It is not surprising to see that shares of Buenaventura Mining Company, formally known as Compania de Minas Buenaventura [stock_market_widget type="inline" template="generic" color="default" assets="BVN" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"], have been under pressure this year and have actually lost value despite a surge in the price of gold and silver. The stock of Peru’s largest publicly-traded precious metals mining company is down around 8% in 2019 as it has been unable to take advantage of the rise in precious metal prices.
Let’s see why.
Buenaventura is Operationally Weak
In the second quarter of 2019, Buenaventura’s revenue declined by nearly a third year over year to $216 million. The decline was much bigger for the first six months of the year as revenue fell 36% to $402.2 million.
The massive revenue decline meant that Buenaventura swung to an operating loss of $15.3 million as compared to a profit of $20.2 million a year ago. The company’s net income also shrunk from $41 million last year to $9.7 million in the second quarter.
Buenaventura’s financial performance suffered despite an increase in the average realized price of gold as other precious metals went in the wrong direction. The company recorded a 1% increase in the average realized gold price to $1,308 an ounce, but that of silver, zinc, lead, and copper witnessed massive declines.
Similarly, Buenaventura’s volumes sold took a big hit on account of lower production. Its second-quarter equity gold production came in at just over 40,500 ounces as compared to nearly 79,000 ounces a year ago. The lower production was a result of the bottlenecks faced by Buenaventura at the Orcopampa mine, where production was down 70%. The production at La Zanja was also down 65% during the quarter where the company’s output took a planned hit.
Meanwhile, lower grades impacted Buenaventura’s silver output during the quarter, which fell 22% year over year. So, it is clear that the company is not your best bet when it comes to taking advantage of the gold and silver price rally. Buenaventura is not a pure-play silver or gold company. Its reliance on other metals means that any weakness elsewhere will impact its performance.
Will There Be a Turnaround?
Buenaventura’s 2019 guidance is not as strong as it was when the year began. The company has reduced its gold production guidance because of the weakness at the Orcopampa mine as pointed out by the company’s management:
On the other hand, the silver production guidance has also been reduced thanks to bottlenecks such as suspended operations at Uchucchacua in the beginning of the year and a delay in the silver oxide project.
So, it would be prudent for investors to look elsewhere if they are looking to take advantage of higher gold and silver prices as Buenaventura will continue to struggle in the coming quarters until its output improves.
