royalties and special mining tax for 2009 was held, but no decision has beenthe year 2013. On November 7, 2018, the Company appealed these assessments. On May 28, 2019, the Company received resolutions issued by SUNAT denying the Tax Tribunalappeal of these assessments for that year.the year 2013. The Company decided not to appeal these resolutions. The Company requested, and was granted two installment payment programs, including a six-month deferral and 66 equal monthly payments for each one, for the year 2013. As of December 31, 20152019, the amount of the assessment,these assessments, including interest and penalties for the year 2009 was S/247 million (approximately US$72 million based on December 31, 2015 exchange rates). As of December 31, 2015, Cerro Verde estimates that the total exposure associated with mining royalties for the period fromyear 2013 is S/183.9 million (approximately US$55.4 million based on the December 2006 to December 2013,31, 2019, exchange rate including accumulated interest and penalties amounted to approximatelyof US$50029.5 million) and for the special mining tax for the year 2013 is S/151.0 million at(approximately US$45.5 million based on the December 31, 20152019, exchange rates.rate including interest and penalties of US$22.1 million). Payments for these installment programs will start in the first quarter of 2020.
AsIn December 2017, as a result of December 31, 2015, no amounts were accrued for these assessment or forthe unfavorable Supreme Court decision on the 2008 royalty matter, the Company requested the return of the amounts paid underthat would have been in excess for FONAVI (National Housing Fund) (December 2012 to December 2013), GEM (fourth quarter 2011 until the installmentfourth quarter 2012) and its external legal advisors believe Cerro Verde’s 1998 stability agreement exempted it from these royalties and believes that the resolution will be favorable to Cerro Verde and any payment should be recoverable.customs duties (2013).
The Company acted in good faith in applying the provisions of its 1998 Stability Agreement and continues to evaluate alternatives to defend its rights.
Critical Accounting Policies
Cerro Verde has furnished us with a discussion of its critical accounting policies and methods used in the preparation of its financial statements. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially impact results under different assumptions and conditions. Note 2 to the Cerro Verde Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the Cerro Verde Financial Statements. The following is a brief discussion of the identified critical accounting policies and the estimates and judgments made by Cerro Verde.
Estimates of Ore Reserves and ResourcesContingencies
Ore reserves are estimatesBy their nature, contingencies will only be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the ore quantity that can be economicallyexistence and legally extracted frompotential amount of contingencies inherently involves the mine properties. Cerro Verde estimates its ore reserves based on information compiled by individuals qualified in reference to geological data about the size, depthexercise of significant judgment and form of the ore body, which requires complex judgments to interpret the data.
The estimation of recoverable reserves is based on factors such as estimated exchange rates, commodity prices, future requirements of capital and production costs, together with geological hypotheses and judgments made when estimating the size and quality of ore. Revisions in reserve or resource estimates may have an impact on the value of mining properties, property, plant and equipment, provisions for cost of mine closure, recognition of assets for deferred taxes and depreciation and amortization of assets.
UOP Depreciation
Estimates of recoverable reserves are used in determining the depreciation and amortization of mine assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life of mine production. Each item’s life, which is assessed annually, takes into account its physical life limitations and the present assessments of economically recoverable reserves. These calculations require the use of estimates and assumptions, includingregarding the amountoutcome of recoverable reserves that may be recovered.future events.
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Stripping cost
Cerro Verde incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. During the production phase, stripping costs (production stripping costs) can be incurred both in relation to the production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to be mined in the future. The former are included as part of the costs of inventory, while the latter are capitalized as asset stripping activities, where certain criteria are met.
Inventories
Net realizable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing spot metals prices, less estimated costs to complete production and bring the inventory to sale. Additionally, in calculating the net realizable value of Cerro Verde’s long-term stockpiles, Cerro Verde’s management also considers the time value of money.
Mill and leach stockpiles generally contain lower grade ores that have been extracted from the ore body and are available for copper recovery. For millMill stockpiles contain sulfide ores and recovery of metal is through milling and concentrating. For leachLeach stockpiles contain oxide ores and certain secondary sulfide ores and recovery of metal is through exposure to acidic solutions that dissolve contained copper and deliver it in a solution form to extraction processing facilities.
Because it is generally impracticable to determine copper contained in mill and leach stockpiles by physical count, a reasonable estimation methods aremethod is employed. The quantity of material delivered to mill and leach stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blastholeblast hole cuttings determine the estimated copper grades of material delivered to mill and leach stockpiles.
Expected copper recovery rates for mill stockpiles are determined by metallurgical sampling.testing. The recoverable copper in mill stockpiles, once entered into the production process, can be produced into copper concentrate almost immediately.
Determination of mineral reserves
Mineral reserves are the parts of mineral deposit ore that can be economically and legally extracted from the mine concessions. Cerro Verde estimates its mineral reserves based on information compiled by individuals qualified in reference to geological data about the size, depth and form of the ore body, and requires geological judgments in order to interpret the data.
The estimation of recoverable reserves involves numerous uncertainties with respect to the ultimate geology of the ore body, including quantities, grades and recovery rates. Estimating the quantity and grade of mineral reserves requires Cerro Verde to determine the size, shape and depth of the ore body by analyzing geological data. In addition to the geology, assumptions are required to determine the economic feasibility of mining the reserves, including estimates of future commodity prices and demand, future requirements of capital and production costs and estimated exchange rates. Revisions in reserve or resource estimates have an impact on the value of mining properties, property, plant and equipment, provisions for cost of mine closure, recognition of assets for deferred taxes and depreciation and amortization of assets.
Units of production Depreciation
Estimated mineral reserves are used in determining the depreciation and/or amortization of mine-specific assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at least annually, is impacted by both its physical life limitations and present assessments of economically recoverable reserves of the mine property where the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves.
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Expected copper recovery rates for leach stockpiles are determined using small-scale laboratory tests, historical trends and other factors. Ultimatefactors, including mineralogy of the ore and rock type. Total copper recovery of copper contained in leach stockpiles can vary significantly depending on several variables, including the type of copper recovery, mineralogy and particlethe size of the rock. For newly placed material of active stockpiles, as much as 80% of total copper recovery may be extracted during the first year, and the remaining copper may be recovered over many years. Processes and recovery rates are monitored continuously, and recovery ratesrate estimates are adjusted periodically as additional information becomes available and as related technology changes.
Provision for remediation and Mine Closure Provision
Cerro Verde assesses its provision for remediation and mine closure provision annually.quarterly. It is necessary to make estimates and assumptions in determining this provision, including cost estimates of activities that are necessary for the rehabilitation of the site, technological and regulatory changes, and interest rates and inflation rates. As discussed in Note 2.2(i)2(j) to the Cerro Verde Financial Statements, estimated changes in the fair value of the provision for remediation and mine closure provision or the useful life of the related assets are recognized as an increase or decrease in the book value of the provision and related ARCasset retirement cost (“ARC”) in accordance with IAS 16, “Property, Plant and Equipment.”
According to Cerro Verde’s accounting policies, the provision for remediation and mine closure represents the present value of the costs that are expected to be incurred in the closure period of the operating activities of Cerro Verde. Closure budgets are reviewed regularly to take into account any significant change in the studies conducted. Nevertheless, the closure costs of mining units will depend on the market prices for the closure work required, which would reflect future economic conditions. Also, the timing of disbursements depends on the useful life of the mine, which is based on estimates of future commodity prices.
If any change in the estimate results in an increase to the provision for remediation and mine closure provision and related ARC, Cerro Verde willshall consider whether or not this is an indicator of impairment of the assets and will apply impairment tests in accordance with IAS 36, “Impairments of Assets.”
Impairment of Long-lived Assets
Cerro Verde has determined that its operation consistsoperations consist of one cash generating unit, which is the operation as a whole.unit. Therefore, the Cerro Verde operation isVerde’s operations are evaluated at least annually in order to determine if there are any impairment indicators. If any such indication exists, Cerro Verde makes an estimate of the recoverable amount, which is the greater of the fair value less costs to sell and the value in use. These assessments require the use of estimates and assumptions, such as long-term commodity prices, discount rates, operating costs and others.
Fair value is defined as the amount that would be obtained from the sale of the asset in an arm’s-length transaction between willing and knowledgeable parties. The fair value of assets is generally determined as the current value of future cash flows derived from the continuous use of the asset, which includes estimates, such as the cost of future expansion plans and eventual disposal, while applying assumptions that an independent market participant may take into account. The cash flows are discounted by applying a discount rate that reflects the current market, the time value of money and the risks specific to the asset. See Note 2.2(g) to the
Once Cerro Verde Financial Statementshas identified its production stripping costs for further discussion.
Contingencies
By their nature, contingencies will only be resolved when one or more uncertain future events occur or fail to occur. The assessmenteach surface mining operation, it identifies the separate components of the existence and potential quantumore bodies for each of contingencies inherently involvesits mining operations. An identifiable component is the exercisespecific volume of significant judgment and the use of estimates regarding the outcome of future events.
Stripping cost
In accordance with IFRIC 20, “Stripping Cost in the Production Phase of a Surface Mine,” stripping costs incurred in the production phase are capitalized as a component of property, plant and equipment if the stripping activity improves access to the ore body or enhances an existing asset. See Note 9that is made more accessible by the stripping activity. Significant judgment is required to identify and define these components, and also to determine the Cerro Verde Financial Statements for further discussion. The stripping activity asset is subsequently amortized using the UOP method.expected volumes (e.g., in tons) of waste to be stripped and ore to be mined in each of these components.
Results of Operations for the Years Ended December 31, 20152019 and 20142018
Net sales.Sales. Net sales,Sales, including and mark-to-market adjustments for pounds of copper pending settlement, decreased by 24%5%, from US$1,467.13,054.0 million in 20142018 to US$1,115,62,890.1 million in 2015,2019, principally due to lower sales volume and a decrease in the average realized copper prices during 2014 partially offset by higher volume of copper sold.price. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 20142018 and 2015:2019:
| Year ended December 31, | ||||||||||||
| 2018 | 2019 | Variation | ||||||||||
| Average price | ||||||||||||
| Copper (US$ per ton) | 6,422 | 6,360 | -1 | % | ||||||||
| Volume sold (unaudited) | ||||||||||||
| Copper (in tons) | 475,574 | 454,432 | -4 | % | ||||||||
| Year ended December 31, | ||||||||||||
| 2014 | 2015 | Variation | ||||||||||
| Average price | ||||||||||||
| Copper (US$ per ton) | $ | 6,452 | 4,518 | -30 | % | |||||||
| Volume sold | ||||||||||||
| Copper (in tons) | 227,402 | 246,913 | 9 | % | ||||||||
Average realized copper prices per ton decreased from US$6,4526,422 in 20142018 to US$4,5186,360 in 2015.2019. The volume of copper sold increaseddecreased from 227,402475,574 tons in 20142018 to 246,913454,432 tons in 2015, due to an increase in the volume of copper concentrates sold associated with Cerro Verde’s new concentrator plant that commenced operation in September 2015.2019. The combined effect of these changes resulted in a US$351.5164.0 million decrease in income from sales of copper in 20152019 compared to 2014.2018.
Total costs of sales of goods. Total costs of sales of goods increaseddecreased from US$797.52,011.0 million in 20142018 to US$862.01,954.7 million in 2015,2019, due mainly to the net effect of the following:
(a) Material and supplies consumption cost increased by 9%, from US$333.5 million in 2014 to US$364.2 million in 2015, mainly due to increased consumption of supplies for Cerro Verde’s new concentrator plant.
(b) Labor costs, including workers’ profit sharing, decreased by 15%, from US$171.6 million in 2014 to US$146.4 million in 2015, mainly due to lower profit sharing in 2015 as compared to 2014 as a result of lower profits;
(c) The variation of in process inventories increased from US$70.5 million in 2014 to US$118.3 million in 2015 as a result of higher material due to the new concentrator plant and the current mining plan of processing high grade concentrates first and then low grade concentrates;
(d) Depreciation and amortization costs increased by 48%, from US$165.0 million in 2014 to US$244.5 million in 2015, mainly due to depreciation associated with Cerro Verde’s new concentrator plant;
(e) Repair and maintenance services increased by 9%, from US$87.5 million in 2014 to US$95.1 million in 2015; and
(f) Energy costs increased by 29%, from US$91.8 million in 2014 to US$118.0 million in 2015, mainly due to Cerro Verde’s new concentrator plant.
Total operating expenses. Operating expenses increased by 43%, from US$57.8 million in 2014 to US$82.8 million in 2015, due mainly to changes in the following components:
(a) Selling expenses increased by 4%, from US$54.2 million in 2014 to US$56.2 million in 2015, mainly due to higher copper concentrate sales during 2015; and
(b) Other expenses increased by US$23.0 million in 2015 mainly due tocosts associated with commencing operations at Cerro Verde’s new concentrator plant.
Income tax. Income tax expense, including current and deferred expense, decreased by 81%, from an expense of US$238.5 million in 2014 to an expense of US$46.2 million in 2015. Net current income tax expense (including mining taxes) decreased by US$262.1 million due to lower taxable income and an increase in deferred tax expense by 69.8 million (mainly related to a temporary tax difference associated with the depreciation of fixed assets).
Net income. As a result of the foregoing, net income decreased by 9%, from US$377.6 million in 2014 to US$33.3 million in 2015. As a percentage of net sales, net income was 3% in 2015, compared with 26% in 2014.
Results of Operations for the Years Ended December 31, 2014 and 2013
Net sales. Net sales, including and mark-to-market adjustments for pounds of copper pending settlement, decreased by 19%, from US$1,811.5 million in 2013 to US$1,467.1 million in 2014, principally due to a decrease in average realized copper prices during 2014 and lower volume of copper sold. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 2013 and 2014:
| Year ended December 31, | ||||||||||||
| 2013 | 2014 | Variation | ||||||||||
| Average price | ||||||||||||
| Copper (US$ per ton) | $ | 7,137 | $ | 6,452 | -10 | % | ||||||
| Volume sold | ||||||||||||
| Copper (in tons) | 253,828 | 227,402 | -10 | % | ||||||||
Average realized copper prices per ton decreased from US$7,137 in 2013 to US$6,452 in 2014. The volume of copper sold decreased from 253,828 tons in 2013 to 227,402 tons in 2014, due to a decrease in the volume of copper concentrates sold. The combined effect of these changes resulted in a US$344.4 million decrease in income from sales of copper in 2014 compared to 2013.
Total costs of sales. Total costs of sales increased from US$795.1 million in 2013 to US$797.5 million in 2014, due mainly to the net effect of the following:
(a) Material and supplies consumption cost increased by 3%, from US$324.9 million in 2013 to US$333.5 million in 2014, mainly due to increased consumption of supplies in the mine area (associated with haulage and mining equipment);
(b) Labor costs, including workers’ profit sharing, decreased by 20%, from US$215.4357.7 million in 20132018 to US$171.6285.1 million in 2014,2019, mainly due to a chargeunion agreement bonus payment as part of US$35.2 million related to bonuses paid to employees in connection with the newly signed union workers’new collective labor agreement in 2013, and lower profit sharing2018.
(b) Energy costs decreased by 10%, from US$254.2 million in 2014 as compared2018 to 2013US$228.9 million in 2019 due to lower profits;power price (0.0639 vs 0.0717 $/kwh).
(c) The variation of in process inventoriesRepair and maintenance services increased by 14%, from US$57.9159.5 million in 20132018 to US$70.5181.2 million in 2014 as a result of the current mining plan of processing high grade concentrates first and then low grade concentrates;2019.
(d) Depreciation and amortization costs increased by 52%4%, from US$109.3512.3 million in 20132018 to US$166.6535.0 million in 2014, mainly due to amortization of deferred stripping assets by US$44.9 million;2019.
(e) Repair and maintenance services decreased by 5%, from US$91.9 million in 2013 to US$87.5 million in 2014; and
(f) Energy costs increased by 22%, from US$73.9 million in 2013 to US$90.2 million in 2014, mainly due to an increase in the unit cost per kilowatt during 2014 as compared to 2013.
Total operating expenses.Operating expenses decreased by 15%29%, from US$68.3205.7 million in 20132018 to US$57.8146.9 million in 2014,2019 due mainly to changes in the following components:following:
(a) Selling expenses decreased by 21%20%, from US$68.4137.0 million in 20132018 to US$54.2109.5 million in 2014,2019, mainly due mainly to a decrease in concentrate ocean freight, lower copper sales during 2014;land freight and port facilities as a result of lower concentrate sold.
(b) Other expenses increaseddecreased by 46%, from US$3.768.7 million in 20142018 to US$37.4 million in 2019, mainly due to disposal losseslower expenses associated with fixed assets.
disputed mining royalties.
Income tax.tax. Income tax expense, including current and deferred expense, decreased by 28%8%, from an expense of US$333.3325.2 million in 20132018 to an expense of US$238.5298.1 million in 2014. Net current income tax expense (including mining taxes) decreased by US$50.9 million2019 primarily due to lower taxable income and lower deferred tax expense by 43.9 million (mainly related to a temporary tax differenceprofit associated with the depreciation of fixed assets).disputed mining royalties in 2018.
Net income.Profit of the year. As a result of the foregoing, net income decreasedprofit of the year increased by 38%226%, from US$613.3119.7 million in 20132018 to US$377.6390.4 million in 2014.2019. As a percentage of net sales, net income was 26%14% in 2014,2019, compared with 34%to 4% in 2013.2018.
B. LiquidityResults of Operations for the Years Ended December 31, 2018 and Capital Resources2017
See “Item 5. Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2018 for a comparative discussion of Cerro Verde’s consolidated results of operations for the year ended December 31, 2018 and 2017.
| B. | Liquidity and Capital Resources |
As of December 31, 2015,2019, Cerro Verde had cash and cash equivalents of US$6.0481.5 million, compared to US$19.6501.2 million atas of December 31, 2014.2018.
Cash provided by operating activities for the years ended December 31, 20152019 and 2014.2018.Net cash and cash equivalents provided by operating activities were US$(194.4)820 million in 2015 and2019, compared to net cash provided by operating activities of US$186.6809 million in 2014. 2018.
This decreasechange in net cash flow provided by operating activities in 20152019 compared with 2014to 2018 was mainly attributable to the following factors:
| a decrease in |
| a decrease in |
Cash provided by operating activities for the years ended December 31, 2014 and 2013.Net cash and cash equivalents provided by operating activities were US$186.6 million in 2014 and US$768.3 million in 2013. This decrease in net cash flow provided by operating activities in 2014 compared with 2013 was mainly attributable to the following factors:
Cash used in investing activities for the years ended December 31, 20152019 and 2014.2018.Net cash used in investing activities increased from US$1,469.4457.4 million in 20142018 to US$1,784.7479.3 million in 2015,2019, mainly due to the return in 2014 of a time deposit in the amount of US$225 million at a local bank in order to endorse a guarantee letter as an injunction to SUNAT, and an increase in stripping asset activity of US$62.7 million in 2015.
Cash used in investing activities for the years ended December 31, 2014 and 2013. Net cash used in investing activities increased from US$1,340.5 million in 2013 to US$1,469.4 million in 2014, mainly due to an increase in purchases of property, plant and equipment (mainlyhigher payments related to the expansionpurchase of production at Cerro Verde from US$938 million in 2013 to US$1,663.7 million in 2014), which was partially offset by the cancellation in 2014 of a time deposit in the amount of US$225 million at a local bank in order to endorse a guarantee letter as an injunction to SUNAT in 2013.property, plants and equipment.
Cash used in financing activities for the years ended December 31, 20152019 and 20142018. Net cash and cash equivalents used in financing activities was US$1,965.5360 million in 2015, mainly associated with aggregate drawings of US$1,375 million from the US$1.8 billion available under a syndicated credit facility that Cerro Verde entered into in March 2014 and US$600 million borrowed under a shareholder loan. Net2019, compared to net cash used in financing activities wasof US$447.8450 million in 2014.
Cash used2018. The decrease in financing activities for the years ended December 31, 2014 and 2013. Netnet cash and cash equivalents used in financing activities was US$447.8 millionprimarily due to a decrease in 2014, mainly associated with aggregate drawings(i) the syndicated loan payments and (ii) dividend payment of US$425 million from the US$1.8 billion available under a syndicated credit facility that Cerro Verde entered into in March 2014. Net cash used in financing activities was US$0.8 million in 2013. 150 million.
Long-term Debt
As of December 31, 2015,2019, Cerro Verde had total long-term debt of US$1.8903 million mainly in connection with amounts drawn from a five year US$1.8 billionthe senior unsecured credit facility and financial lease contract liability.liabilities.
C. Research and Development
| C. | Research and Development |
Not applicable.
D. Trend Information
Expansion of operations
During 2010, Cerro Verde completed its concentrator plant expansion to increase the treatment of copper concentrate from 108,000 to 120,000 tons per day. During the second half of 2011, Cerro Verde completed the feasibility study for a major expansion of its concentrator and leaching facilities. The approximately US$4.6 billion project which are expected to expand the concentrator facilities from 120,000 tons per day of ore to 360,000 tons per day, targeting incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. Cerro Verde submitted the EIS to the Peruvian authorities for review and approval in December 2011 and received approval from the MEM in December 2012. In 2012, Cerro Verde continued with the execution of its unit of production expansion by undertaking detailed engineering studies and procuring long-lead items. As of December 31, 2015, the physical progress in the execution of the expansion project is 95.6% and Cerro Verde has invested a total of US$4.4 billion.
| D. | Trend Information |
Other than as disclosed in this Annual Report, Cerro Verde has informed us that it is not aware of any trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon Cerro Verde’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating results or financial condition.
E. Off-Balance Sheet Arrangements
| E. | Off-Balance Sheet Arrangements |
Cerro Verde has informed us that there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on Cerro Verde’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
F. Tabular Disclosure of Contractual Obligations
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| F. | Tabular Disclosure of Contractual Obligations |
The following table shows Cerro Verde’s contractual obligations as of December 31, 2015:2019:
| Payments due by Period (US$ in millions) | ||||||||||||||||
| Total | Less than 1 year | 1-5 years | More than 5 years | |||||||||||||
| Provision for Remediation and Mine Closure | 161 | 2 | - | 159 | ||||||||||||
| Other Current and Long-Term Contractual Obligations | 2,876 | 432 | 1,800 | 601 | ||||||||||||
| Total Contractual Cash Obligations | 3,037 | 434 | 1,800 | 760 | ||||||||||||
| Payments due by Period (US$ in millions) | ||||||||||||||||
| Total | Less than 1 year | 1-5 years | More than 5 years | |||||||||||||
| Trade and other payables | 224,920 | 224,920 | - | - | ||||||||||||
| Accounts payable – related parties | 14,088 | 4,014 | 10,074 | - | ||||||||||||
| Other financial liabilities | 911,675 | 8,855 | 825,877 | 76,94 | ||||||||||||
| Other accounts payable | 461,844 | 99,380 | 72,759 | 289,705 | ||||||||||||
| Total Contractual Cash Obligations | 1,612,527 | 337,169 | 908,710 | 366,648 | ||||||||||||
| ITEM 6. | Directors, Senior Management and Employees | ||
| A. | Board of Directors and Senior Management |
A. Board of Directors and Senior Management
Our Board of Directors is responsible for policy decisions and our overall direction and other corporate matters in accordance with our By-laws and the Peruvian Companies Law. Our executive officers oversee our business and are responsible for the execution of the policy decisions of the Board of Directors.Board. The Board, of Directors, which must be comprisedcomposed of seven members, is elected at the annual obligatory meetingAnnual Mandatory Meeting of shareholders or the(the “Annual Obligatory Meeting,”Mandatory Meeting”) for a three-year term.The lastmost recent Board election took place in March 2014,2017 and the next electionone is scheduled for March 2017.to take place in the next Annual Mandatory Meeting, which as of the date of this report is still to be rescheduled once the current emergency restrictions on public gatherings are lifted. See “Item 10. Additional Information—B. Memorandum and Articles of Association.”
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Our current directors and executive officers are as follows:
| Name | Age | Position | Date First Appointed | Current Term Ends | Age | Position | Date First Appointed | Current | ||||||||
| Directors | ||||||||||||||||
| Roque Benavides | 61 | Chairman of the Board | 1980 | March 2017 | 65 | Chairman of the Board | 1980 | March 2023 | ||||||||
| Jose Miguel Morales(1) | 70 | Director | 2012 | March 2017 | 74 | Director | 2012 | March 2023 | ||||||||
| Igor Gonzales | 61 | Director | 2014 | March 2017 | ||||||||||||
| Felipe Ortiz-de-Zevallos | 68 | Director | 2003 | March 2017 | 72 | Director | 2003 | March 2023 | ||||||||
| Carlos del Solar | 75 | Director | 2011 | March 2017 | ||||||||||||
| Germán Suárez | 74 | Director | 2005 | March 2017 | ||||||||||||
| William Champion(2) | 62 | Director | 2016 | March 2017 | ||||||||||||
| Marco Antonio Zaldívar | 59 | Director | 2020 | March 2023 | ||||||||||||
| William Champion | 66 | Director | 2016 | March 2023 | ||||||||||||
| Diego de la Torre | 57 | Director | 2017 | March 2023 | ||||||||||||
| Nicole Bernex | 70 | Director | 2018 | March 2023 | ||||||||||||
| Executive Officers | ||||||||||||||||
| Roque Benavides(1) | 61 | President and Chief Executive Officer | 2001 | |||||||||||||
| Carlos E. Gálvez | 62 | Vice President and Chief Financial Officer | 2001 | |||||||||||||
| Victor Gobitz | 55 | President and Chief Executive Officer | 2017 | |||||||||||||
| Leandro Garcia | 52 | Vice President and Chief Financial Officer | 2017 | |||||||||||||
| Raúl Benavides(1) | 60 | Vice President Business Development | 2014 | 64 | Vice President Business Development | 1997 | ||||||||||
| Alejandro Hermoza | 54 | Vice President Community Relations | 2008 | 58 | Vice President Community Relations | 2008 | ||||||||||
| Igor Gonzales | 64 | Vice President Operations | 2014 | |||||||||||||
| Juan Carlos Ortiz | 49 | Vice President Operations | 2018 | |||||||||||||
| Gulnara la Rosa | 51 | General Counsel | 2012 | 55 | General Counsel | 2012 | ||||||||||
| Leandro Garcia | 47 | General Comptroller and Compliance Officer | 2011 | |||||||||||||
| (1) | Roque Benavides is the brother of Raúl Benavides, and José Miguel Morales is the brother-in-law of Roque Benavides and Raúl Benavides. |
Set forth below is biographical information concerning members of our management.
Roque Benavides,, Chairman of the Board, President and Chief Executive Officer and member of the Nominating CommitteeCommittee.. Mr. Benavides has been a director since July 2004 and was our Chief Financial Officer from 1985 to February 2001, when he was appointed President and Chief Executive Officer. Before that time, he served as Assistant to our Chairman of the Board from 1980 to 1985 and as a Project Engineer from 1977 to 1979. Mr. Benavides also has been an alternate member of the Executive Committee of Yanacocha since 1992. In addition, he is an alternate board member of Cerro Verde and was the General Manager of Recuperada S.A., formerly one of our majority-owned subsidiaries that has since merged into us, from 1981 to 1996. He currently is serving as an executive officer and as a director of several of our related companies. He also has served as a director of theSociedad Nacional de Minería, Petróleo y Energía (National Association of Minerals, Petroleum and Energy) since 1988, serving as Chairman of the Board from 1993 to 1995. Mr. Benavides served as chairman of theConfederación Nacional de Instituciones Empresariales Privadas (National Confederation of Private Companies, or “CONFIEP”) from 1999 to March 2001. In 2001, Mr. Benavides was appointed Vice Chairman of the World Gold Council and Vice Chairman of the Silver Institute in 2007. Mr. Benavides received a B.S.his degree in Civil Engineering fromPontificia Universidad Católica del Perú (Pontifical the Pontifical Catholic University of Peru) in Lima, Peru (PUCP) in 1977 and an M.B.A.his Master of Business Administration from the Henley The Management CollegeBusiness School at the University of Brunnel UniversityReading in 1980, andthe U.K. in 1980. He completed the Program for Management Development Program at the Harvard Business School in 1985 and the Advanced Management ProgramProgramme at Templeton College of Oxford University in 1997. He is currently Chairman of the Board and a member of the board of directors of some of the Company’s related entities. He is also a member of the board of directors of Banco de Crédito del Perú and UNACEM, both Peruvian companies.
William Champion, Director.Mr. Champion has been a director since January 2016.UNACEM. He serves currently as a Principal with Gladiator Mining Group, LLC, a company formed to pursue global investment opportunities within the mining sector. Mr. Champion has worked for over 40 years in the mining industry, and he has extensive executive, management and operations experience across a wide range of mining commodities and global mining jurisdictions. From 2002 to 2014, Mr. Champion worked for Rio Tinto PLC in various senior executive management roles that included Managing Director of Rio Tinto Coal Australia, Managing Director of Rio Tinto Diamonds and President and CEO of Kennecott Utah Copper. Prior to that, Mr. Champion held the position of Executive Vice President for Cyprus Climax Metals from 1995 to 2000, with worldwide responsibilities for copper and molybdenum operations. Additionally, he worked for Phelps Dodge Mining Company in various capacities from 1984 to 1995 where, among other duties, he was previously President of Phelps Dodge Chile. Mr. Champion received Bachelorthe Peruvian Mining, Oil, and Energy Association (SNMPE) and the Peruvian Confederation of Science degrees in Chemical Engineering and Biological Sciences from the University of Arizona.Private Business Institutions (CONFIEP).
José Miguel Morales,,Director and member of the Nominating and Corporate Governance Committees. Mr. Morales was our Generalis an attorney at law who graduated from the Pontifical Catholic University of Peru (PUCP) in 1958 and completed the Sloan Program at Stanford University School of Business in 1976. He served as Chief Counsel to the Company from 1973 to 2012 and was appointedelected as a member of the Board in 2012. From 1992 to 1995, Mr. Morales served as an alternate member of the Executive Committee of Yanacocha. Mr. Morales has also served as a member of the Executive Committee of Yanacocha since 1995. Mr. Morales currently serves as a director of seven of our nineteen mining and mining-related subsidiaries or affiliates. In addition, he has served as a director of the Instituto Nacional de Derecho de Minería y Petróleo (National Institute of Mining and Petroleum Law), serving as its President from 1989 to 1990 and as a director of the Sociedad de Minería y Petróleo del Perú (Mining and Petroleum Society of Peru) since 1998, serving as its vice chairman –from 2000 to 2002 . He has been a director ofsenior partner at the following non-mining related companies: Hotel Costa del Pacífico S.A. from 1994 to present and El Pacífico—Peruana Suiza Compañía de Seguros from 1979 to 2015. Since 1973, he also has been a partner oflaw firm Estudio Aurelio García Sayán Abogados, a Lima law firm,since 2007 and has beenworked for the Senior Partnerfirm since 2007. In February 2003, Mr. Morales was elected president ofSociedad Nacional de Minería, Petróleo y Energía (National Association of Minerals, Petroleum and Energy). On January 31, 2005, Mr. Morales ended his tenure as President ofSociedad Nacional de Minería, Petróleo y Energía and served as President of CONFIEP from March 16, 2005 until 2007.1965. He promoted the incorporation of Empresarios por la Educación,is also a non-profit organization to improve education in Peru, serving as its President since 2007. Mr. Morales received his law degree from Pontificia Universidad Católica del Perú in 1968 and completed the Sloan Program at Stanford University’s Graduate School of Business in 1976.
Igor Gonzales, Director, Vice President Operations and member of the Nominating/Corporate Governance Committee.Mr. Gonzales is a Chemical Engineer from San Antonio Abad University, Cusco, Peru, with 35 yearsboard of experience. He is currently a Managing Partner at Magris Resources. He has been a director since February 27, 2014.directors of some of the Company’s related entities and various other businesses. He was Vice President and General Manager of Pierina Mine Peru, President of Barrick South America, Chief Operating Officer of Barrick Gold Corporation and worked for Southern Peru Copper Corporation Toquepala –Perú from 1980 to 1997. He has been a director of Hudbay Minerals Incorporated, Sierra Metals and Minera Corona. Mr. Gonzales received an M.S. in Extractive Metallurgy from New Mexicothe Institute of Mining and Technology – Socorro, N.M U.S.A. in 1983Oil Law, the Peruvian Mining, Oil, and completedEnergy Association, and CONFIEP. He is currently the Advance Management Programme at Henley Management College-England in 2007.President of the Entrepreneurs for Education Association.
Felipe Ortiz-de-Zevallos, Director and member of the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee. Mr. Ortiz-de-Zevallos has been a directormember of the Board since August 2003. He was Presidentthe Rector of theUniversidad del Pacífico de Limafrom 2004 to 2006 and2006. He is the founder of Grupo APOYO and chairmanhas been the president of the Board ofGrupo APOYOorganization since 1977. Mr. Ortiz-de-ZevallosHe received ahis degree in Industrial Engineering from Thethe National University of Engineering in 1968, received an M.S.(UNI) (and obtained his MSc in Administration and System AnalysisSystems from the University of Rochester in 1970 and completedRochester. He graduated from the Owner/President Management programOPM Program at Harvard Business School in 1996. He was thealso served as Peruvian ambassadorAmbassador to the United States of America from September 2006 to March 2009.
Carlos del SolarMarco Antonio Zaldivar,Director, member of the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee.. Mr. del Solar was appointedZaldívar, a director in March 2011. Hecertified Public Accountant, graduated with degrees in Geology and Geological Engineering from the National University of San Marcos, earnedUniversidad de Lima. He also graduated from PAD’s the Management Development Program at the Universidad de Piura and holds a Master of Science degreeBusiness Administration from Stanford University, California and completed the Advanced ExecutiveAdolfo Ibáñez School of Management, Program at the University of Piura. He started his professional career as an exploration geologist for Mobil Oil in Peru and Central America. Between 1977 and 1998 he worked for Occidental Petroleum in Peru as Exploration Vice President, California as Regional Exploration Manager for Latin America and the Caribbean. Then as Exploration Vice President in Malaysia, Regional Operations Manager for Latin America and later, President and General Manager of the Business Unit in Venezuela. Between 1998 and 2001, Mr. del Solar served as President and General Manager of ARCO for Brazil, Colombia, Peru, and Trinidad. In April 2001, he joined Hunt Oil in Peru as President and General Manager and participated in the development of the Camisea gas project and the LNG export project. From January 2005 through January 2007, he served as President of the National Society of Mining, Petroleum and Energy and as First Vice President of CONFIEP from March 2007 through March 2009. From March 2010 to March 2012 Mr. del Solar has served as Second Vice President of the Peruvian Exporters Committee (“COMEXPERU”).USA. He is currently a director and member of the Executive Committees of the National Society of Mining, Petroleum and Energy, and of COMEXPERU. Mr. del Solar also serves as President of the Advisory Council of the Graduate School of theUniversidad de Ciencias Aplicadas (“UPC”).
German Suárez, Director and Chairman of the Audit Committee and Compensation Committee. Mr. Suárez has been a director since March 2005. Mr. Suárez is an economist who was employed by the Central Bank from 1964 to 1990. From 1979 to 1980, he worked at the International Monetary Fund (the “IMF”), representing Peru, and from 1981 to 1990 he was in charge of different posts at the Ministry of Economy and Finance. Mr. Suárez served as Chairman ofBanco de la Nación from 1990 to 1992 and Chairman of the Central Bank of Peru from 1992 to 2001. He was a member of the board of directors at Bladex, Extebandesof various companies, including Backus & Johnston, Banco Santander and Arlabank,Cementos Pacasmayo. He was previously Chairman of the board of directors of the Lima Stock Exchange and the second Vice President of Confiep.
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Diego de la Torre, Director. Mr. de la Torre holds a bachelor’s degree in Business Administration from Universidad del Pacífico in Lima and his Master in Business Administration from the London Business School in England. He is a cofounder and Chairman of the Board of La Viga and Quikrete Perú. He is also a member of the Advisory Committee of the David Rockefeller Center for Latin American Reserves Fund, Credicorp Ltd.Studies at Harvard University, as well as an economics columnist for the newspaper El Comercio. He was previously a professor at the Universidad del Pacífico for twelve years and Banco de Crédito dela member of the board of directors of several companies and institutions, including Endeavor Perú, IPAE and Perú 2021. Since 2005, he has been the president of the United Nations Global Compact in Peru. In 2013, he received the “Empresario Integral” award given by the Latin American Business Council. Also, in 2015, he was selected among the “Top 100 Influential Leaders” by AACSB International. He has been a member of the Board of Directors since 2017.
Nicole Bernex, Director.Ms. Bernex received her PhD in Geography from the Paul Valéry University of Montpellier (France). From 1993 to 2001, Mr. SuárezShe has served as Governorprofessor of the IMFDepartment of Humanities of the Pontifical Catholic University of Peru (PUCP), academic director of the Research Center in Applied Geography (CIGA) of the PUCP, president of the Geographic Society of Lima and Alternate Governorpresident emeritus of the Peruvian Forum for Water (GWP Peru). Ms. Bernex is also a member of the National Academy of Sciences of Peru, the esteemed Water Program of the Inter-American Development. ForNetwork of Academies of Sciences (IANAS) and the period from 2000 to 2001, Mr. Suárez was elected ChairmanSteering Committee of 2030 WRG. She has been the director of several research projects and programs, including the “Scientific, legal and financial design of the G-24 (IMF-World Bank)Scientific Institute of Water – ICA” (CONCYTEC-IRD-PUCP) and the “Water, Climate and Development Program – PACyD” of Global Water Partnership South America. She has been published more than 160 times in many books, articles and other publications.
William Champion,Director.Mr. Champion earned his bachelor’s degree in Chemical Engineering and Biology from the University of Arizona, in Tucson, Arizona, United States. He has been a Member of the Board since January 2016 and also serves as a director of Gladiator Mining Group LLC, a private mining investment company based in the United States. With over 40 years of executive, management, and operating experience in the mining sector, Mr. Champion worked at Rio Tinto PLC from 2002 to 2014 in various positions, was managing director of Rio Tinto Coal Australia and Rio Tinto Diamonds, served as president and chief executive officer of Kennecott Utah Copper and worked at Phelps Dodge Mining Company from 1984 to 1995, where he held different positions, including president of Phelps Dodge de Chile.
Victor Gobitz, President and Chief Executive Officer. Mr. SuárezGobitz has been theGeneral Manager of Buenaventura since January 2017. He has also been a Director of Sociedad Minera El Brocal since 2017. He was previously the CEO of Compañía Minera Milpo from 2013 to 2016, as well as General Manager and Director of Río Alto Mining (now Tahoe Resources). He served as General Manager and Director of Castrovirreyna Compañía Minera, Operations Manager of Sociedad Minera El Brocal, and Assistant General Manager and Director of Volcan Compañía Minera. He is currently a Director of Gerens Escuela de Negocios and a professor at Pontifical Catholic University of Peru. He was the President of the Peruvian Institute of Mining Engineers (IIMP). He graduated from the NationalPontifical Catholic University of San Marcos with a B.S.Peru in Economics in 19651986 and received an M.A.his Master of Business Administration from the ESAN School of Business in Economics from Columbia1998. He has also studied at the Kellogg School of Management and the Wharton School at the University in 1969.of Pennsylvania.
Carlos E. GálvezLeandro Garcia, Vice President and Chief Financial Officer.Mr. Gálvez wasGarcia earned hisbachelor’s degree in business administration and a bachelor’s degree in accounting from Universidad del Pacífico and his Master of Business Administration from the Deputy Manager, FinanceUniversity of Miami in Florida. He completed the Management Development Program at Harvard Business School in 2017. He held the position of Treasury Head at Buenaventura from 1990 to 1997. He also worked as the finance manager at Sociedad Minera El Brocal until 2000. , as general manager of Boticas BTL until 2005, and Information Systems, from 1985 to February 2001, when he was appointed Vice President and Chief Financial Officer.general manager of Boticas Inkafarma until June 2011. He servedrejoined Buenaventura as Deputy Manager of our Treasury from 1980 to 1985, and as Treasurer from 1978 to 1980. Mr. GálvezController General in July 2011. He has also served as director of Colquirrumi, our subsidiary, and was appointed director and General Manager of Conenhua in 2000, Director and General Manager of Empresa de Generacion Huanza in 2007, director of Compañia Minera Condesa in 2010, director of El Brocal in 2002, director of Contacto S.A. in 2005 and other three related companies. He has served as an alternate member ofQuímica Suiza Retail, the Executive Committee of Yanacocha since 2005, Minera La Zanja since 2012 and an alternate board member of Cerro Verde since 2005. He was named President ofbusiness that manages the Sociedad Nacional de Minería, Petróleo y Energía del Perú (Mining, Petroleum and Energy Society of Peru) in 2015 and has served as director of the same since 2000. Before joining us,Mi Farma pharmacy chain, from January 2016 until January 2018. Mr. Gálvez served as Managerial Adjunct for Finance and Credit from 1971 to 1978 at Banco Minero del Perú (Mining Bank of Peru). HeGarcia has also served as Chief Executive Officer of Consorcio Energético de Huancavelica and a board memberdirector of Sociedad Minera El Brocal, Compañía Minera Condesa y Empresa de Generación Huanza.
Juan Carlos Ortiz,Vice President of Operations.Mr. Ortiz earned hisbachelor’s degree in mining engineering from the Pontificia Universidad Católica del Peru in 1992. He also holds a Master’s in Engineering, with a focus on Mineral Engineering Management, from Pennsylvania State University. Prior to assuming his new role at Buenaventura, Mr. Ortiz was the Technical Services Manager at Volcan Compañia Minera, a polymetallic mining company and one of the Comitélargest producers of zinc, lead and silver in the world, where he was responsible for the departments of Engineering, Projects, Planning and Environmental Matters as well as Volcan’s Alpamarca and Cerro de Operación Económica del Sistema Eléctrico Nacional (Committee of Economic OperationPasco operations. Prior to this post, he served Chief Operations Officer at Compañía Minera Milpo (now part of the National Electric System). Mr. Gálvez received his B.A. in Economics fromNexa Resources Group), where he was responsible for the Universidad Nacional Federico Villarreal in 1976, his M.B.A. from the Universidad del Pacifico de Lima in 1980Cerro Lindo, Atacocha and completed the Program for Management Development, in 1997, and the Advanced Management Program, in 2005, at The Harvard Business School.El Porvenir operations.
Raúl Benavides Ganoza,Vice President of Business Development.Mr. Benavides has been Vice President of Business Development since 1992. He is also a member of the Executive Committee of Yanacocha and board member of Cerro Verde and several of our related companies. From 1984 to 1996 he was General Manager (CEO) of Compañía de Minas Orcopampa. Before that time, Mr. Benavides was Manager of Operations from 1983 to 1984 and Mine Manager from 1980 to 1983 at Colquirrumi. Since 1995, he has been a professor of mining administration at Pontificia Universidad Católica del Perú. Mr. Benavides also has served as President of the Instituto de Ingenieros de Minas (Institute of Mining Engineering), was also the Founder and President of the Instituto de Seguridad Minera del Perú (Mining Safety Institute of Peru) from 1996 to 2000. Mr. Benavides received a B.S.Ganoza earned hisbachelor’s Degree in Mining Engineering from the University of Missouri-Rolla in 1980, an M.S. in Mineral Engineering-ManagementMissouri—Rolla, Master of Mining Administration from Pennsylvania State University, in 1984 and completed the Advanced Management Program at The Harvard Business School in 2001. Since 2014, Mr. Benavides(AMP-160). He has assumed the managementserved as President of the Explorations Department.IIMP, as well as being the Founder and President of the Mining Safety Institute (ISEM). He is currently the President of the vocational mining school CETEMIN. He has worked at Buenaventura since 1980, and is the Director of 11 related companies.
Alejandro Hermoza Maraví, Vice President Social and Environmental Affairs. A Mechanical Engineer graduated from the University of Maryland, Mr. Hermoza also holds an MSc in Engineering from the same University and an MBA from UPC. He worked as Development Manager for CONFIEP, and later joined us in 2003, where he began as Deputy Manager for Administration and Human Resources. In 2011, Mr. Hermoza completed the Advance Management Program at Harvard Business School.
Leandro GarciaAlejandro Hermoza Maraví, General Comptroller Vice President of Labor, Social and Compliance OfficerEnvironmental Affairs. Mr. Garcia received his Bachelor in Business Administration and Bachelor in Accounting from Universidad del Pacifico and his M.B.A.Maraví graduated from the University of Miami, Florida. Mr. GarciaMaryland with a bachelor’s degree in Mechanical Engineering and a Master in Engineering and from the Peruvian University of Applied Sciences (UPC) with a Master in Administration. He previously worked as the Development Manager of the Peruvian Confederation of Private Business Institutions (CONFIEP) and has worked at Buenaventura from 1990 to 1997,since 2003, where he served as Headhas held the position of Treasury. He performed as CFO inSociedad Minera El Brocal until 2000. He was also General Managercommunity relations manager from 2008 to 2011 and deputy manager of BTL Drugstores until 2005Administration and General Manager ofInkafarma Drugstores until June 2011. He rejoined Buenaventura as General Comptroller in July 2011.Human Resources from 2003 to 2008. In 2011, he completed the Advanced Management Program at Harvard Business School.
Gulnara La Rosa,General Counsel. Ms. La Rosa has worked at Buenaventura since 1990. She was the Legal Director from 2006 to June 2012 and was appointed as Legal Manager and General Counsel in July 2012. Ms. La Rosa served as Head of the Legal Department from 1997 to 2006 and as a lawyer from 1991 to 1997. Ms. La Rosa received her law degree fromPontificia Universidad Católica del Perúin 1992. She also completed the Corporate Law Specialization Program atUniversidad de Navarra, Spain, in 1991 and the High Specialization Program of Finance and Corporate Law at ESAN Graduate School of Business, Perú,Peru, in 2001. In addition, Ms. La Rosa attended the Management Program for Lawyers at Yale School of Management in 2005 and the Corporate Governance and Performance Program at Yale School of Management in 2012. Ms. La Rosa has worked at Buenaventura since 1990. She was the legal director from 2006 to 2012 and was appointed as legal manager and general counsel in July 2012. Ms. La Rosa served as the head of the Legal Department from 1997 to 2006 and as a staff attorney from 1991 to 1997.
B. Compensation
| B. | Compensation |
During the year ended December 31, 2015,2019, the aggregate amount of compensation that we paid to all directors and executive officers was approximately US$7.814.4 million, including director’s fees accrued in 20142018 and paid in 2015.2019. We do not disclose to our shareholders or otherwise make public information with respect to the compensation of our individual directors or executive officers. Please refer to Note 30 of30(d) to the Consolidated Financial Statements for further information.
C.
| C. | Board Practices |
Audit Committee
The Audit Committee, which is composed entirely of independent directors as defined in Section 303A.02 of the New York Stock Exchange’s Listed Company Manual, is responsible for assisting the Board of Directors in the appointment of independent auditors, upon delegation of such responsibility by the shareholders at the general meeting of shareholders or the(the “General Meeting,”Meeting”) and reviewing the scope of internal and external audits. The Audit Committee also reviews compliance with internal control systems, reviews our annual and quarterly consolidated financial statements, reviews consolidated financial statements before their presentation to theSuperintendencia del Mercado de Valores,, or the SMV“SMV” (formerly known as theComisión Nacional Supervisora de Empresas y Valores (National Supervisory Commission of Business and Securities) (“CONASEV”)), theBolsa de Valores de Lima (Lima Stock Exchange) and the SEC and maintains the integrity of the preparation of audits. The members of the Audit Committee are currently Messrs. Suárez, Ortiz-de-Zevallos and del Solar.de la Torre.
Compensation Committee
The Compensation Committeecompensation committee is responsible for evaluating executive performance and approving executive compensation, including compensation of the chief executive officer and any stock option compensation plans. The members of the Compensation Committee are currentlyfor 2019 were Messrs. del Solar, Ortiz-de-Zevallos, Suárez and Suárez.de la Torre.
Nominating Committee
The Nominating Committee is responsible for preparing the proposals for the general meetingsGeneral Meetings in respect of the composition of the Board of Directors along with the director remuneration to be approved by the shareholders. The members of the Nominating Committee are currentlyfor 2019 were Messrs. Benavides-Ganoza,Benavides, Morales and Ortiz-de-Zevallos.
Corporate Governance Committee
The Corporate Governance Committeecorporate governance committee is responsible for monitoring issues and practices related to corporate governance and proposing necessary actions in respect thereof. The members of the Corporate Governance Committee are currentlyfor 2019 were Messrs. Benavides-Ganoza,Benavides, Morales and Ortiz-de-Zevallos.
D.
| D. | Employees |
As of December 31, 20152019 we, including our subsidiaries and Coimolache, had 3,419 employees (including 45 employees from our mining trainee program).3,087 employees. In addition, we have entered into arrangements with independent contractors whichthat employed 11,6689,428 workers at our operations. We have sought to strengthen our workforce by implementing a qualifications-based hiring policy and, with respect to employees working in the mines, reducing the average age of the workforce. As of December 31, 2015,2019, the average tenure of Buenaventura’s permanent laborers was approximately 89 years.
Of the 2,6343,087 permanent employees employed by Buenaventura and its subsidiaries directly, approximately 39%49% are members of 1114 different labor unions (including fourfive unions for clerical workers sevenand nine unions for laborers), which representrepresenting all aforementioned clerical workers and laborers in collective bargaining negotiations with us.negotiations. There are also fiveseven unions for workers employed by independent contractors that were formed over the last sixseven years in our mines at Uchucchacua, Orcopampa La Zanja,and Julcani, and El Brocal.Brocal y Tantahuatay.
Each of the labor unions is a company-based union with an affiliation to a national union. Administrative personnel are not represented by unions. Labor relations for unionized and non-unionized employees in our production facilities, including compensation and benefits, are governed by collective bargaining agreements, the terms and length of which are negotiated throughout the year as the various collective bargaining agreements come up for renewal. These collective bargaining agreements are typically one year in length and set wages for the applicable period including increases as negotiated and certain other employee benefits such as overtime, bonuses and family benefits.
During 2015,In January 2019 we experienced a strike at one of our mines. Between May and June 2015, we had a strike21 day stoppage at the Uchucchacua mine called by the workers’ union for 29 dayscontractor companies. In June, we experienced a two day stoppage in Orcopampa relating to the affairs of Orcopampa’s community. In August, we experienced a 10 day stoppage in Orcopampa relating to the affairs of Chilcaymarca’s community. In September, we experienced a stoppage in Uchucchacua relating to affairs of Oyon’s community that lasted 2 days. Finally, in September, we experienced a 4 day stoppage at the Uchucchacua and Orcopampa Mines that was stagedcalled by workers’ and contractors’ unions claiming unsuitable working conditions. The Peruvian Ministry of Labor declared the Uchucchacua workers’ work stoppages illegal. In June of 2015, El Brocal experienced two days of work stoppage at its concentrator plant in Huaraucaca in connection with the negotiation of salaries and the collective bargaining agreement.Mining National Workers Federation.
Compensation received by our employees includes salary, other cash payments (such as overtime, vacation pay and bonuses, including, but not limited to, high altitude and underground mining bonuses) and non-cash benefits. Non-cash benefits include medical insurance, life insurance and training programs for workers and administrative staff. For mine and processing plant workers, benefits also include transportation services, meals or food allowances, education for children of our employees and housing, hospitals and a full range of social services for our permanent employees and their families at town sites near our mines in compliance with mining regulations. We voluntarily provide power, water and sewage services for the camp and houses of the workers as well as for certain towns nearby. In addition, pursuant to a profit-sharing plan mandated by Peruvian labor legislation, employees of mining companies in Peru are entitled to receive the Employee Profit Sharing Amountemployee profit sharing amount equivalent to 8% of the annual pre-tax profits of their employer, 50% of such profits to be distributed based on the number of days each employee worked during the preceding year and the remaining 50% of such profits to be distributed based on the aggregate annual salary of each employee. Effective January 1, 1997, the annual payment to each employee under the profit sharing plan cannot exceed 18 times such employee’s monthly salary, and any difference between the Employee Profit Sharing Amountemployee profit sharing amount and the aggregate amount paid to employees must be contributed by us to FONDOEMPLEO, a fund established to promote employment and employee training.
Under Peruvian law, we may dismiss workers for cause by following certain formal procedures. We may dismiss a worker without cause, provided that we pay such worker a layoff indemnification in an amount equal to one and a half month’s salary for each full year worked plus the pro rata portion for any uncompleted year, not to exceed in the aggregate 12 months’ salary.salary, and subject to the worker’s acceptance. Several decisions adopted by the Peruvian Constitutional Court, holding that an employee is entitled for reinstatement if no cause for dismissal is expressed by the employer or for failure to present evidence supporting the employer’s grounds, have limited our ability to dismiss a worker without cause. However, all employees are entitled to a severance payment upon termination of their employment, regardless of the reason for such termination, equal to approximately one month’s salary for each full year worked plus the pro rata portion for any uncompleted year. Pursuant to the Peruvian labor laws enacted in 1992,1991, we deposit funds for severance payments in a special bank account selected by each employee and for the benefit of such employee, in both May and November of each year.year (approximately 50% of a monthly salary each time).
Our permanent employees receive the benefit of one of two types of pension arrangements. All workers can choose to enroll in the a public pension fund managed by the state (the “ONP” system) or in a private pension fundsfund (the “AFP” system). We are required to withhold from each of the salaries of the employees enrolled in the ONP system 13% of such employee’s salary, and pay such amount to the ONP system and withhold from the salary of each employee enrolled in the AFP system approximately 12.5% of such employee’s salary, and pay such amounts to the respective AFP (exact amount varies from one AFP to another). Additionally, for workers involved in mining and metallurgical processes, an additional 2% is withheld from their salaries, and we contribute an additional 2 percent2% to increase their pension funds. We have no liability for the performance of these pension plans. In addition, ourOur independent contractors are responsible for covering severance and pension payments with respect to their employees.
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In addition, we pay ESSALUDEsSalud, the Social Health Insurance Institute of Peru, 9% of our total payroll for general health services for all permanent employees. Further, Law No. 26790 also requires us to provide private insurance representing an average payment equal to 1.30 percent1.30% of the payroll of covered employees for employment-related incapacity and death for blue collar employees and other employees exposed to mining-related hazards.
E. Share Ownership
| E. | Share Ownership |
As of March 31, 2016,2020, our directors and executive officers, as a group, owned 41,588,44841,874,206 Common Shares, representing 16.36%16.50% of all the 254,186,867253,986,867 Common and Investment Shares outstanding. Our directors and executive officers do not own any Investment Shares.
The share ownership of the Company’s directors and executive officers on an individual basis as of March 31, 20162020 is set forth below:
| Shareholder | Number of Common Shares | Percentage Beneficial Ownership of Common Shares | Number of Investment Shares | Percentage Beneficial Ownership of Investment Shares | Number of Common Shares and Investment Shares | Percentage Beneficial Ownership of Common Shares and Investment Shares | ||||||||||||||||||
| Roque Benavides † | 13,912,006 | 5.48 | 13,912,006 | 5.47 | ||||||||||||||||||||
| William Champion | — | — | — | — | — | — | ||||||||||||||||||
| José Miguel Morales † | 13,813,836 | 5.44 | 13,813,836 | 5.43 | ||||||||||||||||||||
| Igor Gonzalez | — | — | — | — | — | — | ||||||||||||||||||
| Felipe Ortiz-de-Zevallos | — | — | — | — | — | — | ||||||||||||||||||
| Carlos del Solar | — | — | — | — | — | — | ||||||||||||||||||
| Germán Suárez | — | — | — | — | — | — | ||||||||||||||||||
| Raúl Benavides † | 13,813,836 | 5.44 | — | 13,813,836 | 5.43 | |||||||||||||||||||
| Carlos E. Gálvez. | 48,770 | 0.02 | — | — | 48,770 | 0.02 | ||||||||||||||||||
| Alejandro Hermoza | — | — | — | — | — | — | ||||||||||||||||||
| Gulnara la Rosa | — | — | — | — | — | — | ||||||||||||||||||
| Leandro Garcia | — | — | — | — | — | — | ||||||||||||||||||
| Directors and Executive Officers as a Group † | 41,588,448 | 16.39 | 41,588,448 | 16.36 | ||||||||||||||||||||
| Shareholder | Number of Common Shares | Percentage Beneficial Ownership of Common Shares | Number of Investment Shares | Percentage Beneficial Ownership of Investment Shares | Number of Common Shares and Investment Shares | Percentage Beneficial Ownership of Common Shares and Investment Shares | ||||||||||||||||||
| Roque Benavides † | 13,912,006 | 5.48 | 13,912,006 | 5.48 | ||||||||||||||||||||
| William Champion | — | — | — | — | — | — | ||||||||||||||||||
| José Miguel Morales † | 14,133,836 | 5.57 | 14,133,836 | 5.57 | ||||||||||||||||||||
| Nicole Bernex | — | — | — | — | — | — | ||||||||||||||||||
| Felipe Ortiz-de-Zevallos | — | — | — | — | — | — | ||||||||||||||||||
| Germán Suárez | — | — | — | — | — | — | ||||||||||||||||||
| Raúl Benavides † | 13,813,836 | 5.44 | — | — | 13,813,836 | 5.44 | ||||||||||||||||||
| Diego de la Torre | 14,528 | 0.01 | — | — | 14,528 | 0.01 | ||||||||||||||||||
| Juan Carlos Ortiz | — | — | — | — | — | — | ||||||||||||||||||
| Alejandro Hermoza | — | — | — | — | — | — | ||||||||||||||||||
| Gulnara la Rosa | — | — | — | — | — | — | ||||||||||||||||||
| Leandro Garcia | — | — | — | — | — | — | ||||||||||||||||||
| Victor Gobitz | — | — | — | — | — | |||||||||||||||||||
| Directors and Executive Officers as a Group † | 41,874,206 | 16.50 | — | — | 41,874,206 | 16.50 | ||||||||||||||||||
† Includes Common Shares owned by the applicable director or officer and his or her spouse.
| ITEM 7. | Major Shareholders and Related Party Transactions |
| A. | Major Shareholders |
A. Major Shareholders
As of March 31, 2016,2020 we had 274,889,924 Common Shares outstanding, including 21,144,734of which 21,174,734 were treasury shares, and 744,640 Investment Shares, including 272,963of which 472,963 were treasury shares. The Common Shares are voting securities. The table below sets forth certain information concerning ownership of (i) the Common Shares and Investment Shares and (ii) the aggregate Common Shares and Investment Shares, as of March 31, 2016,2020, with respect to each shareholder known to us to own more than 2.5 percent2.5% of the outstanding Common Shares and with respect to all directors and executive officers as a group.
| Shareholder | Number of Common Shares | Percentage Beneficial Ownership of Common Shares (1)(2) | Number of Investment Shares | Percentage Beneficial Ownership of Investment Shares (1)(3) | Number of Common Shares and Investment Shares | Percentage Beneficial Ownership of Common Shares and Investment Shares (1)(4) | ||||||||||||||||||
| Benavides Family(5) | 69,187,744 | 27.27 | — | — | 69,187,744 | 27.2 | ||||||||||||||||||
| Market Vectors ETF Trust Gold Miners ETF | 16,866,914 | 6.1 | — | — | 16,866,914 | 6.1 | ||||||||||||||||||
| Templeton Asset Management Ltd. Hong Kong | 8,542,95 | 3.1 | — | — | 8,542,957 | 3.1 | ||||||||||||||||||
| BlackRock Investment Management (UK) Ltd. | 7,933,466 | 2.9 | — | — | 7,933,466 | 2.9 | ||||||||||||||||||
| 99 |
| Shareholder | Number of Common Shares | Percentage | Number of Investment Shares | Percentage | Number of Common Shares and Investment Shares | Percentage | ||||||||||||||||||
| Van Eck Associates Corp | 28,197,615 | 11.11 | — | — | 28,197,615 | 11.11 | ||||||||||||||||||
| Fidelity Management & Research Company | 17,733,601 | 6.99 | — | — | 17,733,601 | 6.99 | ||||||||||||||||||
| Blanca Benavides de Morales (5) | 14,133,836 | 5.57 | — | — | 14,133,836 | 5.57 | ||||||||||||||||||
| Roque Benavides Ganoza | 13,912,006 | 5.48 | — | — | 13,912,006 | 5.48 | ||||||||||||||||||
| Raul Benavides Ganoza | 13,813,836 | 5.44 | — | — | 13,813,836 | 5.44 | ||||||||||||||||||
| Blackrock Fund Advisors | 8,790,373 | 3.46 | — | — | 8,790,373 | 3.46 | ||||||||||||||||||
| Azvalor Asset Management SGIIC SA | 8,192,986 | 3.23 | — | — | 8,192,986 | 3.23 | ||||||||||||||||||
| The Vanguard Group, INC. | 7,841,715 | 3.09 | — | — | 7,841,715 | 3.09 | ||||||||||||||||||
| Morgan Stanley Investment Management INC. | 7,620,882 | 3.00 | — | — | 7,620,882 | 3.00 | ||||||||||||||||||
| State Street Global Advisors (SSGA) | 6,926,923 | 2.73 | — | — | 6,926,923 | 2.73 | ||||||||||||||||||
| T. Rowe Price Associates, INC | 6,822,710 | 2.69 | — | — | 6,822,710 | 2.69 | ||||||||||||||||||
| (1) | The table above excludes treasury shares. As of March 31, |
| (2) | Percentage calculated on the basis of 253,715,190 Common Shares outstanding, which excludes 21,174,734 treasury shares. |
| (3) | Percentage calculated on the basis of |
| (4) | Percentage calculated on the basis of |
| (5) |
As of March 31, 2016,2020, we estimate that 185,756,736 ADSs212,570,181 Common Shares were held in the United States,U.S., which represented approximately 73.21%83.78% of Common Shares outstanding. The number of institutional record holders of our Common Shares (or of ADSs representing our Common Shares) in the United StatesU.S. was 6954 institutions.
B. Related Party Transactions
| B. | Related Party Transactions |
Except as otherwise disclosed herein, no director, senior officer, principal shareholder or any associate or affiliate thereof had any material interest, direct or indirect, in any transaction since the beginning of our last financial year that has materially affected us, or in any proposed transaction that would materially affect us. Except as otherwise disclosed herein, we have entered into no transactions with parties that are not “related parties” but who would otherwise be able to negotiate terms not available on an arm’s-length basis. From time to time in the ordinary course of business, we enter into management, exploration, mine construction, engineering and employment contracts with joint venture companies in which one or more of our direct or indirect subsidiaries holds equity or partnership interests.
| 100 |
The compensation of our key executives (including the related income taxes we assumed in connection therewith) totaled US$2.8 10.5 million in 20142017, US$15.5 million in 2018 and US$4.814.4 million in 2015.2019. Please refer to Note 30(d) to the Consolidated Financial Statements for further information.
Chaupiloma is the legal owner of the mineral rights operated by Yanacocha and receives a 3% royalty based on quarterly sales, after deducting refinery and transportation costs. Royalties amounted to US$44.220.7 million, US$36.920.4 million and US$32.422.3 million in 2013, 20142017, 2018 and 2015,2019, respectively, and are presented as royalty income in our consolidated statements of income.
Condesa did not receive a cash dividenddividends from its investment in Yanacocha in 2013, 20142017, 2018 or 2015.2019.
We did not receive a cash dividenddividends from Cerro Verde in 2013, 2014 or 2015.2017. However, in 2018 and 2019 we received cash dividends in an amount of US$39.2 million and US$29.4 million, respectively.
We received cash dividends from Coimolache of approximately US$9.8 million in 2013,2017, US$12.97.6 million in 20142018 and US$6.74.0 million in 2015.2019.
In March 2002, BISA signed a technical service agreementDuring 2017, we received an advanced payment of US$124.8 million for the long-term loan held with Yanacocha to perform a number of specialized activities and services. Pursuant to the agreement, the services performed relate to the construction of mining projects and include completion of analysis and studies, work plan design, and functions related to planning, monitoring and administrating the infrastructure projects required by Yanacocha in its operations.Sociedad Minera Cerro Verde S.A. from 2015.
In November 2000, Conenhua signed an agreement with Yanacocha for the construction and operation of a 220 kW transmission line between Trujillo and Cajamarca, a 60 kW transmission line between Cajamarca and La Pajuela, and the Cajamarca Norte substation; this agreement also encompassed activities necessary to enlarge the Trujillo substation. PursuantIn June 2006, an addendum to this contract extended the construction work was completed in October 2001.completion date to June 2007. Concurrently, we and Yanacocha signed a 10-year agreement covering electric energy transmission and infrastructure operation beginning in November 2001.2007. In exchange for us operating and managing the transmission project, Yanacocha pays a fee of US3.7US$3.7 million with annual maturities. The annual revenues for these services amounted to approximately US$0.9 million in each of 2013, 20142016, US$0.4 million in 2017 and 2015.2018 and US$ 0.3 million in 2019.
C. Interests of Experts and Counsel
| C. | Interests of Experts and Counsel |
Not applicable.
| ITEM 8. | Financial Information | |
| A. | Consolidated Statements and Other Financial Information | |
A. Consolidated Statements and Other Financial Information
Consolidated Financial Statements
See “Item 19. Exhibits” for a list of consolidated financial statements filed under Item 18.
Other Financial Information
Export Sales
See “Item 4. Information on the Company—Buenaventura—B. Business Overview—Sales of Metal Concentrates—Sales and Markets” for information on export sales.
Legal Proceedings
Other than the legal proceedings relating to Yanacocha described in “Item 4. Information on the Company—Yanacocha—B. Business Overview — Overview—Legal Proceedings,” we and Yanacocha are each parties to certain other legal proceedings arising in the normal course of business, none of which, individually or in the aggregate, is material.
Dividends and Dividend Policy
We can distribute three kinds of dividends: (i) cash dividends, which are paid out of our net distributable income for each year, (ii) stock dividends that are akin to stock splits rather than distributions of earnings, which are issued for the purpose of adjusting the book value per share of our stock and (iii) stock dividends for the purpose of capitalizing profits, in each case as described in more detail below. All shares outstanding and fully paid are entitled to share equally in any dividend declared based on the portion of our capital represented by such share. Shares of capital stock which are only partially paid participate in a dividend or distribution in the same proportion that such shares have been paid at the time of the dividend or distribution. No cash dividend may be declared in respect of a given year unless we have earned net distributable income in respect of such year. However, we may declare dividends during the year. We may make interim provisional payments to shareholders in respect of net distributable income for the current fiscal year, which are referred to as “provisional dividends,” as explained below.
The Board, of Directors, following the end of each fiscal year, makes a recommendation at the annual obligatory shareholders’ meetingAnnual Mandatory Meeting regarding the amount and timing of payments, if any, to be made as dividends on our Common Shares and Investment Shares. The Shareholders Meeting can delegate to the Board the approval to pay interim dividends.
The dividend policy establishes that Buenaventura will distribute an annual cash dividend of at least 20% of net income generated by majority-owned operations and subsidiaries. In the case of Buenaventura’s Associates (Coimolache, Cerro Verde and Yanacocha), 20% of attributable to Buenaventura’s net income will be included if they distribute cash dividends to Buenaventura. In principle there are two kinds of dividend payments: interim dividends, which are approved by the Board and are generally paid during the fourth quarter of the year, and the final dividend payment, which will be paid in accordance with the general shareholders’ meeting resolutions. However, the amount and timing of such payments is subject to the final approval at such annual obligatory shareholders’ meetingAnnual Mandatory Meeting and Board meeting, as well as to the availability of earnings to distribute. According to the Peruvian Companies Law, holders of at least 20% of the total Common Shares outstanding can request a dividend of 50% or less of the previous year’s after-tax profits, net of amounts allocated to the legal reserve.
Available earnings are subject to the following priorities. First, the mandatory employee profit sharing of 8% of pre-tax profits (which may differ from pre-tax profits determined under IFRS due to different depreciation treatment and different adjustments of non-taxable income and/or non-deductible expenses) is paid.
Next, remaining earnings are taxed at the standard corporate income tax rate, which has been 30 percent since January 1, 2004. Such rate has been reduced to 28% for 2015 and 2016, to 27% for 2017 and 2018 and to 26% for 2019 and thereafter.is 29.50%. Not less than 10 percent10% of such after-tax net profits must then be allocated to a legal reserve, which is not available thereafter except to cover future losses or for use in future capitalizations.capitalizations, in which case it must be replenished again. Amounts reserved are nevertheless included in taxable income. The obligation to fund this reserve continues until the reserve constitutes 20% of the paid-in share capital. In addition, the holders of Common Shares can agree to allocate any portion of the net profits to any special reserve. The remainder of the net profits is available for distribution to shareholders. Any dividend approved by a shareholders’ meeting after December 31, 2002 has been
Dividends are subject until 2014 to an additional withholding tax at the rate of 4.1% of the total amount of dividends distributed tofor shareholders whothat are either (i) individuals, whether domiciled or non-domiciled in Peru, or (ii) non-domiciled companies or entities. For dividends paid out fromof our accumulated net profits, the withholding tax rate is 5% when the dividend originated from profits earned on or after December 31, 2014,January 1, 2017. If any tax or other governmental charge will become payable by Scotiabank Peru, as custodian, the Depositary or us with respect to any ADR or any deposited securities represented by the ADSs evidenced by such withholding rate has been increasedADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to 6.8% for 2015 and 2016, to 8.0% for 2017 and 2018 and to 9.3% for 2019 and thereafter. the Depositary.
Dividends paid to domiciled companies or entities are not subject to such withholding tax. If any tax or other governmental charge will become payable by Scotiabank Peru, as custodian, the Depositary or us with respect to any ADR or any deposited securities represented by the ADSs evidenced by such ADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to the Depositary.
Dividends on issued and outstanding Common Shares and Investment Shares are distributed in accordance with the proportion of the total capital represented by such respective shares. Dividends are distributed pro rata in accordance with the number of Common Shares or Investment Shares. Accordingly, any dividend declared would be apportioned 99.73% to the holders of Common Shares and 0.27% to the holders of Investment Shares. This proportion will not change in the future except and to the extent holders of Common Shares and Investment Shares exercise their preemptive rights disproportionately in any future issuance of Common Shares and Investment Shares, or we issue Common Shares without preemptive rights in accordance with Article 259 of the Peruvian Companies Law.
Holders of Common Shares and Investment Shares are not entitled to interest on dividend payments.
Holders of ADRs are entitled to receive dividends with respect to the Common Shares underlying the ADSs evidenced by such ADRs, subject to the terms of the related Amended and Restated Deposit Agreement, to the same extent as owners of Common Shares.
To the extent that we declare and pay dividends on the Common Shares, owners of the ADSs on the relevant record date are entitled to receive the dividends payable in respect of the Common Shares underlying the ADSs, subject to the terms of the Amended and Restated Deposit Agreement. Cash dividends are paid to the Depositary in Soles and, except as otherwise described under the Amended and Restated Deposit Agreement, are converted by the Depositary into U.S. Dollars and paid to owners of ADRs net of currency conversion expenses. Under the Amended and Restated Deposit Agreement, the Depositary may, and will if we so request, distribute stock dividends in the form of additional ADRs evidencing whole ADSs resulting from a dividend or free distribution of Common Shares by us received by the Depositary. Cash dividends paid with respect to the Common Shares and amountsAmounts distributed with respect to ADSs have beenwere subject until 2014 to a Peruvian withholding income tax of 4.1 percent. Such6.8% for profits earned during 2016, which was the withholding tax rate has been increasedapplicable to distributions in respect of Common Shares during 2016. The withholding tax rate decreased to 5% for dividends paid out fromof our accumulated net profits after December 31, 2014 to 6.8% for 2015 and 2016, to 8.0% for 2017 and 2018 and to 9.3% for 2019 and thereafter.2016. See “Item 10. Additional Information – Information—E. Taxation – Taxation—Peruvian Tax Considerations.”
We issue stock dividends for value per share of our stock. The book value of our share capital is based on the nominal (par) value of each share but is adjusted to account for inflation; thus, in inflationary periods, our book value will increase while the nominal value will remain constant. To adjust the book value of each share to equal or approximate the nominal value, we periodically issue new shares that are distributed as stock dividends to each existing shareholder in proportion to such shareholder’s existing holdings, unless it increases the nominal value of the existing shares. These stock dividends (which under the Peruvian income tax law are not considered dividends) do not change a stockholder’s percentage of interest in us. In addition, we may from time to time capitalize profits and, in such case, we have to distribute stock dividends representing the profits capitalized.
Dividends not collected within ten10 years will be retained by us, increasing our legal reserve, and the right to collect such dividends will expire.
Under Peruvian law, each company may make formal cash distributions only out of net distributable income (calculated on an individual, unconsolidated basis and demonstrated by a statement of financial position at any given time). We, however, may pay provisional dividends. Payment of provisional dividends will be approved on the basis of consolidated financial statements which show the existence of net distributable income obtained during the current fiscal year. If, following such an interim provisional payment, we suffer a loss or if we finish the fiscal year with a net income that is lower than the amount of provisional dividends paid during such fiscal year, we could legally require all shareholders (including holders of ADRs) to return such payment to us with interest. However, it has been and continues to be our policy not to require shareholders to return such payment of provisional dividends, but rather to cover such contingency through a “dividends paid in advance” account to be offset by future net distributable income.
The following table sets forth the amounts of interim and final cash dividends and the aggregate of cash dividends paid with respect to the years 20122016 to 2015.2019. Dividends with respect to the years 20122016 to 20152019 were paid per Common Share and ADS.
| Year ended December 31,(1) | Per Common Share | Per ADSs | Per Investment Share | |||||||||||||||||||||||||||||||||
| Interim | Final | Total | Interim | Final | Total | Interim | Final | Total | ||||||||||||||||||||||||||||
| 2012 | 0.200 | 0.300 | 0.500 | 0.200 | 0.300 | 0.500 | 0.200 | 0.300 | 0.500 | |||||||||||||||||||||||||||
| 2013 | 0.010 | 0.011 | 0.021 | 0.010 | 0.011 | 0.021 | 0.010 | 0.011 | 0.021 | |||||||||||||||||||||||||||
| 2014 | 0.023 | 0.000 | 0.023 | 0.023 | 0.000 | 0.023 | 0.023 | 0.000 | 0.023 | |||||||||||||||||||||||||||
| 2015 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | |||||||||||||||||||||||||||
Year ended December 31,(1) | Per Common Share | Per ADSs | Per Investment Share | |||||||||||||||||||||||||||||||||
| Interim | Final | Total | Interim | Final | Total | Interim | Final | Total | ||||||||||||||||||||||||||||
| 2016 | 0.030 | 0.057 | 0.087 | 0.030 | 0.057 | 0.087 | 0.030 | 0.057 | 0.087 | |||||||||||||||||||||||||||
| 2017 | 0.030 | 0.030 | 0.060 | 0.030 | 0.030 | 0.060 | 0.030 | 0.30 | 0.60 | |||||||||||||||||||||||||||
| 2018 | 0.060 | 0.060 | 0.120 | 0.060 | 0.060 | 0.120 | 0.060 | 0.060 | 0.012 | |||||||||||||||||||||||||||
| 2019 | 0.027 | 0.027 | 0.054 | 0.027 | 0.027 | 0.054 | 0.027 | 0.027 | 0.054 | |||||||||||||||||||||||||||
| (1) | Interim and final dividend amounts are expressed in U.S. Dollars. |
Non-controlling Shareholders
Law No. 28370, published on October 30, 2004, included in the Peruvian Companies Law certain provisions for the protection of non-controlling shareholders of public companies that aresociedades anónimas abiertas such as us and that were formerly contained in Law No. 26985, which had beenwas abrogated. Legislative Decree No. 1061, effective since June 29, 2008, Law No. 29782, effective since July 29, 2011, and most recently Law No. 30050, effective since June 27, 2013, have abrogated or amended certain of these provisions. Pursuant to Article 262-A of the Peruvian Companies Law, we will furnish on our website and on the SMV’s website, upon the earlier to occur of (1) sixty days after the Annual Obligatory Shareholders’Mandatory Meeting, or (2) the expiration of the three-month period after the end of the prior fiscal year in which such Annual Obligatory Shareholders’Mandatory Meeting is required to be held, the information regarding total number and value of any shares not claimed by shareholders, the name of such shareholders, the share quote in the securities market for such shares, the total amount of uncollected dividends, the name of shareholders having uncollected dividends and where shares and dividends pending claim are available for the non-controlling shareholders. Article 262-B describes the procedure to request share certificates and/or dividends, and that the holder of the shares can instruct us to deposit the dividends in a specific bank account.account, and that delivery of such share certificates and/or dividends is to be made within 30 days from the request. Article 262-F describes the procedure for handling any claim that the non-controlling shareholders may file, such claims to be resolved by the SMV. SMV may apply warnings and fines between approximately US$ 1,300 and US$ 32,500 in case the Company fails to comply such provisions for the protection of non-controlling shareholders.
B. Significant Changes
| B. | Significant Changes |
No significant change in our financial affairs has occurred since the date of the annual consolidated financial statements included in this Annual Report.
| ITEM 9. | The Offer and Listing | |
| A. | Offer and Listing Details | |
A. Offer and Listing Details
Trading Information
The table below sets forth the trading volume and the high and low closing prices of the Common Shares and Investment Shares in Soles. The table also includes the trading volume and the high and low closing prices of the ADSs representing the Common Shares in U.S. Dollars for the same periods.
| Common Shares(1) | ADSs(2) | Investment Shares(1) | ||||||||||||||||||||||||||||||||||
| Trading Volume | High | Low | Trading Volume | High | Low | Trading Volume | High | Low | ||||||||||||||||||||||||||||
| (in millions) | (in nominal S/. per share) | (in millions) | (in US$ per ADS) | (in millions) | (in nominal S/. per share) | |||||||||||||||||||||||||||||||
| Annual highs and lows | ||||||||||||||||||||||||||||||||||||
| 2012 | 2.14 | 117.00 | 82.55 | 236.34 | 43.90 | 30.86 | 0.22 | 109.30 | 75.00 | |||||||||||||||||||||||||||
| 2013 | 2.06 | 90.99 | 29.70 | 472.08 | 36.58 | 10.54 | 0.00 | 30.00 | 30.00 | |||||||||||||||||||||||||||
| 2014 | 0.44 | 39.80 | 28.11 | 467.73 | 14.82 | 8.64 | 0.001 | 26.00 | 26.00 | |||||||||||||||||||||||||||
| 2015 | 1.31 | 38.8 | 14.35 | 409.75 | 12.37 | 3.88 | - | - | - | |||||||||||||||||||||||||||
| Quarterly highs and lows | ||||||||||||||||||||||||||||||||||||
| 2014 | ||||||||||||||||||||||||||||||||||||
| 1st quarter | 0.22 | 39.00 | 31.45 | 136.12 | 14.12 | 11.08 | 0.001 | 26.00 | 26.00 | |||||||||||||||||||||||||||
| 2nd quarter | 0.04 | 38.00 | 28.11 | 111.12 | 13.88 | 9.75 | - | - | - | |||||||||||||||||||||||||||
| 3rd quarter | 0.15 | 39.80 | 29.40 | 93.37 | 14.82 | 10.71 | - | - | - | |||||||||||||||||||||||||||
| 4th quarter | 0.02 | 34.00 | 29.40 | 127.130 | 12.28 | 8.64 | - | - | - | |||||||||||||||||||||||||||
| 2015 | ||||||||||||||||||||||||||||||||||||
| 1st quarter | 0.25 | 35.51 | 31.00 | 106.07 | 11.74 | 9.67 | - | - | - | |||||||||||||||||||||||||||
| 2nd quarter | 0.46 | 38.80 | 32.55 | 83.37 | 12.37 | 10.38 | - | - | - | |||||||||||||||||||||||||||
| 3rd quarter | 0.41 | 32.10 | 18.50 | 107.61 | 10.15 | 5.80 | - | - | - | |||||||||||||||||||||||||||
| 4th quarter | 0.20 | 25.46 | 14.00 | 112.68 | 8.22 | 3.88 | - | - | - | |||||||||||||||||||||||||||
| Monthly highs and lows | ||||||||||||||||||||||||||||||||||||
| 2015 | ||||||||||||||||||||||||||||||||||||
| October | 0.071 | 25.46 | 19.43 | 41.49 | 8.22 | 6.09 | - | - | - | |||||||||||||||||||||||||||
| November | 0.124 | 21.26 | 15.78 | 39.01 | 6.41 | 4.50 | - | - | - | |||||||||||||||||||||||||||
| December | 0.003 | 14.35 | 14.00 | 32.68 | 5.01 | 3.88 | - | - | - | |||||||||||||||||||||||||||
| 2016 | ||||||||||||||||||||||||||||||||||||
| January | 0.003 | 12.05 | 12.05 | 27.98 | 4.44 | 3.38 | - | - | - | |||||||||||||||||||||||||||
| February | 0.084 | 19.17 | 15.60 | 45.36 | 5.49 | 4.14 | - | - | - | |||||||||||||||||||||||||||
| March | 0.024 | 24.66 | 17.22 | 14.06 | 7.38 | 5.06 | - | - | - | |||||||||||||||||||||||||||
| 104 |
| Common Shares(1) | ADSs(2) | Investment Shares(1) | ||||||||||||||||||||||||||||||||||
| Trading Volume | High | Low | Trading Volume | High | Low | Trading Volume | High | Low | ||||||||||||||||||||||||||||
| (in millions) | (in nominal S/. per share) | (in millions) | (in US$ per ADS) | (in millions) | (in nominal S/. per share) | |||||||||||||||||||||||||||||||
| Annual highs and lows | ||||||||||||||||||||||||||||||||||||
| 2016 | 1.31 | 38.00 | 14.00 | 410.23 | 12.51 | 3.80 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| 2017 | 0.47 | 48.10 | 35.95 | 350.69 | 14.96 | 10.87 | 0.01 | 24.50 | 22.10 | |||||||||||||||||||||||||||
| 2018 | 0.85 | 54.94 | 39.00 | 325.87 | 16.80 | 11.67 | 0.01 | 22.15 | 19.60 | |||||||||||||||||||||||||||
| 2019 | 0.80 | 57.05 | 45.30 | 295.27 | 17.85 | 13.77 | 0.01 | 17.00 | 16.00 | |||||||||||||||||||||||||||
| Quarterly highs and lows | ||||||||||||||||||||||||||||||||||||
| 2018 | ||||||||||||||||||||||||||||||||||||
| 1st quarter | 0.18 | 52.00 | 45.25 | 81.81 | 16.53 | 13.99 | 0.00 | 22.15 | 21.99 | |||||||||||||||||||||||||||
| 2nd quarter | 0.06 | 53.09 | 44.53 | 70.88 | 16.80 | 13.54 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| 3rd quarter | 0.04 | 44.90 | 39.00 | 66.83 | 13.99 | 11.67 | 0.00 | 19.60 | 19.60 | |||||||||||||||||||||||||||
| 4th quarter | 0.57 | 54.94 | 44.20 | 106.34 | 16.66 | 12.44 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| 2019 | ||||||||||||||||||||||||||||||||||||
| 1st quarter | 0.08 | 57.00 | 50.75 | 77.43 | 17.78 | 14.80 | 0.01 | 17.00 | 16.80 | |||||||||||||||||||||||||||
| 2nd quarter | 0.05 | 57.05 | 49.00 | 68.15 | 17.71 | 14.15 | 0.00 | 16.80 | 16.00 | |||||||||||||||||||||||||||
| 3rd quarter | 0.04 | 55.80 | 47.30 | 82.52 | 17.85 | 13.91 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| 4th quarter | 0.63 | 51.10 | 45.30 | 67.16 | 15.83 | 13.77 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| Monthly highs and lows | ||||||||||||||||||||||||||||||||||||
| 2019 | ||||||||||||||||||||||||||||||||||||
| October | 0.01 | 51.10 | 45.30 | 22.74 | 15.67 | 13.77 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| November | 0.00 | 51.10 | 49.50 | 19.10 | 15.83 | 14.63 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| December | 0.62 | 51.00 | 47.77 | 25.32 | 15.45 | 14.43 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| 2020 | ||||||||||||||||||||||||||||||||||||
| January | 0.00 | 42.00 | 42.00 | 22.92 | 15.36 | 12.13 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| February | 0.00 | 42.50 | 40.00 | 37.40 | 13.12 | 11.15 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| March | 0.00 | 32.40 | 25.00 | 45.79 | 11.68 | 5.12 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||||||||
| (1) | Source: Lima Stock Exchange |
| (2) | Source: Bloomberg; Yahoo Finance |
As of March 31, 2016,2020, the share capital with respect to the Common Shares was S/.2,748,899,240 represented by 274,889,924 shares and the share capital with respect to the Investment Shares was S/.7,446,400 represented by 744,640 shares. The Common Shares represent 100% of our outstanding share capital. The Investment Shares have no voting rights and are not, under Peruvian law and accounting rules, characterized as share capital. As of March 31, 2016,2020, there were 1,191983 owners of record of the Common Shares and 902886 owners of record of the Investment Shares.
B. Plan of Distribution
| B. | Plan of Distribution |
Not applicable.
C. Markets
| C. | Markets |
The Common Shares and ADSs representing the Common Shares (each ADS representing one Common Share) have been listed and traded on the New York Stock Exchange under the symbol “BVN.” In addition, the Common Shares and Investment Shares are listed and traded on the Lima Stock Exchange.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
| D. | Selling Shareholders |
Not applicable.
| E. |
A. Share Capital
Not applicable.
| F. | Expenses of the Issue |
B. Memorandum
Not applicable.
| ITEM 10. | Additional Information |
| A. | Share Capital |
Our capital stock comprises Common Shares and Articlesinvestment shares. Common Shares have full voting rights while investment shares do not. As of AssociationDecember 31, 2019, there were 274,889,924 Common Shares outstanding, of which 21,174,734 were held in treasury. In the case of Investment Shares, there were 744,640 shares in total, of which 472,963 were held in treasury. In total there are 253,986,867 outstanding shares, and this number has not changed throughout the year 2019. The capital stock is fully subscribed and paid. Additionally, the par value per share (for both Common Shares and Investment Shares) is S/.10.
| B. | Memorandum and Articles of Association |
Organization and Register
We were formed on September 7, 1953 by public deed as a Peruviansociedad anónima.However, in May of 1998, our By-laws were changed to conform with the new Peruvian Companies Law. The term of existence is indefinite and our principal place of business is Lima, Peru. We are registered under file number 02136988 at the Companies Registry of Lima.
We are managed by the General Meeting, the Board of Directors and the management.
Objectives and Purposes
Our legal purpose, as set forth in our Articles of Association and By-laws, is to engage in mining operations and related activities either directly or through majority-owned subsidiaries and controlled companies. Likewise, we may hold shares of companies performing mining operations.
Directors
The Board, of Directors, which must be comprisedcomposed of seven members, is elected at the Annual ObligatoryMandatory Meeting. Any changes in the Board of Directors require the approval of the shareholders. The removal of the Board of Directors must be approved at a shareholders’ meeting, attended by holders of 75% of the Common Shares in the first summons and 70% of the Common Shares in the second summons, by resolution approved by at least two thirds of the total number of Common Shares outstanding. In the case of resignation of Directors,directors, the Board of Directors may appoint substitute Directorsdirectors who will serve until the next shareholders’ meeting.
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Directors
Members of the Board (“Directors”) are elected as a group for a term of three years and may be reelected indefinitely. Pursuant to Article 29 of our By-laws, Directors are not required to be shareholders. The Board, of Directors, in its first meeting after the Annual ObligatoryMandatory Meeting during which elections are held, must choose from among its members a Chairman and a Vice Chairman. The Peruvian Companies Law requires that all companies (sociedades anónimas) provide for the representation of non-controlling shareholders on their Boards of Directors. To that effect, each of our Common Shares gives the holder the right to as many votes as there are directors to be elected. Each holder may pool his votes in favor of one person or distribute them among various persons. Those candidates for the Board who receive the most votes are elected directors.
The Board of Directors meets when called by the Chairman of the Board, who is appointed by the Board. The Board of Directors is validly convened when all Directors are present and unanimously agree to carry out the meeting for the purpose of transacting the business that has been proposed. Pursuant to Article 177 of the Peruvian Companies Law, Directors may be jointly and severally liable to us, the shareholders and third parties for their actions if they act with willful misconduct, gross negligence or abuse their powers. In addition, Article 3 of Law No. 29720, which has been in force since June 26, 2011, as amended by Law No. 30050 in force since June 27, 2013, provides that directors and managers are liable for economic damages or any other kind of damages caused to us by any transaction we may enter into withthey have approved that favors such director’s, or a related party’s, interest instead of the Company’s, when: (i) one of the parties involved in the transaction is a company whose shares are listed in the local stock exchange, as in our case; (ii) the shareholder controlling such listed company also controls the other party involved in the transaction; and (iii) the transaction is not made under arm’s-length conditions and represents at least 10% of such company’s assets. Directors not participating in the Board meeting or that voted against the transaction are not liable.
In addition, Article 51 of the Securities Market Law contains additional prohibitions for directors and managers of companies whose shares are traded in the stock exchange. Pursuant to Article 51(a) of such law, directors and managers are forbidden to receive loans from listed companies and from using goods and services of the listed company without the Board’s authorization for their own use, in their own profit or to benefit persons related to the directors and managers. Additionally, subsection (b) thereof further provides that directors and managers are forbidden from using their positions to obtain improper benefits for them or for persons related to them.
Our By-laws do not contain any provisions related to a director’s power to vote on matters in which the director is materially interested. However, Article 180 of the Peruvian Companies Law requires a director with an interest that conflicts with an interest of ours on a specific matter to disclose such interest to us and abstain from participating in the deliberation and decision of the said matter. A director that contravenes such requirement is liable for the damages suffered by us and can be removed by the Board of Directors or a shareholders’ meeting upon the request of any shareholder or any member of the Board.
Our By-laws also do not contain any provisions with respect to the power of the Directorsdirectors to vote upon matters relating to their own compensation. Nevertheless, Article 30 of the By-laws requires that the Board of Directors receive compensation of no more than 4% of the profits of each fiscal year after making deductions for workers’ profit sharing, taxes, reinvestment of profits for tax benefits and legal reserves. This amount will be submitted for ratification by the General Meeting during the annual obligatory meeting,Annual Mandatory Meeting, at which time it approves the statement of financial position, taxes, reinvestment of profits for tax benefits and legal reserves.
Our By-laws contain no provision relating to the directors’ power to borrow from us. However, Article 179 of the Peruvian Companies Law provides that directors of a company may enter into an agreement with such company only if the agreement relates to operations the companyCompany performs in the regular course of business and in an arms-length transaction. Furthermore, a company may provide a loan to a director or grant securities in his favor only in connection with operations that the companyCompany usually performs with third parties. Agreements, credits, loans or guarantees that do not meet the requirements set forth above require prior approval from at least two thirds of the members of the company’s Board of Directors.Company’s Board. Directors are jointly liable to the companyCompany and the company’sCompany’s creditors for contracts, credit, loans or securities executed or granted without complying with Article 179 of the Peruvian Companies Law. In addition, as mentioned above, Article 3 of Law No. 29720, as amended, provides that directors and managers are liable for economic or other damages that they may cause because of the approval of resolutions that favor such director’s, or a related party’s, interest instead of the company’s,Company’s, when: (i) one of the parties involved in the transaction is a company whose shares are listed in the local stock exchange, as in our case; (ii) the shareholder controlling such listed company also controls the other party involved in the transaction; and (iii) the transaction is not made under arm’s-length conditions and represents at least 10% of such Company’s assets.
Neither our By-laws nor the Peruvian Companies Law contain age limit requirements for the retirement or non-retirement of directors.
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Shares and Voting Rights
We have two classes of shares, the Common Shares and the Investment Shares. The Common Shares represent 100% of our outstanding share capital. The Investment Shares have no voting rights and are not, under Peruvian law and accounting rules, characterized as share capital. The Common Shares and the Investment Shares may be either physical share certificates in registered form or book-entry securities in the CAVALI ICLV S.A. book-entry settlement system, also in registered form.
Holders of Common Shares are entitled to one vote per share, with the exception of the election of the Board, of Directors, where each such holder is entitled to one vote per share per nominee. Each holder’s votes may all be cast all for a single nominee or they may be distributed among the nominees at the holder’s discretion. Holders of Common Shares may attend and vote at shareholders’ meetings either in person or through a proxy. Additionally, holders of Common Shares have the right to participate in the distribution of dividends and shareholder equity resulting from liquidation. Our By-laws do not establish a maximum time limit for the payment of the dividends. However, according to Article 232 of the Peruvian Companies Law, the right to collect past-due dividends in the case of public companies that aresociedades anónimas abiertas, as we are, expires at 10 years from the date on which the payment was due in accordance with the dividend declaration.
Our share capital may be increased by holders of Common Shares at a shareholders’ meeting. Capital reductions may be voluntary or mandatory and must be approved by holders of Common Shares at a shareholders’ meeting. Capital reductions are mandatory when accumulated losses exceed 50 percent50% of capital to the extent such accumulated losses are not offset by accumulated earnings and capital increases within the following fiscal year. Capital increases and reductions must be communicated to the SMV, the Lima Stock Exchange and the SUNAT and published in the official gazette El Peruano and in a widely circulated newspaper in the city in which we are located.
The Investment Shares do not represent our stock obligations. Holders of Investment Shares are neither entitled to exercise voting rights nor to participate in shareholders’ meetings. However, Investment Shares confer upon the holders thereof the right to participate in the dividends distributed according to their nominal value, in the same manner as Common Shares.Shares, as well as to participate in increases of the Investment Shares account.
Changes in the Rights of Shareholders
Our By-laws do not contain special provisions relating to actions necessary to change the rights of holders of the classes of shares. However, Article 88 of the Peruvian Companies Law establishes that all shares of a same class must have the same rights and obligations, and that if we decide to establish different rights and obligations we must create a different class of shares, which creation will be agreed upon by the General Meeting in accordance with the requirements for modification of the By-laws. The Common Shares are the only class of shares representing 100% of our share capital, and, therefore, each Common Share has the same rights and obligations of each other Common Share. These requirements are described under “—Shares and Voting Rights” above.
The rights of any class of shares may not be reduced except in accordance with the Peruvian Companies Law.
Shareholders’ Meetings
Pursuant to Peruvian law and our By-laws, the Annual ObligatoryMandatory Meeting must be held during the three-month period after the end of each fiscal year. Additional General Meetings may be held during the year. Because we are asociedad anónima abierta, we are subject to the special control of the SMV, as provided in Article 253 of the Peruvian Companies Law.Law, to determine whether we have incurred any breach of the Peruvian Companies Law or regulations of the SMV and to impose sanctions. Shareholders’ meetings are convened by the Board of Directors when deemed convenient for us or when it is requested by the holders of at least 5% of the Common Shares, provided that such Common Shares do not have their voting rights suspended. If, at the request of holders of at least 5 percent5% of the Common Shares, the shareholders’ meeting is not convened by the Board of Directors within 15 business days of the receipt of such request, such holders of at least 5 percent5% of the Common Shares may request a notary public or a judge to convene the meeting. The Board is deemed to have implicitly refused to convene the meeting if the Board (a) does not convene a shareholders’ meeting within 15 business days of receipt of the request, (b) suspends or amends the terms of the agenda or in any other way amend the terms of the summons already made upon the request of at least 5% of the Common Shares or (c) schedules the shareholders’ meeting more than 40 days after the date on which the summons is published. The notary public or the judge of the domicile of the companyCompany shall call for the shareholders meeting. Resolución CONASEV No. 111-2003-EF-94.10, as amended by Resolución CONASEV No. 078-2010-EF/94.01.1, approved provisions related to the right of the non-controlling shareholders to obtain information regarding asociedad anónima abierta such as ourselves. Notwithstanding the notice requirements as described in the preceding two sentences, any shareholders’ meeting will be deemed called and legally commenced, provided that the shareholders representing all of the voting shares are present, and provided that every present shareholder, whether or not such shareholder has paid the full price of such shareholder’s shares, agrees to hold the shareholders’ meeting and accepts the business to be discussed therein. Holders of Investment Shares have no right to request the Board to convene shareholders’ meetings.
Since we are asociedad anónima abierta, notice of shareholders’ meetings must be given by publication of a notice, with the publication occurring at least 25 days before any shareholders’ meeting, in El Peruano and in a widely circulated newspaper in the city in which we are located. The notice requirement may be waived at the shareholders’ meeting by holders of 100% of the outstanding Common Shares. According to Article 25 of our By-laws and Article 257 of the Peruvian Companies Law, shareholders’ meetings called for the purpose of considering a capital increase or decrease, the issuance of obligations, a change in our By-laws, the sale in a single act of assets with an accounting value that exceeds 50% of our capital stock, a merger, division, reorganization, transformation or dissolution, are subject to a first, second and third quorum call, each of the second and third quorum to occur upon the failure of the preceding one. A quorum for the first call requires the presence of shareholders holding 50% of our total voting shares. For the second call, the presence of shareholders holding at least 25% of our total voting shares constitutes a quorum, and for the third call there is no quorum requirement. These decisions require the approval of the majority of the voting shares represented at the shareholders’ meeting. General Meetings convened to consider all other matters are subject to a first and second quorum call, the second quorum call to occur upon the failure of the first quorum.
In the case of shareholders’ meetings called for the purpose of considering the removal of members of the Board, of Directors, at least 75% and 70% of the total number of Common Shares outstanding are required to be represented at the shareholders’ meeting on the first quorum call and second quorum call. Provided such quorum is attained, the affirmative vote of no less than two thirds of the total number of Common Shares outstanding is required to effect the removal of members of the Board of Directors.Board. The special quorum and voting requirements described above cannot be modified at a shareholders’ meeting called for the purpose of considering the removal of members of the Board of Directors.Board.
Under our By-laws, the following actions are to be taken at the annual obligatoryAnnual Mandatory shareholders’ meetings: approval of our statements of financial position, profit and loss statements and annual reports; the approval of management performance; the allocation of profits; the election of external auditors; the election of the members of the Board of Directors;Board; and any other matters submitted by the Board of Directors.Board. The following actions are to be taken at the same annual shareholders’ meetings if the quorum and majority requirements are met or at any other shareholders’ meeting: any amendment of our By-laws; any decision to increase or reduce capital; any decision to issue debt; initiating investigations or requesting auditor’s reports; liquidating, spinning-off, merging, consolidating, dissolving, or changing our business form or structure.
In accordance with Article 21 of the By-laws, only those holders of Common Shares whose names are inscribed in the Share Registerour share register not less than 10 days in advance of a meeting will be entitled to attend shareholders’ meetings and to exercise their rights.
Limitations on the Rights of Nonresident or Foreign Shareholders
There are no limitations in our By-laws or the Peruvian Companies Law on the rights of nonresident or foreign shareholders to own securities or exercise voting rights on our securities.
Change in Control
There are no provisions in our By-laws that would have the effect of delaying, deferring or preventing a change in control.
Disclosure of Share Holdings
There are no provisions in our By-laws governing the ownership threshold above which share ownership must be disclosed. However, according to Regulation No. 009-2006-EF.94.10 of the SMV, which became effective on May 3, 2006, as amended by Regulation No. 020-2006-EF.94.10, Regulation No. 05-2009-EF-94.01.1 and Regulation No. 05-2009-EF-94.01.1 of034-2025-SMV-01.of the SMV, when, an individual or financial group acquires, in one act or various successive acts, a significant percentage (more than 25%) of the voting shares of a company with shares listed in a stock exchange, as well as upon any person or group increasing its ownership above the 50 percent50% and 60% thresholds, a procedure known asOferta Pública de Adquisición, or a “Takeover Bid,” must be followed. This has the effect of alerting other shareholders and the market that an individual or financial group has acquired a significant percentage of a company’s voting shares, and gives other shareholders the opportunity to sell their shares at the price offered by the purchaser. The purchaser is obliged to launch a Takeover Bid unless it is exempt pursuant to Regulation No. 009-2006-EF.94.10 of the SMV, as amended. The purchase of ADRs is exempted from the Takeover Bid unless the holders: (i) exercises the voting rights of the Common Shares underlying the ADSs evidenced by such ADRs, or (ii) requests the delivery of such underlying Common Shares. In addition, the SMV and the Lima Stock Exchange must be notified of any transfer of more than 5 percent5% of our paid-in capital.
Changes in Capital
Our By-laws do not establish special conditions for increases or reductions of capital that are more stringent than is required by the Peruvian Companies Law. Furthermore, the Peruvian Companies Law forbidssociedades anónimas abiertas, such as us, from including in their By-laws stipulations limiting the transfer of their shares or restraining their trading in other ways. We cannot recognize a shareholders’ agreement that contemplates limitations, restrictions or preferential rights on the transfer of shares, even if such agreement is recorded in our Share Registershare register (matrícula de acciones) or in CAVALI ICLV S.A., unless they refer to shares that are nor listed in a stock exchange, which is not the of our shares.
C. Material ContractsEconomic Group
On January 1, 2017 new Regulations on Indirect Property, Relation and Economic Groups (Reglamento de Propiedad Indirecta, Vinculación y Grupos Económicos) (the “Regulations”) approved by Regulation No. 019-2015-SMV-01 became effective, replacing the prior Regulations that were in effect since 2006. The new Regulations, which have been amended by Regulations 048-2016-SMV-01 and 026-2017-SMV-01, define more precisely who are considered independent directors, increase the standards of information we are required to provide, require us to identify the individuals that control our economic group, require us to report related individuals and entities; reduce the number of shareholders required to determine that there exists a “representative participation” from 10% of the total capital stock to 4% of voting shares and extend the definition of control. The “representative participation” definition is mainly used by listed companies such as us to determine the existence of indirect property. Regulation No. 083-2016-SMV-01 approved the new forms to be used to provide the SMV all the information about our economic group.
Criminal liability of companies
On April 2016, Law No. 30424 was enacted to establish the administrative liability of legal entities, such as us, in connection with transnational active bribery. The law has been amended by Legislative Decree No. 1352, which was published on January 7, 2017 and became effective on January 1, 2018. Regulations to this law have been recently approved by Supreme Decree No,. 002-2019-JUS. The amendment expanded the definition of bribery beyond transnational active bribery to include asset laundering, illegal mining and organized crime. The law provides rules to be followed in case of a merger or spin-off and states that a legal entity is administratively liable for the above crimes when they have been committed in its name or for its benefit by its shareholders, directors, managers or employees that are subject to the control and authority of the legal entity. Several sanctions can be imposed on a company as result of such crimes, including fines, prohibitions on performing certain activities, cancellation of permits and even dissolution. A legal entity is not liable if its shareholders, directors, managers or employees engage in bribery or related crimes solely for their own benefit or for the benefit of third parties other than the legal entity. The Company will be exempted from any liability for such crimes if it adopts within its organization, and before the crime is committed, a so-called prevention model consistent with the Company’s nature, risks, necessities and characteristics, consisting in control, monitoring and surveillance measures suitable to prevent such crimes. Such model includes the appointment by the Board of a person in charge of prevention that must perform autonomously. In order to file a criminal accusation against the Company, a technical report from the SMV that analyzes the prevention model is required. We have prepared the prevention model required under Law No. 30424, as amended, in addition to the other compliance measures and policies we currently have. The regulations contain, among other provisions, several definitions, types of risks and the criteria to identify them, as well as the minimum elements a prevention model must contain.
Dividends and Dividend Policy
We can distribute three kinds of dividends: (i) cash dividends, which are paid out of our net distributable income for each year, (ii) stock dividends that are akin to stock splits rather than distributions of earnings, which are issued for the purpose of adjusting the book value per share of our stock and (iii) stock dividends for the purpose of capitalizing profits, in each case as described in more detail below. All shares outstanding and fully paid are entitled to share equally in any dividend declared based on the portion of our capital represented by such share. No cash dividend may be declared in respect of a given year unless we have earned net distributable income in respect of such year. However, we may declare dividends during the year. We may make interim provisional payments to shareholders in respect of net distributable income for the current fiscal year, which are referred to as “provisional dividends,” as explained below.
The Board, following the end of each fiscal year, makes a recommendation at the Annual Mandatory Meeting regarding the amount and timing of payments, if any, to be made as dividends on our Common Shares and Investment Shares. The Shareholders Meeting can delegate to the Board the approval to pay interim dividends.
The dividend policy establishes that Buenaventura will distribute an annual cash dividend of at least 20% of net income generated by majority-owned operations and subsidiaries. In the case of Buenaventura’s Associates (Coimolache, Cerro Verde and Yanacocha), 20% of attributable to Buenaventura’s net income will be included if they distribute cash dividends to Buenaventura. In principle there are two kinds of dividend payments: interim dividends, which are approved by the Board and are generally paid during the fourth quarter of the year, and the final dividend payment, which will be paid in accordance with the general shareholders’ meeting resolutions. However, the amount and timing of such payments is subject to the final approval at such Annual Mandatory Meeting and Board meeting, as well as to the availability of earnings to distribute. According to the Peruvian Companies Law, holders of at least 20% of the total Common Shares outstanding can request a dividend of 50% or less of the previous year’s after-tax profits, net of amounts allocated to the legal reserve.
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Available earnings are subject to the following priorities. First, the mandatory employee profit sharing of 8% of pre-tax profits (which may differ from pre-tax profits determined under IFRS due to different depreciation treatment and different adjustments of non-taxable income and/or non-deductible expenses) is paid.
Next, remaining earnings are taxed at the standard corporate income tax rate, which is 29.50%. Not less than 10% of such after-tax net profits must then be allocated to a legal reserve, which is not available thereafter except to cover future losses or for use in future capitalizations, in which case it must be replenished again.. Amounts reserved are nevertheless included in taxable income. The obligation to fund this reserve continues until the reserve constitutes 20% of the paid-in share capital. In addition, the holders of Common Shares can agree to allocate any portion of the net profits to any special reserve. The remainder of the net profits is available for distribution to shareholders.
Dividends are subject to an additional withholding tax for shareholders that are either (i) individuals, whether domiciled or non-domiciled in Peru, or (ii) non-domiciled companies or entities. For dividends paid out of our accumulated net profits, the withholding tax rate is 5%, when the dividend originated from profits earned on or after January 1,2017. If any tax or other governmental charge will become payable by Scotiabank Peru, as custodian, the Depositary or us with respect to any ADR or any deposited securities represented by the ADSs evidenced by such ADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to the Depositary.
Dividends paid to domiciled companies or entities are not subject to such withholding tax. If any tax or other governmental charge will become payable by Scotiabank Peru, as custodian, the Depositary or us with respect to any ADR or any deposited securities represented by the ADSs evidenced by such ADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to the Depositary.
Dividends on issued and outstanding Common Shares and Investment Shares are distributed in accordance with the proportion of the total capital represented by such respective shares. Dividends are distributed pro rata in accordance with the number of Common Shares or Investment Shares. Accordingly, any dividend declared would be apportioned 99.73% to the holders of Common Shares and 0.27% to the holders of Investment Shares. This proportion will not change in the future except and to the extent holders of Common Shares and Investment Shares exercise their preemptive rights disproportionately in any future issuance of Common Shares and Investment Shares, or we issue Common Shares without preemptive rights in accordance with Article 259 of the Peruvian Companies Law.
Holders of Common Shares and Investment Shares are not entitled to interest on dividend payments.
Holders of ADRs are entitled to receive dividends with respect to the Common Shares underlying the ADSs evidenced by such ADRs, subject to the terms of the related Amended and Restated Deposit Agreement, to the same extent as owners of Common Shares.
To the extent that we declare and pay dividends on the Common Shares, owners of the ADSs on the relevant record date are entitled to receive the dividends payable in respect of the Common Shares underlying the ADSs, subject to the terms of the Amended and Restated Deposit Agreement. Cash dividends are paid to the Depositary in Soles and, except as otherwise described under the Amended and Restated Deposit Agreement, are converted by the Depositary into U.S. Dollars and paid to owners of ADRs net of currency conversion expenses. Under the Amended and Restated Deposit Agreement, the Depositary may, and will if we so request, distribute stock dividends in the form of additional ADRs evidencing whole ADSs resulting from a dividend or free distribution of Common Shares by us received by the Depositary. Amounts distributed with respect to ADSs were subject to a Peruvian withholding income tax of 6.8% for profits earned during 2016, which was the withholding tax rate applicable to distributions in respect of Common Shares during 2016. The withholding tax rate decreased to 5% for dividends paid out of our accumulated net profits after December 31, 2016. See “Item 10. Additional Information—E. Taxation—Peruvian Tax Considerations.”
We issue stock dividends for value per share of our stock. The book value of our share capital is based on the nominal (par) value of each share but is adjusted to account for inflation; thus, in inflationary periods, our book value will increase while the nominal value will remain constant. To adjust the book value of each share to equal or approximate the nominal value, we periodically issue new shares that are distributed as stock dividends to each existing shareholder in proportion to such shareholder’s existing holdings, unless it increases the nominal value of the existing shares. These stock dividends (which under the Peruvian income tax law are not considered dividends) do not change a stockholder’s percentage of interest in us. In addition, we may from time to time capitalize profits and, in such case, we have to distribute stock dividends representing the profits capitalized.
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Dividends not collected within 10 years will be retained by us, increasing our legal reserve, and the right to collect such dividends will expire.
Under Peruvian law, each company may make formal cash distributions only out of net distributable income (calculated on an individual, unconsolidated basis and demonstrated by a statement of financial position at any given time). We, however, may pay provisional dividends. Payment of provisional dividends will be approved on the basis of consolidated financial statements which show the existence of net distributable income obtained during the current fiscal year. If, following such an interim provisional payment, we suffer a loss or if we finish the fiscal year with a net income that is lower than the amount of provisional dividends paid during such fiscal year, we could legally require all shareholders (including holders of ADRs) to return such payment to us with interest. However, it has been and continues to be our policy not to require shareholders to return such payment of provisional dividends, but rather to cover such contingency through a “dividends paid in advance” account to be offset by future net distributable income.
Non-controlling Shareholders
Law No. 28370, published on October 30, 2004, included in the Peruvian Companies Law certain provisions for the protection of non-controlling shareholders of public companies that aresociedades anónimas abiertas, such as us, and that were formerly contained in Law No. 26985, which had been abrogated. Legislative Decree No. 1061, effective since June 29, 2008, Law No. 29782, effective since July 29, 2011, and most recently Law No. 30050, effective since June 27, 2013, have abrogated or amended certain of these provisions. Pursuant to Article 262-A of the Peruvian Companies Law, we will furnish on our website and on the SMV’s website, upon the earlier to occur of (1) sixty days after the Annual Mandatory Meeting, or (2) the expiration of the three-month period after the end of the prior fiscal year in which such Annual Mandatory Meeting is required to be held, the information regarding total number and value of any shares not claimed by shareholders, the name of such shareholders, the share quote in the securities market for such shares, the total amount of uncollected dividends, the name of shareholders having uncollected dividends and where shares and dividends pending claim are available for the non-controlling shareholders. Article 262-B describes the procedure to request share certificates and/or dividends, that the holder of the shares can instruct us to deposit the dividends in a specific bank account, and that delivery of such share certificates and/or dividends is to be made within 30 days from the request. Article 262-F describes the procedure for handling any claim that the non-controlling shareholders may file, such claims to be resolved by the SMV. SMV may apply warnings and fines between approximately US$ 1,300 and US$ 32,500 in case the Company fails to comply such provisions for the protection of minority shareholders.
| C. | Material Contracts |
Not Applicable.
D. Exchange Controls
| D. | Exchange Controls |
Since August 1990, there have been no exchange controls in Peru and all foreign exchange transactions are based on free market exchange rates. Before August 1990, the Peruvian foreign exchange market consisted of several alternative exchange rates. Additionally, during the 1990s, the Peruvian currency has experienced a significant number of large devaluations, and Peru has consequently adopted and operated under various exchange rate control practices and exchange rate determination policies, ranging from strict control over exchange rates to market determination of rates. Current Peruvian regulations on foreign investment allow the foreign holders of equity shares of Peruvian companies to receive and repatriate 100% of the cash dividends distributed by such companies. Such investors are allowed to purchase foreign exchange at free market currency rates through any member of the Peruvian banking system and transfer such foreign currency outside Peru without restriction.
E. Taxation
| E. | Taxation |
The following summarizes the material Peruvian and United StatesU.S. federal income tax consequences under present law of the purchase, ownership and disposition of ADSs or Common Shares. The discussion is not a full description of all tax considerations that may be relevant to a decision to purchase ADSs or Common Shares. In particular, this discussion deals only with holders that hold ADSs or Common Shares as capital assets and that have the U.S. Dollar as their functional currency. The summary does not address the tax treatment of certain investors that may be subject to special tax rules, such as partnerships and other entities classified as partnerships for U.S. federal income tax purposes, banks, dealers and traders in securities dealers,or foreign currencies, insurance companies, tax-exempt entities, persons that will hold ADSs or Common Shares as a position in a “straddle” or “conversion transaction” for tax purposes, and holders ofwho actually or constructively own 10% or more of our voting shares.shares by either vote or value, certain taxpayers who file applicable financial statements required to recognize income no later than when the associated revenue is reflected on such financial statements and holders who acquired our ADSs or Common Shares pursuant to the exercise of any employee stock option or otherwise as compensation. This discussion does not address all aspects of U.S. federal income taxation that may be applicable to a U.S. Holder (as defined below), including gift, estate, any U.S. state or local taxes, non-U.S. taxes, other than Peruvian taxes as provided below, the U.S. federal alternative minimum tax or the U.S. Medicare tax on net investment income. There is no tax treaty currently in effect between Peru and the United States,U.S., except for a treaty to exchange tax information. The information to be exchanged is defined in such treaty as any data or declaration that may be relevant or essential to the administration and application of taxes. Accordingly, the discussions below of Peruvian and U.S. tax considerations are based on the domestic law of each of Peru and the United StatesU.S. which are subject to change and possibly with retroactive effect.
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“U.S. Holder” means a beneficial owner of ADSs or Common Shares that is (i) a United StatesU.S. citizen or resident, (ii) a domestic corporation, or partnership, (iii) a trust subject to the control of aone or more U.S. fiduciarypersons (as described in Section 7701(a)(30)) of the U.S. Internal Revenue Code of 1986, as amended, “Code”) and the primary supervision of a U.S. court or that has validly elected to be treated as a U.S. person or (iv) an estate the income of which is subject to United StatesU.S. federal income taxation regardless of its source.
If a partnership or other entity taxable as a partnership for U.S. federal income tax purposes holds ADSs or Common Shares, the tax treatment of a partner will generally depend on the status of the partner in such partnership and the activities of the partnership. Partners of partnerships holding ADSs or Common Shares should consult their tax advisors.
Peruvian Tax Considerations
Cash Dividends and Other Distributions
Cash dividends paid with respect to Common Shares and amounts distributed with respect to ADSs are currently subject to a Peruvian withholding Income Tax,income tax, at a rate of 4.1% over5% for dividends paid or to be paid beginning January 1, 2017, when the dividend paid (as long as suchoriginated from profits earned on or after January 1, 2017. If the dividend originated from profits earned between January 1, 2015 and December 31, 2016, the withholding income tax rate for the dividend is paid out6.8%. If the dividend originated from our accumulated net profits earned as of December 31, 2015), when2014, the dividendwithholding income tax rate for dividends is 4.1%. The dividends distribution is related to prior accumulated results. This regime is applicable on dividends that are paid to shareholders that are: (i) individuals, whether resident or nonresident in Peru or (ii) nonresident entities.Asentities. As a general rule, the distribution of additional Common Shares representing profits, distribution of shares which differ from the distribution of earnings or profits, as well as the distribution of preemptive rights with respect to Common Shares, which are carried out as part of a pro rata distribution to all shareholders, will not be subject to Peruvian Income Tax or withholding taxes. If the dividend distribution is paid out from our net profits after December 31, 2014, the Peruvian withholding Income Tax rate will increase to 6.8%, if the distribution is approved during 2015 and 2016, to 8% if it is approved during 2017 and 2018, and to 9.3% if it is approved in 2019 or later.
Law No. 30296, enacted on December 31, 2014, established certain amendments to the Peruvian Income Tax Law, (the “ITL”), effective from January 1, 2015. The most significant changes are the following: (i) a gradual increase of Peruvian withholding income tax over dividends paid from 4.1% to 6.8% in 2015 and 2016, to 8.0% in 2017 and 2018, and to 9.3% in 2019 and beyond. These tax rates will apply to profit distribution adopted or made available in cash or in kind, whichever occurs first, since January 1, 2015; and (ii) Peruvian withholding income tax of 4.1% will be applied to retained earnings or other items subject to generate taxable dividends, obtained up to December 31, 2014, and forming part of dividends distribution or any other profit distribution.
Capital Gains
Pursuant to Article 6 of the ITL,Income Tax Law (the “ITL”), individuals and entities resident in Peru are subject to Peruvian Income Tax on their worldwide income while non-resident individuals or entities are subject to Peruvian Income Tax on their Peruvian source income only.
Furthermore, the ITL states that income deriving from the disposal of securities issued by Peruvian entities is considered Peruvian source income subject to the Income Tax.
With respect to this matter, Article 2 of the ITL, as amended by Legislative Decree 945, defines: (i) capital gains as any revenue deriving from the disposal of capital goods; and (ii) capital goods as those whose purpose is not to be traded in the regular course of a business. Moreover, Article 2 of the ITL states that income deriving from the disposal of shares and similar securities is considered a capital gain.
Accordingly, capital gains deriving from the disposal of securities issued by legal entities incorporated in Peru are considered Peruvian source income subject to Peruvian Income Tax.
Currently, regardless of whether or not the transferor is domiciled in Peru, the ITL establishes that taxable income resulting from the disposal of securities is determined by the difference between the sale price of the securities and its tax basis. However, before December 31, 2009, capital gains resulting from the disposal of ADSs or Common Shares issued by legal entities incorporated in Peru were exempt from Peruvian Income Tax if: (i) in the case of non-regular individuals (i.e., individuals who do not frequently trade securities), the transaction was carried out before December 31, 2009; and (ii) in the case of shareholders other than individuals, the transaction was carried out on the Lima Stock Exchange (floor session) before December 31, 2009.
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Effective January 1, 2010, the exemption was repealed and, as such, capital gains resulting from the disposal of ADSs or Common Shares issued by legal entities incorporated in Peru became subject to Peruvian Income Tax, or the “Income Tax.” For non-resident entities or individuals, capital gains will be subject to an Income Tax rate of either 5% or 30%, depending where the transaction takes place. If the transaction is consummated within Peru, the Income Tax rate is 5%; if the transaction is consummated outside of Peru, capital gains are taxed at a rate of 30 percent.30%.
The ITL Regulations have defined transactions consummated within Peru to mean that the securities at issue are transferred through the Lima Stock Exchange. In contrast, the transaction is considered to have been consummated abroad when (i) the securities at issue are not registered on the Lima Stock Exchange or (ii) registered securities are not transferred through the Lima Stock Exchange.
Before December 31, 2012, for nonresident individuals, the first five Tax Unitstax units (approximately US$6,800) of capital gains deriving from the transfer of securities were exempted from the Income Tax. Effective January 1, 2013, this exemption was repealed. If the transferor is a resident entity, capital gains deriving from the disposal of securities will be treated as any other taxable income subject to the 30% corporate Income Tax rate.
Furthermore, before December 31, 2012, if the transferor was a resident individual, the first five Tax Unitstax units (approximately US$6,800) of capital gains deriving from the transfer of securities were exempted from the Income Tax. Effective January 1, 2013, such exemption was repealed. Any capital gain earned by a resident individual is subject to the 5% annual Income Tax rate regardless of whether or not the transaction is carried out on the Lima Stock Exchange and regardless of how many transactions are carried out by such individual. In this case, the five percent5% Income Tax rate will be applicable over the annual net capital gain, which is calculated by deducting from the annual gross capital gain of the annual losses resulting from the disposal of shares during the same fiscal year.
Moreover, if the transferor, either a resident or nonresident individual or entity, acquired the ADSs or Common Shares that were exempt from the Income Tax before January 1, 2010, pursuant to a special provision of the ITL, the tax basis is the higher of: (i) the acquisition cost; (ii) the face or nominal value of the shares; or (iii) the stock market value at closing on December 31, 2009.
If the transferor, whether resident or nonresident in Peru, acquires the ADSs or Common Shares on or after January 1, 2010, the tax basis is: (i) for shares purchased by the transferor, the acquisition price paid for the shares; (ii) for shares received by the transferor as a result of a capital stock increase because of a capitalization of net profits, the face or nominal value of such shares; (iii) for other shares received free of any payment, the stock market value of such shares if listed on the Lima Stock Exchange or, if not, the face or nominal value of such shares; and (iv) for shares of the same type acquired at different opportunities and at different values, the tax basis will be the weighted average cost.
The aforementioned rules are also applicable to ADSs or Common Shares acquired before January 1, 2010 that were not exempt from the Income Tax as of December 31, 2009.
On December 31, 2010, Law No. 29645 was promulgated and took effect from January 1, 2011. This law states that in any transaction of Peruvian securities through the Lima Stock Exchange, CAVALI ICLV S.A. (the Peruvian clearing house) will act as withholding agent. As a result of this amendment, the nonresident will no longer have to self-assess and pay its Income Tax liability directly to the Peruvian Tax Administration.
Law No. 29645 has technically been in force since January 1, 2011. Implementing regulations were enacted in July 2011, and CAVALI ICLV S.A. began acting as a withholding agent on November 1, 2011. As a result, with regard to securities transferred through the Lima Stock Exchange by a nonresident transferor after November 1, 2011, such nonresident transferor is no longer obliged to self-assess and pay its Income Tax liability directly to Peruvian tax authorities within the first 12 working days following the month in which Peruvian source income was earned.
If the purchaser is resident in Peru and the sale is not performed through the Lima Stock Exchange, the purchaser will act as withholding agent, except in cases in which the transferor is a resident individual.
However, if the transferor is a resident entity, such transferor is solely responsible for its Peruvian Income Tax on capital gains resulting from the disposal of ADSs or Common Shares, regardless of whether such securities are listed on the Lima Stock Exchange or elsewhere.
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On September 12, 2015 Law No. 30341 was published. This law entered into effect on January 1, 2016 and states that capital gains from the disposal of ADSs or Common Shares through December 31, 2018 issued by legal entities incorporated in Peru, executed through the Lima Stock Exchange, are exempt from Peruvian Income Tax if: (i) within a period of twelve (12) months the holder and its related parties do not transfer 10% or more of the issued shares of the legal entity in one or more transactions; and (ii) the Common Shares issued by such legal entity shall have been continuously traded in the stock market (the rules to determine if such shares are continuously traded are set forth in Law No. 30341, as amended). Law No. 30341 was amended by Legislative Decree No. 1262, published on December 10, 2016 and effective since January 1, 2017, which introduced minor amendments related to capital gains deriving from the disposal of ADSs and Common Shares and extended this income tax exemption through December 31, 2019. Law No. 30341 was amended for a second time by Urgent Decree No. 005-2019, published on October 24, 2019 and effective on January 1, 2020, which introduced minor amendments regarding to the rules to determine when shares are continuously traded; and extended this income tax exemption through December 31, 2022.
Exchange Transactions
No Peruvian estate or gift taxes are imposed on the gratuitous transfer of ADSs or Common Shares. No stamp, transfer or similar tax applies to any transfer of Common Shares, except for commissions payable by seller and buyer to the Lima Stock Exchange (0.15% of value sold), fees payable to the SMV (0.05% of value sold), brokers’ fees (about 0.05% to 1% of value sold) and VAT (at the rate of 18%) on commissions and fees. Any investor who sells its Common Shares on the Lima Stock Exchange will incur these fees and taxes upon purchase and sale of the Common Shares.
Other Considerations
As explained in Item 10. Memorandum and Articles of Association –Final Beneficial Owners, on August 2, 2018, Legislative Decree No. 1372 was published. This law entered into effect on August 3, 2018 and its regulations were enacted by Supreme Decree No. 003-2019-EF, published on January 8, 2019. According to this law and its regulations, legal entities domiciled or established in Peru must report the identity of its ultimate beneficial owners, as a tool for law enforcement agencies to confront tax evasion, money laundering and terrorist financing. For this reporting obligation, legal entities includes any corporation, partnership or similar entity, trust, investment fund or joint venture. This obligation is also applicable to legal entities which are not domiciled in Peru but have a branch, subsidiary, joint venture or permanent establishment in Peru or, in the case of trusts, which have a grantor, settlor, beneficiaries or trustees domiciled in Peru. Ultimate beneficial owner is defined as the individual that effectively owns or controls a legal entity. For this purpose, ownership is when at least 10% of the capital of the legal entity is directly or indirectly under the ownership of an individual and its related parties. On September 25, 2019, the Tax Authority issued Superintendence Resolution No. 185-2019/SUNAT, establishing rules for this mandatory report and, for the legal entities that qualify as principal taxpayers as of November 30, 2019, the first deadline for filing this mandatory report was established within the first half of December 2019. The first deadline to present the affidavit with information regarding the final beneficiaries as of November 30, 2019 was set in the first half of December 2019.
No Peruvian estate or gift taxes are imposed onlaw was amended with the gratuitous transfer of ADSs or Common Shares. No stamp, transfer or similar tax appliesobjective to any transfer of Common Shares, except for commissions payable by seller and buyergrant greater guarantees to the Lima Stock Exchange (0.15%taxpayers through application of value sold), fees payablethe general anti-evasive rule (Rule XVI of the Preliminary Title in the Tax Code) and with the objective of providing more tools to the SMV (0.05% of value sold), brokers’ fees (about 0.05% to 1% of value sold) and Value Added Tax (at the rate of 18%) on commissions and fees. Any investor who sells its Common Shares on the Lima Stock Exchange will incur these fees and taxes upon purchase and saleAdministration for effective implementation of the Common Shares.rule.
United StatesU.S. Federal Income Tax Considerations
Assuming the obligations contemplated by the Amended and Restated Deposit Agreement are being performed in accordance with its terms, holders of ADSs (or ADRs evidencing ADSs) generally will be treated for United StatesU.S. federal income tax purposes as the beneficial owners of the Common Shares represented by those ADSs. U.S. Holders should be aware that the U.S. Internal Revenue Service (the “IRS”) has expressed concerns that parties to whom ADSs are pre-released before common shares are delivered to the depositary, or intermediaries in the chain of ownership between holders of ADSs and the issuer of the security underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders of ADSs. Accordingly, the creditability of any Peruvian taxes could be affected by actions taken by such parties or intermediaries.
Cash Dividends and Other Distributions
In general, distributions with respect to the ADSs or Common Shares will, to the extent made from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, constitute dividends for U.S. federal income tax purposes. If a distribution exceeds the amount of our current and accumulated earnings and profits, as so determined under U.S. federal income tax principles, the excess will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in the ADSs or Common Shares, and thereafter as capital gain. We do not intend to maintain calculations of our earnings and profits under U.S. federal income tax principles and, unless and until such calculations are made, U.S. Holders should assume all distributions are made out of earnings and profits and constitute dividend income. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes.
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Cash dividends paid with respect to Common Shares or Common Shares represented by ADSs generally are includible in the gross income of a U.S. Holder as ordinary income. Dividends generally are treated as foreign source income. Dividends paid to a U.S. Holder that is a domestic corporation are not eligible for the dividends received deduction available to such corporations. Under current law, a maximum 20%reduced U.S. tax rate is imposed on the dividend income of an individual U.S. Holder with respect to dividends paid by a domestic corporation or “qualified foreign corporation” if certain holding period requirements are met. A qualified foreign corporation generally includes a foreign corporation ifthat is not a passive foreign investment company (“PFIC”) (as discussed below) and either (i) its shares are readily tradable on an established securities market in the U.S.United States or (ii) it is eligible for benefits under a comprehensive U.S. income tax treaty. Clause (i) willshould apply with respect to the ADSs if such ADSs are readily tradable on an established securities market inas long as the U.S. The ADSs are traded on the New York Stock Exchange. As a result, we believe that we should be treated as a qualified foreign corporation and, therefore, dividends paid to an individual U.S. Holder with respect to ADSs for which the minimum holding period requirement is met should be taxed at a maximum ratereduced rate. In the case of 20%. our Common Shares held directly by U.S. Holders and not underlying an ADS, it is not clear whether dividends paid with respect to such shares will represent “qualified dividend income.” U.S. Holders holding our Common Shares directly and not through an ADS are urged to consult their own independent tax advisors.
Dividends paid in Soles are includible in a United StatesU.S. dollar amount based on the exchange rate in effect on the date of receipt (which, in the case of ADSs, will be the date of receipt by the Depositary) whether or not the payment is converted into U.S. Dollarsdollars at that time. Any gain or loss recognized upon a subsequent sale or conversion or other taxable disposition of the Soles for a different amount of U.S. Dollarsdollars will be United StatesU.S. source ordinary income or loss.loss for U.S. federal income tax purposes. Distributions to U.S. Holders of additional Common Shares or preemptive rights with respect to Common Shares that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to United StatesU.S. federal income tax but in other circumstances may constitute a taxable dividend.
A U.S. Holder will generally be entitled to claim a U.S. foreign tax credit forin respect of any Peruvian taxes imposed on dividends received on our Common Shares or Common Shares represented by withholding or otherwise,ADSs, subject to generally applicable limitations and restrictions. In the case of U.S. individuals for whom the reduced rate of tax on dividends applies, such limitations and restrictions will appropriately take into account the rate differential under rules similar to section 904(b)(2)(B) of the Internal Revenue Code. U.S. Holders who do not elect to claim a credit for foreign taxes may instead claim a deduction in respect of such Peruvian taxes. Dividends received with respect to our Common Shares or Common Shares represented by ADSs will be treated as foreign source income for U.S. federal income tax purposes, and will be “passive category income” for purposes of calculating foreign tax credits in most cases, subject to various limitations. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisors regarding their application to the particular circumstances of such holder.
A non-U.S. Holder generally is not subject to United StatesU.S. federal income or withholding tax on dividends paid with respect to Common Shares or Common Shares represented by ADSs, unless such income is effectively connected with the conduct by the non-U.S. Holder of a trade or business within the United States.
Capital Gains
U.S. Holders will recognize capitaltaxable gain or loss on the sale or other taxable disposition of ADSs or Common Shares (or preemptive rights with respect to such shares) held by the U.S. Holder or by the Depositary.Depositary in an amount equal to the difference between the amount realized on the sale or other taxable disposition and the U.S. Holders will not recognize gain or loss on deposits or withdrawals of Common SharesHolder’s adjusted tax basis in exchange forthe ADSs or on the exercise of preemptive rights. Any gain recognized by a U.S. Holder generally will be treated as United States source income. Consequently, in the case of a disposition of Common Shares or ADSs in a transaction subject to Peruvian tax, the U.S. Holder may not be able to claim the foreign tax credit for any Peruvian tax imposed on the gain unless it has sufficient foreign source income from other sources against which it can apply the credit.Shares. Generally, such gain or loss will be a long-term capital gain or loss if the U.S. Holder’s holding period for such Common Shares or ADSs exceeds one year. Long-term capital gain for an individual U.S. Holder is generally subject to a reduced rate of U.S. federal income tax. The deductibility of capital losses is subject to limitations under the Code. Any gain recognized by a U.S. Holder generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, in the case of a sale or other taxable disposition of Common Shares or ADSs in a transaction subject to Peruvian tax, the U.S. Holder may not be able to claim a U.S. foreign tax credit for any Peruvian tax imposed on the gain unless it has sufficient foreign source income from other sources against which it can apply the credit.
For U.S. federal income tax purposes, U.S. Holders will not recognize gain or loss on deposits or withdrawals of Common Shares in exchange for ADSs or on the exercise of preemptive rights.
A non-U.S. Holder of ADSs or Common Shares will not be subject to United StatesU.S. federal income or withholding tax on gain from the sale or other disposition of ADSs or Common Shares unless (i) such gain is effectively connected with the conduct of a trade or business within the United States or (ii) the non-U.S. Holder is an individual who is present in the United States for at least 183 days during the taxable year of the disposition and certain other conditions are met.
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Passive Foreign Investment Company
WeBased on our audited financial statements as well as relevant market and shareholder data, we believe that we arewere not and will not become a passive foreign investment companyPFIC for United StatesU.S. federal income tax purposes. purposes with respect to our 2019 taxable year. In addition, based on our audited or projected financial statements and current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2020 taxable year. However, because this determination is based on our income, assets and the nature of our business, as well as the income, assets and business of entities in which we hold at least a 25% interest, from time to time, involves the application of complex tax rules, including the application of proposed United States Treasury Regulations, on which we are entitled to rely until they are finalized, and since our view is not binding on the courts or the IRS, no assurances can be provided that we will not be considered a PFIC for the current, or any past or future tax year. The potential application of the PFIC rules is further discussed below.
A foreign corporation is a passive foreign investment company (“PFIC”)PFIC in any taxable year in which, after taking into account the income and assets of certain subsidiaries pursuant to the applicable look-through rules, either (i) at least 75% of its gross income is passive income or (ii) at least 50% of the average value of its assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income generally includes interest, dividends, rents, royalties and certain gains (including certain commodityrelated gains), but active business gains from the sale of commodities is not considered “passive income” for purposes of determining whether a company is a PFIC. Our PFIC status for any taxable year is likely to depend upon the extent to which our gross profit from our mining activities is considered active business gains.
If we were a PFIC in any year during which a U.S. Holder owned ADSs or Common Shares, we would not be treated as a “qualified foreign corporation” for purposes of qualifying dividends paid to a U.S. Holder for the preferential 20% maximumreduced U.S. tax rate noted above and theabove. A U.S. Holder would also be subject to additional taxes on any excess distributions received from us and any gain realized from the sale or other disposition of ADSs or Common Shares (regardless of whether we continued to be a PFIC). unless such U.S. Holder makes an election to be taxed currently on its pro rata portion of our income, whether or not such income is distributed in the form of dividends, or otherwise makes a “mark-to-market” election with respect to the ADSs or Common Shares as permitted by the Code. A U.S. Holder has an excess distribution to the extent that distributions on ADSs or Common Shares during a taxable year exceed 125 percent125% of the average amount received during the three preceding taxable years (or, if shorter, the U.S. Holder’s holding period for the ADSs or Common Shares). To compute the tax on an excess distribution or any gain, (i) the excess distribution or the gain is allocated ratably over the U.S. Holder’s holding period for the ADSs or Common Shares, (ii) the amount allocated to the current taxable year is taxed as ordinary income and (iii) the amount allocated to other taxable years is taxed at the highest applicable marginal rate in effect for each year and an interest charge is imposed to recover the deemed benefit from the deferred payment of the tax attributable to each year.
If we were a PFIC, U.S. Holders of interests in a holder of ADSs or Common Shares may be treated as indirect holders of their proportionate share of the ADSs or Common Shares and may be taxed on their proportionate share of any excess distribution or gain attributable to the ADSs or Common Shares. An indirect holder also must treat an appropriate portion of its gain on the sale or taxable disposition of its interest in the actual holder as gain on the sale or taxable disposition of the ADSs or Common Shares.
U.S. Holders are urged to consult their own independent tax advisors regarding the potential application of the PFIC rules and related reporting requirements to the Common Shares or ADSs and the availability and advisability of making an election to avoid the adverse tax consequences of the PFIC rules should we be considered a PFIC for any taxable year.
Information Reporting and Backup Withholding
Dividends in respect of the ADSs or Common Shares and the proceeds from the sale, exchange, redemption or redemptionother disposition of the ADSs or Common Shares may be reported to the United States Internal Revenue ServiceIRS and a backup withholding tax may apply to such amounts unless the holder (i) is a domestic corporation (which may be required to establish its exemption by carryingcertifying its status on U.S. Internal Revenue ServiceIRS Form W-9), (ii) in the case of a U.S. Holder other than a corporation, provides an accurate taxpayer identification number in the manner required by applicable law, (iii) in the case of a non-U.S. Holder, provides a properly executed U.S. Internal Revenue ServiceIRS Form W-8BEN or W-8BEN-E or other successorapplicable Form W-8, or (iv) otherwise establishes a basis for exemption. The amount of any backup withholding from a payment to a U.S. Holder generally willmay be allowed as a credit against the U.S. Holder’s United StatesU.S. federal income tax liability.
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F. Dividends
“Specified Foreign Financial Asset” Reporting
U.S. Holders of “specified foreign financial assets” with an aggregate value in excess of US$50,000 (and in some circumstances, a higher threshold), may be required to file an information report with respect to such assets with their U.S. federal income tax returns. “Specified foreign financial assets” generally include any financial accounts maintained by foreign financial institutions as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and Paying Agentssecurities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities.
| F. | Dividends and Paying Agents |
Not applicable.
G. Statement by Experts
| G. | Statement by Experts |
Not applicable.
H. Documents on Display
| H. | Documents on Display |
We are subject to the informational requirements of Exchange Act. In accordance with these requirements, we file annual reports and other information to the SEC. These materials, including this Annual Report on Form 20-F and the exhibits hereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices at 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604, and 3 World Financial Center, Suite 400, New York, New York 10281-1022. Copies of the materials may be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United StatesU.S. at 1-800-SEC-0330. The SEC also maintains a web site athttp://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. Form 20-F reports and some of the other information submitted by us to the SEC may be accessed through this web site.
I. Subsidiary Information
Not applicable.
| I. | Subsidiary Information |
See “Item 4. Information of the Company Buenaventura—C. Organizational Structure”
| ITEM 11. | Quantitative and Qualitative Disclosures About Market Risk |
The following discussion contains forward-looking statements that are subject to risks and uncertainties, many of which are outside of our control. Our primary market risks are related to fluctuations in the prices of gold, silver, zinc and lead. To a lesser extent, we are subject to market risk related to fluctuations in US$/ Sol exchange rates and to market risk related to interest rate fluctuation on our cash balances.
Commodity Contracts
Gold, silver, lead and copper hedging and sensitivity to market price
Our revenues and earnings are to a great extent influenced by world market prices for gold, copper, silver, zinc and lead that fluctuate widely and over which we have no control. We and our wholly-owned subsidiaries are completely unhedged as to the price at which our gold and silver will be sold. See “Item 3. Key Information—D. Risk Factors—Factors Relating to the Company—Our financial performance is highly dependent on the prices of gold, silver, copper and other metals.”
As of March 31, 2016, we had no fixed price commitments for the sale of our metals. As of March 31, 2016,2020, we had no silver derivative contracts or gold convertible put option contracts in place.
From January to December 2020, El Brocal had no outstanding hedging commitments.
Yanacocha and Cerro Verde have informed us that they have generally not engaged in, and are currently not engaged in, gold or copper price hedging activities, such as forward sales or option contracts, to minimize their exposure to fluctuations in the prices of gold or copper.
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Normal Sales
We had no normal sales contracts with fixed or capped prices outstanding as of March 31, 2016.2020.
Foreign currency risk
We buy and sell our products and obtain capital facilities and investment in U.S. Dollars. The assets and liabilities in different currencies from the U.S. Dollar (Soles) are not significant. We estimate that the future exchange rate fluctuations of Peruvian currency versus the U.S. Dollar will not significantly affect the results of our future operations.
Interest Rate Sensitivity
We reduce our exposure to the risks due to variations in interest rates by engaging in financial obligations and capital leasing with fixed interest rates. See Note 3133(a.3) to the Consolidated Financial Statements. Consequently, we do not use derivative instruments to manage this risk and we do not expect to incur significant losses based on interest risks.risks
| ITEM 12. | Description of Securities Other Than Equity Securities |
A. Debt Securities
| A. | Debt Securities |
Not applicable.
B. Warrants and Rights
| B. | Warrants and Rights |
Not applicable.
C. Other Securities
| C. | Other Securities |
Not applicable.
| D. | American Depositary Shares |
D. American Depositary Shares
The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. The following table summarizes the fees and expenses payable by holders of ADSs:
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Persons depositing or withdrawing shares must pay: | Payable to: | For: | |
| US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | ||
| US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | ||
| A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | ||
| Registration or transfer fees | Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares | ||
| Expenses of the Depositary | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | ||
| Expenses of the Depositary | Converting foreign currency to U.S. Dollars | ||
| Taxes and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | As necessary | ||
Fees Incurred in Past Annual Period
From January 1, 20152019 to April 30, 2016,9, 2020, we received no fees from the Depositary related to our ADR facility, including continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), any applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.
Fees to be Paid in the Future
The Depositary has agreed to reimburse us for expenses we incur that are related to establishment and maintenance expenses of the ADS program. The Depositary has agreed to reimburse us for our continuing annual stock exchange listing fees. The Depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, facsimile and telephone calls. It has also agreed to reimburse us annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the Depositary has agreed to provide additional payments to us based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the Depositary will reimburse us, but the amount of reimbursement available to us is not necessarily tied to the amount of fees the Depositary collects from investors.
The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
| ITEM 13. | Defaults, Dividend Arrearages and Delinquencies |
Not applicable.
| ITEM 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Not applicable.
| ITEM 15. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of December 31, 2015,2019, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2015.2019. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (the “COSO”) of the Treadway Commission (2013 framework) inInternal Control—Integrated FrameworkFramework.(1992).Our management concluded that based on its assessment, our internal control over financial reporting was effective as of December 31, 2015.2019.
Our independent registered public accounting firm Paredes, Zaldívar, Burga & Asociados S. Civil de R.L., has issued an attestation report on our internal control over financial reporting, which is included below.
| 121 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors and Shareholders of Compañíaia de Minas Buenaventura S.A.A. and subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Compañíaia de Minas Buenaventura S.A.A.’s and subsidiaries internal control over financial reporting as of December 31, 2015,2019, based on criteria established in Internal Control - Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - the(2013 framework), (the COSO criteria.criteria). In our opinion, Compañíaia de Minas Buenaventura S.A.A.’s and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2019 and 2018, the related consolidated statements of profit or loss, other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated April 9, 2020, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual reportReport on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Report of Independent Registered Public Accounting Firm(continued)
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.International Financial Reporting Standards as issued by the International Accounting Standard Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,International Financial Reporting Standards as issued by the International Accounting Standard Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Compañía de Minas Buenaventura S.A.A. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Compañía de Minas Buenaventura S.A.A. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of profit or loss, other comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2015 of Compañía de Minas Buenaventura S.A.A. and subsidiaries and our report dated February 25, 2016, expressed an unqualified opinion thereon.
Lima, Perú
February 25, 2016
/s/ Paredes, Zaldívar, Burga & Asociados S. Civil de R.L.Countersigned by:
A member practice of Ernst & Young Global Limited
/s/ Katherine Villanueva
Lima, Peru.
April 9, 2020
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during 20152019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 16A. | Audit Committee Financial Expert |
The Board of Directors has determined that Mr. German Suárez is the Audit Committee financial expert as defined in Item 16A of Form 20-F. The Board of Directors has also determined that Mr. Suárez and each of the other members of the Audit Committee are “independent directors” as defined in Section 303A.02 of the New York Stock Exchange’s, (“NYSE”), Listed Company Manual.
| ITEM 16B. | Code of Ethics |
We have adopted a written code of business conduct and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, and controller, or persons performing similar functions, as well as all other employees. Our code of business conduct and ethics is posted on, and within five days following the date of any amendment or waiver we intend to disclose any amendments to or waivers from our code of business conduct and ethics on, our website, which is located athttp://www.buenaventura.com.www.buenaventura.com. The information on our website is not a part of, nor incorporated into, this document.
| ITEM 16C. | Principal Accountant Fees and Services |
The Audit Committee proposed at the General Meeting that Paredes, Zaldívar, Burga & Asociados S. Civil de R.L., a member firm of Ernst & Young Global Limited, be elected as the independent auditor for 2015.2019. Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. has served as our independent public accountant for each of the fiscal years in the two-year period ended December 31, 20142018 and 2015,2019, for which audited consolidated financial statements appear in this annual report on Form 20-F.
The following table presents the aggregate fees for professional services and other services rendered by Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. for 20142018 and 2015.2019.
| Year ended December 31, | Year ended December 31, | |||||||||||||||
| 2014 | 2015 | 2018 | 2019 | |||||||||||||
| Audit Fees | US$ | 1,684,569 | US$ | 1,314,910 | US$ | 1,029,235 | US$ | 1,019,361 | ||||||||
| Tax Fees | US$ | 284,987 | US$ | 292,589 | US$ | 35,970 | US$ | 26,000 | ||||||||
| All other fees | US$ | 4,275 | US$ | 21,845 | US$ | 86,080 | US$ | 34,024 | ||||||||
| Total | US$ | 1,973,831 | US$ | 1,629,344 | US$ | 1,151,285 | US$ | 1,079,385 | ||||||||
Audit Fees. Audit fees in the above table are the aggregate fees billed by Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. in connection with the audit of our annual consolidated financial statements, the review of our quarterly consolidated financial statements and statutory and regulatory audits. In addition, the amounts in the above table includes fees that were incurred in connection with the audit of internal control over financial reporting in 20142018 and 2015.2019.
Tax Fees. Tax fees in the above table are fees billed by Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. in connection with review of income tax filings, transfer pricing studies and tax consultations.filings.
Audit Committee Pre-approval Policies and Procedures
Our Audit Committee is responsible for the oversight of the independent auditor. The Audit Committee has adopted a policy regarding pre-approval of audit services provided by our independent auditors, or the “Policy.” In accordance with the Policy, the Audit Committee must pre-approve the provision of services by our independent auditor for all audit and non-audit services before commencement of the specified service. The requests for pre-approval are submitted to the Audit Committee by the Chief Financial Officer and following approval by audit committee members an engagement letter is executed. The Audit Committee approved all audit and tax fees in 20142018 and 2015.2019.
| ITEM 16D. | Exemptions from the Listing Standards for Audit Committees |
Not applicable.
| 124 |
| ITEM 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
For the year ended December 31, 2015,2019, neither we nor any person acting on our behalf made any purchase of our Common Shares.
| ITEM 16F. | Change in Registrant’s Certifying Accountant |
None.
| ITEM 16G. | Corporate Governance |
There are significant differences in the corporate governance practices followed by us as compared to those followed by United StatesU.S. domestic companies under the NYSE, listing standards. The NYSE listing standards provide that the board of directors of a United StatesU.S. domestic listed company must consist of a majority of independent directors and that certain committees must consist solely of independent directors. Under Peruvian corporate governance practices, a Peruvian company is not required to have a majority of the members of the board of directors be independent.
The listing standards for the NYSE also require that United StatesU.S. domestic companies have an audit committee, a nominating/corporate governance committee and a compensation committee. Each of these committees must consist solely of independent directors and must have a written charter that addresses certain matters specified in the listing standards. Peruvian corporate governance practices permit the Boardboard of Directorsdirectors of a Peruvian company to form special governance bodies in accordance with the needs of such company and do not require that these special governance bodies be composed partially or entirely of independent directors. We maintain three committees, which include the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee. Our Board of Directors has determined that our Audit Committee is composed entirely of independent directors, as defined in the NYSE’s Listed Company Manual.
The NYSE’s listing standards also require United StatesU.S. domestic companies to adopt and disclose corporate governance guidelines. In July 2002, the SMV and a committee comprisedcomposed of regulatory agencies and associations prepared and published a list of suggested corporate governance guidelines called “Principles of Good Governance for Peruvian Companies.” These principles are disclosed on the SMV’s website athttp://www.smv.gob.pe. Our code of business conduct and ethics establishes our principles of good corporate governance and, as indicated in “Item 16B. Code of Ethics,” is posted on our website.
| ITEM 16H. | Mine Safety Disclosure |
Not applicable.
| ITEM 17. | Consolidated Financial Statements |
Not applicable.
| ITEM 18. | Consolidated Financial Statements |
Please refer to Item 19.
| ITEM 19. | Exhibits |
| Page | ||
| (a) | Index to Consolidated Financial Statements and Schedules | |
| COMPAÑÍA DE MINAS BUENAVENTURA S.A.A. AND SUBSIDIARIES | F-1 | |
| MINERA YANACOCHA S.R.L. | ||
| SOCIEDAD MINERA CERRO VERDE S.A.A. |
| (b) | Index to Exhibits |
| Description of Securities Other Than Equity Securities† |
| 11 | Code of Conduct and Ethics (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2013, filed on April 30, 2014). |
| 12.1 | Certification of Chief Executive Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.† |
| 12.2 | Certification of Chief Financial Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.† |
| 13.1 | Certification of Chief Executive Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.† |
| 13.2 | Certification of Chief Financial Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.† |
| 101 | Interactive Data Files† |
† Filed herewith.
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| COMPAÑÍA DE MINAS BUENAVENTURA S.A.A. | ||
| By: | ||
| Chief Financial Officer | ||
Dated: May 2, 2016April 10, 2020
Exhibit Index
† Filed herewith.
| Exhibits |
Exhibits
| 129 |
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Consolidated Financial Statements for the years 2019, 2018 and 2017, together with the Report of Independent Registered Public Accounting Firm
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Consolidated Financial Statements for the years 2015, 20142019, 2018 and 2013,2017, together with the Report of Independent Registered Public Accounting Firm
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Consolidated Financial Statements for the years 2015, 2014 and 2013, together with the Report of Independent Registered Public Accounting Firm.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Compañia de Minas Buenaventura S.A.A. and subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Compañia de Minas Buenaventura S.A.A. and subsidiaries internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Compañia de Minas Buenaventura S.A.A. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2019 and 2018, the related consolidated statements of profit or loss, other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated April 9, 2020, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Report of Independent Registered Public Accounting Firm (continued)
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance International Financial Reporting Standards as issued by the International Accounting Standard Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance International Financial Reporting Standards as issued by the International Accounting Standard Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Paredes, Burga & Asociados S. Civil de R.L.
A member practice of Ernst & Young Global Limited
/s/ Katherine Villanueva
Lima, Peru.
April 9, 2020
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Compañía de Minas Buenaventura S.A.A.
Introduction
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial statementsposition of Compañía de Minas Buenaventura S.A.A. (a Peruvian public corporation), and subsidiariesSubsidiaries (together the “Group”), which comprise the consolidated statements of financial positionGroup) as of December 31, 20152019 and 2014,2018, and the related consolidated statements of profit or loss, statements of other comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2015, 20142019, and 2013. the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) the Group´s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 9, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group's Management.Group’s management. Our responsibility is to express an opinion on thesethe Group’s consolidated financial statements based on our audits. We did not auditare a public accounting firm registered with the financial statements of Minera Yanacocha S.R.L (an associatePCAOB and are required to be independent with respect to the Group in whichaccordance with the Company has a 43.65% interest through its subsidiary, Compañía Minera Condesa S.A.) as of December 31, 2014 and for the years ended December 31, 2014 and 2013. In the consolidated statements of financial position, the Group’s investment in Minera Yanacocha S.R.L., is stated at US$1,186 million as of December 31, 2014,U.S. federal securities laws and the Group’s equity in the results of Minera Yanacocha S.R.L. is stated at a loss of US$175 millionapplicable rules and US$251 million for the years ended December 31, 2014 and 2013, respectively. Those statements were audited by other auditors whose reports were furnished to us, and our opinion, insofar as it relates to the amounts included for Minera Yanacocha S.R.L., is based solely on the reportsregulations of the other auditors.
ScopeSecurities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by Management,management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
Opinion
In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Compañía de Minas Buenaventura S.A.A. and Subsidiaries as of December 31, 2015 and 2014, and their results of operations and their cash flows for each of the years ended on December 31, 2015, 2014 and 2013, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).
Additional information
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Compañía de Minas Buenaventura S.A.A.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework)” and our report dated February 25, 2016 expressed an unqualified opinion thereon.
Report of Independent Registered Public Accounting Firm (continued)
Lima, Peru,
February 25, 2016Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Countersigned by:
| Impairment of mining concessions, development costs, right-of-use asset, property, plant and equipment | ||
| Description of the Matter | At December 31, 2019, the net carrying value of the Group’s mining concessions, development costs, right-of-use asset, property, plant and equipment is US$1,754 million. Related disclosures are included in Note 2.4(n) and Note 11(b) to the consolidated financial statements. The Group reviews and evaluates its mining concessions, development costs, right-of-use asset, property, plant and equipment for impairment at least annually, or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable at the Cash Generating Unit level (CGUs). When the Group determines the existence of significant impairment indicators, management performs an assessment to determine whether an impairment has occurred. An impairment exists when the carrying value of an asset or cash generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. As result of performing its impairment tests, the Group recorded an impairment of US$2.1 million in its Julcani’s CGU as of December 31, 2019. The impairment tests required the use of significant assumptions. These assumptions are described in note 11 (b) of the Group’s consolidated financial statements, and are based on, among others, current life of mine plans, market based commodity price assumptions, discount rates that reflect the current market assessments of the time value of money and the risks specific to the CGU, estimated quantities of recoverable minerals and operating and capital costs. Auditing the Group’s impairment assessment for the above-noted CGUs is complex and highly judgmental; accordingly, we have determined this to be a critical audit matter. | |
| How We Addressed the Matter in Our Audit | We performed the following procedures, among others, to audit the impairment assessment of the CGUs noted above. We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Group’s process over the impairment review assessment. We tested controls over the Group’s process for identifying and evaluating potential impairment indicators, the life of mine process, and management´s review of the significant assumptions, projected financial information and methodology used to develop such estimates. During our audit we evaluated and tested significant assumptions, judgments and operating data used in the Group’s analysis to determine the recoverable amounts. We involved our valuation specialists to assist in comparing market based commodity price assumptions against market data including a range of analysts forecasts. We also involved our valuation specialists to evaluate the discount rates against current industry and economic trends as well as Group-specific risk premiums. We performed sensitivity analyses over changes in the discount rates and commodity price assumptions to the recoverable amounts of the CGUs. To evaluate the estimated quantity of recoverable minerals used in the impairment analyses, we obtained reports from external specialists hired by management which validate the calculations performed by management’s qualified persons. In addition, we evaluated the competency and objectivity of the external specialists and management’s qualified persons through the consideration of their professional qualifications, experience and their use of accepted industry practices. We evaluated other publicly available information that corroborated or contradicted the estimates of quantities of recoverable material determined by Management, or indicated that production from mineral interests will not likely occur or may be significantly reduced in the future. We also assessed the future cash flows by comparing forecasted commodity prices to available market information and future planned cash flows to internal business plans to assess the projected financial information. Furthermore, we evaluated management´s estimated quantities of recoverable minerals by comparing these estimates with the historical operating performance of the CGUs. The estimated operating and capital costs as well as the future production levels used in the impairment analyses are based on life of mine plans. To assess the accuracy of the Group’s ability to estimate future costs and future production levels, we compared historical estimates against actual results and reviewed supporting analyses underlying the estimates used within the discounted cash flows. We also involved our valuation specialists to assist in comparing operating and capital costs against current market data and historical information relating to the performance of the CGUs. Furthermore, we evaluated the Group’s disclosure of this matter in Note 2.4(n) and Note 11(b) to the consolidated financial statements. |
Paredes, Zaldívar, Burga & Asociados S. Civil de R.L.
A member practice of Ernst & Young Global Limited
[We have served as the Group‘s auditor since 2002]
Lima, Peru
April 9, 2020
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Consolidated statements of financial position
As of December 31, 20152019 and 20142018
| Note | 2015 | 2014 | |||||||||
| US$(000) | US$(000) | ||||||||||
| Asset | |||||||||||
| Current asset | |||||||||||
| Cash and cash equivalents | 7 | 78,519 | 78,512 | ||||||||
| Trade and other receivables, net | 8(a) | 219,862 | 281,604 | ||||||||
| Inventories, net | 9(a) | 101,473 | 150,284 | ||||||||
| Income tax credit | 45,919 | 53,746 | |||||||||
| Prepaid expenses | 10 | 8,231 | 16,954 | ||||||||
| Derivative financial instruments | 32(a) | - | 3,688 | ||||||||
| 454,004 | 584,788 | ||||||||||
| Assets held for sale | 1(e) | 15,592 | 18,683 | ||||||||
| 469,596 | 603,471 | ||||||||||
| Non-current asset | |||||||||||
| Trade and other receivables, net | 8(a) | 162,567 | 26,651 | ||||||||
| Inventories, net | 9(a) | 26,029 | 34,088 | ||||||||
| Investments in associates | 11(a) | 2,043,983 | 2,224,381 | ||||||||
| Mining concessions, development costs, property, plant and equipment, net | 12 | 1,747,624 | 1,715,452 | ||||||||
| Investment properties, net | 13 | 10,719 | 11,200 | ||||||||
| Deferred income tax asset, net | 28(b) | 41,574 | 47,675 | ||||||||
| Prepaid expenses | 10 | 29,235 | - | ||||||||
| Other assets | 15,854 | 9,356 | |||||||||
| 4,077,585 | 4,068,803 | ||||||||||
| Total assets | 4,547,181 | 4,672,274 | |||||||||
| Liabilities and shareholders’ equity, net | |||||||||||
| Current liabilities | |||||||||||
| Bank loans | 14 | 285,302 | 40,000 | ||||||||
| Trade and other payables | 15(a) | 247,114 | 254,000 | ||||||||
| Provisions | 16(a) | 49,829 | 67,895 | ||||||||
| Income tax payable | 2,444 | 3,556 | |||||||||
| Embedded derivatives for sale of concentrate, net | 32(b) | 1,694 | 9,072 | ||||||||
| Financial obligations | 17(a) | 33,394 | 69,950 | ||||||||
| Derivative financial instruments | 32(c) | 10,643 | - | ||||||||
| 630,420 | 444,473 | ||||||||||
| Liabilities directly associated with the assets held for sale | 1(e) | 20,611 | 28,890 | ||||||||
| 651,031 | 473,363 | ||||||||||
| Non-current liabilities | |||||||||||
| Trade and other payables | 15(a) | 15,057 | 15,240 | ||||||||
| Provisions | 16(a) | 141,885 | 63,571 | ||||||||
| Financial obligations | 17(a) | 320,316 | 313,355 | ||||||||
| Contingent consideration liability | 5 | 16,994 | 23,026 | ||||||||
| Deferred income tax liabilities, net | 28(b) | 12,662 | 21,594 | ||||||||
| 506,914 | 436,786 | ||||||||||
| Total liabilities | 1,157,945 | 910,149 | |||||||||
| Shareholders’ equity, net | 18 | ||||||||||
| Capital stock | 750,497 | 750,497 | |||||||||
| Investment shares | 1,396 | 1,396 | |||||||||
| Additional paid-in capital | 219,055 | 219,055 | |||||||||
| Legal reserve | 162,714 | 162,710 | |||||||||
| Other reserves | 269 | 269 | |||||||||
| Retained earnings | 2,024,895 | 2,328,423 | |||||||||
| Other reserves of equity | 2,240 | 1,755 | |||||||||
| Shareholders’ equity, net attributable to owners of the parent | 3,161,066 | 3,464,105 | |||||||||
| Non-controlling interest | 19(a) | 228,170 | 298,020 | ||||||||
| Total shareholders’ equity, net | 3,389,236 | 3,762,125 | |||||||||
| Total liabilities and shareholders’ equity, net | 4,547,181 | 4,672,274 | |||||||||
| Notes | 2019 | 2018 | |||||||||
| US$(000) | US$(000) | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | 6 | 210,046 | 369,200 | ||||||||
| Trade and other receivables, net | 7(a) | 287,712 | 211,715 | ||||||||
| Inventories, net | 8(a) | 97,973 | 135,919 | ||||||||
| Income tax credit | 31,919 | 24,396 | |||||||||
| Prepaid expenses | 9(a) | 20,969 | 17,145 | ||||||||
| Hedge derivative financial instruments | 32 | - | 2,759 | ||||||||
| 648,619 | 761,134 | ||||||||||
| Non-current assets | |||||||||||
| Trade and other receivables, net | 7(a) | 88,515 | 40,593 | ||||||||
| Inventories, net | 8(a) | 394 | 3,812 | ||||||||
| Income tax credit | - | 319 | |||||||||
| Investments in associates and joint ventures | 10(a) | 1,488,247 | 1,473,382 | ||||||||
| Mining concessions, development costs, right-of-use asset, property, plant and equipment, net | 11(a) | 1,754,372 | 1,847,615 | ||||||||
| Investment properties, net | 204 | 222 | |||||||||
| Deferred income tax asset, net | 28(b) | 74,556 | 38,305 | ||||||||
| Prepaid expenses | 9(a) | 25,692 | 26,578 | ||||||||
| Other assets, net | 12(a) | 26,675 | 25,261 | ||||||||
| 3,458,655 | 3,456,087 | ||||||||||
| Total assets | 4,107,274 | 4,217,221 | |||||||||
| �� | |||||||||||
| Liabilities and shareholders’ equity, net | |||||||||||
| Current liabilities | |||||||||||
| Bank loans | 13 | 55,000 | 95,000 | ||||||||
| Trade and other payables | 14(a) | 166,244 | 188,084 | ||||||||
| Provisions, contingent liabilities and other liabilities | 15(a) | 72,771 | 68,172 | ||||||||
| Income tax payable | 5,650 | 1,760 | |||||||||
| Financial obligations | 16(a) | 265,692 | 46,166 | ||||||||
| 565,357 | 399,182 | ||||||||||
| Non-current liabilities | |||||||||||
| Trade and other payables | 14(a) | 616 | 639 | ||||||||
| Provisions, contingent liabilities and other liabilities | 15(a) | 221,736 | 199,762 | ||||||||
| Financial obligations | 16(a) | 305,996 | 540,896 | ||||||||
| Contingent consideration liability | 27(b) | 16,410 | 15,755 | ||||||||
| Deferred income tax liabilities, net | 28(b) | 28,959 | 31,422 | ||||||||
| 573,717 | 788,474 | ||||||||||
| Total liabilities | 1,139,074 | 1,187,656 | |||||||||
| Shareholders’ equity, net | 17 | ||||||||||
| Capital stock | 750,497 | 750,497 | |||||||||
| Investment shares | 791 | 791 | |||||||||
| Additional paid-in capital | 218,450 | 218,450 | |||||||||
| Legal reserve | 163,168 | 163,115 | |||||||||
| Other reserves | 269 | 269 | |||||||||
| Retained earnings | 1,639,658 | 1,675,909 | |||||||||
| Other reserves of equity | (1,311 | ) | (703 | ) | |||||||
| Shareholders ‘equity, net attributable to owners of the parent | 2,771,522 | 2,808,328 | |||||||||
| Non-controlling interest | 18(a) | 196,678 | 221,237 | ||||||||
| Total shareholders’ equity, net | 2,968,200 | 3,029,565 | |||||||||
| Total liabilities and shareholders’ equity, net | 4,107,274 | 4,217,221 | |||||||||
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Consolidated statements of profit or loss
For the years ended December 31, 2015, 20142019, 2018 and 20132017
| Note | 2015 | 2014 | 2013 | |||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||||
| Continuing operations | ||||||||||||||
| Operating income | ||||||||||||||
| Net sales of goods | 21(a) | 864,962 | 1,067,271 | 1,135,836 | ||||||||||
| Net sales of services | 21(a) | 54,488 | 71,642 | 79,585 | ||||||||||
| Royalty income | 30(a) | 32,414 | 36,867 | 44,185 | ||||||||||
| Total operating income | 951,864 | 1,175,780 | 1,259,606 | |||||||||||
| Operating costs | ||||||||||||||
| Cost of sales of goods, excluding depreciation and amortization | 22(a) | (537,713 | ) | (533,052 | ) | (513,165 | ) | |||||||
| Cost of services, excluding depreciation and amortization | 22(b) | (52,692 | ) | (81,487 | ) | (114,120 | ) | |||||||
| Exploration in operating units | 23 | (91,520 | ) | (97,852 | ) | (101,913 | ) | |||||||
| Depreciation and amortization | (242,465 | ) | (208,698 | ) | (159,140 | ) | ||||||||
| Mining royalties | 24 | (27,407 | ) | (28,440 | ) | (30,402 | ) | |||||||
| Total operating costs | (951,797 | ) | (949,529 | ) | (918,740 | ) | ||||||||
| Gross profit | 67 | 226,251 | 340,866 | |||||||||||
| Operating expenses | ||||||||||||||
| Administrative expenses | 25 | (86,532 | ) | (101,102 | ) | (75,118 | ) | |||||||
| Exploration in non-operating areas | 26 | (30,610 | ) | (50,007 | ) | (32,805 | ) | |||||||
| Selling expenses | (19,481 | ) | (16,605 | ) | (14,842 | ) | ||||||||
| Impairment loss of long-lived assets | 12(b) | (11,255 | ) | - | - | |||||||||
| Other, net | 209 | 3,059 | (2,858 | ) | ||||||||||
| Total operating expenses, net | (147,669 | ) | (164,655 | ) | (125,623 | ) | ||||||||
| Operating profit (loss) | (147,602 | ) | 61,596 | 215,243 | ||||||||||
| Other income (expense), net | ||||||||||||||
| Share in the results of associates under equity method | 11(b) | (173,375 | ) | (74,600 | ) | (114,145 | ) | |||||||
| Finance costs | 27 | (27,622 | ) | (11,318 | ) | (9,896 | ) | |||||||
| Net gain (loss) from currency exchange difference | (13,683 | ) | (8,452 | ) | (7,192 | ) | ||||||||
| Gain on business combination | 5 | - | 59,852 | - | ||||||||||
| Finance income | 27 | 11,026 | 8,408 | 6,621 | ||||||||||
| Total other income (expenses), net | (203,654 | ) | (26,110 | ) | (124,612 | ) | ||||||||
| Profit (loss) before income tax | (351,256 | ) | 35,486 | 90,631 | ||||||||||
| Current income tax | 28(c) | (14,225 | ) | (19,006 | ) | (57,328 | ) | |||||||
| Deferred income tax | 28(c) | (541 | ) | (47,006 | ) | (29,154 | ) | |||||||
| Profit (loss) from continuing operations | (366,022 | ) | (30,526 | ) | 4,149 | |||||||||
| Discontinued operations | ||||||||||||||
| Loss from discontinued operations | 1(e) | (9,523 | ) | (31,114 | ) | (83,885 | ) | |||||||
| Loss for the year | (375,545 | ) | (61,640 | ) | (79,736 | ) | ||||||||
| Attributable to: | ||||||||||||||
| Owners of the parent | (317,210 | ) | (76,065 | ) | (107,257 | ) | ||||||||
| Non-controlling interest | 19(a) | (58,335 | ) | 14,425 | 27,521 | |||||||||
| (375,545 | ) | (61,640 | ) | (79,736 | ) | |||||||||
| Basic and diluted loss per share attributable to equity holders of the parent, stated in U.S. dollars | 18(e) | (1.25 | ) | (0.30 | ) | (0.42 | ) | |||||||
| Loss for continuing operations, basic and diluted per share attributable to equity holders of the parent, expressed in US dollars | 18(e) | (1.21 | ) | (0.18 | ) | (0.09 | ) | |||||||
| Notes | 2019 | 2018 | 2017 | ||||||||||||
| US$(000) | US$(000) | US$(000) | |||||||||||||
| Continuing operations | |||||||||||||||
| Operating income | |||||||||||||||
| Net sales of goods | 20(b) | 821,930 | 1,106,329 | 1,187,206 | |||||||||||
| Sales of services | 20(b) | 23,661 | 24,001 | 29,697 | |||||||||||
| Royalty income | 20(b) | 22,297 | 20,385 | 20,739 | |||||||||||
| Total operating income | 867,888 | 1,150,715 | 1,237,642 | ||||||||||||
| Operating costs | |||||||||||||||
| Cost of sales of goods, excluding depreciation and amortization | 21(a) | (512,874 | ) | (613,381 | ) | (604,650 | ) | ||||||||
| Cost of sales of services, excluding depreciation and amortization | 21(b) | (3,378 | ) | (4,318 | ) | (12,954 | ) | ||||||||
| Depreciation and amortization | (226,335 | ) | (238,879 | ) | (210,154 | ) | |||||||||
| Exploration in operating units | 22 | (44,163 | ) | (89,730 | ) | (89,311 | ) | ||||||||
| Mining royalties | 23 | (12,832 | ) | (21,388 | ) | (30,884 | ) | ||||||||
| Total operating costs | (799,582 | ) | (967,696 | ) | (947,953 | ) | |||||||||
| Gross profit | 68,306 | 183,019 | 289,689 | ||||||||||||
| Operating expenses, net | |||||||||||||||
| Administrative expenses | 24 | (76,297 | ) | (77,099 | ) | (80,666 | ) | ||||||||
| Selling expenses | 20(e) | (24,313 | ) | (26,948 | ) | (23,043 | ) | ||||||||
| Exploration in non-operating areas | 25 | (11,879 | ) | (36,307 | ) | (18,262 | ) | ||||||||
| Impairment recovery (loss) of long-lived assets | 11(b) | (2,083 | ) | 5,693 | (21,620 | ) | |||||||||
| Reversal (provision) of contingent and others | 2,968 | 11,248 | (13,740 | ) | |||||||||||
| Write – off of stripping activity asset | 11(g) | - | - | (13,573 | ) | ||||||||||
| Other, net | 26 | (14,715 | ) | (1,308 | ) | (13,230 | ) | ||||||||
| Total operating expenses, net | (126,319 | ) | (124,721 | ) | (184,134 | ) | |||||||||
| Operating profit (loss) | (58,013 | ) | 58,298 | 105,555 | |||||||||||
| Other income (expense), net | |||||||||||||||
| Share in the results of associates and joint ventures | 10(b) | 47,710 | (1,144 | ) | 13,207 | ||||||||||
| Finance income | 27 | 9,675 | 9,685 | 5,517 | |||||||||||
| Finance costs | 27 | (42,173 | ) | (38,422 | ) | (34,551 | ) | ||||||||
| Net gain (loss) from currency exchange difference | (734 | ) | (1,384 | ) | 2,939 | ||||||||||
| Total other income (expenses), net | 14,478 | (31,265 | ) | (12,888 | ) | ||||||||||
| Profit (loss) before income tax | (43,535 | ) | 27,033 | 92,667 | |||||||||||
| Current income tax | 28(c) | (11,911 | ) | (16,882 | ) | (23,713 | ) | ||||||||
| Deferred income tax | 28(c) | 37,501 | (9,997 | ) | 5,825 | ||||||||||
| Profit (loss) from continuing operations | (17,945 | ) | 154 | 74,779 | |||||||||||
| Discontinued operations | |||||||||||||||
| Net loss from discontinued operations attributable to equity holders of the parent | 1(e) | (10,514 | ) | (11,808 | ) | (10,344 | ) | ||||||||
| Profit (loss) for the year | (28,459 | ) | (11,654 | ) | 64,435 | ||||||||||
| Attributable to: | |||||||||||||||
| Equity holders of the parent | (12,208 | ) | (13,445 | ) | 60,823 | ||||||||||
| Non-controlling interest | 18(a) | (16,251 | ) | 1,791 | 3,612 | ||||||||||
| (28,459 | ) | (11,654 | ) | 64,435 | |||||||||||
| Basic and diluted profit (loss) per share attributable to equity holders of the parent, stated in U.S. dollars | 17(a) | (0.05 | ) | (0.05 | ) | 0.24 | |||||||||
Profit (loss) for continuing operations, basic and diluted per share attributable to equity holders of the parent, expressed in US dollars | 17(e) | (0.01 | ) | (0.02 | ) | 0.28 | |||||||||
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Consolidated statements of other comprehensive income
For the years ended December 31, 2015, 20142019, 2018 and 2013 2017
| 2015 | 2014 | 2013 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Net loss | (375,545 | ) | (61,640 | ) | (79,736 | ) | ||||||
| Other comprehensive profit (loss): | ||||||||||||
| Other comprehensive income to be reclassified to profit or loss in subsequent periods | ||||||||||||
| Net change in unrealized gain (loss) on cash flow hedges | (3,368 | ) | 4,781 | (1,093 | ) | |||||||
| Loss on available-for-sale investments | (546 | ) | (80 | ) | (434 | ) | ||||||
| Income tax effect | 3,372 | (1,581 | ) | 378 | ||||||||
| (542 | ) | 3,120 | (1,149 | ) | ||||||||
| Total other comprehensive loss | (376,087 | ) | (58,520 | ) | (80,885 | ) | ||||||
| Attributable to: | ||||||||||||
| Equity holders of the parent | (316,725 | ) | (74,414 | ) | (108,078 | ) | ||||||
| Non-controlling interests | (59,362 | ) | 15,894 | 27,193 | ||||||||
| (376,087 | ) | (58,520 | ) | (80,885 | ) | |||||||
| 2019 | 2018 | 2017 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Net profit (loss) | (28,459 | ) | (11,654 | ) | 64,435 | |||||||
| Other comprehensive profit (loss): | ||||||||||||
| Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods | ||||||||||||
| Net change in unrealized gain (loss) on cash flow hedges, note 32 | (2,759 | ) | 31,464 | (26,822 | ) | |||||||
| Income tax effect | 813 | (9,916 | ) | 7,963 | ||||||||
| Unrealized gain on investments, net of income tax effect | (291 | ) | 1,053 | (427 | ) | |||||||
| (2,237 | ) | 22,601 | (19,286 | ) | ||||||||
| Total other comprehensive profit (loss), net of income tax | (30,696 | ) | 10,947 | 45,149 | ||||||||
| Attributable to: | ||||||||||||
| Equity holders of the parent | (12,816 | ) | (260 | ) | 48,718 | |||||||
| Non-controlling interests | (17,880 | ) | 11,207 | (3,569 | ) | |||||||
| (30,696 | ) | 10,947 | 45,149 | |||||||||
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Consolidated statements of changes in equity
For the years ended December 31, 2015, 20142019, 2018 and 20132017
| Attributable to equity holders of the parent | ||||||||||||||||||||||||||||||||||||||||||||
Capital stock, net of treasury shares | ||||||||||||||||||||||||||||||||||||||||||||
Number of outstanding | Common shares | Investment shares | Additional paid-in capital | Legal reserve | Other reserves | Retained earnings | Other reserves of equity | Total | Non-controlling interest | Total equity | ||||||||||||||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||||||||||||||
| As of January 1, 2013 | 253,729,664 | 750,540 | 1,399 | 219,471 | 162,663 | 269 | 2,599,266 | 925 | 3,734,533 | 263,647 | 3,998,180 | |||||||||||||||||||||||||||||||||
| Net profit (loss) | - | - | - | - | - | - | (107,257 | ) | - | (107,257 | ) | 27,521 | (79,736 | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | (821 | ) | (821 | ) | (328 | ) | (1,149 | ) | |||||||||||||||||||||||||||||
| Total other comprehensive income | - | - | - | - | - | - | (107,257 | ) | (821 | ) | (108,078 | ) | 27,193 | (80,885 | ) | |||||||||||||||||||||||||||||
| Dividends declared and paid, Note 18(d) | - | - | - | - | - | - | (78,879 | ) | - | (78,879 | ) | (13,533 | ) | (92,412 | ) | |||||||||||||||||||||||||||||
| Treasury shares purchase | (14,474 | ) | (43 | ) | (3 | ) | (416 | ) | - | - | - | - | (462 | ) | - | (462 | ) | |||||||||||||||||||||||||||
| As of December 31, 2013 | 253,715,190 | 750,497 | 1,396 | 219,055 | 162,663 | 269 | 2,413,130 | 104 | 3,547,114 | 277,307 | 3,824,421 | |||||||||||||||||||||||||||||||||
| Net profit (loss) | - | - | - | - | - | - | (76,065 | ) | - | (76,065 | ) | 14,425 | (61,640 | ) | ||||||||||||||||||||||||||||||
| Other comprehensive profit | - | - | - | - | - | - | - | 1,651 | 1,651 | 1,469 | 3,120 | |||||||||||||||||||||||||||||||||
| Total other comprehensive profit (loss) | - | - | - | - | - | - | (76,065 | ) | 1,651 | (74,414 | ) | 15,894 | (58,520 | ) | ||||||||||||||||||||||||||||||
| Dividends declared and paid, Note 18(d) | - | - | - | - | - | - | (8,642 | ) | - | (8,642 | ) | (8,880 | ) | (17,522 | ) | |||||||||||||||||||||||||||||
| Expired dividends | - | - | - | - | 47 | - | - | - | 47 | - | 47 | |||||||||||||||||||||||||||||||||
| Increases in non-controlling interest | - | - | - | - | - | - | - | - | - | 13,699 | 13,699 | |||||||||||||||||||||||||||||||||
| As of December 31, 2014 | 253,715,190 | 750,497 | 1,396 | 219,055 | 162,710 | 269 | 2,328,423 | 1,755 | 3,464,105 | 298,020 | 3,762,125 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (317,210 | ) | - | (317,210 | ) | (58,335 | ) | (375,545 | ) | |||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | 485 | 485 | (1,027 | ) | (542 | ) | |||||||||||||||||||||||||||||||
| Total other comprehensive income | - | - | - | - | - | - | (317,210 | ) | 485 | (316,725 | ) | (59,362 | ) | (376,087 | ) | |||||||||||||||||||||||||||||
| Dividends declared and paid, Note 19(b) | - | - | - | - | - | - | - | - | - | (10,488 | ) | (10,488 | ) | |||||||||||||||||||||||||||||||
| Expired dividends | - | - | - | - | 4 | - | - | - | 4 | - | 4 | |||||||||||||||||||||||||||||||||
| Other items | - | - | - | - | - | - | 13,682 | - | 13,682 | - | 13,682 | |||||||||||||||||||||||||||||||||
| As of December 31, 2015 | 253,715,190 | 750,497 | 1,396 | 219,055 | 162,714 | 269 | 2,024,895 | 2,240 | 3,161,066 | 228,170 | 3,389,236 | |||||||||||||||||||||||||||||||||
| Attributable to equity holders of the parent | ||||||||||||||||||||||||||||||||||
Capital stock, net of treasury shares | ||||||||||||||||||||||||||||||||||
Number of shares outstanding | Common shares | Investment shares | Additional paid-in capital | Legal reserve | Other reserves | Retained earnings | Other reserves of equity | Total | Non-controlling interest | Total equity | ||||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||||
| As of January 1, 2017 | 253,715,190 | 750,497 | 791 | 218,450 | 162,744 | 269 | 1,690,123 | (1,783 | ) | 2,821,091 | 226,122 | 3,047,213 | ||||||||||||||||||||||
| Net profit | - | - | - | - | - | - | 60,823 | - | 60,823 | 3,612 | 64,435 | |||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | (12,105 | ) | (12,105 | ) | (7,181 | ) | (19,286 | ) | |||||||||||||||||||
| Total other comprehensive income (loss) | - | - | - | - | - | - | 60,823 | (12,105 | ) | 48,718 | (3,569 | ) | 45,149 | |||||||||||||||||||||
| Dividends declared and paid, note 17(d) | - | - | - | - | - | - | (22,099 | ) | - | (22,099 | ) | (6,036 | ) | (28,135 | ) | |||||||||||||||||||
| Expired dividends, note 17(c) | - | - | - | - | 327 | - | - | - | 327 | - | 327 | |||||||||||||||||||||||
| Change in non-controlling interest, note 18(a) | - | - | - | - | - | - | - | - | - | (927 | ) | (927 | ) | |||||||||||||||||||||
| As of December 31, 2017 | 253,715,190 | 750,497 | 791 | 218,450 | 163,071 | 269 | 1,728,847 | (13,888 | ) | 2,848,037 | 215,590 | 3,063,627 | ||||||||||||||||||||||
| Net profit (loss) | - | - | - | - | - | - | (13,445 | ) | - | (13,445 | ) | 1,791 | (11,654 | ) | ||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | 13,185 | 13,185 | 9,416 | 22,601 | |||||||||||||||||||||||
| Total other comprehensive income (loss) | - | - | - | - | - | - | (13,445 | ) | 13,185 | (260 | ) | 11,207 | 10,947 | |||||||||||||||||||||
| Dividends declared and paid, note 17(d) | - | - | - | - | - | - | (22,860 | ) | - | (22,860 | ) | (5,560 | ) | (28,420 | ) | |||||||||||||||||||
| Change in investments, note 10(b) | - | - | - | - | - | - | (16,633 | ) | - | (16,633 | ) | - | (16,633 | ) | ||||||||||||||||||||
| Expired dividends, note 17(c) | - | - | - | - | 44 | - | - | - | 44 | - | 44 | |||||||||||||||||||||||
| As of December 31, 2018 | 253,715,190 | 750,497 | 791 | 218,450 | 163,115 | 269 | 1,675,909 | (703 | ) | 2,808,328 | 221,237 | 3,029,565 | ||||||||||||||||||||||
| Effect of new standards, note 2.3 | - | - | - | - | - | - | (1,160 | ) | - | (1,160 | ) | (179 | ) | (1,339 | ) | |||||||||||||||||||
| As of January 1, 2019 | 253,715,190 | 750,497 | 791 | 218,450 | 163,115 | 269 | 1,674,749 | (703 | ) | 2,807,168 | 221,058 | 3,028,226 | ||||||||||||||||||||||
| Net profit (loss) | - | - | - | - | - | - | (12,208 | ) | - | (12,208 | ) | (16,251 | ) | (28,459 | ) | |||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | (608 | ) | (608 | ) | (1,629 | ) | (2,237 | ) | |||||||||||||||||||
| Total other comprehensive income (loss) | - | - | - | - | - | - | (12,208 | ) | (608 | ) | (12,816 | ) | (17,880 | ) | (30,696 | ) | ||||||||||||||||||
| Dividends declared and paid, note 17(d) | - | - | - | - | - | - | (22,098 | ) | - | (22,098 | ) | (6,500 | ) | (28,598 | ) | |||||||||||||||||||
| Change in investments, note 10(b) | - | - | - | - | - | - | (785 | ) | - | (785 | ) | - | (785 | ) | ||||||||||||||||||||
| Expired dividends, note 17(c) | - | - | - | - | 53 | - | - | - | 53 | - | 53 | |||||||||||||||||||||||
| As of December 31, 2019 | 253,715,190 | 750,497 | 791 | 218,450 | 163,168 | 269 | 1,639,658 | (1,311 | ) | 2,771,522 | 196,678 | 2,968,200 | ||||||||||||||||||||||
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Consolidated statements of cash flows
For the years ended December 31, 2015, 20142019, 2018 and 20132017
| Note | 2015 | 2014 | 2013 | 2019 | 2018 | 2017 | |||||||||||||||||||||||
| US$(000) | US$(000) | US$(000) | Notes | US$(000) | US$(000) | US$(000) | |||||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||||||||
| Proceeds from sales | 965,273 | 1,144,394 | 1,351,359 | 783,000 | 1,216,294 | 1,197,523 | |||||||||||||||||||||||
| Value added tax recovered | 81,692 | 39,685 | 66,921 | ||||||||||||||||||||||||||
| Recovery from value added tax and other taxes | 45,712 | 106,656 | 102,548 | ||||||||||||||||||||||||||
| Dividends received | 30(a) | 33,388 | 46,792 | 9,823 | |||||||||||||||||||||||||
| Royalty received | 38,983 | 31,252 | 50,562 | 23,001 | 20,013 | 21,565 | |||||||||||||||||||||||
| Dividends received | 30 | 6,691 | 12,938 | 9,803 | |||||||||||||||||||||||||
| Interest received | 3,650 | 8,333 | 8,235 | 4,265 | 2,383 | 3,169 | |||||||||||||||||||||||
| Proceeds from insurance claim | 26(c) | - | 38,793 | - | |||||||||||||||||||||||||
| Payments to suppliers and third parties | (727,017 | ) | (805,413 | ) | (752,770 | ) | (610,737 | ) | (861,282 | ) | (872,467 | ) | |||||||||||||||||
| Payments to employees | (175,329 | ) | (203,496 | ) | (216,799 | ) | (137,300 | ) | (151,602 | ) | (160,891 | ) | |||||||||||||||||
| Payments for tax litigation | 7(g) | (36,322 | ) | - | - | ||||||||||||||||||||||||
| Interest paid | (28,266 | ) | (27,699 | ) | (30,402 | ) | |||||||||||||||||||||||
| Income tax paid | (24,935 | ) | (30,898 | ) | (38,121 | ) | |||||||||||||||||||||||
| Payments of mining royalties | (22,836 | ) | (22,631 | ) | (30,623 | ) | (4,741 | ) | (13,190 | ) | (20,165 | ) | |||||||||||||||||
| Income tax paid | (22,330 | ) | (33,161 | ) | (66,427 | ) | |||||||||||||||||||||||
| Interest paid | (21,518 | ) | (9,405 | ) | (11,494 | ) | |||||||||||||||||||||||
| Net cash and cash equivalents provided by operating activities | 127,259 | 162,496 | 408,767 | 47,065 | 346,260 | 212,582 | |||||||||||||||||||||||
| Investing activities | |||||||||||||||||||||||||||||
| Proceeds from settlement of financial assets at fair value through profit or loss | - | - | 52,944 | ||||||||||||||||||||||||||
| Proceeds from sale of concessions, development costs, property, plant and equipment to third parties | 726 | 2,240 | 1,962 | ||||||||||||||||||||||||||
| Additions to mining concessions, development costs, property, plant and equipment | 11(a) | (102,627 | ) | (111,270 | ) | (259,507 | ) | ||||||||||||||||||||||
| Payments for acquisition of other assets | 12(a) | (3,700 | ) | (8,529 | ) | (5,405 | ) | ||||||||||||||||||||||
| Proceeds from collection of loan to an associate | 30 | - | 15,553 | 24,537 | 30(a) | - | - | 124,800 | |||||||||||||||||||||
| Proceeds from sale of mining concessions, development costs, property, plant and equipment | 5,481 | 1,681 | 5,010 | ||||||||||||||||||||||||||
| Additions to mining concessions, development costs, property, plant and equipment | 12 | (211,286 | ) | (227,564 | ) | (503,576 | ) | ||||||||||||||||||||||
| Loans to associates | 30 | (124,800 | ) | - | - | ||||||||||||||||||||||||
| Loans to third parties | 8 | (829 | ) | - | - | ||||||||||||||||||||||||
| Payments for acquisition of other assets | (10,238 | ) | - | - | |||||||||||||||||||||||||
| Payments for acquisition of shares in associate, net of cash acquired | - | (80,316 | ) | - | |||||||||||||||||||||||||
| Contributions in associates | - | (2,012 | ) | (6,988 | ) | ||||||||||||||||||||||||
| Net cash and cash equivalents used in investing activities | (341,672 | ) | (292,658 | ) | (428,073 | ) | (105,601 | ) | (117,559 | ) | (138,150 | ) | |||||||||||||||||
| Financing activities | |||||||||||||||||||||||||||||
| Proceeds from financial obligations | 17 | 296 | 177,125 | 236,975 | |||||||||||||||||||||||||
| Proceeds from bank loans | 14 | 344,503 | 40,000 | - | 13 | 55,000 | 95,000 | 341,215 | |||||||||||||||||||||
| Payments of bank loans | 14 | (90,000 | ) | - | - | 13 | (95,000 | ) | (95,000 | ) | (300,000 | ) | |||||||||||||||||
| Proceeds from financial obligations | 16(f) | 161,894 | - | 80,000 | |||||||||||||||||||||||||
| Payments of financial obligations | 17 | (29,891 | ) | (42,205 | ) | (260,231 | ) | 16(f) | (186,152 | ) | (45,222 | ) | (32,599 | ) | |||||||||||||||
| Short-term lease payments | 16(f) | (7,596 | ) | - | - | ||||||||||||||||||||||||
| Dividends paid to controlling shareholders | 18(d) | - | (8,642 | ) | (78,879 | ) | 14(c) | (22,098 | ) | (22,860 | ) | (22,099 | ) | ||||||||||||||||
| Dividends paid to non-controlling shareholders | 19(b) | (10,488 | ) | (8,880 | ) | (13,533 | ) | 17(d) | (6,500 | ) | (5,560 | ) | (6,036 | ) | |||||||||||||||
| Purchase of treasury shares | - | - | (462 | ) | |||||||||||||||||||||||||
| Increase of restricted bank accounts | 7(e) | (166 | ) | (410 | ) | (285 | ) | ||||||||||||||||||||||
| Acquisition of non-controlling interest | 18(a) | - | - | (621 | ) | ||||||||||||||||||||||||
| Net cash and cash equivalents provided by (used in) financing activities | 214,420 | 157,398 | (116,130 | ) | (100,618 | ) | (74,052 | ) | 59,575 | ||||||||||||||||||||
| Increase (decrease) in cash and cash equivalents for the year, net | 7 | 27,236 | (135,436 | ) | (159,154 | ) | 154,649 | 134,007 | |||||||||||||||||||||
| Cash and cash equivalents at beginning of year | 78,512 | 51,276 | 186,712 | 369,200 | 214,551 | 80,544 | |||||||||||||||||||||||
| Cash and cash equivalents at year-end | 210,046 | 369,200 | 214,551 | ||||||||||||||||||||||||||
| Cash and cash equivalents at year-end | 78,519 | 78,512 | 51,276 | ||||||||||||||||||||||||||
| Financing and investing activities not affecting cash flows: | |||||||||||||||||||||||||||||
| Changes in mine closures plans | 74,907 | 398 | 57,657 | ||||||||||||||||||||||||||
| Contingent consideration liability | - | 23,026 | - | ||||||||||||||||||||||||||
| Changes in estimates of mine closures plans | 15(b) | 26,722 | 42,874 | 10,594 | |||||||||||||||||||||||||
| Accounts receivable from sale of assets | 7(a) | 21,648 | 2,715 | 5,371 | |||||||||||||||||||||||||
| Fair value for contingent consideration liability | 27(b) | (655 | ) | 1,815 | 1,773 | ||||||||||||||||||||||||
Compañía de Minas Buenaventura S.A.A. and Subsidiaries
Notes to the consolidated financial statements
For the years 2015, 20142019, 2018 and 20132017
| 1. | Identification and business activity | |
| (a) | Identification - |
Compañía de Minas Buenaventura S.A.A. (hereafter “the Company” or “Buenaventura”) is a publicly traded corporation incorporated in 1953. The Company stock is traded on the Lima and New York Stock Exchanges through American Depositary Receipts (ADRs), which represent the Company’s shares deposited in the Bank of New York. The Company’s legal domicile is at Las Begonias Street N°415, San Isidro, Lima, Peru.
| (b) | Business activity - |
The Company and its subsidiaries (hereinafter “the Group"Group”) are principally engaged in the exploration, mining, concentration, smelting and marketing of polymetallic ores and metals.
The GroupCompany operates directly fivefour operating mining units in Peru (Uchucchacua, Orcopampa, Julcani Mallay and Breapampa)Tambomayo), fourthree discontinued mining units held for sale (Poracota, Recuperada, Antapite(Mallay, Poracota and Shila-Paula), and twoone mining unitsunit under development stage (Tambomayo and San(San Gabriel). In addition, the GroupCompany has a controlling interest in Sociedad Minera El Brocal S.A.A. (hereinafter “El Brocal”), which operates the Colquijirca mining unit; in Minera La Zanja S.R.L. (hereinafter “La Zanja”), which operates La Zanja mining unit; in El Molle Verde S.A.S.A.C. (hereinafter “Molle Verde”) which operates Trapiche, a mining unit at the development stage; and in other entities dedicated to energy generation and transmission services, construction and engineering services and other activities. All these activities are carried out in Peru.
| (c) | Approval of consolidated financial statements - |
The consolidated financial statements as of December 31, 20152019 were approved by the Company’s Management on February 25, 2016 and in its opinion, will be approved without modifications inauthorized for issue by the Board of Directors on April 9, 2020 and Shareholders’ Meetings withinsubsequent events have been considered through that date. They will then be presented for approval by the terms established by Law.
TheCompany’s shareholders meeting. Those shareholders have the authority to approve and or otherwise modify the consolidated financial statements as of December 31, 2014 were approved on February 24, 2015.statements.
Notes to the consolidated financial statements(continued)
| (d) | The consolidated financial statements include the financial statements of the following subsidiaries: |
| Country of incorporation | Ownership | |||||||||||||||||
| and business | December 31, 2015 | December 31, 2014 | ||||||||||||||||
| Direct | Indirect | Direct | Indirect | |||||||||||||||
| % | % | % | % | |||||||||||||||
| Mining activities: | ||||||||||||||||||
| Compañía Minera Condesa S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| Compañía Minera Colquirrumi S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| Sociedad Minera El Brocal S.A.A. (*) | Peru | 2.71 | 51.36 | 2.71 | 51.36 | |||||||||||||
| Inversiones Colquijirca S.A. (*) | Peru | 89.76 | 10.24 | 89.76 | 10.24 | |||||||||||||
| S.M.R.L. Chaupiloma Dos de Cajamarca | Peru | 20.00 | 40.00 | 20.00 | 40.00 | |||||||||||||
| Minera La Zanja S.R.L. | Peru | 53.06 | - | 53.06 | - | |||||||||||||
| Minera Julcani S.A. de C.V. | Mexico | 99.80 | 0.20 | 99.80 | 0.20 | |||||||||||||
| Compañía de Minas Buenaventura Chile Ltda. | Chile | 90.00 | 10.00 | 90.00 | 10.00 | |||||||||||||
| El Molle Verde S.A.C. | Peru | 99.98 | 0.02 | 99.98 | 0.02 | |||||||||||||
| Apu Coropuna S.R.L. | Peru | 70.00 | - | 70.00 | - | |||||||||||||
| Metalúrgica Los Volcanes S.A. | Peru | 99.99 | - | 99.99 | - | |||||||||||||
| Cerro Hablador S.A.C. | Peru | 99.00 | 1.00 | 99.00 | 1.00 | |||||||||||||
| Minera Azola S.A.C. | Peru | 99.00 | 1.00 | 99.00 | 1.00 | |||||||||||||
| Compañía Minera Nueva Italia S.A. | Peru | - | 93.36 | - | 93.36 | |||||||||||||
| Energy generation and transmission services: | ||||||||||||||||||
| Consorcio Energético de Huancavelica S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| Empresa de Generación Huanza S.A. | Peru | - | 100.00 | - | 100.00 | |||||||||||||
| Empresa de Generación Huaura S.A.C. | Peru | 0.01 | 99.99 | 0.01 | 99.99 | |||||||||||||
| Construction, engineering services and insurance brokerage: | ||||||||||||||||||
| Buenaventura Ingenieros S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| BISA Construcción S.A. (**) | Peru | - | - | - | 100.00 | |||||||||||||
| Contacto Corredores de Seguros S.A. | Peru | 99.98 | 0.02 | 0.02 | 99.98 | |||||||||||||
| BISA Argentina S.A. (antes Minera San Francisco S.A.) | Argentina | 56.42 | 43.58 | 56.42 | 43.58 | |||||||||||||
| Contacto Risk Consulting S.A. | Peru | - | 98.00 | - | - | |||||||||||||
| Industrial activities | ||||||||||||||||||
| Procesadora Industrial Río Seco S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| Country of | Ownership as of December 31, | |||||||||||||||||
| incorporation and | 2019 | 2018 | ||||||||||||||||
| business | Direct | Indirect | Direct | Indirect | ||||||||||||||
| % | % | % | % | |||||||||||||||
| Mining activities: | ||||||||||||||||||
| Compañía Minera Condesa S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| Compañía Minera Colquirrumi S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| Sociedad Minera El Brocal S.A.A. (*) | Peru | 3.19 | 58.24 | 3.19 | 58.24 | |||||||||||||
| Inversiones Colquijirca S.A. (*) | Peru | 89.76 | 10.24 | 89.76 | 10.24 | |||||||||||||
| S.M.R.L. Chaupiloma Dos de Cajamarca | Peru | 20.00 | 40.00 | 20.00 | 40.00 | |||||||||||||
| Minera La Zanja S.R.L. | Peru | 53.06 | - | 53.06 | - | |||||||||||||
| Minera Julcani S.A. de C.V. | Mexico | 99.80 | 0.20 | 99.80 | 0.20 | |||||||||||||
| Compañía de Minas Buenaventura Chile Ltda. | Chile | 90.00 | 10.00 | 90.00 | 10.00 | |||||||||||||
| El Molle Verde S.A.C. | Peru | 99.98 | 0.02 | 99.98 | 0.02 | |||||||||||||
| Apu Coropuna S.R.L. | Peru | 70.00 | - | 70.00 | - | |||||||||||||
| Cerro Hablador S.A.C. | Peru | 99.00 | 1.00 | 99.00 | 1.00 | |||||||||||||
| Minera Azola S.A.C. | Peru | 99.00 | 1.00 | 99.00 | 1.00 | |||||||||||||
| Compañía Minera Nueva Italia S.A. | Peru | - | 93.36 | - | 93.36 | |||||||||||||
| Energy generation and transmission services: | ||||||||||||||||||
| Consorcio Energético de Huancavelica S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| Empresa de Generación Huanza S.A. | Peru | - | 100.00 | - | 100.00 | |||||||||||||
| Insurance brokerage: | ||||||||||||||||||
| Contacto Corredores de Seguros S.A. | Peru | 99.98 | 0.02 | 99.98 | 0.02 | |||||||||||||
| Contacto Risk Consulting S.A. | Peru | - | 98.00 | - | 98.00 | |||||||||||||
| Industrial activities: | ||||||||||||||||||
| Procesadora Industrial Río Seco S.A. | Peru | 100.00 | - | 100.00 | - | |||||||||||||
| (*) | As of December 31, |
Notes to the consolidated financial statements(continued)
| (e) | Discontinued operations |
In 2014,
During 2019, the Group publicly announceddecided to classify its decision to sell its four paralyzedMallay mining units mentioned in Note 1(b);unit as a consequence, they are presented as mining units held for sale.discontinued. According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, the Group reclassified revenues and expenses related to this mining unit for the years 2018 and 2017 to the “Net loss from discontinued operations attributable to equity holders of the parent” caption.
During 2017, the Group sold the Breapampa and Recuperada mining units for US$2.0 million and US$0.6 million, respectively. As a result of such sales, the Group recorded reversals of the provision of impairment loss of long-lived assets and liabilities are presented in the consolidated statement of financial position at the lower of cost and fair value less cost to sale. There were delays during the selling process related to regulatory issues; however, management expects to complete the sale of these discontinued mining units to third parties no later than December 31, 2016.
The major classescosts for sales of assets and liabilitiessupplies, which originated a net loss of these four mining units held for sale as of December 31, 2015 and 2014 are presented below:US$4.0 million.
| 2015 | 2014 | |||||||
| US$(000) | US$(000) | |||||||
| Asset | ||||||||
| Cash | 4 | 18 | ||||||
| Trade and other receivables, net | 172 | 849 | ||||||
| Inventories, net | 1,940 | 2,581 | ||||||
| Prepaid expenses | 170 | 197 | ||||||
| Mining concessions, development costs, property, plant and equipment, net | 13,306 | 15,038 | ||||||
| Assets classified as held for sale | 15,592 | 18,683 | ||||||
| Liabilities | ||||||||
| Trade and other payables | (2,862 | ) | (5,224 | ) | ||||
| Provisions | (17,749 | ) | (23,666 | ) | ||||
| Liabilities directly associated with the assets held for sale | (20,611 | ) | (28,890 | ) | ||||
Notes to the consolidated financial statements(continued)
The resultsDuring 2017, as a result of the foursales in 2017 and 2016, the Company received the confirmation from the Ministry of Energy and Mines of the transfer of its obligation for closure of mining units, held for sale forwhich generated a reversal of US$11.8 million.
The net cash flows used by the years 2015, 2014 and 2013mining units with discontinued operations are presented below:
| 2015 | 2014 | 2013 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Operating income | ||||||||||||
| Net sales | 398 | 5,117 | 25,835 | |||||||||
| Total income | 398 | 5,117 | 25,835 | |||||||||
| Operating costs | ||||||||||||
| Cost of sales, excluding depreciation and amortization | (8,011 | ) | (28,566 | ) | (26,094 | ) | ||||||
| Exploration | (26 | ) | (2,853 | ) | (65,230 | ) | ||||||
| Depreciation and amortization | - | (823 | ) | (6,337 | ) | |||||||
| Mining royalties | (4 | ) | (47 | ) | (221 | ) | ||||||
| Total operating costs | (8,041 | ) | (32,289 | ) | (97,882 | ) | ||||||
| Gross loss | (7,643 | ) | (27,172 | ) | (72,047 | ) | ||||||
| Operating expenses, net | ||||||||||||
| Administrative expenses | (74 | ) | (523 | ) | (2,358 | ) | ||||||
| Selling expenses | (2 | ) | (201 | ) | (1,193 | ) | ||||||
| Provision for contingencies | (44 | ) | 372 | (1,589 | ) | |||||||
| Other, net | (1,039 | ) | (2,929 | ) | (5,674 | ) | ||||||
| Total operating expenses | (1,159 | ) | (3,281 | ) | (10,814 | ) | ||||||
| Operating loss | (8,802 | ) | (30,453 | ) | (82,861 | ) | ||||||
| Other income (expenses), net | ||||||||||||
| Finance income | - | 1 | 2 | |||||||||
| Finance costs | (840 | ) | (799 | ) | (1,074 | ) | ||||||
| Net gain from currency exchange difference | 119 | 145 | 180 | |||||||||
| Total other expenses, net | (721 | ) | (653 | ) | (892 | ) | ||||||
| Loss before income tax | (9,523 | ) | (31,106 | ) | (83,753 | ) | ||||||
| Income tax | - | (8 | ) | (132 | ) | |||||||
| Loss associated with the mining units classified as held for sale | (9,523 | ) | (31,114 | ) | (83,885 | ) | ||||||
| 2019 | 2018 | 2017 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Operating activities | (2 | ) | 1,800 | 1,732 | ||||||||
| Investing activities | - | (1,817 | ) | (1,796 | ) | |||||||
| Decrease in cash and cash equivalents for the year | (2 | ) | (17 | ) | (64 | ) | ||||||
The results of the discontinued operations mining units for the years 2019, 2018 and 2017 are presented below:
| 2019 | 2018 | 2017 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Net sales | 97 | 16,666 | 36,736 | |||||||||
| Cost of sales | (2 | ) | (15,261 | ) | (32,301 | ) | ||||||
| Gross profit | 95 | 1,405 | 4,435 | |||||||||
| Operating income (expenses), net | ||||||||||||
| Administrative expenses | (8,048 | ) | (1,661 | ) | (3,872 | ) | ||||||
| Changes in provision for closure of mining units, note 15(b) | (1,912 | ) | (6,013 | ) | (12,701 | ) | ||||||
| Reversal (provision) for impairment of inventories, note 8(c) | (320 | ) | - | 1,345 | ||||||||
| Reversal (provision) for contingencies | (134 | ) | (9 | ) | (562 | ) | ||||||
| Derecognition of long-lived assets | (44 | ) | (5,100 | ) | - | |||||||
| Net loss in sale of mining units | - | - | (18,550 | ) | ||||||||
| Reversal of Impairment loss of long-lived assets, note 11(b) | - | 2,837 | 17,197 | |||||||||
| Reversal of provision for closure of mining units for sale of mining units | - | - | 11,700 | |||||||||
| Others, net | 117 | (3,162 | ) | (8,438 | ) | |||||||
| Total operating expenses, net | (10,341 | ) | (13,108 | ) | (13,881 | ) | ||||||
| Operating loss | (10,246 | ) | (11,703 | ) | (9,446 | ) | ||||||
| Other income (expense), net | ||||||||||||
| Finance costs, note 15(b) | (266 | ) | (88 | ) | (766 | ) | ||||||
| Net gain (loss) from currency exchange difference | (2 | ) | 30 | (10 | ) | |||||||
| Total other expenses, net | (268 | ) | (58 | ) | (776 | ) | ||||||
| Loss before income tax | (10,514 | ) | (11,761 | ) | (10,222 | ) | ||||||
| Income tax | - | (47 | ) | (122 | ) | |||||||
| Loss from discontinued operations | (10,514 | ) | (11,808 | ) | (10,344 | ) | ||||||
| Loss from the discontinued operations, per basic and diluted share, express in U. S. dollars | (0.04 | ) | (0.03 | ) | (0.04 | ) | ||||||
Notes to the consolidated financial statements(continued)
The net cash flows used by the four mining units held2. Basis for sale for the years 2015, 2014preparation, consolidation and 2013 are presented below:accounting policies
| 2015 | 2014 | 2013 | ||||||||||
| US$(000) | US$(000) | US$(000) | ||||||||||
| Operating activities | (8 | ) | 261 | 5,195 | ||||||||
| Investing activities | (6 | ) | (296 | ) | (5,325 | ) | ||||||
| Financing activities | - | - | - | |||||||||
| Net decrease in cash and cash equivalents during the year | (14 | ) | (35 | ) | (130 | ) | ||||||
Basic and diluted earnings per share for the years 2015, 2014 and 2013, resulting from the discontinued operations are as follow:
| 2015 | 2014 | 2013 | ||||||||||
| US$ | US$ | US$ | ||||||||||
| Loss from the discontinued operations, per basic and diluted share | (0.04 | ) | (0.12 | ) | (0.33 | ) | ||||||
Write-down of property, plant and equipment
Before the classification of the four mining units as held for sale, the recoverable amount was estimated for certain items of property, plant and equipment and impairment loss of US$794,000 was identified in 2014 (accumulated impairment loss of US$19,805,000 as of December 31, 2013).
| 2.1. | Basis of preparation - |
The consolidated financial statements of the GroupCompany have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements have been prepared on a historical cost basis, based on the records of the Company, except for the derivative financial instruments and financial assets and liabilities that have been measured at fair value.value and discontinued operations that have been valued at the lower of (i) their carrying amount and (ii) its fair value less cost to sell.
The consolidated financial statements are presented in U.S. dollars and all values are rounded to the nearest thousands, except when otherwise indicated.
The preparation of consolidated financial statements requirerequires that Management use judgments, estimates and assumptions, as detailed on the following Notenote 3.
These consolidated financial statements provide comparative information in respect of prior periods.
| 2.2. | Basis of consolidation - |
The consolidated financial statements comprise the financial statements of the companyCompany and its subsidiaries to the date of the consolidated statements of financial position.
Notes to the consolidated financial statements(continued)
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
| - | Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee) |
| - | Exposure, or rights, to variable returns from its involvement with the |
| - | The ability to use its power over the investee to affect its returns. |
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
| - | The contractual arrangement with the other vote holders of the |
| - | Rights arising from other contractual |
| - | The Group’s voting rights and potential voting rights or a combination of rights. |
Notes to the consolidated financial statements(continued)
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Parentparent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.
All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
Notes toIf the consolidated financial statements(continued)Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.
| 2.3. | Changes in accounting policies and disclosures - |
Certain
The Group applied the following standards and amendments appliedfor the first time for their annual reporting period commencing January 1, 2019:
| - | IFRS 16 Leases, |
| - | Interpretation 23 Uncertainty over Income Tax Treatments, |
| - | Annual Improvements to IFRS Standards 2015 – 2017 Cycle. |
The Group had to change its accounting policies as a result of adopting IFRS 16. The other amendments listed above did not have any impact on the amounts recognized in prior periods.
Several other amendments and interpretations apply for the first time in 2015; however, they did2019; but do not have materialan impact on the annual consolidated financial statements of the Group and therefore, have not been disclosed.Thedisclosed. The Group has not early adopted any other standard, interpretationstandards, interpretations or amendmentamendments that hashave been issued but isare not yet effective.
Notes to the consolidated financial statements(continued)
IFRS 16 Leases -
The Group adopted IFRS 16 Leases from January 1, 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening statement of financial position as of January 1, 2019.
On adoption of IFRS 16, the Group recognized lease liabilities in relation to leases that had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019 (the weighted average incremental borrowing rate at transition was 5% per annum). The effect of adopting IFRS 16 is as follows:
Impact on the consolidated statement of financial position (increase / (decrease)) –
| As of December 31, 2019 | As of January 1, 2019 | |||||||
| US$(000) | US$(000) | |||||||
| Assets | ||||||||
| Mining concessions, development costs, right-of-use asset, property, plant and equipment, net | 6,185 | 18,528 | ||||||
| Deferred income tax asset, net | 390 | 400 | ||||||
| Total assets | 6,575 | 18,928 | ||||||
| Liabilities | ||||||||
| Financial obligations | 7,503 | 19,885 | ||||||
| Total liabilities | 7,503 | 19,885 | ||||||
| Shareholders’ equity, net | ||||||||
| Retained earnings | (928 | ) | (957 | ) | ||||
| Total shareholders’ equity, net | (928 | ) | (957 | ) | ||||
Impact on the consolidated statement of profit or loss (income / (expense)) -
| As of December 31, 2019 | ||||
| US$(000) | ||||
| Operating costs | ||||
| Cost of sales of goods, excluding depreciation and amortization | 5,991 | |||
| Depreciation and amortization | (6,751 | ) | ||
| Total operating costs | (760 | ) | ||
| Operating profit | ||||
| Administrative expenses | 272 | |||
| Others, net | 155 | |||
| Total operating profit | 427 | |||
| Other income (expense), net | ||||
| Finance costs | 379 | |||
| Profit (loss) before income tax | 46 | |||
Notes to the consolidated financial statements(continued)
Impact on the consolidated statement of cash flows (increase / (decrease)) -
| 2019 | ||||
| US$(000) | ||||
| Short-term and low-value lease payments | (24,175 | ) | ||
| Net cash flows used in operating activities | (24,175 | ) | ||
| Short-term lease payments | (7,596 | ) | ||
| Net cash flows used in financial activities | (7,596 | ) | ||
Practical expedients applied -
In applying IFRS 16 for the first time, the Group used the following practical expedients permitted by the standard: i) applying a single discount rate to a portfolio of leases with reasonably similar characteristics, ii) accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases, iii) using hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The Group also elected the transition practical expedient to not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4.
Below is a reconciliation between the balance of assets and liabilities as of January 1, 2019 under IFRS 16 compared with operating leases under IAS 17 as of December 31, 2018:
| US$(000) | ||||
| Operating lease commitments disclosed as of December 31, 2018 | 7,330 | |||
| New operating leases commitments under IFRS 16 | 16,221 | |||
| Exceptions: | ||||
| - Short-term leases not recognized as a liability | (547 | ) | ||
| - Low-value leases not recognized as a liability | (3,119 | ) | ||
| Additional lease liability recognized as of January 1, 2019 | 19,885 | |||
| Plus: Lease liability already recognized as of December 31, 2018 | 241,653 | |||
| Lease liability as of January 1, 2019 | 261,538 | |||
Lessor accounting under IFRS 16 is substantially unchanged from IAS 17, therefore the Group did not need to adjust the accounting for assets held as lessor under operating leases, as a result of the adoption of IFRS 16.
Notes to the consolidated financial statements(continued)
Interpretation 23 Uncertainty over Income Tax Treatments
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
| - | Whether an entity considers uncertain tax treatments separately |
| - | The assumptions an entity makes about the examination of tax treatments by taxation authorities |
| - | How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and |
| - | How an entity considers changes in facts and circumstances |
The Group determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.
The Group applies significant judgement in identifying uncertainties over income tax treatments. The Group assessed whether the Interpretation had an impact on its consolidated financial statements. Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions and concluded that it is probable that the taxation authorities will accept its tax treatments.
The effect of adopting IFRIC 23 is a follow:
Impact on the consolidated statement of financial position (increase / (decrease)) –
| As of December 31, 2019 | As of January 1, 2019 | |||||||
| US$(000) | US$(000) | |||||||
| Liabilities | ||||||||
| Income tax payable | 382 | 382 | ||||||
| Total liabilities | 382 | 382 | ||||||
| Shareholders’ equity, net | ||||||||
| Retained earnings | (382 | ) | (382 | ) | ||||
| Total shareholders’ equity, net | (382 | ) | (382 | ) | ||||
Notes to the consolidated financial statements(continued)
Annual Improvements to IFRS Standards 2015 – 2017 Cycle
| - | IFRS 3 Business Combinations |
The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation to fair value. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early application permitted.
These amendments did not have an impact on the consolidated financial statements of the Group, as there was no transaction in the year where joint control was obtained.
| - | IFRS 11 Joint Arrangements |
An entity that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured.
An entity applies those amendments to transactions in which the entity obtains joint control on or after the beginning of the first annual reporting period beginning on or after January 1, 2019 with early application permitted.
These amendments did not have an impact on the consolidated financial statements of the Group, as there was no transaction in the year where joint control was obtained in relation of an arrangement the Group previously participated in.
| - | IAS 12 Income Taxes |
The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where it originally recognized those past transactions or events.
An entity applies the amendments for annual reporting periods beginning on or after January 1, 2019, with early application permitted. When the entity first applies those amendments, it applies them to the income tax consequences of dividends recognized on or after the beginning of the earliest comparative period.
Since the Group’s current practice is in line with these amendments, they had no impact on the consolidated financial statements of the Group.
F-20
Notes to the consolidated financial statements(continued)
| - | IAS 23 Borrowing Costs |
The amendments clarify that an entity treats, as part of general borrowings, any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which it first applies those amendments. The entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application permitted.
Since the Group’s current practice is in line with the amendments, they had no impact on the consolidated financial statements of the Group.
| 2.4. | Summary of significant accounting policies |
| (a) | Foreign currencies- |
The Group´s consolidated financial statements are presented in U.S.US dollars, which is also the Group’sparent company’s functional currency.
For each entity, the Group determines the functional currency and the items included in the financial statements of each entity are measured using that functional currency. For consolidation purposes, each entity presents its financial statements in US dollars.
Transactions and balances
Transactions in foreign currency (a currency other than the functional currency) are initially recorded by the Group at the exchange rates prevailing at the dates of the transactions, published by the Superintendence of Banking and Insurance and Pension Fund Administrators (AFP for its acronym in Spanish).
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Gains or losses from exchange differences
Differences arising from the settlement or translation of monetary assets and liabilitiesitems are recognized in profit or loss with the consolidated statementsexception of monetary items that are designated as part of a hedge. These are recognized in other comprehensive income (OCI) until the hedge items is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recognized in OCI.
Non-monetary assets and liabilities recognized in terms of historical cost are translated using the exchange rates prevailing at the dates of the initial transactions.
Notes to the consolidated financial statements(continued)
| (b) | Financial instruments |
Initial recognition and subsequent measurement -
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
| (i) | Financial assets - |
Initial recognition and measurement -
Financial assets are classified, at initial recognition, as financial assetssubsequently measured at amortized cost, fair value through OCI, and fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-saleloss.
The classification of financial assets or derivatives designated as hedging instruments in an effective hedge, as appropriate. Allat initial recognition depends on the financial assets are recognizedasset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus, in the case of a financial assetsasset not recorded at fair value through profit or loss, transaction costscosts.
In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are attributable“solely payments of principal and interest (SPPI) ¨ on the principal amount outstanding. This assessment is performed at an instrument level.
The Group’s business model for managing financial assets refers to the acquisition ofhow it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial asset.assets, or both.
Notes toPurchases or sales of financial assets that require delivery of assets within a period established by regulation or convention in the consolidated financial statements(continued)market place (regular way trades) are recognized on the trade date.
Subsequent measurement -
For purposes of subsequent measurement, financial assets are classified in fourthe following categories:
| - | Financial assets at amortized cost. |
| - | Financial assets at fair value through OCI. |
| - | Financial assets at fair value through profit or |
F-22
Notes to the consolidated financial statements(continued)
Financial assets at amortized cost -
The Group measures financial assets at amortized cost if both of the following conditions are met:
| - |
| - |
Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
This category generally applies to other receivables included in the “Trade and other receivables, net” caption.
Financial assets at fair value through OCI -
Financial assets are classified and measured at fair value through OCI if they are held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
This category generally applies to the “Hedge derivative financial instruments” caption.
Financial assets at fair value through profit or loss -
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss.loss or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at fair value through OCI, as defined by IAS 39.described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the consolidated statements of financial position at fair value with net changes in fair value presented as finance costs (negative changes) or finance revenue (positive changes) in the consolidated statements of profit or loss.
Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value, with changes in fair value recognized in profit or loss.
Loans and receivables -
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. The losses arising from impairment are recognized in the consolidated statements of profit or loss.
This category generally applies to trade and other receivables, net.
Held-to-maturity investments -
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. The Group did not have any held-to-maturity investment as of December 31, 2015 and 2014.
Available-for-sale financial assets -
The available-for-sale financial assets include equity investments and debt securities. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions. The Group did not have these financial assets as of December 31, 2015 and 2014.
F-23
Notes to the consolidated financial statements(continued)
This category generally applies to the trade receivables included in the “Trade and other receivables, net” caption.
Derecognition-
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when:
| - | The rights to receive cash flows from the asset have expired; or |
| - | The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset or, (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. |
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent, it has retained the risk and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group´s continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Impairment of financial assets-
The Group assesses,recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at each reporting date, whether there is objective evidence that a financial assetfair value through profit or group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred "loss event"), has an impactloss. ECLs are based on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in economic conditions that correlate with defaults.
For financial assets carried at amortized cost, the Group first assesses whether impairment exists for financial assets that are individually significant, or collectively for financial assets that are individually insignificant.
The amount of any impairment loss in the impairment identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated futurecontractual cash flows is discountdue in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the financial asset’s original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
The carrying amountECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the asset is reduced through the use of an allowance account and the loss is recognized in the consolidated statements of profit or loss. Interest income (recorded as revenue in the statements of profit or loss) continues to be accrued on the reduced carrying amount and is accrued using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. Loans together with the associated allowance are written off when there is no realistic prospect of a future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent year, the amountexposure, irrespective of the estimated impairment loss increases or decreases becausetiming of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the consolidated statements of profit or loss.default (a lifetime ECL).
Notes to the consolidated financial statements(continued)
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Group considers a financial asset in default when contractual payments are past due according to each contract. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
| (ii) | Financial liabilities |
Initial recognition and measurement-
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, accounts payable, financial obligations,loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of interest-bearing loans, and borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, financial obligations, derivativesbank loans, financial instrumentsliabilities for contingent consideration liability and embedded derivatives.Hedge derivative financial instruments.
Notes to the consolidated financial statements(continued)Subsequent measurement-
Subsequent measurement -
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss -
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39.IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Notes to the consolidated financial statements(continued)
Gains or losses on liabilities held for trading are recognized in the consolidated statements of profit or loss.
Except forFinancial liabilities designated upon initial recognition at fair value through profit or loss are designated at the embedded derivative for concentrate sales,initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liabilities for contingent consideration liability in this category.as at fair value through profit or loss.
LoansFinancial liabilities at amortized cost (loans and borrowingsborrowings) -
After initial recognition, interest-bearing loans and borrowing are subsequently measured at amortized cost using the effective interest rate method.method (EIR). Gains and losses are recognized in the consolidated statements of profit and costor loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortization under the effective interest rate methodEIR. EIR amortization is included as financial costsin the “Financial costs” caption in the consolidated statements of profit or loss. This category generally applies to interest-bearing loans and borrowings.
Derecognition-
A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statements of profit or loss.
| (iii) | Offsetting of financial instruments - |
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Notes to the consolidated financial statements(continued)
| (c) | Cash and cash equivalents - |
“Cash and cash equivalentsequivalents” caption presented in the consolidated statements of financial position comprise cash at banks and on hand.hand, and short-term highly liquid deposits with a maturity of three months or less, that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value.
For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash and short termshort-term deposits with a maturityas defined above, net of three months or less, whichoutstanding bank overdrafts as they are subjectconsidered an integral part of the Group’s cash management.
Notes to an insignificant risk of changes in value.the consolidated financial statements(continued)
| (d) | Inventories - |
Materials and supplies
Inventories are valued at the lower of cost or net realizable value.
Cost is determined using the average method.
In the case of finished goods and work in progress, cost includes the cost of materials and direct labor and a portion of indirect manufacturing expenses, excluding borrowing costs.
The current portion of the inventories is determined based on the expectexpected amounts to be processed within the next twelve months. Inventories not expected to be processed within the next twelve months are classified as long-term.non-current.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs to make the sale.
Provision (reversal)(or reversal) for losses on the net realizable value are calculated based on a specific analysis conducted annually by the Management and is charged to incomeprofit or loss in the period in which it determines the need for the provision (reversal)(or reversal).
Any provision for obsolescence of spare parts and supplies is determined by reference to specific items of stock based on inventory turnover level. A regular review is undertaken to determine the extent of any provision for obsolescence.
| (e) | Business combinations and goodwill - |
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
Notes to the consolidated financial statements(continued)“Administrative expenses” caption.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includesinclude the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.acquire.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39IFRS 9 Financial Instruments: Classification and Measurement,Instruments, is measured at fair value, with changes in fair value recognized in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39,IFRS 9, it is measured under the fair value at the reporting date with changes in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.fair value recorded in the consolidated statement of profit or loss.
Notes to the consolidated financial statements(continued)
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interests held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified again all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in the consolidated statements of profit ofor loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, this difference is allocateallocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities, of the acquiree, are assigned to those units.
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
Notes to the consolidated financial statements(continued)
| (f) | Investments in associates and joint ventures - |
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group's investments in associates and joint ventures are accounted for using the equity method.
Under this method, the investment in an associate or joint venture is initially recognized at cost.
The carrying amount of the investment is adjusted to recognize changes in the Group's share of net assets of the associate and joint ventures since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment individually.
Notes to the consolidated financial statements(continued)
The consolidated statement of profit or loss reflects the Group’s share of the results of operations of the associate.
associates and joint ventures. Any change in other comprehensive incomeOCI of those investees is presented, as part of the Group’s other comprehensive income. In addition, when there has been a change recognized directly in the equity of the associate and joint ventures, the Group recognizes its share of any changes, when applicable, in the consolidated statements of changes in shareholders’ equity. Unrealized gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate.associate or joint venture.
The aggregate of the Group´s share of profit or loss of an associate and joint ventures is shown on the face of the consolidated statements of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associates.associates and joint ventures.
The financial statements of the associateassociates and joint ventures are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After the application of the equity method, the Group determines whether it is necessary to recognize an impairment loss of its investment in associates.associates and joint ventures. At each reporting date, the Group determines whether there is objective evidence that the investmentinvestments in the associate isassociates and joint ventures are impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognizes the loss in the consolidated statements of profit or loss.
Upon loss of significant influence over the associate and joint ventures, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate and joint ventures upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in consolidated statements of profit or loss.
Notes to the consolidated financial statements(continued)
| (g) | Prepaid expenses - |
Non-monetary assets, which represent an entity’s right to receive goods or services, are presented as prepaid expenses. The asset is subsequently derecognized when the goods are received and the services are rendered.
| (h) | Property, plant and equipment - |
Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the obligation for mine closing and, borrowing costs for qualifying assets, borrowing costs. The capitalized value of a finance lease is also included in this caption.assets.
Notes to the consolidated financial statements(continued)
When significant parts of property, plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Also,In addition, when a major inspection is performed, its cost is recognized in the carrying amount of plant and equipment as a replacement if the recognition criteria are satisfied. All other maintenance and repair costs are recognized in the consolidated statement of profit or loss as incurred.
Depreciation-
Unit-of-production method:
In mining units with a long-termlong useful life,lives, depreciation of assets directly related to the operation of the mine is calculated using the units-of-production method, which is based on economically recoverable reserves of the mining unit. Other assets related to these mining units are depreciated using the straight-line method with the lives detailed in the next paragraph.
Straight-line method:
Depreciation of assets in mining units with short useful lives or used for administrative purposes is calculated using the straight-line method of accounting. The useful lives are the following:
| Years | |
| Buildings, construction and other | |
| Machinery and equipment | |
| Transportation units | 5 |
| Furniture and fixtures | 10 |
| Computer equipment | 4 |
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end,year-end, and adjusted prospectively, if appropriate.
Disposal of assets-
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal, or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of profit or loss when the asset is derecognized.
Notes to the consolidated financial statements(continued)
| (i) | Leases - |
The determination ofGroup assesses at contract inception whether an arrangementa contract is, or contains, a leaselease. That is, based onif the substance ofcontract conveys the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent onright to control the use of an identified asset for a specific asset orperiod in exchange for consideration.
Group as a lessee -
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets andrepresenting the arrangement conveys a right to use the asset orunderlying assets.
| i) | Right-of-use assets - |
The Group recognizes right-of-use assets even if that right is not explicitly specified in an arrangement.
Group as a lessee -
A lease is classified at the inceptioncommencement date asof the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a financestraight-line basis over the shorter of the lease or an operating lease. A lease thatterm and the estimated useful lives of the related assets.
If ownership of the leased asset transfers substantially all the risk and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the consolidated statements of profit or loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term or the assetcost reflects the exercise of a purchase option, depreciation is depreciated over the shorter ofcalculated using the estimated useful life of the asset andasset.
| ii) | Lease liabilities - |
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate.
OperatingVariable lease payments that do not depend on an index or a rate are recognized as operating expenses in the statements of profit or loss on a straight-line basis over the lease term.
Group as a lessor -
Leases in which the Group does not transfer substantially all the risk and rewards of ownership of an asset(unless they are classified as operating leases.
Initial direct cost incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenueproduce inventories) in the period in which they are earned.the event or condition that triggers the payment occurs. The Group do not have variable lease payments that do depend on an index or a rate.
Notes to the consolidated financial statements(continued)
| | ||
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset. | ||
The Group’s lease liabilities are included “Financial obligation” caption. |
iii) | Short-term leases and leases of low-value assets - | |
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment without renew option. It also applies the lease of low-value assets recognition exemption to leases of office equipment, which are considered low value. Lease payments on short-term leases and leases of low value assets are recognized as expense on a straight-line basis over the lease term. | ||
Group as a lessor – | ||
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in “Other, net” in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned. | ||
(j) | Mining concessions - | |
Mining concessions represent ownership of the right of exploration and exploitation to the Group on mining properties that contains ore reserves acquired. Mining concessions are irrevocable, provided the holder of a mining concession complies with the obligations set forth in the General Mining Law. Such concessions have an indefinite term, subject to payment of an annual concession fee per hectare granted and achievement of minimum annual production for each hectare. Mining concessions are stated at cost and are amortized on units of production method, using as the basis proven and probable reserves. If the Group leaves these concessions, the costs associated are written off in the consolidated statements of profit or loss. | ||
Cost includes the fair value attributable to mineral reserves and the portion of mineral resources considered probable of economic extraction at the time of a business combination. | ||
At year-end, the Group evaluates if there is any indicator of impairment. If any indicator exists, the Group estimates the mining concession’s recoverable amount. |
F-32
Notes to the consolidated financial statements(continued)
| |||||
| |||||
| Exploration costs - | ||||
Exploration costs are expensed as incurred. These costs primarily include materials and fuels used, surveying costs, drilling costs and payments made to the contractors. | |||||
Exploration and evaluation activity includes: |
- | Researching and analyzing historical exploration |
- | Gathering exploration data through geophysical |
- | Exploratory drilling and |
- | Determining and examining the volume and grade of the |
- | Surveying transportation and infrastructure |
- | Conducting market and finance studies. |
Development costs -
When the Group’s Management approves the feasibility of the conceptual study of a project, the costs incurred to develop such property, including additional costs to delineate the ore body and remove impurities it contains, are capitalized as development costs under the caption mining concessions, development costs and property, plant and equipment, net. These costs are amortized when production begins, on the units-of-production basis over the proven and probable reserves.
The development costs include:
Development costs – | |||
When the Group’s Management approves the feasibility of the conceptual study of a project, the costs incurred to develop such property, including additional costs to delineate the ore body and remove impurities it contains, are capitalized as development costs under the “Mining concessions, development costs, right-of-use asset, property, plant and equipment, net” caption. These costs are amortized when production begins, on the units-of-production basis over the proven and probable reserves. | |||
The development costs include: | |||
- | Metallurgical and engineering | ||
- | Drilling and other costs necessary to delineate ore |
- | Removal of the initial clearing related to an ore body. | ||
Development costs necessary to maintain production are expensed as incurred. | |||
(l) | Stripping (waste removal) costs – | ||
As part of its mining operations, the Group incurs waste removal costs (stripping costs) during the development and production phases of its mining operations. Stripping costs incurred in the development phase of a mine, before the production phase commences (development stripping), are capitalized as part of the cost of constructing the mine and subsequently amortized over its useful life using units of production method. The capitalization of development stripping costs ceases when the mine starts production. | |||
Development costs necessary to maintain production are expensed as incurred.
Notes to the consolidated financial statements(continued)
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Notes to the consolidated financial statements(continued)
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