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14 Feb 2020
New York, February 14, 2020 -- Moody's Investors Service (Moody's) has today changed the outlook on Compañia
de Minas Buenaventura S.A.A.'s (Buenaventura) rating
to negative from positive and affirmed its corporate family rating (CFR)
at Ba2, reflecting the company's weak operating results in
2019 and Moody's expectations that credit metrics will remain soft
in the next 12 to 18 months.
The change in outlook to negative primarily reflects Buenaventura's weak
operating results during 2019, affected by lower volumes at several
of its largest mines, and Moody's expectation that operating
results and credit metrics are unlikely to show material recovery in the
next 12 to 18 months. While the company's ongoing cost optimization
program continues to drive cost savings at the four largest mines directly
owned by the group, Buenaventura's still-low projected
production volumes for 2020 at several mines compared to those of 2017-18,
and metal prices which Moody's expects to be range bound compared
with those of 2019, will limit revenue growth and credit metrics'
improvements during 2020. Moody's estimates that Buenaventura's
EBIT margin was negative for the full-year 2019 and its leverage
(Moody's-adjusted gross debt/EBITDA) in excess of 3x,
and projects that the company's credit metrics will only gradually
improve in 2020 with EBIT margin staying at levels much below those reported
in the past.
Buenaventura has an ongoing cost efficiency program, called "debottlenecking
program", that drove cost efficiencies at its largest fully-owned
mines of close to USD 25 million in 2018 and USD 31 million in the nine
months to September 2019. But these were offset by materially lower
production volumes at the Uchucchacua, Tambomayo and Orcopampa mines.
We expect Buenaventura to continue to focus on cost optimization and extending
the life of its existing mines in the next couple of years, with
no large project starting construction before 2021. Capital spending
will therefore continue to be light, at least in 2020, with
investments of around USD 85-105 million.
Buenaventura's Ba2 CFR reflects its balanced portfolio of base and precious
metals; good mine diversification, with four wholly-owned
operations, two majority-owned operations and three affiliates;
and a track record of prudent financial policies and adequate corporate
The rating nevertheless also considers Buenaventura's geographic concentration
in Peru and its relatively modest revenue size compared with that of its
similarly rated global peers. The rating also incorporates a cost
structure which has been affected by ageing mines and some execution risks
related to future growth projects.
The weaker operating results in 2019 resulted in a decline in Buenaventura's
cash balance to USD 280 million at the end of September 2019 from USD
369 million at the end of December 2018, reducing its liquidity
cushion. Nevertheless, Buenaventura maintains an adequate
liquidity profile supported by a still large cash balance, providing
full coverage of the company's USD 166 million of debt maturing within
a year (as of September 2019), which Moody's expects the company
to refinance, and our expectation that the company will generate
slightly positive free cash flow in 2020, mainly supported by low
capital spending and some increase in its operating cash flow generation.
Buenaventura can occasionally receive dividends from its affiliates,
which can further add to its liquidity sources (in April 2019, it
received a USD 31 million dividend from Cerro Verde).
Buenaventura's rating would be downgraded in case it becomes clear that
no material improvements in production levels and EBIT margin will be
observed in the next few quarters. A deterioration in the company's
liquidity or failure to return to positive free cash flow during 2020
could also result in a downgrade.
An upgrade is unlikely in the short term. A stabilization of the
outlook would require a recovery in production volumes and a substantial
improvement in the company's EBIT margin to at least 7%,
with leverage (Moody's-adjusted debt/EBITDA) at or below
3.0x. A rating upgrade would require Buenaventura to successfully
implement new projects, ensuring the company's future production
growth, while maintaining its good metal and mine diversity.
An upgrade would also require Buenaventura to reach a sustainable improvement
in its cost position, enabling the company to better weather material
declines in metal prices and to maintain a more stable EBIT margin,
at least in the double-digits in percentage terms.
The principal methodology used in these ratings was Mining published in
September 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Lima, Peru, Buenaventura is a mining company
engaged in the exploration, mining and processing of gold,
silver, copper, zinc and lead in Peru. In addition
to four wholly-owned and two majority-owned mines,
the company has also a stake of 19.58% in Cerro Verde,
one of the world's largest copper mines, 43.65% stake
in Yanacocha, the largest gold mine in Latin America, and
40.1% stake in Coimolache. Buenaventura is controlled
by the Benavides family and is listed in the New York Stock Exchange and
Lima Stock Exchange. In the 12 months to September 2019,
the company generated USD0.9 billion in revenue.
For ratings issued on a program, series, category/class of
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For any affected securities or rated entities receiving direct credit
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the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Senior Vice President
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MD - Corporate Finance
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