Peru's Buenaventura Plans to Lower Capital Spending for Minas Conga Project

By Ryan Dube

LIMA, Peru--Peruvian precious-metals miner Compania de Minas Buenaventura SAA (BVN, BUENAVC1.VL) said Wednesday it plans to lower the capital expenditures at its $5.0 billion Minas Conga copper and gold project as part of a broader strategy to reduce company costs amid weak metal prices.

After years of enjoying record-high metal prices, many mining companies in Peru and other jurisdictions are now cutting costs due to the sharp declines in prices for copper, gold and other metals.

"This current market situation is an opportunity to renew the capex of this project," Buenaventura Chief Financial Officer Carlos Galvez said in a conference call. "We have to review the initial capex and eventually it will be lower than initially expected."

Buenaventura has a 43.65% stake in Minas Conga, while Newmont Mining Corp. (NEM) owns 51.35%. The World Bank's International Finance Corp. owns the remaining 5% of the project.

Minas Conga is one of the biggest private-sector investment projects in Peru. The companies have faced difficulties developing the project due to opposition from local politicians and residents concerned that it will impact their water supply in the northern Andean region of Cajamarca. Construction of the mining operation has been put on hold while the companies build reservoirs that would provide water to residents and replace mountain lakes that are to be drained.

Minas Conga could have an average annual output of 580,000 to 680,000 ounces of gold and 155 million to 235 million pounds of copper during its first five years.

Buenaventura is reviewing capex for projects, including its 49%-owned Chucapaca gold project. Mr. Galvez said in June that the project will likely require investments of around $1 billion, about half of an earlier estimate. A new feasibility study for Chucapaca is expected around the end of this year.

In addition, the company is reducing costs at its current operations, including closing some unprofitable mines and laying off workers. Buenaventura said Tuesday in its second-quarter financial results that it was stopping production at its Antapite, Poracota and Shila-Paula mines. It is also aiming to improve efficiency at its Orcopampa and Uchucchacua mines, and focus on brownfield exploration.

Mr. Galvez said Wednesday that the mine closures and cost cutting will result in monthly savings of about $15 million. They will also require the company to lay off about 2,000 workers, he said.

The lower metal prices have cut into profits. Buenaventura's second quarter net income fell 88% to $19 million, from $153 million in the year-earlier period due to weak metal prices.

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