Crédito del Perú THE COMPANY: Volcan is a diversified and significant global producer of silver, zinc, copper and lead. It is the world’s fourth-largest producer of zinc and silver and is currently the number one producer of silver, zinc and lead concentrates in Peru.
The Peru-based company is engaged in the exploration, exploitation and beneficiation of a range of minerals, and through its subsidiaries it performs extraction, concentration and processing activities. The company’s operations are mainly located in the country’s central region of Junín.
The company owns three operating units: Yauli, Cerro de Pasco and Chungar, and is working to add two more units – Alpamarca and Vinchos – to its portfolio within four years. In 2011 Volcan produced some 318,000 tonnes of zinc, 62,000 tonnes of lead and 3000 tonnes of copper as well as 21.1m troy ounces of silver. Output at the Yauli mine accounted for 49% of Volcan’s total production of zinc, 42% of lead, 67% of copper and 53% its total silver production.
Volcan posted a net income of $370.2m for 2011, a 33% increase over the previous year. During the fourth quarter of 2011, weaker earnings were primarily attributable to lower base metal prices and increased labour costs. Moreover, the company began modernising and upgrading its infrastructure, which was also a contributing factor.
The company has a market capitalisation of $4.8bn, 3% of that of the Lima Stock Exchange. Volcan trades at a price-to-earnings ratio of 11.68x, which is less than the current regional average.
DEVELOPMENT STRATEGY: Volcan is currently investing in improving its exploration activities and has been reducing the cost of extraction at its main operations. These efforts, along with its high-quality portfolio of projects for the next few years, will generate value. The firm plans to invest more than $1bn in the expansion of its zinc, silver and copper mines.
The company is focusing more on expanding its silver and copper projects than its zinc and lead ones to take advantage of the relatively higher prices and better prospects that silver and copper offer.
Volcan plans to almost double its silver output over the next five years to tap into the higher metal prices. Its main silver projects are expansions or new projects at the existing operations of Cerro de Pasco ( Piritas and Oxides), as well as at the Yauli, Chungar and Vinchos mining units. These developments will make Volcan the top producer of silver in Latin America.
Over the next five years Volcan will also develop its $350m Rondoni copper project. With the Rondoni project, Volcan expects to produce up to 50,000 tonnes of copper annually by 2016.
The company’s hydroelectric projects, such as Chancay and Belo Horizonte, will continue to be value drivers for Volcan because they will provide the company the energy it requires for the execution of future projects at reduced costs. Energy costs account for up to 9% of Volcan’s total operating expenses. Belo Horizonte, which generates 1220 GWh per year, will produce twice as much energy as is needed to meet the energy requirements of Volcan.
The investments made by Volcan during 2011 reached a total of $89m and included an intensive programme of exploration and development projects in its economic units. Other major investments by the company in 2011 included spending some $40m on equipment and mining operations, and a further $35m on plants and tailings dams.
In late January 2012 Volcan successfully sold $600m worth of 10-year bonds at 5.375% in an issue that was eight times over-subscribed. The bondholders are mostly international institutional investors (48.8% from the US, 19% from the UK and roughly 10% from Chile, Switzerland and Peru each). This large issue could be considered the first step of the main internationalisation strategy of the company and suggests a possible listing on the New York, Toronto or London stock exchanges. In addition to Lima, Volcan is also listed in Madrid and Santiago.