Buenaventura

Growth is more than merely one part of the mission and vision of Buenaventura – the leading mining company in Peru and one of the largest gold and silver producers in the world. It is the company’s daily mantra. Operating in a capital-intensive industry and in a geographic environment not as welcoming to investments as it should be, the company has to be persistent to maintain the degree of success it has achieved over the years. Joint ventures, offerings through the Lima Stock Exchange, and American Depositary Receipts (ADR) issuance on the New York Stock Exchange (NYSE) were all means to achieve the company’s goal of continued growth. But when it came to creating long-term sustainable shareholder value, there was only one way to do it: by enhancing governance practices.

The Roots of the Need for Governance

Buenaventura has focused on exploration and acquisitions, both on its own and through joint ventures, since its founding in 1953. For Buenaventura, conducting business responsibly and effectively is part of its strategy to increase shareholder value. Buenaventura suffered several years of losses that ultimately led to a high level of debt amid Peru’s weak economic environment during the 1980s. In the early 1990s, however, Peru emerged into a period of greater stability, allowing Buenaventura to plan for a more promising future. When the company decided to invest in Yanacocha, now a world class gold deposit, Buenaventura faced high-cost exploration and development investments.

Convinced that the market pays for good corporate governance practices, Buenaventura chose to cancel its debt with the proceeds of an initial public offering (IPO) of ADRs on the NYSE in 1996. The decision reflected Buenaventura’s Board of Directors’ and management’s commitment to comply with United States Securities & Exchange Commission (SEC).regulations. Prior to the IPO, the company took several critical steps toward improving its governance: revamping its Board of Directors, incorporating independent members and establishing Board Committees; implementing an Ethics Code; creating a Disclosure Committee; and finally, eliminating its dual class share structure and converting all its shares into a single class, with equal voting rights.

         Corporate Governance Steps

Buenaventura has implemented a comprehensive set of rules to ensure good governance. The reforms were inspired by the recommendations of major international organizations, such as the OECD and the World Bank/IFC. The decision to convert all shares into a single class of common shares served to keep the controlling group together, and was also considered the best way to continue to maximize the value of the company. The stock’s liquidity was bolstered as a result, as investors responded positively to the single voting class of shares. In the event of a tender offer, the Board must review the proposal and make its recommendation all shareholders, who in turn make their own decisions on whether to accept the offer. Buenaventura takes voting rights seriously. To facilitate the participation of all shareholders in General Meetings, the company calls Meetings 25 days in advance and provides shareholders the Meeting’s agenda. ADR holders receive proxies through the depositary bank and special procedures have been put in place to ensure that ADR holders have sufficient time to consider how to vote and that their votes are duly represented at General Meetings.

         Results

Buenaventura recognizes that it must continue to improve its governance framework as it strives to maximize shareholder value. Its governance improvements are clearly recognized by the market, as demonstrated by its three-fold increase in market capitalization, from around US$ 400 million to US$ 3.6 billion. The company reported net revenue of US$ 316 million in 2004, generating operating income of US$ 86.6 million in that year. Today, Buenaventura is working on complying with the Sarbanes-Oxley requirements. The company expects to be certified by external auditors as Sarbanes-Oxley compliant in June 2006.

Critically evaluate how Buenaventura achieves success through corporate governance. Provide justifications within the case study.

Imagine that you have been appointed as the CEO of Buenaventura. Discuss how you would strengthen the corporate governance using BRC Model.

Buenaventura

Growth is more than merely one part of the mission and vision of Buenaventura – the leading mining company in Peru and one of the largest gold and silver producers in the world. It is the company’s daily mantra. Operating in a capital-intensive industry and in a geographic environment not as welcoming to investments as it should be, the company has to be persistent to maintain the degree of success it has achieved over the years. Joint ventures, offerings through the Lima Stock Exchange, and American Depositary Receipts (ADR) issuance on the New York Stock Exchange (NYSE) were all means to achieve the company’s goal of continued growth. But when it came to creating long-term sustainable shareholder value, there was only one way to do it: by enhancing governance practices.

The Roots of the Need for Governance

Buenaventura has focused on exploration and acquisitions, both on its own and through joint ventures, since its founding in 1953. For Buenaventura, conducting business responsibly and effectively is part of its strategy to increase shareholder value. Buenaventura suffered several years of losses that ultimately led to a high level of debt amid Peru’s weak economic environment during the 1980s. In the early 1990s, however, Peru emerged into a period of greater stability, allowing Buenaventura to plan for a more promising future. When the company decided to invest in Yanacocha, now a world class gold deposit, Buenaventura faced high-cost exploration and development investments.

Convinced that the market pays for good corporate governance practices, Buenaventura chose to cancel its debt with the proceeds of an initial public offering (IPO) of ADRs on the NYSE in 1996. The decision reflected Buenaventura’s Board of Directors’ and management’s commitment to comply with United States Securities & Exchange Commission (SEC).regulations. Prior to the IPO, the company took several critical steps toward improving its governance: revamping its Board of Directors, incorporating independent members and establishing Board Committees; implementing an Ethics Code; creating a Disclosure Committee; and finally, eliminating its dual class share structure and converting all its shares into a single class, with equal voting rights.

         Corporate Governance Steps

Buenaventura has implemented a comprehensive set of rules to ensure good governance. The reforms were inspired by the recommendations of major international organizations, such as the OECD and the World Bank/IFC. The decision to convert all shares into a single class of common shares served to keep the controlling group together, and was also considered the best way to continue to maximize the value of the company. The stock’s liquidity was bolstered as a result, as investors responded positively to the single voting class of shares. In the event of a tender offer, the Board must review the proposal and make its recommendation all shareholders, who in turn make their own decisions on whether to accept the offer. Buenaventura takes voting rights seriously. To facilitate the participation of all shareholders in General Meetings, the company calls Meetings 25 days in advance and provides shareholders the Meeting’s agenda. ADR holders receive proxies through the depositary bank and special procedures have been put in place to ensure that ADR holders have sufficient time to consider how to vote and that their votes are duly represented at General Meetings.

         Results

Buenaventura recognizes that it must continue to improve its governance framework as it strives to maximize shareholder value. Its governance improvements are clearly recognized by the market, as demonstrated by its three-fold increase in market capitalization, from around US$ 400 million to US$ 3.6 billion. The company reported net revenue of US$ 316 million in 2004, generating operating income of US$ 86.6 million in that year. Today, Buenaventura is working on complying with the Sarbanes-Oxley requirements. The company expects to be certified by external auditors as Sarbanes-Oxley compliant in June 2006.

Critically evaluate how Buenaventura achieves success through corporate governance. Provide justifications within the case study.

Imagine that you have been appointed as the CEO of Buenaventura. Discuss how you would strengthen the corporate governance using BRC Model.

• Assume that you are a partner of Apples and Oranges, CPAs. During the last year, you were part of the team that audited Parker and Smith, Inc., a small publicly held company. The audit went quite well, and the client had high praise for the work done by you and the other members of the audit team. One day six months after the completion of the audit, you receive this email from Jerome Parker, a president of Parker and Smith:

Hi [your name],

We are still talking around here about the good job you and the other members of the audit team did on our audit. You all seemed to have a thorough understanding of our business, and we found working with you a pleasure. Based on the good experience we had with the audit, we would like to engage your firm to do additional work for us. Specifically, we’d like your help in designing a new financial information system for our company. We’re also considering investing in stock being offered by one of our suppliers, and we’d like your input into that decision. Hope you can help us here! Looking forward to hearing from you. Regards, Jerome.

Write a letter to Mr. Parker in response to his email. Remember that you want to maintain a good working relationship with Parker and Smith. You also want to maintain proper professional and ethical standards.

1.         Who benefits from rent ceilings? Who suffers? What are the long-term effects of rent ceilings? How can landlords and tenants cheat on rent ceilings? Do you think the rent ceilings might lead to more discrimination against certain groups?
                                                                                                                                      
2.         Describe the effects on the labor market of a minimum wage that is higher than the equilibrium wage. Who benefits from such a minimum wage? Who suffers? What are the long-term effects of the minimum wage?

3.         Have you ever worked for the minimum wage? If so, for how long? Would you favor increasing the minimum wage by a dollar? By two dollars? By five dollars? Explain your reasoning.

4.      Of what significance is the elasticity of demand for drugs in the debate about legalization of presently illegal substances?

5.
a) How could taxes be used to regulate legal drug markets?
b) Why are excise taxes on cigarettes and alcohol sometimes referred to as “sin taxes”?
c) Does the government tax them solely because they are “sins”?

1. Consider two farmers, one who owns land and the other who rents it from someone else. In good times (which happen with probability 0.3), the owner-farmer earns an income of 125. In bad times (which happen with probability 0.7), he earns an income of 75. The tenant works on a farm that is twice as large and earns an income of 250 in good times (prob=0.3) and 150 in bad times (prob=0.7).

   1. However, he must pay a rent of 100. Calculate the expected net income of both farmers.

   2. Assume that their utility function takes the following form: ? = ?1/2, where ?stands for the farmer’s net income. Calculate the expected utility of both.

   3. Compare this result to the calculation on expected income. What do you conclude in terms of the different risks that both farmers face?

What would you expect from a person's EMG who has Muscular Dystrophy who is asked to lift a weight? How would that differ from a person with Myasthenia gravis?

During repeated skeletal muscle contraction, what happens to calcium within a single motor unit that may lead to fatigue? What is its overall effect?

Why is high intensity anaerobic exercise limited in duration?

In a well-functioning economy, capital will flow efficiently from those who supply capital to those who demand it. This transfer of capital can take place in three different ways. Discuss these three different ways

 Who benefits from rent ceilings? Who suffers? What are the long-term effects of rent ceilings? How can landlords and tenants cheat on rent ceilings? Do you think the rent ceilings might lead to more discrimination against certain groups?