Detailed Narrative
San Gabriel Ramp-up Progress and Challenges
San Gabriel continued its ramp-up phase in Q2 FY26, contributing to sales volumes for the first time. Gold production reached 2,800 ounces. While underground mining is progressing as planned, with new phases opening and the fourth mining fleet expected by end of August, the processing plant faces challenges. Throughput is constrained by issues with press filters for dry stacking tailings, requiring structural reinforcement estimated at $5 million to $10 million. Gold recoveries are also below budget due to pre-corroding coal and sulfides in the ore, necessitating additional reagents and a planned flotation circuit by end of 2027, costing approximately $15 million.
Yumpag Expansion and Cost Optimization
A key milestone was achieved at Yumpag with approval to increase mining throughput from 1,000 tons per day to 1,200 tons per day, expected to result in a 10% increase in silver production for the second half of the year. This expansion, combined with connecting the operation to the national electrical grid by Q4 FY26, is projected to reduce Yumpag's operating costs by 15% to 17% compared to the first half of the year. This represents a significant step towards unlocking the operation's full potential and improving its cost structure.
Robust Financial Performance and Capital Allocation
The company reported strong financial results, with total revenues up 43% to $529 million and EBITDA from direct operations increasing 113% to $277 million, expanding margins from 35% to 52%. Net income surged 165% to $261 million. This performance, coupled with a disciplined capital allocation strategy, has strengthened the balance sheet, resulting in a net cash position of $67 million and a net debt-to-EBITDA ratio of negative 0.05x. Total CapEx for the quarter was $98 million, primarily directed towards San Gabriel, El Brocal, Uchucchacua, and Yumpag.
Cerro Verde Dividend Contribution
Dividends from the Cerro Verde operation significantly contributed to Buenaventura's cash flow, totaling $274 million year-to-date, including $118 million received in July. The company expects to receive between $350 million and $380 million in total dividends from Cerro Verde for the full year 2026, with an estimated $300 million for FY27, providing substantial financial flexibility and supporting growth investments.
El Nino Preparedness and Mitigation
In response to early alerts of a strong El Nino phenomenon, Buenaventura has established safety committees at each mine and authorized an additional $12 million in CapEx for the remainder of 2026. These funds are allocated to prepare for increased rainfall, including larger pumping capacity, power for pumps, water treatment facilities, and reinforcement of critical structures like water dams and reservoirs. The company aims to mitigate potential operational impacts from heavy rains expected in the next rainy season starting December 2026.
Trapiche Greenfield Project Assessment
With increasing copper prices, the opportunity to exploit primary sulfides at the Trapiche greenfield project is becoming more viable. The company plans to spend the next 1.5 years assessing the business case, reducing project risks related to access roads, power lines, and licenses, and conducting deeper asset consumption analysis. This strategic evaluation aims to understand the project's potential and de-risk its future development.