GDX - Compania de Minas Buenaventura: Banking On A Better Third Quarter

2023-08-07 13:44:51 ET

Summary

• Compañía de Minas Buenaventura S.A.A. released its second quarter 2023 results, showing an increase in earnings compared to the previous year.
• Consolidated Gold Production was 37,278 ounce and 1,661,565 ounces of Silver.
• I recommend buying Compania de Minas Buenaventura between $7.40 and $7.25, with lower support at $7.10.

Introduction

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

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 May 25, 2023.

Note: BVN is Peru's largest publicly traded precious metals miner and the most important holder of mining rights in Peru. It produces gold, silver, Lead, zinc, and copper.

1 - 2Q23 Earnings Snapshot and Commentary

BVN revenues for the second quarter of 2023 were $173.25 million , up from $160.11 million in the same quarter a year ago and down 6.6% sequentially.

El Brocal's underground mine production increased to 9,300 tpd during 2Q23, compared to 8,150 tpd in 2Q22. The El Brocal ramp-up remains on target to reach 10,000 tpd by year-end 2023. EL Brocal mine is owned at 61.43%.

Also, in the press release, the company indicated that Uchucchacua mine and others are expected to be approved during 3Q23.

Buenaventura looks forward to permitting the approval of Uchucchacua, Yumpag, El Brocal, and Coimolache. The company continues to work with the Peruvian environmental authority ((SENACE)) on its final review. We expect permits for Uchucchacua and Yumpag to be approved during 3Q23.

CEO Leandro Garcia said in the conference call:

The first half of 2023, capital expenditures reached $85.9 million compared to $56 million in the same period of 2020, and includes $24.0 million related to the San Gabriel Project and $19.2 million related to the Yumpag Project. Buenaventura looks forward to permitting approval of Uchucchacua, El Brocal and Coimolache. The company continues to work with the Peruvian Environmental Authority, SENACE, on its final review.

Also, Buenaventura received $49.0 million relative to its stake in the Cerro Verde mine. Cerro Verde paid a second dividend on August 3, 2023, from which Buenaventura received another $49.0 million.

Buenaventura's 2Q23 equity gold consolidated production was 37,278 Au ounces, compared to 41,324 ounces produced in 2Q22, primarily due to decreased production at Tambomayo and Coimolache.

2Q23 silver production decreased by 12%, primarily due to Julcani and El Brocal's performance.

2Q23 lead and zinc production decreased by 50% and 46% due to decreased production at the Tambomayo mine.

The Company’s 2Q23 equity copper production was 30,914 MT , compared to 27,900 MT produced in 2Q22. El Brocal 2Q23 copper production increased by 25% YoY due to increased ore treated at the Marcapunta underground mine.

Note: One Metric Ton is 2,204.6 Pounds.

2 - Investment Thesis

Compañía de Minas Buenaventura S.A.A. is a metal producer with a solid balance sheet and good potential growth, which allows a possible investment for the long term in the precious metal segment and base metals like copper, lead, and zinc. Uchucchacua mine is expected to restart during 3Q23, which is a positive factor for production.

On the other hand, with an AISC of $1,945 per ounce sold, I find it too high to consider this miner as a fully safe investment, and it is perhaps a good idea to limit your exposure to this stock until the company is able to reduce the AISC to an adequate level that I see around $1,100-$1,200 per ounce.

The gold and silver prices are now the main components for BVN. The FED raised interest by 25 points and expects another 25-point rise in 2023. The results have been a period of weakness for Gold and Silver, which are still trading up 11% and 18% YoY (look at the chart below).

I expect Gold, Silver, and Copper to trend slightly up in 4Q23 after the FED will indicate a permanent pause before entering 2024.

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

One often successful strategy 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" that have recurred regularly.

3 - Stock Performance

BVN has significantly outperformed the VanEck Gold Miners ETF ( GDX) and is up 40% on a one-year basis.

Compania de Minas Buenaventura ADS - Historical Financial Snapshot including 2Q23 - The Raw Numbers

Data Source: Company release .

Gold Production And Balance Sheet Details

1 - Revenues were $173.25 million in 2Q23

2Q23 revenues were up to $173.25 million from $160.11 million in the same quarter a year ago and down 6.6% sequentially, as shown in the chart above.

Net income (attributable to equity holders of the parent) was a loss of $6.75 million compared to a loss of $36.28 million last year. The cash position is now $202.36 million, down from $326.32 million last year.

Cost of sales was $169.298 million compared to $183,693 million a year ago.

Buenaventura received $49.0 million relative to its stake in Cerro Verde on August 3, 2023.

2 - The Free Cash Flow was $54.87 million in 2Q23

Trailing 12-month free cash flow was negative $67.9 million , with a free cash flow of $54.87 million for the second quarter of 2023.

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

The company shows a cash position of $202.36 million and a total bank loan plus financial obligations, including a current of $723.2 million at the end of 2Q23. The net debt is now $520.9 million with an average maturity of 2.9 years by quarter’s end, June 30, 2023.

4 - C onsolidated Gold Production. Details - Total Production was Au Oz and Ag Oz in 2Q23.

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.

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.

Consolidated Gold production was 37,278 Au Oz in 2Q23 compared with 43,324 Au Oz in 2Q22. Below is the comparison from 2Q22 to 2Q23.

Also, Buenaventura's 2Q23 equity gold production, including Associates, was 35,589 ounces , compared with 39,605 ounces produced in 2Q22.

4.2 - Silver Production consolidated (Ag Oz).

Note: Silver consolidated production tumbled to a record low of 1,661,565 Ag Oz during the second quarter of 2023, down from 1,918,152 Ag oz last year.

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

2Q23 lead and zinc production decreased by 50% and 46% due to decreased production at Tambomayo. The Company’s 2Q23 equity copper production was 30,914 MT , compared to 27,900 MT produced in 2Q22.

4.4 - Price realized for Gold and Silver

The gold production was sold at $1,945 per ounce, and the silver production was sold at $24.27 per ounce in 2Q23.

4.5 - Attributable All-in Sustaining costs or AISC

AISC was 1,825 per ounce sold this quarter due to weak production.

CEO Leandro Garcia said in the conference call:

The all in sustaining cost from our direct operations in the first semester of 2023 increased by 30% to $1,875 per ounce of gold, the all-in sustaining cost for the first semester of 2023 has increased compared to the previous year due to lower production – production levels at Julcani, La Zanja, Coimolache. However, we anticipate it will decrease in the upcoming quarters as production meets our guidance.

Technical Analysis (Short Term) and Commentary

Note: The chart is adjusted for the dividend.

BVN forms an ascending triangle pattern with resistance at $7.92 and support at $7.40.

The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns. Regardless of where they form, ascending triangles are bullish patterns that indicate accumulation.

I recommend selling about 60% between $7.90 and 8.10 with potential higher resistance at $8.35. Conversely, I recommend accumulating between $7.40 and $7.25 , with lower support at $7.10.

As I said in my preceding article, the overall strategy, I encourage you 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 assuming a rally in gold by the end of 2023 or early 2024.

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 dividend yield is about 1.85%.

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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