Compania de Minas Buenaventura SAA: Turning Attractive

Compania de Minas Buenaventura SAA: Turning Attractive

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Source: Company presentation

Investment Thesis

The Peruvian Lima-based Compania de Minas Buenaventura SAA (NYSE:BVN) released its third quarter results on Oct. 29, 2020. The results were in-line with expectations, but the stock dropped on the news.

The company is Peru’s largest publicly-traded precious metals miner and a main holder of mining rights in Peru.

Buenaventura currently operates six mines in Peru:

They are Orcopampa, Uchucchacua, Julcani, El Brocal, La Zanja, and Coimolache. Buenaventura also is developing the Tambomayo project.

The company owns 43.65% of Minera Yanacocha S.R.L, a partnership with Newmont Mining Corp (NYSE:NEM), and owns 19.58% of Sociedad Minera Cerro Verde, a Peruvian copper producer.

The investment thesis is quite simple. BVN is a strong company and could be considered strong enough to invest for the long term, despite some political uncertainties in Peru. However, it’s essential to trade short term your long position to reduce the risk and take advantage of the near-term volatility.

The company has been significantly underperforming the VanEck Vectors Gold miners (NYSEARCA:GDX) in 2020.

ChartData by YCharts

CEO Leandro Garcia said in the conference call:

Third quarter 2020 EBITDA from direct operations reflected a positive trend on both a sequential year-on-year basis despite the effects of COVID-19, Buenaventura’s operation during the quarter.

Compania De Minas Buenaventura ADS – Financial Snapshot 3Q’20 – The Raw Numbers

Total Revenues in $ Million230.19235.49114.5097.79228.20
Net Income in $ Million4.50-53.67-75.00-25.1124.40
EBITDA $ Million31.00-79.36-82.04-15.4547.07
EPS diluted in $/share0.02-0.21-0.30-0.100.10
Operating Cash flow in $ Million39.52-26.2925.50-12.8389.20
Capital Expenditure in $ Million27.9737.650.0011.4412.60
Free Cash Flow in $ Million11.55-63.9425.50-24.2776.60
Total Cash $ Million279.71210.05221.59195.51264.82
Total Long term Debt in $ Million55.00626.4955.0057.210.00
Shares outstanding (diluted) in Million253.99253.99253.99253.99253.99

Data Source: Company release

Gold Production And Balance Sheet Details

1 – Revenues were $228.20 million in 3Q’20.

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Revenues for the third quarter of 2020 were $228.20 million or down 0.9% from the same quarter a year ago and up significantly sequentially, as shown in the chart above.

Net income was $24.40 million compared to $4.50 million last year. Cash position is now $264.82 million, up 35.4% sequentially.

The 3Q20 adjusted EBITDA, including associated companies, was $183.9 million, compared to $168.2 million in 3Q19. The company is proceeding well with its De-Bottlenecking Program at three mines: Tambomayo, Uchucchacua, and El Brocal.

Third-quarter highlights (Presentation)

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CEO Leandro Garcia said in the conference call:

Total revenues during the third quarter were $228.2 million, which is 1% lower in comparison to the third quarter of 2019. This was primarily due to a decrease in volumes sold of gold and silver.

2 – Free cash flow was $76.6 million in 3Q’20.12290461 16074285504477634

Yearly free cash flow is now $13.89 million, with a free cash flow of $76.60 million for the third quarter of 2020.

3 – Gold production Consolidated details. Total production was .. in 3Q’20.

Note: Gold production includes 100% of Buenaventura’s operating units, 100% of La Zanja, 100% of El Brocal, 40.095% of Coimolache, and 43.65% of Yanacocha.

  • Buenaventura’s 3Q20 equity gold production was 81,595 ounces, compared to 121,466 ounces produced in 3Q19. The decrease in production was due to a 26% percent production decrease at Tambomayo and a 44% production decrease at Yanacocha due to the negative effects of COVID-19.
  • Silver equity production was 2.976 M oz, a decrease of 47% year on year. Due to the Uchucchacua mine, which did not achieve full capacity during the third quarter of 2020.
  • Lead equity production decreased by 20% yearly, essentially due to an 84% decrease at the Uchucchacua mine.
  • Zinc equity production increased by 22% 22% year over year, primarily due to a 148% production increase at El Brocal.
  • Copper equity production for the third quarter of the year was 24,995 metric tons. This reduction is due to a 32% decrease in production at Brocal.

Charts detailed by Metals and price realized in the third quarter.

1 – Gold Production, including Associates. Au Oz

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2 – Silver Production, including Associates. Ag Oz

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3 – Base Metals, including associates. (Metric Tonne)

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4 – Price realized for Gold and Silver.

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5 – Attributable AISC

12290461 160744649493847044 – Compania De Minas Buenaventura has no net debt and strong liquidity.

12290461 16074487109463112 The company shows a cash position of $264.82 million and a total bank loan plus financial obligations of $209.44 million.

Note: On Oct. 29, 2020, Buenaventura successfully refinanced the final US$ 113 million leasing payment for its Huanza hydroelectric power plant, effective Nov. 2, 2020. This extends the maturity by 18 months at a rate of Libor 30-days + 2.10%.

Conclusion And Technical Analysis (Short Term)

Compania De Minas Buenaventura is a solid miner that could be added to your long term investment. The company produces gold, silver, and also copper, zinc, and lead.

The recent technical issues related to the COVID-19 have weakened the company balance sheet a little, but overall it is a solid business with great growth potential.

What I like is that the company has a large project pipeline with three projects close to feasibility.

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Source: Presentation

Finally, On Nov. 26, 2020, the company filed a 6K announcing a tax issue with the National Customs and Tax Administration Superintendence.

relate to an audit in respect of the company’s income tax payment for the years 2007 and 2008, where SUNAT refused to recognize the Company’s deductions in respect of contracts for physical deliveries and certain contractual payments made by the Company,

The ruling will require the company to pay $448 million of back taxes while contesting the charges in court.

It is an important financial burden that we should factor in. More can be found in the year-end filing 2019.

Technical Analysis (Short Term)

The stock jumped 60% after the second quarter results release but retraced a little when gold started to weaken and dropped below $1,800 per ounce.

The stock forms a descending channel pattern since September. The line resistance is now at $12.50 – $12.75, and the line support is $10.40.

Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. The descending channel pattern is often followed by higher prices, but only after an upside penetration of the upper trend line.

12290461 16074496668641586The trading strategy is to play with the pattern and sell about 25% at resistance between $12.50 -$12.75 and wait for a retracement below $11 to accumulate again. The RSI is now close to overbought.

However, if the gold price continues its positive momentum and can cross $1,900 per ounce again, BVN could eventually break out and retest $14.50 (Double top). Conversely, if gold price cannot continue its ascent and drop below $1,775 per ounce, BVN will eventually drop below $10.

Watch the gold price like a hawk.

Credit: SeekingAlpha

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