GDX - Compañía de Minas Buenaventura: Solid Miner Struggling In Challenging Environment

2023-03-24 13:07:05 ET

Summary

• Compañía de Minas Buenaventura S.A.A. reported Q4 2022 revenues of $246.36 million, down from $253.35 million in the same quarter a year ago and up 26.10% sequentially.
• The political instability in Peru is a concerning risk that cannot be overlooked when adopting your investing Compañía de Minas Buenaventura strategy.
• I recommend accumulating Compañía de Minas Buenaventura between $7.4 and $7.8, with lower support at $7.10.

Introduction

The Lima-based Compañía de Minas Buenaventura S.A.A. (BVN) released its fourth-quarter and full-year 2022 results on February 28, 2023.

This article aims to look at the company's recent history, including the fourth quarter earnings, and discover a way to invest profitably in this mining company through fundamental and technical analysis. All charts in this article provide several years of history. Also, this article is an update to my article published on January 23, 2023. I have followed BVN quarterly on Seeking Alpha since Dec. 2020.

Note: BVN is Peru's largest publicly traded precious metals miner and the most important holder of mining rights in Peru.

1 - 4Q22 Earnings Snapshot and commentary

Revenues for the fourth quarter of 2022 were $246.36 million, down from $253.35 million in the same quarter a year ago but up 26.1% sequentially.

Production at Tambomayo, Orcopampa, Coimolache, and Julcani mines in 2022 was in line with the company's latest guidance. However, output at La Zanja was below expectations, whereas gold, silver, and copper production at El Brocal came in better than expected.

2 - Investment Thesis

The investment thesis continues to be complicated for BVN. Compañía de Minas Buenaventura S.A.A. is a metal producer with a solid balance sheet and potential growth, which support a possible investment for the long term in the precious metal segment and base metals like copper, lead, and zinc.

However, the political instability in Peru is a concerning risk that cannot be eliminated when adopting your investing BVN strategy. The risk of production hiccups and violent protests in Peru is elevated and should not be taken lightly, even if BVN mining facilities performed normally.

In this uncertain environment, foreign investors involved in Peru's mining sector should bear in mind that the country has a history of violating investors' rights in response to the violent protests of the indigenous communities. In 2008, for example, employees of a Canadian mining company were attacked and seriously injured during similar protests.

Thus, this lingering financial and political instability increases inflationary pressures and mining disruption risks, creating severe issues for investors interested in investing in precious metals in Peru.

However, the gold and silver prices are turning bullish in 2023 and support accumulating BVN on weaknesses, even if this temporary turmoil in Peru is obscuring the bullish narrative. Gold and silver are trending up again on a one-year basis, and copper has recovered slightly from its low in July.

Thus, I continue recommending a small-sized core investment and accumulating on any weaknesses betting on a quick turnaround in Peru.

One often successful strategy that I suggest in the gold sector in my marketplace, "The Gold and Oil Corner," is trading about 60% 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 20% on a one-year basis.

CEO Leandro Garcia said in the conference call:

social, environmental and political challenges. Today Buenaventura's on-site operations have been operating normally, while off-site logistics have encountered some delays. Despite the social issues there has been no damage to Buenaventura's property or assets and all other Buenaventura mining assets are operating under normal conditions.

Compania de Minas Buenaventura ADS - Historical Financial Snapshot including 4Q22 - The Raw Numbers

Data Source: Company release .

Gold Production And Balance Sheet Details

1 - Revenues were $246.36 million in 4Q22

4Q22 revenues were $246.36 million, down from $253.35 million in the same quarter a year ago and up 26.10% sequentially, as shown in the chart above.

Buenaventura's share in associated companies was $58.1 million in 4Q22, compared with $74.0 million in 4Q21.

Net income (attributable to equity holders of the parent) was $67.45 million compared to a loss of $224.78 million last year. The cash position is now $253.92 million, down from $377.00 million last year.

On December 20, 2022, Buenaventura received $49.8 million relative to its stake in Cerro Verde. The total dividend received by Buenaventura in FY22 was $79.1 million

2 - The Free Cash Flow was a Loss of $28.26 million in 4Q22

Trailing 12-month free cash flow was a loss of $80.61 million, with a free cash flow loss of $28.26 million for the fourth quarter of 2022.

Buenaventura's Board of Directors has proposed a dividend payment of $0.073 per share/ADS. A dividend yield of 0.9%.

3 - Compania de Minas Buenaventura Debt Situation (Financial Obligations Current and Long-Term)

The company shows a cash position of $253.92 million and a total bank loan plus financial obligations, including a current of $738.64 million at the end of 4Q22.

The net debt is now $484.6 million, with an average maturity of 3.4 years.

4 - C onsolidated Gold Production. Details - Total Production was 47,513 Au Oz and 2,016,607 Ag Oz in 4Q22.

The company operates seven mines in Peru: Tambomayo, Orcopampa, Uchucchacua (still 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.

Presenting a concise view of the BVN production is challenging due to the different metals involved and the difference between consolidated and equity gold production. I suggest directing your focus on the consolidated production.

4.1 - 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.

In 4Q22, gold production at Tambomayo and Orcopampa decreased 33% and 9.4% year-over-year, in line with the planned mining sequence. However, gold production increased by 23% year-over-year at La Zanja due to the conclusion of Pampa Verde pit (Phase 4) pre-stripping, which enables full access to the ore body.

CFO Leandro Garcia said in the conference call:

This decrease is mainly explained by lower production at Tambomayo, in line with the planned mining sequence of low and lower grades. The full year of 2022 total gold attributable production was 206,000 ounces, 4% higher than the same period in 2021.

Consolidated Gold production was 47,513 Au Oz in 4Q22 compared with 51,199 Au Oz in 4Q21. Below is the comparison from 3Q22 to 4Q22 on a 100% basis.

Buenaventura's 4Q22 equity gold production was 53,079 ounces , compared with 59,033 ounces produced in 4Q21.

4.2 - Silver Production consolidated (Ag Oz).

Note: Silver consolidated production was 2,016,607 Ag Oz during the fourth quarter of 2022, down from 2,823,117 Ag oz last year.

Note: Mining operations at La Zanja were halted in October 2022, when Phase 4 mining was completed.

4.3 - Base Metals consolidated. (One Metric Tonne/Ton = 2,204.6 pounds)

4.4 - Price realized for Gold and Silver

The gold production was sold at $1,745 per ounce, and the silver production was sold at $19.62 per ounce in 4Q22.

4.5 - 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 Triangle pattern with resistance at $8.6 and support at $7.8.

The ascending triangle, often referred to as the 'rising triangle', is one of the top continuation patterns that appears mid-trend. Traders anticipate the market to continue in the direction of the larger trend and develop trading setups accordingly.

I recommend selling about 60% between $8.5 and 8.7 with potential higher resistance at $9. Conversely, I recommend accumulating between $7.4 and $7.8 with lower support at $7.10.

As I said in my preceding article, the overall strategy I encourage in my marketplace is to hold 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 $10.

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

The gold, silver, and copper prices are now faring better because the Fed is signaling only one more hike before pausing. This situation is favorable for the gold price.

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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