Buenaventura Mining Is a Bet You Need to Avoid

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:

This reduction is mainly explained by the centralization of its underground operations and prioritization of de-bottlenecking program. In the case of the cost applicable to sales, estimates remained the same except for Orcopampa, while our new estimated cost ranges between $1,120 and $1,240 per gold ounce.

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.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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