GDX - Compañía de Minas Buenaventura: H2 2023 Should Be Better

Summary

• Compañía de Minas Buenaventura S.A.A. revenues for the third quarter of 2022 were $195.42 million, down from $220.36 million in the same quarter a year ago but up 30.2% sequentially.
• Consolidated Gold production was 49,789 Au Oz and 1,906,679 Ag Oz in 3Q22.
• I recommend accumulating BVN between $7.4 and $7.7 with lower support at $7.

Introduction

The Lima-based Compañía de Minas Buenaventura S.A.A. ( BVN ) released its third-quarter 2022 results on October 27, 2022.

This article aims to look at the company's recent history, including the third quarter earnings, and find a way to invest profitably in this company through fundamental and technical analysis. All charts in this article give several years of history.

Note: BVN is Peru's largest publicly traded precious metals miner and the most important holder of mining rights in Peru. This article is an update to my article published on September 19, 2022. I have followed BVN on Seeking Alpha since Dec. 2020.

Also, the company announced on December 27, 2022, that it resumed Julcani, Orcopampa Operations in Peru.

Peru’s largest publicly-traded precious metals mining company, advises that road blockades near the Julcani and Orcopampa mines have ceased completely and peacefully. There has been no damage to Buenaventura’s property nor asset, allowing Julcani and Orcopampa to restart activities under normal operating conditions, also enabling the company to meet its 2022 production guidance.

1 - 3Q22 Earnings Snapshot and commentary

Revenues for the third quarter of 2022 were $195.42 million, down from $220.36 million in the same quarter a year ago but up 30.2% sequentially. It was another weak quarter with lower production, notably zinc, lead, copper, and silver, and depressed metal prices.

However, one crucial issue is the political instability experienced in Peru after the ouster of leftist leader Pedro Castillo by Congress and arrested.

The political turmoil is increasingly threatening to derail Peru's economic stability, with ratings agencies warning of downgrades, blockades impacting major mines and protesters demanding Congress and new president Dina Boluarte step down.

The mining sector in Peru is and has always been crucial to the economy of Peru. Presently, Peru is the world's second-largest copper producer and a prominent producer of gold, silver, zinc, and other minerals. However, analysts expect a 16.2% fall in mining investment in 2023, which suggests a challenging year in 2023 for Buenaventura.

2 - Investment Thesis

The investment thesis is a tricky one for BVN. On the one hand, the company is a good producer that I consider a possible investment for the long term due to its metal diversification and solid liquidity.

On the other hand, the political instability in Peru is not inspiring, and the risk of production hiccups is elevated and should not be taken lightly.

On the positive side, I believe gold and silver prices will do well in 2023 and support accumulating BVN on weakness. Gold and silver are up on a one-year basis, and copper has recovered slightly from its low in July.

Thus, these financial insecurities, combined with undecisive metals prices, increased inflationary pressures, and chain disruptions, pose challenging issues for investors interested in investing in precious metals in Peru.

Thus, I continue recommending a small-sized core investment and accumulating on any weaknesses.

One winning strategy that I often recommend in the gold sector in my marketplace, "The Gold and Oil Corner," is trading about 70% LIFO of your whole BVN position and holding a small core long-term position for a much higher target. It is the centerpiece of my marketplace which will protect you from unwelcome "surprises" which have recurred regularly.

3 - Stock performance

BVN has slightly outperformed the VanEck Vectors Gold Miners ETF ( GDX ) and is down 14% on a one-year basis.

CEO Leandro Garcia said in the conference call:

Buenaventura's cash position reached $288 million as of September 30, 2022. Net debt decreased to $448.1 million with an average maturity of 3.6 years. Third quarter 2022 capital expenditures were $37.2 million compared to $23.9 million for the same period in the second

Compania de Minas Buenaventura ADS - Historical Financial Snapshot till 3Q22 - The Raw Numbers

Data Source: Company release

Gold Production And Balance Sheet Details

1 - Revenues were $195.42 million in 3Q22

3Q22 revenues were $195.42 million, down from $220.36 million in the same quarter a year ago and up 30.2% sequentially, as shown in the chart above. The drop YoY was primarily due to the suspension of Uchucchacua’s operations, as was previously announced, and a change in the mine plan sequence at El Brocal.

Net loss (attributable to equity holders of the parent) was $19.77 million compared to a loss of $91.85 million last year. The cash position is now $287.97 million, unchanged from last year.

Buenaventura’s share in associated companies was $20.4 million in 3Q22, compared with US$ 58.2 million in 3Q21.

2 - The Free cash flow was a loss of $21.06 million in 3Q22

Trailing 12-month free cash flow was $56.44 million, with a free cash flow loss of $21.06 million for the third quarter of 2022.

3 - Compania de Minas Buenaventura debt situation (financial obligations current and long-term)

The company shows a cash position of $287.97 million and a total bank loan plus financial obligations, including a current of $736.1 million at the end of 3Q22.

The net debt is now $448.1 million with a net debt to EBITDA ratio of 2.2x with an average maturity of 3.6 years.

4 - C onsolidated Gold production. Details - Total production was 49,789 Au Oz and 1,906,679 Ag Oz in 3Q22.

The company operates seven mines in Peru: Tambomayo, Orcopampa, Uchucchacua (suspended), Julcani, El Brocal (61.43%), La Zanja, and Coimolache.

Note: Gold production includes 100% of Buenaventura's operating units, 100% of Tambomayo, 100% of La Zanja, 100% of El Brocal, and 40.095% of Coimolache.

4.1 - Charts detailed by metals and price realized in the third quarter of 2022

4.1.1 - C onsolidated Gold Production (Au Oz)

Note: BVN operates 100% of five mining units, including Uchucchacua, Orcopampa, Julcani, Tambomayo, La Zanja in Peru, and San Gabriel, a mining unit under the development stage. It also owns interests in Colquijirca, Cerro Verde, El Brocal, Coimolache, Yumpaq, San Gregorio mines, and Trapiche, a mining unit at the development stage.

Consolidated Gold production was 49,789 Au Oz in 3Q22 compared to 44,796 Au Oz in 3Q21.

Buenaventura’s 3Q22 equity gold production was 55,837 ounces, compared to 54,595 ounces produced in 3Q21.

Silver production decreased by 50% year-on-year, lead production decreased by 33% year-on-year, and zinc production decreased by 36% year-on-year, primarily due to the suspension of Uchucchacua’s operations as was previously announced, as well as a change in the mine plan sequence at El Brocal.

The Company’s 3Q22 equity copper production was 28,909 MT, compared to 25,665 MT produced in 3Q21.

4.1.2 - Silver Production consolidated (Ag Oz).

Note: Silver production was 1,906,679 Ag Oz during the third quarter of 2022, down from 3,898,613 Ag oz last year.

Note: Silver production decreased by 51% yearly, and lead production fell by 41% yearly.

4.1.3 - Base Metals consolidated. (One Metric Tonne = 2,204.6 pounds)

4.1.4 - Price realized for Gold and Silver

The gold production was sold at $1,677 per ounce, and the silver production was sold at $17.33 per ounce in 3Q22.

4.1.5 - Attributable All-in Sustaining costs or AISC

Technical Analysis (Short Term) and commentary

Note: The chart is adjusted for the dividend.

BVN forms an ascending channel pattern with resistance at $8.6 and support at $7.5.

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices.

I recommend selling about 50% between $8.5 and 8.7 with potential higher resistance at $9. Conversely, I recommend accumulating between $7.4 and $7.7 with lower support at $7.

The overall strategy I promote in my marketplace is to keep a core long-term position and use about 60% to trade LIFO while waiting for a higher final price target to sell your core position at or above $9.

Trading short-term LIFO lets you keep your oldest shares in the game while allowing you to trade the waves and accumulate significant gains without jeopardizing your investment.

The gold, silver, and copper segment is now faring better due to the market expectation that the Fed will stop increasing interest rates in 2023. As always, the market is too optimistic, and the FED is not about to stop raising interest rates, at least in H1 2023.

This market's optimism has pushed the gold price above $1,850 per ounce, but it may not last. The precious metals will probably retrace in 2Q23, but I think it will resume a meaningful uptrend in H2 2023.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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