BUENAVENTURA MINING CO INC | CIK:0001013131 |

 

 

		Share in equity
		2017			2016			2017			2016
		%			%			US$(000)			US$(000)
Sociedad Minera Cerro Verde S.A.A.			19.584			19.584			1,124,008			1,055,488
Minera Yanacocha S.R.L.			45.95			43.65			324,861			402,866
Compañía Minera Coimolache S.A.			40.095			40.095			86,183			74,734
Other minor investments									1,835			3,519
									1,536,887			1,536,607

 

 

		2017			2016			2015
		US$(000)			US$(000)			US$(000)
Minera Yanacocha S.R.L.			(76,585)			(455,598)			(196,510)
Sociedad Minera Cerro Verde S.A.A.			68,521			66,763			6,518
Compañía Minera Coimolache S.A.			21,271			23,514			16,617
			13,207			(365,321)			(173,375)

 

Investments held by the Group in its associates Minera Yanacocha S.R.L. (through its subsidiary Compañía Minera Condesa S.A.) and Sociedad Minera Cerro Verde S.A.A., represent the most significant investments of the Group. Its operations are strategic to the Group's activities and participation in their results has been significant in relation to profits (losses) of the Group in the years 2017, 2016 and 2015. The following relevant information on these investments is as follows:

 

Investment in Minera Yanacocha S.R.L.-

The Company, through its subsidiary Compañía Minera Condesa S.A., has an interest of 45.95 percent of Minera Yanacocha S.R.L. (hereinafter “Yanacocha”). Yanacocha is engaged in gold production and exploration and development of gold and copper in their own concessions or owned by S.R.M.L. Chaupiloma Dos de Cajamarca (subsidiary of the Group), with which signed a contract of use of mineral rights.

 

In addition, Yanacocha owns the Conga project which consists in two deposits of gold and porphyry of copper located at northeast of Yanacocha operating area in the provinces of Celendín, Cajamarca and Hualgayoc (Peru).

 

Because of local communities and political protests for potential water impacts of the project development activities and construction the projects are suspended since November 2011. To date, Yanacocha’s management has been making only water support activities recommended by independent experts, mainly the construction of water reservoirs, before carrying out any development project.

 

In December 2017, Yanacocha acquired 63.92 million of shares (share of 5%) held by International Finance Corporation (IFC) in Yanacocha, for an amount of US$47.9 million. After this transaction, Buenaventura's share in Yanacocha increased from 43.65 percent to 45.95 percent. As a result of that acquisition, the Company recognized a higher value with respect to Yanacocha's equity participation.

 

The table below presents key financial data from the financial statements of Yanacocha under IFRS:

 

		2017			2016
		US$(000)			US$(000)
Statements of financial position as of December 31:
Current assets			1,055,135			1,107,893
Non-current assets			964,260			937,992
Current liabilities			123,315			(135,136)
Non-current liabilities			(1,236,965)			(1,025,025)
Shareholders’ equity, reported			659,115			885,724
Groups’ interest (45.95% in 2017 and 43.65% in 2016)			302,863			386,618
Goodwill			21,998			16,248
			324,861			402,866

 

		2017			2016			2015
		US$(000)			US$(000)			US$(000)
Statements of profit or loss as of December 31,
Net sales			645,176			761,193			1,031,174
Other operating income			21,870			17,713			10,625
Costs of sales			(746,918)			(776,394)			(758,033)
Cost of other operating income			(2,062)			(2,951)			(2,524)
Operating expenses			(63,514)			(71,496)			(82,846)
Administrative expenses			(4,760)			(8,780)			(20,028)
Selling expenses			(3,921)			(3,695)			(3,534)
Impairment loss of long-lived assets			-			(889,499)			-
Finance income (costs)			(17,935)			(12,975)			(22,061)
Gain (loss) from currency exchange difference			3,636			(13,741)			(251)
Income (loss) before income tax			(168,428)			(1,000,625)			152,522
Income tax			(7,026)			(43,127)			(602,717)
Net loss reported			(175,454)			(1,043,752)			(450,195)
Group’s interest (43.65%)			(76,585)			(455,598)			(196,510)

Evaluation of impairment in investments –

During 2017, the Yanacocha´s Management evaluated and concluded that there are no indicators of impairment of its long-lived assets; in addition, the Group’s management determined that there was no objective evidence that its investment in Yanacocha might be impaired as of December 31, 2017.

 

In 2016, Yanacocha evaluated the recoverability of its long-lived assets and determined an impairment charge, net of taxes, of US$889.5 million, which reduced Yanacocha's net worth and, therefore, the equity interest of the Company in this associate during the year 2016.

 

As a result, the Company’s Management determined that there was objective evidence that its investment in Yanacocha might be impaired as of December 31, 2016. During 2016, compared to prior years, Yanacocha experienced a decrease in the volume of gold produced, an increase in production costs, and a decrease in operating cash flows, all of which resulted from a depletion of Yanacocha’s gold reserves. As a result of these indicators, the Company performed an impairment test in December 2016.

 

The recoverable amount of the Company’s investment in Yanacocha was determined to be US$528.9 million as of December 31, 2016, which was based on a value in use calculation using cash flow projections from Yanacocha’s financial budgets from 2017 to 2026. As a result of this analysis, the Company concluded that no additional impairment loss on its investment in Yanacocha was required to be recorded as the recoverable amount exceeded the recorded value of the investment.

 

Key assumptions

The process of determining the recoverable amount was most sensitive to the following assumptions:

 

 

 

 

In December 2015, Yanacocha recorded charges for the recovery of its asset for deferred income tax for US$510,000,000 because it considers that it is not probable that there will be a future taxable profit against which deductible temporary differences can be offset.

 

During 2016, Yanacocha unanimously agreed to distribute dividends to the partners by US$300,000,000, in proportion to their social participation, corresponding to part of the freely available profits accumulated as of December 31, 2014, which were generated in the year 2011.

 

Investment in Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) -

Cerro Verde is engaged in the extraction, production and marketing of cathodes and copper concentrate from its mining unit that is located in Uchumayo, Arequipa, Peru.

 

The table below presents the key financial data from the financial statements of Cerro Verde under IFRS:

 

		2017			2016
		US$(000)			US$(000)
Statements of financial position as of December 31:
Current assets			1,563,874			1,218,508
Non-current assets			6,127,133			6,417,115
Current liabilities			(510,790)			(293,631)
Non-current liabilities			(1,991,055)			(2,502,711)
Shareholders’ equity, reported			5,189,162			4,839,281
Group’s interest (19.584%)			1,016,245			947,725
Goodwill			107,763			107,763
			1,124,008			1,055,488

 

		2017			2016			2015
		US$(000)			US$(000)			US$(000)
Statements of profit or loss for the years ended December 31:
Revenue			3,202,931			2,384,154			1,115,617
Cost of sales			(1,768,238)			(1,553,040)			(862,004)
Sales expenses			(141,669)			(131,391)			(56,215)
Other operating expenses, net			(258,826)			(24,107)			(26,600)
Finance costs			(216,912)			(80,438)			(16,010)
Finance income			5,350			954			512
Net gain (loss) of exchange difference			13,288			7,857			(75,770)
Profit before income taxes			835,924			603,989			79,530
Income tax			(486,043)			(263,082)			(46,246)
Net profit, reported			349,881			340,907			33,284
Group’s interest (19.584%)			68,521			66,763			6,518

 

Market capitalization:

As of December 31, 2017 and 2016, total market capitalization of shares maintained by the Group in Cerro Verde was US$2,036.0 million and US$1,311.3 million, respectively (market capitalization value by each share of US$29.70 and US$19.11, respectively).

 

Investment in Compañía Minera Coimolache S.A. (Coimolache) -

Coimolache is involved in the production and the sales of gold and silver from its open-pit mining unit located in Cajamarca, Peru.

 

The table below presents the key financial data from the financial statements of Coimolache under IFRS:

 

		2017			2016
		US$(000)			US$(000)
Statements of financial position as of December 31:
Current assets			101,668			73,480
Non-current assets			278,866			261,075
Current liabilities			(44,411)			(28,532)
Non-current liabilities			(106,332)			(102,519)
Shareholders’ equity, reported			229,791			203,504
Adjustments to conform to the accounting policies of the Group			(14,843)			(17,111)
Shareholders’ equity, adjusted			214,948			186,393
Group’s interest (40.095%)			86,183			74,734

 

		2017			2016			2015
		US$(000)			US$(000)			US$(000)
Statements of profit or loss for the years ended December 31:
Revenue			203,790			198,873			177,347
Cost of sales			(121,021)			(107,913)			(104,549)
Administrative expenses			(3,829)			(4,144)			(2,185)
Sales expenses			(946)			(1,128)			(1,111)
Other operating income (expenses), net			(587)			755			765
Finance income			220			38			23
Finance costs			(3,304)			(1,614)			(723)
Exchange difference			(174)			(117)			(1,300)
Profit before income taxes			74,149			84,750			68,267
Income tax			(23,362)			(27,894)			(29,861)
Net profit, reported			50,787			56,856			38,406
Adjustments to conform to the accounting policies of the Group			2,265			1,790			3,039
Net profit, adjusted			53,052			58,646			41,445
Group’s interest (40.095%)			21,271			23,514			16,617