EQUITY RESEARCH | Earnings Preview July 21st, 2014 Preview - 2Q2014.pdfGraña y Montero 1,538.6...

Alberto Arispe

Head of Research

(511) 630 7500

[email protected]

Marco Contreras

Senior Analyst: Consum. & Others

(511) 630 7528

[email protected]

Edder Castro

Analyst: Mining

(511) 630 7529

[email protected]

Humberto León

Analyst: Junior Mining

(511) 630 7527

[email protected]

Sebastián Cruz

Analyst: Energy

(511) 630 7527

[email protected]

Fiorella Torres

Assistant

(511) 630 7500

[email protected]

Financial

Consumption

Infrastructure

Energy

Mining

1: In the case of Credicorp, the sales are represented by the net interest income.

2: Buenaventura's EBITDA does not include the contribution from its associates.

3: Trevali's variations are QoQ as its only mine in production (Santander) started commercial production in February 2014.

n.a.: does not apply / n.s.: not significant

Sourcee: Kallpa SAB

Kallpa SAB estimates that the net income from our sample of companies under coverage (17

companies) will register a 32.0% YoY increase in the 2Q2014. The growth of this quarter will

be led by domestic demand companies (+527.5% YoY) and to a lesser degree, by mining

companies (+6.5% YoY). The main reason for the net income increase of 2Q2014 will be the

lack of FX losses. It's worth mentioning that in 2Q2013, the local currency suffered a 7.5%

QoQ depreciation; while the 2Q2014 registered an unsignificant variation.

Minera IRL

-4.3%0.150

-42.1%n.s.USD

USD MMPEN

Buy +0.446 -2.7

26.2

193.2

67.7

6.5 -0.9

1,355.6

-35.5%

742.4

73.4

41.1

71.1

InRetail

47.4%

EBITDA

n.a.

178.1

129.9

Currency

PEN MM

PEN MM

PEN MM

209.8 1,538.6 Graña y Montero

-9.2%

Credicorp1

Alicorp

Buy11.15

5.4%

Ferreycorp

Southern Copper

Cerro Verde

USD

USD

Trevali3 USD MM 19.2

USD

PEN

54.5

PEN

PEN

Buenaventura2

Volcan

Milpo

Buy

Hold

Hold22.00

29.00

2.25

Relapasa PEN

Rio Alto

El Brocal

Luna Gold 15.8

285.3

283.4

USD

USD Buy

Buy

Hold

Buy3.17

2.52

1.51

15.60

Hold

Buy +

13.00

1.10

1.07

Buy

3.9%n.s.

-1.1

16.6% 27.4% 8.9%

24.5%

0.8%

25.7%

78.4% n.s. 38.0% n.s. 8.2%

0.7% 0.4%

2.6% 8.9 n.s.

16.0%

-0.2% 18.6% 17.5%

4.5

5.4%

39.5% n.s. 24.2% n.s.

-2.4%

7.7% 15.6% 42.5%

7.0%-24.2% -51.9% 26.9%

0.5%-12.0% 3.5 -14.1%

-78.8%

21.1%30.8

20.7

62.2%

50.0

76.1

0.7%

18.3%

1,532.6

392.3

n.s.

6.0% 29.9% 45.5% n.s.

-18.2%

13.2%2.1 -0.4 -43.7% -77.7%

15.5

19.9

30.9

14.3

0.1 -83.9%

100.8 200.0

82.1

July 21st, 2014

YoY YoY Mg. YoY

2.8%

Summary of Quarterly Estimates

Net Inc.Sales

1,428.8

1,543.4

1,463.0

EQUITY RESEARCH | Earnings Preview

Recommend. Mg.

4.8%

19.2% n.a. n.a. 273.2%

16.00

9.90

USD 545.2

4.6%

n.s.

13.6% 18.2%

USD MM

PEN MM

PEN MM

USD MM

USD MM

USD MM

USD MM

USD MM

USD MM

USD MM

USD MM

52.7

375.3

51.0% -5.2%

8.7% 12.7% 48.4%

6.4

149.3

0.200 n.s. -13.9%

USD MM 1,179.1 1.9% 30.44 n.s.

Sell

USD 1.40

Atacocha 0.260

FVPrice

151.16

8.55

17.40

10.10

1.92

0.300

32.40

155.00

2.55

10.90

0.345

2Q2014 estimates: Our sample’s net income would grow 32.0% YoY due to

the lack of FX losses

Among the companies related to domestic demand, all the companies of our sample will

register increases in their net income, noting the increases in the financial (+273.2% YoY) and

infrastructure (+160.7% YoY) industries. However, InRetail and Ferreycorp stand out, which will

revert the losses they registered in the 2Q2013, caused by the strong depreciation of the local

currency.

The mining industry will register a 6.5% YoY increase in the 2Q2014’s net income. The

producers of precious metals will register a 2.4% YoY reduction in its net income, despite the

15.4% YoY reduction of the price of gold, due to the reversion of losses by Rio Alto. The

copper producers will maintain a stable income as the lower copper price (-5.1% YoY) will be

offset by an increased production of Southern Copper. Finally, the polymetallic producers

(excluding Volcan due to extraordinary revenues from derivates in 2Q2013 and Trevali, which

did not produce in 2013) will revert the losses with the expansion of Milpo and El Brocal; and a

higher operational efficiency in Atacocha.

25.40

11.14

1.14

2.65

2.39

PEN

USD

2.9% -17.7% 11.0%PEN

PEN

11.5%

Hold

Buy

Hold

8.8%

n.a.

-16.5%

Indust./Comp.

Hold

mailto:[email protected]






Earnings Preview | 2Q2014

Financial - Credicorp Ltd. (NYSE, BVL: BAP)

Source: Credicorp, Kallpa SAB Source: Credicorp, Kallpa SAB

Consumption- Alicorp S.A.A. (BVL: ALICORC1)

Source: Alicorp, Kallpa SAB Source: Alicorp, Kallpa SAB

www.kallpasab.com 2Earnings Preview

We estimate a net income of PEN 545.2 MM for 2Q2014. This would represent a 273.2% YoY increase, due to the rise of the

company’s revenues and to the translation loss of PEN 213.0 MM that took place in 2Q2013, caused by the depreciation of

the Nuevo Sol. If we do not consider the FX losses, net income would grow 10.5% YoY.

Operating income would register a 35.6% YoY increase in 2Q2014 due to the rise in net interest income and to the PEN 35.00

MM loss in the sale of securities registered in 2Q2013, consequence of the deterioration of Credicorp’s sovereign bonds

portfolio. Furthermore, a USD 32.9 MM book loss was registered in 2Q2013, due to the valuation of forward contracts. If we

do not consider the latter, operating income would have registered a 16.4% YoY growth.

Net interest income for the company would grow 19.2% YoY in 2Q2014, supported by an increase in loans in local currency

and the incorporation of Mibanco’s revenues. The reduction from 12.5% to 12.0% in local currency reserve requirement rate

executed at the end of March would also contribute to the NII's growth.

We estimate a net income of PEN 73.4 MM for 2Q2014, increasing 47.4% YoY. This increase will be supported by the FX loss

of PEN 65.2 MM, registered in 2Q2013. This effect will exceed the impact of the 9.2% YoY drop in the EBITDA. Without

considering the FX loss, the income before taxes would have dropped 14.3% YoY.

In regard to the EBITDA, we expect a 9.2% YoY drop. We believe that the increase in sales will be more than offset by a

significant rise in operating expenses. We emphasize that other additional operating revenues were also registered in 2Q2013

for PEN 8.7 MM. In this way, the company’s EBITDA margin would go from 13.4% in 2Q013 to 11.5% in 2Q2014.

Alicorp’s revenues would grow 5.4% YoY, boosted mainly by the organic growth of the company. It is worth mentioning that in

the 2Q2014 financial results, we will also see the initial effects of the acquisition of Global Alimentos (April 2014) and the sale

of the pet food business. Unlike 1Q2014, this quarter will not have a seasonal effect of lower consumption of pasta during the

summer.

13.4% 12.5%

15.3%

10.8% 11.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

50

100

150

200

250

300

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % PEN MM

Chart Nº 4: EBITDA vs. EBITDA Margin

EBITDA EBITDA Margin

27.6% 27.5%

28.7%

27.2% 27.6%

20%

22%

24%

26%

28%

30%

0

50

100

150

200

250

300

350

400

450

500

2Q2102 3Q2013 4Q2013 1Q2014 2Q1014e

Mg. % PEN MM

Chart Nº 3: Gross Income vs. Gross Margin

Gross Income Gross Margin

43.9%

42.0%

45.8%

40.7%

44.3%

30%

32%

34%

36%

38%

40%

42%

44%

46%

48%

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Chart Nº 1: Operating Efficiency

1.83

6.28

5.30

8.30

6.84

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2Q2013 3Q21013 2Q2013 1Q2014 2Q2014e

Chart Nº 2: Earnings per Share (PEN)

http://www.kallpasab.com/


Consumption - InRetail Perú Corp. (BVL: INRETC1)

Source: InRetail, Kallpa SAB Source: InRetail, Kallpa SAB

Infrastructure - Graña y Montero S.A.A. (NYSE: GRAM, BVL: GRAMONC1)

Source: Graña y Montero, Kallpa SAB Source: Graña y Montero, Kallpa SAB


We estimate a net income of PEN 41.1 MM for 2Q2014, reverting the PEN 54.6 MM loss registered in 2Q2013. This would be

the result of an improvement in the margins of the company and the lack of the PEN 96.1 MM exchange loss in 2Q013.

Income before taxes would grow 66.4% without considering the FX loss.

In regard to the EBITDA, the company would register a 16.5% YoY fall, despite the higher revenues, due to the termination of

some high margin contracts in the engineering and construction units. Furthermore, an extraordinary PEN 10.7 MM revenue

was registered in 2Q2013 due to the reversion of provisions in relation to the acquisition of CAM.

Revenues of Graña y Montero would grow 8.8% YoY (less dynamism than the previous quarters). We believe that despite the

slowdown of the Peruvian economic activity, the company would reach our PEN 6,568.1 MM sales estimate for this year. This

is supported by the strong USD 1,669.9 MM backlog that is left for execution in 2014.

Regarding the EBITDA, it would increase by 27.4% YoY in 2Q2014, improving the EBITDA margin up to 8.9% (8.1% in

2Q2013), due to: i) an increased participation of the shopping malls business (opening of Real Plaza in Cajamarca and Cusco

in December 2013, and Real Plaza Salaverry in May 2014); and, ii) a higher penetration of own brands.

InRetail’s revenues for the second quarter of 2014 will grow 16.6% supported by: i) the opening of new stores in the last 12

months (+12 supermarkets, +125 pharmacies and +178K m2 of GLA); and, ii) a solid recovery in same stores sales in

supermarkets of +4.0% and +5.0% in pharmacies, after a 2Q2013 with a 2.1% drop in supermarkets and a 0.4% growth in

pharmacies.

We estimate a net income of PEN 71.1 MM for 2Q2014, which would register an 18.2% YoY increase. We emphasize that

this increase is supported by the FX loss of PEN 51.8 MM of 2Q2013. If the FX loss is not considered, the income before

taxes would drop 22.7% YoY due to the drop of the EBITDA.

-2.1%

2.1% 2.4%

4.8% 4.0%

0.4%

4.0%

6.9%

9.3%

5.0%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

2Q2013 3Q2013 4Q2013 1Q2914 2Q2014e

Chart Nº 5: Same Store Sales' (SSS) Growth

Supermarkets SSS Pharmacies SSS

8.1% 8.2%

10.6%

8.3% 8.9%

0%

2%

4%

6%

8%

10%

12%

0

20

40

60

80

100

120

140

160

180

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % PEN MM



18.5%

15.6%

17.4%

14.9%

16.4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

50

100

150

200

250

300

350

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % PEN MM



17.8%

13.8%

17.0%

13.2%

14.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

50

100

150

200

250

300

350

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % PEN MM

Chart Nº 8: EBITDA vs.EBITDA Margin




Infrastructure - Ferreycorp S.A.A. (BVL: FERREYC1)

Source: Ferreycorp, Kallpa SAB Source: Ferreycorp, Kallpa SAB

Energy - Refinería La Pampilla S.A.A. (BVL: RELAPAC1)

Source: Relapasa, Kallpa SAB Source: Relapasa, Kallpa SAB


In regard to the EBITDA, it would present a 17.7% YoY drop. The reasons for this drop would be: i) the high gross margin

obtained during 2Q2013 (22.7%), as a result of the strong depreciation of the local currency (which was caused because all

the business transactions of the company are performed in USD but it have to be reported in PEN); and, ii) a PEN 14.1 MM

revenue, consequence of the sales of Bucyrus machinery, agreed before its acquisition.

In regard to the EBITDA, we expect the company to register USD 30.4 MM in 2Q2014, from a loss of USD 9.9 MM in 2Q2013.

We believe this will be the result of the internal improvements being implemented in the refinery, such as the use of natural

gas as energy source and the reduction of slop and its valuation as a finished product.

We estimate that the net income of 2Q2014 will be USD 8.8 MM, reverting the USD 21.6 MM net loss of 2Q2013, before the

improvement of the company’s margins.

We anticipate revenues will increase by 1.9% YoY due to the higher demand of fuels nationwide.

We estimate a net income of PEN 52.7 MM for 2Q2014, with which the company would revert the PEN 12.7 MM net loss of

2Q2013, mainly caused by the FX loss of PEN 107.9 MM. If we do not consider the latter, the income before taxes would

register a decrease of 20.6% YoY before the lower margins of the company.

In regard to Ferreycorp’s revenues, we expect a slight 2.9% YoY increase in 2Q2014, which will continue to be boosted by the

spares and services business unit.

13.8% 13.0%

10.2%

11.7% 11.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

20

40

60

80

100

120

140

160

180

200

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % PEN MM



22.7% 22.8% 22.2%

22.8% 22.0%

10%

12%

14%

16%

18%

20%

22%

24%

140

160

180

200

220

240

260

280

300

320

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % PEN MM



1.9%

4.5%

2.4%

5.6% 5.4%

0%

1%

2%

3%

4%

5%

6%

0

10

20

30

40

50

60

70

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM



-0.9%

1.8%

-1.0%

3.1%

2.6%

-2%

-1%

0%

1%

2%

3%

4%

-20

-10

0

10

20

30

40

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM





Mining - Southern Copper Corporation (NYSE, BVL: SCCO)

Source: Southern Copper, Kallpa SAB Source: Southern Copper, Kallpa SAB

Mining - Sociedad Minera Cerro Verde S.A.A. (BVL: CVERDEC1)

Source: Cerro Verde, Kallpa SAB Source: Cerro Verde, Kallpa SAB


We estimate a net income of USD 375 MM in 2Q2014, which is +0.7% YoY. We anticipate that the higher taxes paid by the

new Mexican tax framework will offset the operating progresses and the increased production reflected in the EBITDA and in

the income, respectively.

In regard to the EBITDA, we expect it to be of USD 742 MM in 2Q2014 (+12.7% YoY). This is explained mainly by the saving

in the energy costs, coming from the start of operations of the High Pressure Grinding Rolls in Cuajone. Also, we expect an

approximate 20.0% YoY increase in the depreciation. Therefore, we expect the EBITDA margin go from 46.7% to 48.4% as of

the closing of 2Q2014.

We expect the income to increase to USD 1,533 MM in 2Q2014, that is +8.7% YoY, despite the -5.1% YoY drop in the

average price of copper during the quarter. The copper production would be around 168,000 TM, boosted by an increased

production in its Peruvian operations. We expect the mine maintenance works in Toquepala and the High Pressure Grinding

Rolls (HPGR) project in Cuajone, will allow the improvement of the ore grades and the recovery rates, respectively.

We estimate a USD 100.8 MM net income (-5.2% YoY) in 2Q2014. The bottom line drop is due to the payment of royalties

and mining special tax in 2014, because its tax stability contract expired in 2013.

In regard to the EBITDA, we expect it to be around USD 200 MM in 2Q2014 (+0.4% YoY). We expect the sales and

administrative expenses to stay in the same levels as in 1Q2014. In consequence, the EBITDA margin would not present

significant variations and would stay around 51.0% in 2Q2014.

We expect an income of USD 392.3 MM in 2Q2014, that is +0.7%, due to i) a similar production level to the one in the same

period of 2013; and, ii) we expect the realized price of copper to be USD/Lb. 2.75 (10.0% below the average price of copper

during the quarter). We have to remember that in 2Q2013, the realized price was of USD/Lb. 2.55 (21.5% below the average

price of copper).

1.09

0.98

1.00 1.02 1.00

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

100

110

120

130

140

150

160

170

180

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Cash Cost (US$/Lb.)

000' TM

Chart Nº 13: Copper Production and Cash Cost

Production Cash Cost

46.7%

49.3%

47.3%

49.7% 48.4%

30%

35%

40%

45%

50%

55%

-

100

200

300

400

500

600

700

800

900

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % US$ MM



82% 76%

83%

77% 80%

18% 24%

17%

23% 20%

0

20

40

60

80

100

120

140

160

180

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

MM Lb.

Chart Nº 15: Copper Production

Copper concentrates Copper cathodes

51.1%

63.4%

58.3%

53.8%

51.0%

30%

35%

40%

45%

50%

55%

60%

65%

70%

0

50

100

150

200

250

300

350

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM





Mining - Compañía de Minas Buenaventura S.A.A. (NYSE, BVL: BVN)

Source: Buenaventura, Kallpa SAB Source: Buenaventura, Kallpa SAB

Mining - Volcan Compañía Minera S.A.A. (BVL: VOLCABC1)

Source: Volcan, Kallpa SAB Source: Volcan, Kallpa SAB


We expect the income to decrease by 24.2% YoY in 2Q2014 until reaching USD 283.4 MM. This is due to 2 reasons: i) an

extraordinary USD 83.4 MM income for silver hedging derivates registered in 2Q2013; if such effect is excluded, the income

would have dropped by 2.5% YoY, and, ii) a lower price of silver (-15.4% YoY) and copper (-5.1% YoY).

We estimate a 18.2% YoY drop in net income in 2Q2014, until reaching USD 15.5 MM. This is due to the lower contribution of

the associates’ results, specifically from Yanacocha, given the lower production of gold during the quarter (-34.5% YoY).

In regard to the EBITDA, we expect it to be of USD 76.1 MM in 2Q2014 (51.9% YoY). We expect a consolidated cash cost

similar to the one of 1Q2014. The new Administrative Economic Unit (UEA, in its Spanish acronym) Alpamarca – Río Pallanga

started to operate in this quarter, and it would have slightly boosted the financial results because it is still in a ramp-up stage.

In regard to EBITDA (excluding the EBITDA of associates), we expect it to be of USD 50.0 MM, which is 18.6% YoY over the

one registered in 2Q2013. We have to remember that during such period, Buenaventura obtained an operating loss of USD

4.3 MM, caused by the sudden drop in the quotation of precious metals. Furthermore, since then the company has

implemented cost reduction policies looking to have a higher operating efficiency in its facilities.

We anticipate that sales will stay in the same level of 2Q2013, that is, around USD 285.0 MM. We foresee that the

contribution of El Brocal and C.H. Huanza will help compensate the lower production of gold in Yanacocha (-34.5% YoY in

2Q2014) and the lower prices of gold (-9.0% YoY) and silver (-15.4% YoY). In a consolidated manner, we expect the gold

production to decrease around 25.0% YoY and silver production to stay around 4.4 MM of ounces.

We estimate a net income of USD 19.9 MM in 2Q2014, which means a 78.8% YoY drop, because in 2Q2013 the company

obtained gains through hedging derivatives. If such extraordinary income was excluded, the net income would have

decreased by 57.8% YoY.

70.5

59.7

65.4 66.1 66.0

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

90

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Cash Cost (US$/TM)

000' TM

Chart Nº 19: Zinc Production and Cash Cost

Zinc Production Cash Cost

42.3%

30.7%

24.3% 23.1%

26.9%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

25

50

75

100

125

150

175

200

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % US$ MM



4.44

4.93 4.80

4.15

4.43

3.0

3.4

3.8

4.2

4.6

5.0

5.4

100

120

140

160

180

200

220

240

260

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

MM Oz. Ag 000' Oz. Au

Chart Nº 17: Production of precious metals

Gold Silver

14.7%

29.9%

17.9% 17.6% 17.5%

0%

5%

10%

15%

20%

25%

30%

35%

0

25

50

75

100

125

2Q2013 3Q2013 3Q2013 1Q2014 2Q2014e

Mg. % USD MM





Mining - Compañía Minera Milpo S.A.A. (BVL: MILPOC1)

Source: Milpo, Kallpa SAB Source: Milpo, Kallpa SAB

Mining - Rio Alto Mining Ltd. (TSX, BVL: RIO)

Source: Rio Alto, Kallpa SAB Source: Rio Alto, Kallpa SAB


In regard to the EBITDA, we expect an increase of 29.9% YoY, explained by the higher income and the lower cash cost,

which would drop 12.3% YoY, from USD/Oz. 754 in 2Q2013 to USD/Oz. 661 in 2Q2014, according to the guidance of the

company. However, the lower cash cost would be partially offset by a 34.7% YoY increase in administrative expenses.

We expect the income of the company to grow 6.0% YoY in 2Q2014. This growth will be caused by the 12.6% YoY increase

of production, from 48,427 Oz Au in 2Q2013 to 54,517 Oz. Au in 2Q2014. However, this growth will be counteracted by the

effect of the lower price of the sold gold, from USD/Oz 1,290 IN 2q2014 vs. USD/Oz. 1,315 in 2Q2013.

We estimate that the net income of 2Q2014 will be of USDM 14.3 MM, reverting the USD 3.2 MM loss registered in 2Q2013.

This would be product of the higher EBITDA (+29.9% YoY), as well as the lower effective tax rate, which we calculate in 34%

for 2Q2014 vs. 135% registered in 2Q2013 (due to provisions on deferred taxes).

We estimate a net income of USD 30.9 MM, 62.0% YoY over the USD 19.0 MM obtained in 2Q2013. This is caused by the

increase in the production (zinc, lead and silver) and a reduction of the costs. Furthermore, we expect an effective tax rate of

around 38.0% for 2Q2014, under the 42.7% registered in 2Q2013.

In regard to the EBITDA, it will increase by 15.6% YoY up to USD 82.1 MM, due to the increase in production and the lower

expense in the payment of intangibles (consequence of adjustments in the accounting methodologies). On the other hand, we

expect the administrative and sales expenses to stay in the same levels.

We expect USD 193.2 MM in sales in 2Q2014, that is +7.7% YoY, due to a higher production of zinc fines, lead and the

content of silver in its concentrates (according to the data of the Ministry of Energy and Mines, as of the closing of May). This

is due to the extension of the capacity installed in Cerro Lindo, from 15,000 tpd to 17,000 tpd, executed and operating (ramp-

up) in the quarter.

48,427

59,157

70,551

53,463 54,517

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Oz. Au

Chart Nº 23: Production of La Arena

37.1%

52.1% 45.2%

43.5% 45.5%

0%

10%

20%

30%

40%

50%

60%

0

5

10

15

20

25

30

35

40

45

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM



35.1

36.3

34.9

36.4

35.5

30

31

32

33

34

35

36

37

38

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Cash cost (USD/TM)

MM Treated TM

Chart Nº 21: TM Treated and Cost per Treated TM

MT Treated Consolidated Cash Cost

39.6% 38.8%

35.5%

42.7% 42.5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

10

20

30

40

50

60

70

80

90

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM





Mining - Sociedad Minera El Brocal S.A.A. (BVL: BROCALC1)

Source: El Brocal, Kallpa SAB Source: El Brocal, Kallpa SAB

Mining - Trevali Mining Corporation (TSX, BVL: TV)

Source: Trevali, Kallpa SAB Source: Trevali, Kallpa SAB


We estimate that the net income of 2Q2014 will be of USD 0.1 MM. This would represent an 83.9% YoY drop, explained by

the lower EBITDA. Furthermore, we expect an effective tax rate of 34.0% for 2Q2014, in line with 33.9% registered in

1Q2014.

We expect the company’s income to set-back by 12.0% Q/Q, due to a lower production of zinc, lead and silver. This caused

by the underground works in the Magistral Norte deposit, in order to include ore from the Zona Rosa in the production.

However, the higher average zinc price (+2.2% Q/Q) would partially counteract the latter.

We estimate a net income of USD 4.5 MM for 2Q2014, contrasted against the USD 10.8 MM net loss obtained in 2Q2013.

This is caused by the expected behavior of the sales and operating efficiency detailed below.

In regard to the EBITDA, we expect it to be of USD 20.7 MM in 2Q2014, highly exceeding the result of 2Q2013, where a

negative EBITDA of USD 3.00 MM was obtained. We expect the same level of operating efficiency and administrative

expenses reported in the first quarter of 2014. As a result, we expect the EBITDA margin to be located at 38.0% during

2Q2014.

We expect the income to grow 78.4% YoY until reaching USD 54.5 MM. This would be explained with the beginning of

operations at the polymetallic pit of Colquijirca (ramp-up) in 2Q2014. Therefore, we expect the strategy of focusing on copper

to have been left aside and zinc and lead are starting to be produced in lesser scale, because, in theory, the extension would

have been finished in March. We have to remember that in 2Q2013, the price of the precious metals suddenly decreased and

the company had not yet defined the best production strategy.

In regard to the EBITDA, we expect a 14.1% Q/Q drop, due to the lower income (-12.0% Q/Q). Also, we expect a cost per

treated metric ton of USD/TM 50.5, 0.6% Q/Q over the USDM/TM 50.2 registered in 1Q2014. On the other hand, the set-back

of the EBITDA will be explained by a 22.2% Q/Q increase in the administrative expenses.

19.0

33.1 33.0

37.5

33.0

0

5

10

15

20

25

30

35

40

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

000' TM

Chart Nº 25: Production of Copper Concentrates

-9.8%

24.1%

37.4%

18.3%

38.0%

-20%

-10%

0%

10%

20%

30%

40%

50%

-10

-5

0

5

10

15

20

25

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM



18.7%

18.3%

12%

13%

14%

15%

16%

17%

18%

19%

20%

1.6

2.0

2.4

2.8

3.2

3.6

4.0

4.4

1Q2014 2Q2014e

Mg. % USD MM


EBITDA Margen EBITDA

173,820 171,169

50.2 50.5

40

42

44

46

48

50

52

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

1Q2014 2Q2014e

Cash cost (USD/TM) Treated TM

Chart Nº 27: Treated TM and Cost per Treated TM

TM Tratada Costo por TM



Minería - Luna Gold Corp. (TSX, BVL: LGC)

Source: Luna Gold, Kallpa SAB Source: Luna Gold, Kallpa SAB

Mining - Compañía Minera Atacocha S.A.A. (BVL: ATACOBC1)

Source: Atacocha, Kallpa SAB Source: Atacocha, Kallpa SAB


In regard to the EBITDA, we expect a 44.2% YoY drop. This way, the company’s EBITDA margin would pass from 33.4% in

2Q2013 to 13.2% in 2Q2014. This is due to the lower income (-43.7% YoY) and the higher USD/Oz. 725 cash cost, which we

expect for 2Q104, vs. the USD/Oz. 681. Furthermore, the lower EBITDA is explained by the higher administrative expenses

which we project to increase by 6.0% YoY.

We projected that the company’s income is going to fall by 43.7% YoY in 2Q2014. This drop would be explained by a 13,882

Oz. sold volume of Au (Au production of 14,262 Oz.), which will be less than the 22,819 Oz sold volume of Au in 2Q2013 by

39.2%. Also, it will influence the estimated lower average price of USD/Oz 1,290 of gold sold, versus USD/Oz. 1,479 in

2Q2013.

We estimate that the net income of 2Q2014 will be of USD -0.4 MM, dropping from USD 8.7 MM in 2Q2013. The net income

will pass to a negative ground as a result of the drop of the EBITDA (-44.2% YoY) and higher financial expenses.

In regard to the EBITDA, we expect it be of USD 6.4 MM, contrasted against the USD -3.1 EBITDA registered in 2Q2013.

Thus, the company’s EBITDA margin would go from -16.5% in 2Q2013 to 24.2% in 2Q2014. This is caused by the higher

sales in the quarter and a 4.4% YoY reduction in the cash cost, which would go from USD/TM 46.6 to USD/TM 44.5 as a

result of the operating improvements performed throughout 2013. Finally, we do not expect significant improvements in its

administrative expenses during the quarter.

We expect the income to have reached the USD 26.2 MM, 39.5% over what was registered in 2Q2013, due to the higher

prices of zinc (12.5% YoY) and lead (2.2% YoY). Therefore, we expect the production of lead to increase more than 20.0%

YoY, and the zinc production to decrease about 20.0% YoY, in line to the data published by the Ministry of Energy and Mines

as of the closing of May.

We estimate that the company is going to register a net loss of USD 1.1 MM in 2Q2014, less than the USD 10.6 MM obtained

in the same period in 2013. This result would be influenced by the increase in the EBITDA explained next.

18,853

20,997 22,177

19,414

14,262

0

5,000

10,000

15,000

20,000

25,000

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Oz. Au

Chart Nº 29: Production of Aurizona

33.4%

21.3%

17.0%

28.6%

13.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

1

2

3

4

5

6

7

8

9

10

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM

Chart Nº 30: EBITDA vs.EBITDA Margin


46.6

45.0

44.3 44.5 44.5

40

41

42

43

44

45

46

47

300,000

320,000

340,000

360,000

380,000

400,000

420,000

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Cash Cost (USD/TM)

Treated TM

Chart Nº 31: Treated TM and Cost per Treated TM

Treated MT Cash Cost

-16.5%

32.5%

26.9%

22.6% 24.2%

-25%

-15%

-5%

5%

15%

25%

35%

45%

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM





Mining - Minera IRL Ltd. (AIM: MIRL, BVL: MIRL, TSX: IRL)

Source: Minera IRL, Kallpa SAB Source: Minera IRL, Kallpa SAB


We estimate that the net income of 2Q2014 will be of USD -2.7 MM, dropping from USD -0.3 MM in 2Q2013. This drop is

related to the fall of the EBITDA, from USD 2.2 MM to USD -0.9 MM, and will be affected by higher financial expenses.

We expect the income of the company to fall by 35.5% YoY in 2Q2014. This drop will be explained by: i) the lower 5,038 Oz.

production of Au sold in the quarter, compared to the one registered in 2Q2013 of 6,949 Oz. of Au, and ii) the lower average

sale price of the gold of USD/Oz. 1,290 vs. USD/Oz. 1,447 in 2Q2013.

In regard to the EBITDA, we expect it to be in the negative area, as we explained in the previous paragraph. This way, the

company’s EBITDA margin would go from 22.1% in 2Q2013 to -13.9% in 2Q2014. This is caused by the drop of income and

the significant increase of the YoY cash cost. According to our projections, the cash cost will amount to USD/Oz. 890 in

2Q2014 versus USD/Oz. 653 in 2Q2013. This upward trend will continue in the extent that Corihuarmi is close to the end of its

useful life, in 2015.

6,633 6,296 6,446

5,834

5,038

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Oz. Au

Chart Nº 33: Production of Corihuarmi

22.1%

11.1%

3.3%

19.4%

-13.9%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2Q2013 3Q2013 4Q2013 1Q2014 2Q2014e

Mg. % USD MM





www.kallpasab.com 11

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.

Sell - < - 30% > + 30% Buy +

Sell - 30% to - 15% + 15% to + 30% Buy

Hold - 15% to 0% 0% to + 15% Hold

Earnings Preview

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.

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.

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.

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.

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.



KALLPA SECURITIES SOCIEDAD AGENTE DE BOLSA

MANAGEMENT

Alberto Arispe

CEO

(511) 630 7500

[email protected]

COMMERCIAL CORPORATE FINANCE

Enrique Hernández Ricardo Carrión

Manager Manager

(51 1) 630 7515 (51 1) 630 7500

[email protected] [email protected]

EQUITY RESEARCH

Marco Contreras Edder Castro Humberto León Sebastián Cruz Fiorella Torres

Senior Analyst Analyst Analyst Analyst Assistant

(51 1) 630 7528 (51 1) 630 7529 (51 1) 630 7527 (51 1) 630 7533 (51 1) 630 7500

[email protected] [email protected] [email protected] [email protected] [email protected]

TRADING

Eduardo Fernandini Javier Frisancho Jorge Rodríguez

Head Trader Trader Trader

(51 1) 630 7516 (51 1) 630 7517 (51 1) 630 7518

[email protected] [email protected] [email protected]

SALES - EL POLO OFFICE SALES - MIRAFLORES OFFICE

Hernando Pastor Daniel Berger Gilberto Mora Walter León

Representative Representative Representative Representative

(51 1) 630 7511 (51 1) 630 7513 (51 1) 630 7510 (51 1) 243 8024

[email protected] [email protected] [email protected] [email protected]

SALES - AREQUIPA OFFICE

Jesús Molina Ricky García

Representative Representative

(51 54) 272 937 (51 54) 272 937

[email protected] rgarcí[email protected]

ASSET MANAGEMENT

Javier Frisancho Rafael Sánchez-Aizcorbe

Portfolio Manager Commercial Manager

(51 1) 630 7517 (51 1) 630 7500


OPERATIONS IT

Alan Noa Mariano Bazán Ramiro Misari

Head of Operations Analyst - Treasury Head of IT

(51 1) 630 7523 (51 1) 630 7522 (51 1) 630 7500

[email protected] [email protected] [email protected]

INTERNAL CONTROL ACCOUNTING

Elizabeth Cueva Mireya Montero

Controller Chief Accountant

(51 1) 630 7521 (51 1) 630 7524


















mailto:rgarcí[email protected]








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