BVN - Compania de Minas Buenaventura: In Recovery Mode

2023-11-03 08:46:59 ET

Summary

• BVN revenues for the third quarter of 2023 were $211.29 million, up from $195.42 million in the same quarter a year ago and up 30% sequentially.
• Buenaventura's 3Q23 equity gold consolidated production was 36,228 Au ounces, compared to 49,789 ounces produced in 3Q22. 3Q23 silver production increased by 1.4% to 1,933,025 Ag ounces.
• I recommend buying BVN between $8.36 and $8.00, with $7.81 as a lower support level.

Introduction

The Lima-based Compañía de Minas Buenaventura S.A.A. ( BVN) released its third-quarter 2023 results on October 30, 2023.

Since December 2020, I have been a quarterly follower of BVN on Seeking Alpha. Every chart in this article shows data spanning multiple years. This article also serves as an update to the one I wrote on August 7, 2023.

Note: BVN is the largest publicly traded precious metals miner in Peru and the largest owner of mining rights in the country. It produces gold, silver, zinc, lead, and copper.

1: 3Q23 Earnings Snapshot and Commentary

BVN revenues for the third quarter of 2023 were $211.29 million , up from $195.42 million in the same quarter a year ago and up 30% sequentially. 3Q23 net loss was $28.03 million, compared to a $19.77 million loss for the same period in 2022.

By September 30, 2023, Buenaventura had $221.81 million in cash and $493.7 million in net debt with an average maturity of 2.7 years.

Due to El Brocal's excellent performance and the $49 million in dividends from Cerro Verde, the cash position was strong in 3Q23. During the third quarter of 2023, Cerro Verde achieved a record-breaking daily copper production of 430K tons, or 255 million pounds of copper.

The production outlook for 4Q23 is still unchanged, though, since Buenaventura can now conduct metallurgical tests on up to 124.6K tons of ore from the pilot stop of the Yumpag project thanks to the restart of operations at the Uchucchacua processing plant.

CEO Leandro Garcia said in the conference call:

We are on track to achieve the upper range of the guidance; 4.9 million ounces of silver, being El Brocal its main contributor during the fourth quarter 2023, Uchucchacua and Yumpag will contribute almost with 2.8 million ounces to reach the full year guidance; 411,000 ounces of gold with a steady production El Brocal.

Production Details on a Consolidated Basis in 3Q23:

1. Buenaventura's 3Q23 equity gold consolidated production was 36,228 Au ounces, compared to 49,789 ounces produced in 3Q22.
2. 3Q23 silver production increased by 1.4% to 1,933,025 Ag ounces, primarily due to El Brocal's performance.
3. 3Q23 lead and zinc production decreased significantly YoY due to decreased production at the Tambomayo mine. However, copper production was up 55.5% YoY. The company's 3Q23 equity copper production (including associates) was 34,168 MT , compared to 28,909 MT produced in 3Q22.

In the press release :

Tambomayo 3Q23 gold production decreased 41% year on year aligned with the Company's mine plan for this asset, while silver production decreased 45% year on year and by 12% for the first nine months of 2023 compared to the same period of 2022 due to lower than planned mining rate within the mine's upper zone, which required more extensive rehabilitation to enable access to high-grade ore.

Note: One metric ton is 2,204.6 pounds.

2: Investment Thesis

Compañía de Minas Buenaventura S.A.A. is a producer of precious metals that has a strong balance sheet and good growth potential. This makes it a potential long-term investment in base metals like copper, lead, and zinc as well as precious metals like gold and silver.

Following a poor second quarter, the company had a strong third quarter. Even though the cash position ($221.81 million) is still less than it was in 3Q22 ($287.97 million), it is nicely improving.

The company's mines are operating profitably, and through 2023 and especially 2024, it is anticipated that the price of the precious metals will rise. This is a formula for success.

Buenaventura successfully resumed operations at Uchucchacua on October 29, 2023. Furthermore, the Environmental Impact Assessment for the Yumpag project was approved on September 7, enabling Buenaventura to perform metallurgical tests on up to 125K tons of ore from Yumpag's pilot scope.

However, Tambomayo Mine offset some of the gains with weak production this quarter.

Also, gold and silver prices are the main metals for BVN and have been bullish for the past few weeks after the FED signaled a potential long pause in 2024.

As a result, I still advise making a medium-core investment and building up on any weaknesses by placing bets on commodity prices rising. Trading roughly 60% LIFO of your entire BVN position and holding a medium-core long-term position for a much higher target is one commonly successful strategy that I recommend.

3: Stock Performance

BVN has closely followed the VanEck Gold Miners ETF ( GDX) and is up 18.4% on a one-year basis.

Compañía de Minas Buenaventura ADR: Historical Financial Snapshot, including 3Q23: The Raw Numbers

Data Source: Company Release

Gold Production And Balance Sheet Details

1: Revenues were $211.29 million in 3Q23

According to the above chart, revenues for 3Q23 increased $211.29 million from $195.42 million in the same quarter last year and 22% sequentially.

In contrast to the previous year, when there was a loss of $19.77 million, net income (attributable to parent equity holders) was down to a loss of $28.03 million . The cash position has decreased from $287.97 million in 3Q22 to $221.81 million in 3Q23.

The cost of sales attributable was $57.89 million, compared to $61.49 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 $38.27 million in 3Q23

Trailing 12-month free cash flow was negative $8.57 million , with a free cash flow of $38.27 million for the third quarter of 2023. Good progress this quarter.

3: Compañía de Minas Buenaventura Debt Situation (Financial Obligations, Current and Long-Term)

At the end of the third quarter of 2023, the company reported a cash position of $221.81 million , a total bank loan, and financial obligations, including a current of $715.5 million .

As of September 30, 2023, the quarter's end, the net debt amounts to $493.67 million , with an average maturity of 2.7 years.

4: C onsolidated Gold Production Details: Total production was 36,228 Au Oz and 1,933,025 Ag Oz in 3Q23 (consolidated).

The company operates seven mines in Peru: Tambomayo, Orcopampa, Uchucchacua, 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 History (Au Oz)

Note: Five mining units (Uchucchacua, Orcopampa, Julcani, Tambomayo, La Zanja in Peru, and San Gabriel, a mining unit under development) are operated by BVN. In addition, the company holds stakes in the mining operations of Yumpaq, San Gregorio, Cerro Verde, El Brocal, Coimolache, Colquijirca, and Trapiche, which is a mining unit under development.

Consolidated gold production was 36,228 ounces in 3Q23, compared with 49,785 ounces in 3Q22. Below is the comparison from 3Q22 to 3Q23.

Also, Buenaventura's 3Q23 equity gold production, including Associates, was 43,449 ounces , compared with 55,837 ounces produced in 3Q22.

4.2: Silver Production Consolidated (Ag Oz)

Silver consolidated production was 1,933,025 Ag Oz during the third quarter of 2023, up from 1,906,679 Ag Oz last year.

4.3: Base Metals Consolidated (One Metric ton/Ton = 2,204.6 pounds)

As we can see in the graph above, copper production consolidated is up significantly this quarter.

El Brocal 3Q23 copper production increased by 55% year on year as underground mine production ramp-up continued ahead of expectations during the quarter. Transitional ore from the open pit also had a higher than estimated copper content with improved metallurgical recovery. (press release)

4.4: Price realized for Gold and Silver

The gold production was sold at $1,917 per ounce, and the silver production was sold at $25.67 per ounce in 3Q23.

4.5: Attributable All-in Sustaining Costs, or AISC

AISC was 1,949 per ounce sold this quarter.

CEO Leandro Garcia said in the conference call:

You can see that our all-in sustaining costs have increased by 34% compared to the nine-month period of last year. This is primarily explained by the whole production decrease at La Zanja, Tambomayo and Coimolache. However, it is important to mention that these figures does not include El Brocal and Cerro Verde with excellent cost performance during the third quarter of 2023.

Technical Analysis (Short Term) and Commentary

Note: The chart is adjusted for the dividend.

BVN forms an ascending triangle pattern with resistance at $8.70 and support at $8.10.

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 $8.65 and 8.75, with potential higher resistance at $9.25. Conversely, I recommend accumulating between $8.36 and $8 , with lower support at $7.81.

As I said in my preceding article, the overall strategy is to hold a core long-term position in BVN 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 or enjoying the dividend. The dividend yield is about 1.34%.

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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