GDX - Compañía de Minas Buenaventura: Weak Production This Quarter

2023-05-25 16:06:30 ET

Summary

• Compañía de Minas Buenaventura S.A.A. revenues for the first quarter of 2023 were $185.50 million, down from $232.92 million in the same quarter a year ago and down 24.7% sequentially.
• Consolidated Gold production was 38,050 Au Oz in 1Q23 compared with 43,148 Au Oz in 1Q22.
• I recommend accumulating Compania De Minas Buenaventura shares between $6.75 and $6.85, with lower support at $6.55.

Introduction

The Lima-based Compañía de Minas Buenaventura S.A.A. (BVN) released its f irst-quarter 2023 results on April 27, 2023.

This article looks at the company's recent history, including the first quarter earnings, and finds a way to invest profitably in this mining company through fundamental and technical analysis.

I have followed BVN quarterly on Seeking Alpha since Dec. 2020. All charts in this article provide several years of history. Also, this article is an update to my article published on March 24, 2023.

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

1 - 1Q23 Earnings Snapshot and Commentary

BVN revenues for the first quarter of 2023 were $185.50 million, down from $232.92 million in the same quarter a year ago and down 24.7% sequentially.

El Brocal ore mined from its open pit was stockpiled during the 1Q23 and was not treated during the quarter. Also, operations at Julcani were suspended for 10 days in February 2023 related to anti-government protests adversely impacting production and mine development.

Operations were fully reestablished on February 16, 2023, and Buenaventura intends to recover production in the following quarters meeting 2023 production guidance.

On March 24, 2023, Cerro Verde announced a total dividend distribution of US$ 250 million. Buenaventura will receive US$ 49.0 million relative to its stake in Cerro Verde on April 28, 2023.

Buenaventura's 1Q23 equity gold consolidated production was 38,050 Au ounces, compared to 43,148 ounces produced in 1Q22, primarily due to the La Zanja mining operation suspension since 4Q22. Silver, lead, and zinc production decreased by 38%, 65%, and 83% YoY, respectively.

2 - Investment Thesis

The investment thesis continues to be a difficult exercise for BVN.

Compañía de Minas Buenaventura S.A.A. is a metal producer with a solid balance sheet and potential growth, which helps a possible investment for the long term in the precious metal segment and base metals like copper, lead, and zinc.

However, the gold and silver prices are turning bullish in 2023 and support accumulating BVN on weaknesses despite some recent retracement. On the other hand, with an AISC of $1,924 per ounce sold, the long-term bullish narrative is weakening. The company must find a way urgently to lower AISC to generate positive cash flow.

I expect Gold and silver to trend up in H2 2023, and I believe copper is approaching strong lower support after dropping substantially in the past few months.

Thus, I continue recommending a small-sized core investment and accumulating on any weaknesses by betting on high commodity prices.

One often successful strategy 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 :

During the first quarter of this year, operations at Julcani were suspended for 10 days in February 2023 related to anti-government protests, which adversely impacted production and mine development. Operations were fully established on February 16, 2023.

Compania de Minas Buenaventura ADS - Historical Financial Snapshot including 1Q23 - The Raw Numbers

Data Source: Company release .

Gold Production And Balance Sheet Details

1 - Revenues were $185.50 million in 1Q23

1Q23 revenues were down to $185.50 million from $232.92 million in the same quarter a year ago and down 24.7% sequentially, as shown in the chart above. Revenues were down significantly due to:

• El Brocal ore mined from its open pit was stockpiled during the 1Q23 and was not treated during the quarter.
• During 1Q23, operations at Julcani were suspended for 10 days in February 2023 related to anti-government protests.
• 1Q23 gold production at Tambomayo decreased 24% yearly, in line with the 2023 planned mining sequence.

Net income (attributable to equity holders of the parent) was $64.40 million compared to $604.52 million last year. The cash position is now $173.49 million, down from $337.41 million last year.

Buenaventura will receive US$49.0 million relative to its stake in Cerro Verde on April 28, 2023.

2 - The Free Cash Flow was a Loss of $73.45 million in 1Q23

Trailing 12-month free cash flow was a loss of $80.47 million, with a free cash flow loss of $73.45 million for the first quarter of 2023.

Buenaventura's Board of Directors has proposed a dividend payment of $0.073 per share/ADS. A dividend yield of 2.09%.

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

The company shows a cash position of $173.49 million and a total bank loan plus financial obligations, including a current of $730.29 million at the end of 1Q23. The net debt is now $556.8 million.

4 - C onsolidated Gold Production. Details - Total Production was 38,050 Au Oz and 1,263,118 Ag Oz in 1Q23.

The company operates seven mines in Peru: Tambomayo, Orcopampa, Uchucchacua (still suspended), Julcani, El Brocal (not producing in 1Q23) (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.

I will focus on the consolidated Production here.

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.

1Q23 gold production has been weakening due to a few issues I indicated earlier. El Brocal did not produce, Julcani was suspending 10 days in 1Q23, and Tambomayo had a weak production.

Consolidated Gold production was 38,050 Au Oz in 1Q23 compared with 43,148 Au Oz in 1Q22. Below is the comparison from 4Q22 to 1Q23.

Buenaventura's 1Q23 equity gold production, including Associates, was 38,972 ounces , compared with 49,293 ounces produced in 1Q22.

4.2 - Silver Production consolidated (Ag Oz).

Note: Silver consolidated production tumbled to a record low of 1,263,118 Ag Oz during the first quarter of 2023, down from 2,171,414 Ag oz last year.

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

Base Metals were weak this quarter due to El Brocal not producing.

4.4 - Price realized for Gold and Silver

The gold production was sold at $1,916 per ounce, and the silver production was sold at $22.52 per ounce in 1Q23.

4.5 - Attributable All-in Sustaining costs or AISC

AISC was 1,924 per ounce sold this quarter due to weak production. This level of AISC is above the price of gold sold, which is not good.

Technical Analysis (Short Term) and Commentary

Note: The chart is adjusted for the dividend.

BVN forms a descending channel pattern with resistance at $7.13 and support at $6.8.

A descending channel is a bearish trend that is characterized by a series of lower highs and lower lows. This pattern forms when the price of an asset creates a lower high and then a lower low, and this process is repeated multiple times.

I recommend selling about 60% between $7.10 and 7.26 with potential higher resistance at $7.65. Conversely, I recommend accumulating between $6.75 and $6.85, with lower support at $6.55.

As I said in my preceding article, the overall strategy I encourage in my marketplace is to hold a core long-term position in Compañía de Minas Buenaventura S.A.A. stock 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.

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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