1. business and industrial
2. company
3. merger and acquisition

EQUITY RESEARCH | Earnings Preview
April 24th, 2014
1Q2014 estimates: Our sample's net income would fall 3.9% YoY,
impacted by the mining industry.
Kallpa SAB estimates that net income from our sample of companies under coverage
(15 companies) will register a 3.9% YoY decrease in 1Q2014. This behavior is
differentiated by industries, but the companies related to the domestic demand will have
the best performance with a 29.8% YoY increase in net income, as a consequence of: i)
Peru’s sustained economic growth, ii) acquisitions of certain companies (Credicorp,
Alicorp and Grana y Montero); and, iii) an exchange rate’s lower volatility, with regard to
1Q2013.
Among the companies related to the domestic demand, the consumption and the
infrastructure industries will register the best performances with 81.6% YoY and 31.6%
YoY increases in net income, respectively. These increases will be boosted by the net
income of InRetail (+221.7% YoY) and Ferreycorp (+65.5% YoY), which were our
sample’s most affected companies due the exchange rate’s volatility registered in 2013’s
first half.
The mining industry will register a 20.4% YoY drop in 1Q2014’s net income. However,
this behavior is differentiated by the type of mineral produced by each company. Mining
companies which concentrate an important part of their sales in precious metals and
copper (such as Buenaventura, Southern Copper, Cerro Verde and Volcan) will register
a 22.4% YoY fall in their net income due to a strong decrease in the prices of the metals
they produce. Nevertheless, mining companies such as Milpo and Atacocha, which
concentrate a significant part of their sales in zinc and lead, will register a 119.5% YoY
increase in their net income due to: i) price stability in such metals, ii) efforts directed to
increase the scale of their operations; and, iii) cost control policies.
1Q2014 estimates' summary
Indust. / Comp.
FV
Recommend. Currency
Sales
YoY
EBITDA
YoY
Mg.
Net Inc.
YoY
Mg.
22.8%
n.a.
Financial
Credicorp
1
USD
155.00
Hold
PEN MM 1,336.7
14.8%
n.a.
n.a.
n.a.
575.9
Consumption
Alicorp
PEN
9.90
Buy
PEN MM 1,395.2
14.2%
158.8
19.2%
11.4%
63.1
37.1%
4.5%
InRetail
USD
16.00
Hold
PEN MM 1,433.8
16.2%
134.8
29.9%
9.4%
47.1
221.7%
3.3%
Grana y Montero
PEN
11.15
Buy
PEN MM 1,487.7
17.3%
215.8
2.0%
14.5%
72.8
17.2%
4.9%
Ferreycorp
PEN
2.25
Buy+
PEN MM 1,239.8
2.7%
130.6
12.9%
10.5%
43.7
65.5%
3.5%
Southern Copper
USD
29.00
Hold
USD MM 1,525.4
-6.0%
747.0
-13.2%
49.0%
380.8
-23.1%
25.0%
Cerro Verde
USD
24.75
Hold
USD MM
443.1
12.6%
242.8
5.1%
54.8%
133.8
-3.6%
30.2%
USD
16.80
Buy
USD MM
316.4
-10.8%
90.6
-8.1%
28.6%
52.9
-48.5%
16.7%
PEN
1.51
Buy+
USD MM
238.0
2.3%
37.5
-50.0%
15.8%
1.9
-91.5%
0.8%
Milpo
PEN
2.75
Buy+
USD MM
184.3
6.2%
78.6
20.1%
42.6%
25.0
66.0%
13.6%
Rio Alto
USD
4.50
Buy+
USD MM
68.9
18.5%
31.1
19.6%
45.1%
17.2
113.1%
25.0%
El Brocal
PEN
10.90
Hold
USD MM
55.5
19.2%
21.9
221.1%
39.4%
5.4
n.s.
9.7%
Luna Gold
USD
2.55
Buy+
USD MM
26.2
51.2%
6.7
79.4%
25.6%
2.4
n.s.
9.1%
Atacocha
PEN
0.150
Hold
USD MM
26.1
10.6%
6.3
76.0%
24.1%
-1.2
n.s.
-4.6%
Minera IRL
USD
0.430
Buy+
USD MM
6.8
-26.6%
-0.4
n.s.
-5.6%
-2.5
n.s.
-36.9%
Infrastructure
Mining
Buenaventura
2
Volcan
1: With regard to Credicorp, its sales are represented by the net interest income.
2: Buenaventura's EBITDA does not include the contribution from its associates.
n.a.: not available.
n.s.: not significant.
Source: Kallpa SAB
Alberto Arispe
Head of Research
(511) 630 7500
aarispe@kallpasab.com
Marco Contreras
Senior Analyst: Consum., Infras. & Others
(511) 630 7528
mcontreras@kallpasab.com
Edder Castro
Analyst: Mining
(511) 630 7529
ecastro@kallpasab.com
Humberto Leon
Analyst: Junior Mining
(511) 630 7527
hleon@kallpasab.com
Sebastian Cruz
Analyst: Energy
(511) 630 7527
scruz@kallpasab.com
Fiorella Torres
Assistant
(511) 630 7500
ftorres@kallpasab.com
Earnings Preview | 1Q2014
Financial - Credicorp Ltd. (NYSE, BVL: BAP)
The company’s net interest income would grow 14.8% YoY in 1Q2014, supported by a similar increase in Banco de Credito’s
loans. We are confident that a change in the functional currency from USD to PEN should decrease exchange rate distortions
in Credicorp’s main operating figures.
The net income would register a 22.8% YoY strong increase in 1Q2014. However, this is due to a PEN 48.1 MM translation
loss occurred in 1Q2013. If we observe the operating income, this should increase only 10.8% YoY, since the higher interest
income should be partially offset by higher provisions (due to higher PDL with regard to 1Q2013), by administrative expenses
and by a slowdown in non financial income.
With regard to the acquisition of Mibanco, its inclusion within Credicorp’s financial statements might generate higher than the
expected interest income. Nevertheless, due to high provisions (5.7% PDL ratio as of February 2014) and administrative
expenses, net effect over the holding’s net income should not be significant. It might even provoke a slight downward
pressure over the consolidated ROE (Mibanco’s ROE registered 4.4% as of February 2014).
Chart Nº 1: Operating efficiency
Chart Nº 2: Earnings per share (PEN)
48%
8.0
7.22
45.8%
46%
7.0
6.28
43.9%
43.4%
44%
42.3%
42.0%
5.88
6.0
42%
5.30
5.0
40%
4.0
38%
3.0
36%
1.83
2.0
34%
1.0
32%
30%
0.0
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
1Q2013
Source: Credicorp, Kallpa SAB
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Credicorp, Kallpa SAB
Consumption - Alicorp S.A.A. (BVL: ALICORC1)
We expect the company’s sales to grow 14.2% YoY in 1Q2014. This dynamism will be supported by the company’s organic
growth and by the acquisitions of Teal and Pastificio Santa Amalia, carried out in January and February 2013, respectively.
However, this quarter will be also affected by the seasonality of certain products such as pasta, whose consumption is low
during summer months.
We estimate the company’s EBITDA to register a 19.2% YoY increase. In this way, the company’s EBITDA margin would rise
from 10.9% in 1Q2013 to 11.4% in 1Q2014. This, due to the fact that in 1Q2013 there were additional costs regarding the
acquisitions of Teal and Pastificio Santa Amalia, whose recurrence is not expected since these companies are already
integrated to Alicorp.
The company’s net income would increase 37.1% YoY (higher than EBITDA’s growth) due to the fact that in 1Q2013 there
were FX and derivatives losses for PEN 14.9 MM and PEN 8.1 MM, respectively.
Chart Nº 3: Gross Income vs. Gross Margin
Gross Income
500
Gross Margin
30%
28.7%
450
Mg. %
PEN MM
EBITDA
300
EBITDA Margin
18%
15.3%
27.5%
27.6%
400
350
Chart Nº 4: EBITDA vs. EBITDA Margin
Mg. %
PEN MM
27.5%
28%
250
14%
12.5%
200
25.4%
300
16%
13.4%
11.4%
10.9%
26%
250
12%
10%
150
200
8%
24%
100
150
100
22%
6%
4%
50
2%
50
0
20%
1Q2013
2Q2013
Source: Alicorp, Kallpa SAB
www.kallpasab.com
3Q2013
4Q2013
1Q2014e
0
0%
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Alicorp, Kallpa SAB
Earnings Preview
2
Earnings Preview | 1Q2014
Consumption - InRetail Peru Corp. (BVL: INRETC1)
We are confident that the company’s sales will have a 16.2% YoY increase in 1Q2014, supported by: i) new store openings in
the last 12 months (+11 supermarkets, +135 pharmacies and +105,000 m2 of gross leasable area); and, ii) a modest recovery
in same store sales (+2.0% in supermarkets and +4.0% in pharmacies).
The EBITDA should increase 29.9% YoY in 1Q2014, improving the EBITDA margin in 100 bps due to: i) a higher market
share in shopping centers (openings of Real Plaza Cajamarca and Real Plaza Cuzco in December 2013); ii) revenues from
Tarjeta Oh!; and, iii) higher penetration from own branded products.
With regard to the net income, it would be observed an important increase (+221.7% YoY) due to a PEN 21.4 MM FX loss
registered in 1Q2013, which occurred due to its debt’s exposure to USD.
Chart Nº 5: Same Store Sales' (SSS) growth
8%
Supermarkets SSS
Chart Nº 6: EBITDA vs. EBITDA Margin
Mg. %
PEN MM
SSS Pharmacies SSS
EBITDA
180
7%
6%
9.4%
140
5%
4.0%
3%
2.1%
8.4%
10%
8.2%
8.1%
120
4.0%
2.4%
12%
10.6%
160
6.9%
4%
EBITDA Margin
8%
100
2.0%
6%
2%
80
1%
0.4%
0%
60
-0.7%
-1%
-1.1%
-2%
4%
40
2%
-2.1%
20
-3%
0
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: InRetail, Kallpa SAB
0%
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: InRetail, Kallpa SAB
Infrastructure - Grana y Montero S.A.A. (NYSE: GRAM, BVL: GRAMONC1)
Despite private investment’s slowdown, Grana y Montero will maintain its sales dynamism in 1Q2014 (+17.3% YoY),
supported by a USD 2,085 MM backlog for 2014 (including recurrent businesses), which represents 0.98x times the sales
from 2013; and by the acquisition of DSD in Chile, carried out in August 2013.
In terms of EBITDA, the company would register a 2.0% YoY modest increase. This due to the fact that in 1Q2013 there were
a PEN 4.7 MM extraordinary income and a PEN 16.5 MM revenue from stake in associates, whose recurrence is not
expected in 1Q2014, in a conservative way.
The net income would stand out with a 17.2% YoY increase, given the PEN 13.3 MM FX loss registered in 1Q2013.
Chart Nº 7: Gross Income vs. Gross Margin
PEN MM
350
Gross Income
18.5%
Gross Margin
19%
17.4%
300
250
Chart Nº 8: EBITDA vs. EBITDA Margin
Mg. %
Mg. %
PEN MM
EBITDA
300
18%
15.9%
15.6%
200
15%
150
14%
18%
16.2%
14.7%
17%
16%
20%
17.8%
16.7%
250
15.8%
EBITDA Margin
14.5%
14%
200
12%
150
13%
10%
8%
100
6%
100
12%
4%
50
50
11%
0
10%
1Q2013
2Q2013
Source: Grana y Montero, Kallpa SAB
www.kallpasab.com
3Q2013
4Q2013
1Q2014e
16%
2%
0
0%
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Grana y Montero, Kallpa SAB
Earnings Preview
3
Earnings Preview | 1Q2014
Infrastructure - Ferreycorp S.A.A. (BVL: FERREYC1)
Regarding Ferreycorp’s sales, we will keep on observing a deceleration with regard to previous years. We do not expect that
sales from new machinery to the mining industry will stand out in 2014, so our 2.7% YoY expected growth in 1Q2014 should
be leaded by the spare parts and services business unit.
Due to the spare parts and services unit’s higher growth, the EBITDA would register a 12.9% YoY increase, improving also
the EBITDA margin from 9.6% registered in 1Q2013 to 10.5% in 1Q2014. This is subject to the fact that the operating
expenses’ growth remains stable.
Net income would benefit from the improvement in the EBITDA margin, and from a PEN 17.0 MM FX loss registered in
1Q2013.
Chart Nº 9: Gross Income vs. Gross Margin
Chart Nº 10: EBITDA vs. EBITDA Margin
Mg. %
PEN MM
Gross Income
22.8%
22.7%
350
Gross Margin
22.2%
24%
22.0%
300
22%
PEN MM
EBITDA
200
Mg. %
EBITDA Margin
16%
13.8%
180
13.0%
14%
160
250
19.2%
20%
200
18%
150
16%
100
14%
140
10.2%
9.6%
10.5%
12%
10%
120
100
8%
80
6%
60
4%
40
50
12%
0
10%
1Q2013
2Q2013
3Q2013
4Q2013
2%
20
0
1Q2014e
0%
1Q2013
Source: Ferreycorp, Kallpa SAB
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Ferreycorp, Kallpa SAB
Mining - Southern Copper Corporation (NYSE, BVL: SCCO)
Sales would have reached USD 1,525 MM in 1Q2014, that is to say, -6.0% YoY. This would be explained by a -12.1% YoY fall
in copper price, as a consequence of the Chinese economy’s slowdown. However, copper production should have increased
approximately to 168,000 MT in 1Q2014 (+10.7%) since we are not expecting floods which would stop Buenavista’s
production (a problem that occurred in 1H2013). Additionally, there will be registered a higher recovery rate in Cuajone due to
projects developed in 2013.
We estimate a USD 747 MM EBITDA in 1Q2014 (-13.2% YoY). This is explained principally by the above-mentioned fall in
copper price, and by an increase in the cost of sales which is related to a higher treated mineral volume necessary to increase
production levels. Consequently, we expect the EBITDA margin to decrease from 53.0% to 49.0% as of closing of 1Q2014.
We expect a USD 381 MM net income attributable to Southern in 1Q2014, that is to say, -23.1% YoY. This due to higher
taxes with regard to the new Mexican tax framework, which is in force since January 1st, 2014.
Chart Nº 11: Copper production and cash cost
000' MT
Production
180
Cash cost
Chart Nº 12: EBITDA vs. EBITDA Margin
Cash cost
(USD/Lb.)
1.2
EBITDA
53.0%
1.1
0.98
160
900
800
1.09
170
Mg. %
USD MM
1.00
1.0
0.91
46.7%
700
1.00
EBITDA Margin
55%
49.0%
49.3%
50%
47.3%
600
150
0.9
140
0.8
130
45%
500
400
40%
300
0.7
120
200
0.6
110
100
0.5
1Q2013
2Q2013
Source: Southern Copper, Kallpa SAB
www.kallpasab.com
3Q2013
4Q2013
1Q2014e
35%
100
-
30%
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Southern Copper, Kallpa SAB
Earnings Preview
4
Earnings Preview | 1Q2014
Mining - Sociedad Minera Cerro Verde S.A.A. (BVL: CVERDEC1)
We estimate sales of USD 443.1 MM in 1Q2014, that is to say, +12.6% YoY, before higher copper production (confirmed by
data as of February from the Ministry of Energy and Mines - MEM), and higher weight of copper cathodes within the sales’ mix
(20.0% vs. 15.0% registered in 1Q2013). These two effects should offset the -12.1% YoY strong fall in copper price.
However, we anticipate that the EBITDA will grow only 5.1% YoY and will reach USD 242.8 MM. We expect lower copper
grades, which will generate upward pressures over costs and increases in treated mineral volumes in order to sustain the
current production level. Consequently, the EBITDA margin would fall from 58.7% to 54.8% in 1Q2014.
The net income would reach USD 133.8 MM (-3.6% YoY). The latter is explained by interest expenses related to the USD
1,800 MM loan taken in March in order to finance the project’s expansion CAPEX. Additionally, the company will start-up
paying royalties and the special mining tax, since its tax stability contract expired in 2013.
Chart Nº 13: Copper production
Chart Nº 14: EBITDA vs. EBITDA Margin
MM Lb.
USD MM
Copper concentrates
180
Copper cathodes
EBITDA
160
65%
58.7%
300
17%
Mg. %
EBITDA Margin
63.4%
350
58.3%
60%
54.8%
140
18%
120
51.1%
250
24%
55%
20%
15%
100
80
200
50%
150
45%
100
40%
50
35%
83%
60
85%
82%
76%
80%
40
20
0
0
1Q2013
2Q2013
3Q2013
4Q2013
30%
1Q2013
1Q2014e
Source: Cerro Verde, Kallpa SAB
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Cerro Verde, Kallpa SAB
Mining - Compania de Minas Buenaventura S.A.A. (NYSE, BVL: BVN)
We estimate that sales would decrease 10.8% YoY in 1Q2014, that is to say, they would fall from USD 354.7 MM to USD
316.4 MM. This is explained mainly by the drop in precious metals prices, -20.8% YoY and -32.0% YoY for gold and silver in
average, respectively. With regard to production levels, we expect 215,000 gold ounces and 5.0 MM silver ounces during the
quarter, in a consolidated way.
We calculate a USD 90.6 MM EBITDA (excluding the EBITDA from associates), that is to say, an 8.1% YoY fall in 1Q2014.
The lower fall with regard to sales is explained by cost savings that will be generated in Huanza hydroelectric plant and by
production synergies with Rio Seco plant. Additionally, we expect a reduction in greenfield exploration expenses (USD 3.8
MM) and brownfield exploration expenses (USD 10.0 MM), in line with the company’s guidance .
Nevertheless, we anticipate a 48.5% YoY fall in the net income attributable to Buenaventura in 1Q2014, until reaching USD
52.9 MM. This due to a lower income contribution from its associates (Yanacocha, Cerro Verde and Tantahuatay), since these
mining companies would have been also negatively affected by lower gold, silver and copper average prices during the
quarter.
Chart Nº 15: Precious metals production
Chart Nº 16: EBITDA vs. EBITDA Margin
000' Au Oz.
MM Ag Oz.
Au Prod.
260
5.4
5.0
4.80
4.70
EBITDA
Mg. %
EBITDA Margin
200
35%
29.9%
5.00
4.93
240
220
Ag Prod.
USD MM
175
28.6%
27.8%
150
4.44
4.6
200
180
4.2
30%
25%
125
17.9%
20%
14.7%
100
15%
160
3.8
75
10%
50
140
3.4
120
100
3.0
1Q2013
2Q2013
Source: Buenaventura, Kallpa SAB
www.kallpasab.com
3Q2013
4Q2013
1Q2014e
5%
25
0
0%
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Buenaventura, Kallpa SAB
Earnings Preview
5
Earnings Preview | 1Q2014
Mining - Volcan Compania Minera S.A.A. (BVL: VOLCABC1)
We estimate sales would grow 2.3% YoY in 1Q2014, until reaching USD 238.0 MM. This, since we expect a production level
slightly higher than the one registered in 1Q2013, which will be diminished by the drops in silver price (-32.0% YoY) and in
lead price (-8.4% YoY). Let us recall that in 2013 Raul Rojas mine stopped its operations and Paragasha mine reduced its
production level considerably, both mines located in Cerro de Pasco UEA.
We estimate a USD 37.5 MM EBITDA in 1Q2014 (-50.0% YoY). We expect a consolidated cash cost similar to the one
registered in 4Q2013. With regard to sales and administrative expenses, we do not expect reductions higher than the ones
observed in late 2013. Consequently, we estimate a 15.8% EBITDA margin in 1Q2014, lower than the 32.2% registered in
1Q2013.
We calculate a USD 1.19 MM net income in 1Q2014, that is to say, a 0.8% net margin. However, we are optimistic with
regard to results for the next quarters, since the contribution from its projects (Silver Oxides and new Alpamarca – Rio
Pallanga UEA) will have a significant impact over the company’s margins.
Chart Nº 17: Zinc production and cash cost
Chart Nº 18: EBITDA vs. EBITDA Margin
000' MT
90
Zinc production
75.5
Cash cost
Cash cost
(USD/MT)
80
70.5
80
Mg. %
USD MM
EBITDA
200
175
65.4
70
65.5
EBITDA Margin
45%
40%
42.3%
70
35%
150
59.7
60
60
125
30%
32.2%
30.7%
25%
50
50
100
24.3%
40
30
40
15%
15.8%
50
20
30
10
0
25
20
1Q2013
2Q2013
3Q2013
4Q2013
10%
5%
0
1Q2014e
0%
1Q2013
Source: Volcan, Kallpa SAB
20%
75
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Volcan, Kallpa SAB
Mining - Compania Minera Milpo S.A.A. (BVL: MILPOC1)
We expect sales of USD 184.3 MM in 1Q2014, that is to say, +6.2% YoY, due to a higher production of zinc, lead, copper and
silver fine concentrates (confirmed by data from MEM as of February). This, due to the fact that in 1Q2013 El Porvenir and
Cerro Lindo’s installed capacities did not reach 100% of use, since these mines were in ramp up stages.
We estimate that the EBITDA would increase 20.1% YoY up to USD 78.6 MM due to cost reduction policies executed by the
company, which were not implemented in 1Q2013. Additionally, we expect that the treated mineral volume will increase 37.8%
YoY due to the consolidation of installed capacities towards levels close to 100%. Consequently, we expect a USD/MT 35.0
cash cost, 4.4% YoY below the USD/MT 36.6 registered in 1Q2013.
We calculate a USD 25.0 MM net income attributable to Milpo, 66.0% YoY above the USD 15.1 MM obtained in 1Q2013. This
is explained by a higher production and by the cost reduction previously explained. Additionally, it is expected an effective tax
rate for approximately 38.0% in 1Q2014, below the 47.3% rate registered in 1Q2103.
Chart Nº 19: Treated MT and cost per Treated MT
MM TM
Treated
TM Tratadas
2.4
2.3
Cash Cost
Chart Nº 20: EBITDA vs. EBITDA Margin
Cash cost
(USD/MT)
38
34.9
35.0
35
2.1
34
1.9
1.8
1.7
www.kallpasab.com
39.6%
37.7%
45%
38.8%
40%
35.5%
70
35%
60
30%
50
25%
40
20%
33
30
15%
32
20
10%
31
10
5%
30
-
2.0
Source: Milpo, Kallpa SAB
42.7%
36
35.1
2Q2013
Mg. %
EBITDA Margin
37
36.3
2.2
EBITDA
90
80
36.6
1Q2013
USD MM
3Q2013
4Q2013
1Q2014e
0%
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Milpo, Kallpa SAB
Earnings Preview
6
Earnings Preview | 1Q2014
Mining - Rio Alto Mining Ltd. (LSE: RIO)
We estimate that the company’s sales will grow 18.5% YoY in 1Q2014. This expansion will be originated by a 47% YoY
increase in production, when passing from 36,355 Au Oz. in 1Q2013 to 53,463 Au Oz. in 1Q2014. Nevertheless, this increase
will be offset by the effect of a lower gold price, which decreased from USD/Oz. 1,598 in 1Q2013 to USD 1,292 in 1Q2014.
We forecast that the company’s EBITDA will register a 19.6% YoY increase. This increase will be explained by the abovementioned higher sales and by a lower cash cost, which would decrease 16% YoY, passing from USD/Oz. 788 in 1Q2013 to
USD/Oz. 661 in 1Q2014, in line with the company’s guidance. However, the lower cash cost would be partially offset by a
113.6%YoY increase in administrative expenses.
The company’s net income would grow 113.1% YoY. This growth would be the consequence of a higher EBITDA, as well as
of a lower effective tax rate, which we estimate in 34% for 1Q2104, versus the 46% rate registered in 1Q2013.
Chart Nº 21: La Arena's production
Chart Nº 22: EBITDA vs. EBITDA Margin
Au Oz.
USD MM
80,000
Mg. %
EBITDA
45
40
59,157
60,000
53,463
48,427
50,000
45.2%
44.7%
45.1%
50%
35
37.1%
30
40%
25
36,355
40,000
60%
52.1%
70,551
70,000
EBITDA Margin
30%
20
30,000
15
20,000
20%
10
10%
10,000
5
0
0
1Q2013
2Q2013
3Q2013
4Q2013
Source: Rio Alto, Kallpa SAB
0%
1Q2013
1Q2014e
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Rio Alto, Kallpa SAB
Mining - Sociedad Minera El Brocal S.A.A. (BVL: BROCALC1)
For 2014’s first quarter, we only expect production of copper concentrates, in line with the strategy provided by the company’s
management. Despite the fact that copper price decreased 12.1% YoY in 1Q2014, we expect sales to increase 19.2% YoY
until reaching USD 55.5 MM. This will be due to its strategy focused on copper, which has shown good results during 1S2013,
and due to its hedging policy with derivatives.
With regard to the EBITDA, we expect that it reaches USD 21.9 MM in 1Q2014, widely exceeding the USD 6.8 MM reached in
1Q2013. We expect the same operating efficiency level and administrative expenses reached in 1Q2013.
We anticipate a USD 5.4 MM net income for 1Q2014, in contrast with the USD -2.7 MM net loss registered in 1Q2013. This
due to the expected behavior regarding sales and the operating efficiency, which was previously mentioned.
Chart Nº 23: Copper concentrates production
Chart Nº 24: EBITDA vs. EBITDA Margin
000' MT
USD MM
35
33.1
33.0
33.0
Mg. %
EBITDA
25
Margen EBITDA
50%
39.4%
30
25
37.4%
20
24.0
15
19.0
20
10
40%
30%
24.1%
20%
14.6%
15
5
10%
10
0
0%
5
-5
-10%
-9.8%
-10
0
1Q2013
2Q2013
Source: El Brocal, Kallpa SAB
www.kallpasab.com
3Q2013
4Q2013
1Q2014e
-20%
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: El Brocal, Kallpa SAB
Earnings Preview
7
Earnings Preview | 1Q2014
Mining - Luna Gold Corp. (TSX, BVL: LGC)
We forecast that the company’s sales will grow 51% YoY in 1Q2014. This dynamism will be explained by a 23,002 Au Oz.
sold volume (a 19,000 Au Oz. production), which will exceed in 76.7% the 13,017 Au Oz. sold volume registered in 1Q2013 (a
17,203 Au Oz. production). The higher volume will be partially offset by the USD/Oz. 1,292 estimated lower gold price, versus
the USD/Oz. 1,606 registered in 1Q2013.
We estimate that the company’s EBITDA will increase 79.4% YoY. In this way, the EBITDA margin would pass from 21.6% in
1Q2013 to 25.6% in 1Q2104. This due to higher sales and a USD/Oz. 725 lower cash cost estimated for 1Q2014, versus the
USD/Oz. 757 registered in 1Q2013. Additionally, the higher EBITDA is explained by lower exploration expenses, which should
decrease 41% YoY.
The company’s net income would increase to USD 2.4 MM in 1Q2014, with regard to the USD -0.6 MM net loss registered in
1Q2013. This result would be influenced by an increase in the EBITDA.
Chart Nº 25: Aurizona's production
Chart Nº 26: EBITDA vs. EBITDA Margin
Au Oz.
USD MM
EBITDA
10
25,000
22,177
19,414
18,853
20,000
40%
33.4%
9
20,997
Mg. %
EBITDA Margin
35%
8
17,203
25.6%
7
21.6%
6
15,000
21.3%
25%
17.0%
5
20%
4
10,000
30%
15%
3
10%
2
5,000
5%
1
0
0
1Q2013
2Q2013
3Q2013
4Q2013
0%
1Q2013
1Q2014e
Source: Luna Gold, Kallpa SAB
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Luna Gold, Kallpa SAB
Mining - Compania Minera Atacocha S.A.A. (LSE: ATACOBC1)
We estimate 20% YoY and 10% YoY increases in silver and lead production in 1Q2014, respectively. However, we expect a
10% YoY decrease in zinc production, in line with data published by MEM as of closing of February. Sales would have
reached USD 21.6 MM, only 10.5% above the amount registered in 1Q2013, due to a 32.0% YoY fall in silver price.
We estimate that the company’s EBITDA registers a 76.0% YoY increase. In this way, the company’s EBITDA margin would
pass from 15.1% registered in 1Q2013 to 24.1% in 1Q2014. This due to the quarter’s higher sales previously explained, and
to an important reduction in the cash cost YoY, which would pass from USD/MT 49.0 to USD 45.0. Additionally, we expect a
slight reduction in administrative expenses due to policies implemented in 2013, and as a consequence of the effect from the
merger with Minera Atasilver S.A.C.
We expect that the company registers a USD -1.2 MM net loss in 1Q2014, better than the USD -4.2 MM net loss obtained in
1Q2013. This result would be influenced by the increase in EBITDA previously mentioned.
Chart Nº 27: Treated MT and cost per treated MT
Chart Nº 28: EBITDA vs. EBITDA Margin
Cash cost
(USD/MT)
MT Treated
400,000
390,000
USD MM
EBITDA
12,000
Mg. %
EBITDA Margin
45%
50
49
49.4
26.9%
46.6
360,000
48
47
6,000
46
4,000
15%
2,000
5%
45
45.0
350,000
45.0
35%
24.1%
8,000
380,000
370,000
32.5%
10,000
25%
15.1%
44
44.3
0
-5%
43
340,000
42
330,000
320,000
1Q2013
2Q2013
Source: Atacocha, Kallpa SAB
www.kallpasab.com
3Q2013
4Q2013
1Q2014e
-2,000
41
-4,000
40
-6,000
-15%
-16.5%
1Q2013
2Q2013
-25%
3Q2013
4Q2013
1Q2014e
Source: Atacocha, Kallpa SAB
Earnings Preview
8
Earnings Preview | 1Q2014
Mining - Minera IRL Ltd. (AIM: MIRL, LSE: MIRL, TSX: IRL)
We expect the company’s sales to decrease 27% YoY in 1Q2014. This fall will be explained by: i) the 5,250 Au Oz. lower
production expected in 1Q2014, compared with the 5,848 Au Oz. registered in 1Q2013; and, ii) the USD/Oz. 1,292 lower
average gold price, vs. the USD/Oz. 1,631 reached in 1Q2013.
We estimate that the company’s EBITDA reaches a negative level of about USD -0.4 MM. In this way, the company’s EBITDA
margin would pass from 20.1% in 1Q2013 to -5.6% in 1Q2014. This due to the fall in sales and to a significant increase in the
cash cost YoY. According to our projections, the cash cost will increase to USD/Oz. 890 in 1Q2014 from the USD/Oz. 726
reached in 1Q2013. This upward trend will continue as long as Corihuarmi reaches its life of mine’s end, in 2015.
Minera IRL would register a higher net loss in 1Q2014, USD -2.5 MM vs. USD -1.1 MM reached in 1Q2013. This decrease is
in line with the fall in EBITDA and will be influenced by higher interest expenses.
Chart Nº 29: Corihuarmi's production
Chart Nº 30: EBITDA vs. EBITDA Margin
Au Oz.
USD MM
6,633
7,000
6,000
6,296
EBITDA
2.5
6,446
20.1%
5,848
Mg. %
EBITDA Margin
25%
22.1%
2.0
20%
5,250
5,000
1.5
4,000
1.0
3,000
0.5
2,000
0.0
1,000
-0.5
15%
11.1%
10%
3.3%
5%
0%
-5%
-5.6%
-1.0
0
1Q2013
2Q2013
Source: Minera IRL, Kallpa SAB
www.kallpasab.com
3Q2013
4Q2013
1Q2014e
-10%
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014e
Source: Minera IRL, Kallpa SAB
Earnings Preview
9
Earnings Preview | 1Q2014
Appendix – Disclaimer
Analyst certification
The analyst that prepared this report hereby certifies that: i) the opinions and views expressed in this valuation report, in regard with
the issuer and with the company’s overview, reflected his/her personal opinion and ii) No part of his/her salary compensation was, is
or will be related directly or indirectly to the recommendations expressed in this report.
The economic compensation of the analyst that prepared this report is based in several factors, including but not limited to Kallpa
Securities SAB’s profitability and the profits generated by its different areas, including investment banking. In addition, the analyst
does not receive any kind of economic compensation from the companies he/she covers.
This valuation report was prepared by Kallpa Securities SAB’s employees that maintain the position of Analyst. Persons involved in
the elaboration of this report are authorized to maintain shares.
Share prices in this report are based on market prices as of closing of the day prior to the publication of this report, unless it is strictly
stated.
General statement
This document is for informative purposes only. Under no circumstances it should be used / be considered as an offer of sale or an
application of purchase of shares or any other securities mentioned in this document. The information herein has been obtained from
sources which are believed to be reliable, but Kallpa Securities SAB does not guarantee the trustfulness or accuracy of the content
of this report, or the future market values of shares or other securities mentioned in this document. The views and opinions
expressed in this document constitute our opinion at the time of this report and are subject to change without any notice. Kallpa
Securities SAB does not guarantee analysis updates before any change in the circumstances of the market. The products referred in
this document may not be available for purchase in some countries.
Kallpa Securities SAB has reasonably designed policies to prevent or to control the exchange of non-public information used by
areas such Research and Investment, Capital Markets, among others.
Definition of qualification ranges
Kallpa Securities SAB has 5 qualification ranges: Buy +, Buy, Hold, Sell and Sell - . The analyst will assign the coverage one of these
ranges.
Sell Sell
Hold
< - 30%
-30% to -15%
-15% to 0%
> + 30%
+15% to +30%
0% to +15%
Buy +
Buy
Hold
The range assigned to each company covered by the analyst in these reports is based on the analysis/monitoring Kallpa Securities
SAB has been developing for the company. In some cases, the analyst can express his/her short-term points of view to traders,
vendors and some Kallpa Securities SAB’s clients but this point of view may differ in time by market volatility and other factors.
The fair value calculated by Kallpa SAB is based in one or more valuation methodologies commonly used by financial analysts,
including but not limited to discounted cash flows, In Situ valuations or any other applicable methodology. It should be noted that the
publication of a fair value does not imply any guarantee that the value will be achieved.
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Earnings Preview | 1Q2014
KALLPA SECURITIES SOCIEDAD AGENTE DE BOLSA
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CEO
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COMMERCIAL
CAPITAL MARKETS
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Trader
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Senior Analyst
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Analyst
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TRADING
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Representative
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Head of IT
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Controller
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