Peru, February 8, 2022 – Compania de Minas Buenaventura S.A.A. (Buenaventura, B1 stable) announced that it reached an agreement to sell its 43.65% stake in Minera Yanacocha S.R.L (Yanacocha) to Newmont Corporation (Baa1 stable) for $300 million net of payments and additional $100 million contingent to increases in gold and copper prices. Additionally, Newmont will transfer its ownership interest in La Zanja and contribute $45 million related to closure costs.
The transaction is credit positive because the company will use net proceeds, together with $100 million in dividends received from its 19.58% stake in Sociedad Minera Cerro Verde S.A.A. (Cerro Verde), to prepay its $275 million syndicated facility and fund growth capex.
In July 2021, Buenaventura issued $550 million in senior unsecured notes that were used to pay in full the Peruvian Tax Authority (SUNAT’s) tax claim. The additional debt combined with operational disruptions pushed Moody’s adjusted leverage to a 8.9 times peak in December 2020. Upon the announced debt repayment, we expect leverage to be around 4.7 times by 2022, which is still high for the ratings category. The company has publicly committed to reduce leverage and the B1 rating incorporates our expectation that Buenaventura will continue its deleveraging trend through a combination of operational improvements during 2022 and debt reduction.
The growth capex, estimated between $80 million and $120 million in 2022, will be used to fund San Gabriel project, although it would start contributing significant EBITDA from only 2023-24 onward. San Gabriel has an estimated annual production capacity of 120,000-150,000 ounces of gold. Buenaventura has faced a number of operational challenges and disruptions including lower ore grades, lower recoveries, limited availability of transportation vehicles and reduced workforce because of the pandemic. Additionally, in September 2021, Buenaventura announced that the local community surrounding the Uchucchacua mine started a strike. Uchucchacua generates negative EBITDA and free cash flow and we expect this to be the case through 2023.
Upon debt repayment the company’s capital structure will comprise the $550 million senior unsecured bond due in 2026 and other bank facilities totaling $813 million, from $1,109 million at year-end 2021. Buenaventura’s liquidity will be adequate, supported by the company’s around $288 million in cash as of September 2021, net proceeds from the proposed transaction and dividends from its affiliate, Cerro Verde. These funds positively compare with the company’s expected negative free cash flow at around $30 million which includes $250 million of total capex, no dividends and no material debt amortization.
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. Following this transaction, Buenaventura has five wholly owned and two majority-owned mines, as well as a 19.58% stake in Cerro Verde, one of the world’s largest copper mines and a 40.1% stake in Coimolache, which owns the Tantahuatay gold mine that Buenaventura operates. Buenaventura is controlled by the Benavides family (27% of the voting stock), and is listed on the New York Stock Exchange and the Lima Stock Exchange. For the 12 months that ended September 2021, the company generated $883 million in revenue and Moody’s adjusted leverage was 5.4x.
Credit Outlook: 14 February 2022. Pg. 6
Moody’s Investors Service
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