Compania Mina Buenaventura, S.A. (BVN)

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Compania de Minas Buenaventura is a Peruvian mining company (that is both based in and does all its business in Peru). Its numerous mines across the country hold reserves of gold, silver, copper, lead, zinc and molybdenum. Gold generates the largest share of revenue (44% in 2009) followed by silver (29%), zinc (15%), lead (7%) and copper (5%). Because of recent economic and market trends Buenaventura shifted its focus away from hedging and futures contracts so that it is able to take advantage of rising market prices (began that strategy in 2008, many of the contracts were annulled in 2008 so the company's net earnings have gradually improved since then). The company also generates its own power at hydroelectric plants (some have diesel generators as backup if water is scarce).^[1]

Company Overview

Contents 1 Company Overview 1.1 Production 2 Business and Financials 3 Balance sheet and gold prices 4 Competition in the Silver Production Industry 5 References

Buenaventura operates seven mines directly and four other mines through interests in other companies. It has numerous competitive advantages over competitors; it owns power generating companies that it uses to power operations at mines, its business is highly diversified with gold being the largest revenue generator but silver quickly catching up, it operates the fourth largest silver mine in the world, has low risk exposure due to strategic joint ventures with other companies and has major reserves of copper, lead and molybdenum with a couple mines capable or producing two or more different minerals. Cerro Verde (has a 19% interest, controlled by Freeport-McMoRan Copper & Gold Inc.) has 2.771 million tons of copper, 422 thousand tons of molybdenum and 198.173 million ounces of silver; the numbers include the share in the mines not held by Buenaventura for example the company's interest in Cerro Verde only gives it about 38.168 million ounces of silver, the company hasn't listed molybdenum data since the end of 2008. In May 2010 a joint venture between it and Gold Fields in the Chucapaca area of Southern Peru released data indicating significant reserves of gold, silver and copper (5.6 million ounces of gold of which 2.9 million belongs to Buenaventura). In total 83.7 MT (tons) of mineral containing ore was discovered 1.9 g per ton gold, 8.2 g per ton silver and 0.09% copper.^[2]

At the beginning of 2010 53.7% of its shares were held by foreigners the rest by investors from Peru (ADR's make up roughly half of all shares (50.6% common shares, there were 25.6% more shares of the company traded in 2009 than in 2008).^[3]

Production

In 2009 gold production (at all the mines it has an interest in, includes shares not held by it) totalled 1.322 million ounces most of which came from Yanacocha (898 thousand ounces) about 12 times less than silver (16.757 million ounces 63% of which came from one of the eleven mines (Uchucchacua) and 31.8% from 3 others (spread evenly between Yanacocha, El Brocal and Julcani). El Brocal was responsible for 75.6% of zinc production (has 84.6% of Buenaventura's zine reserves, 8 other mines also have zinc). Cerro Verde produced 83.1% of copper while El Brocal and Uchucchacua combined contributed 82.6% of lead (the company total was 23 million concentrate tons (abbreviated DST).^[4]

The largest gold producing mine Yanacocha (44% owned by Buenaventura) is on track to produce 1.5 million ounces in 2010 and scheduled to do the same in 2011.^[5]

Seven of the mines in operation (December 2010) are underground mines (four of the seven only contain silver and gold) the other four are open pit (two of the open pit mines are minority stakes including the gold silver Yanacocha property (46.65%) and the copper, molybdenum Cerro Verde (19.26%).^[6]

Business and Financials

$US mil exc. unit values	2007	2008	2009[7]	9M09[8]	9M10[8]	(9M10 9M09)
total revenue	786.428	815.363	881.507	620.5	707.0	13.94%
operating income	366.635	283.735	287.197	193.3	218.8	13.19%
ebitda	435.056	171.958	733.540	803.1	832.8	36.98%
net income	371.150	203.358	656.608	383.2	440.2	14.87%
earnings per share	1.08	0.60	2.33	1.51	1.73	14.57%
net sales	747.021	766.603	819.357	575.9	665.5	15.52%

Ebitda, operating income and net income outpaced revenue in terms of growth between 2008 and 2009 (287.2% for ebitda and 198.3% for net income compared to 16.9% for revenue). Gold production is scheduled to rise 9% in 2011 after the opening of two new mines which could have an even larger impact on earnings since gold prices are at record highs.^[5] The company's cash to debt ratio reached a three year high in June 2010 (15.86 at the half in 2010 compared to 3.11 six months earlier and 1.7 at the end of 2008) though cash fell 38.08% to $444 million hoh. Capital expenditure was $196 million for the first six months of 2010, 59% of it going to Conhua and El Brocal.^[6]

Balance sheet and gold prices

Although total assets have continued to rise steadily in recent years (2007-2011) current assets have been up and down reaching a high of $937.8 in 2009 and a low of $774.5 million in September 2010. A lot of that has to do with lower cash on hand and currency effects caused by changes in the value of the Nuevo Sol which was stable at around 3 to 1 USD in 2007 to mid to late 2009 when it began a relatively sharp decline (2.98 in August 2009 to 2.85 in November 2009 to 2.78 in June 2010 and staying at that level until October 2010 when it reached 2.727 and stayed at that level).

USD million	2008[7]	2009[7]	3q09[8]	3q10[8]	(09,10)%
Total current assets	788.712	937.809	855.94	774.522	(9.51)%
Gold price per ounce	872	988	937	1193	27.32%
Total assets	2301.924	2786.559	2558.36	3010.287	17.66%
Silver price per ounce	14.26	15.52	14.26	18.23	24.84%
Shareholders equity	1736.747	2064.255	1893.89	2640.795	39.44%
Copper price per ton	5771	5641	5024	7135	42.02%
Long term debt	229.105	150.555	164.86[9]	121.307	(26.42)%
Lead price per ton	1859	1926	1645	2046	24.38%
Zinc price per ton	1798	1757	1509	2041	35.26%

Competition in the Silver Production Industry

In 2010 most silver primary production came from a handful of companies, some growing rapidly from small cap to mid cap companies. Other major silver producers are Pan American Silver:24.3 mil oz, Silvercorp Metals:4.6 mil oz, Silver Standard Resources:6.302 mil oz (up 48%), First Majestic Silver:6.5 mil oz (up 62%), Rio Tinto (RIO):6.862 mil oz (down 20%), Hecla Mining Company:10.566 mil oz (down) and Fresnillo (LON:FRES). In 2008 total silver primary production (mining) was 680.9 million ounces, 6.17% more than in 2006 (641.3 million ounces) though still not exceeding demand (demand has been higher for most years since 1990). Buenaventura's 16 million ounces represents about 2% of that. Jewellery takes up about a fifth of supply (158/888 million ounces in 2008) while industrial applications take up another 50-55% of supply (up from 38.5% in 1999, industrial uses represent about 65.68% of silver primary production (2008).

References

1. ↑ Buenaventura Mining Company SEC Filing (2006).
2. ↑ Gold Fields and Buenaventura Announce Major Gold Discovery in Southern Peru (2010-05-11).
3. ↑ Buenaventura 2009 Annual Report (2010-02-25).
4. ↑ Buenaventura 2009 Summary of Operations (2010-02-25).
5. ↑ ^{5.0 5.1} Peru's Buenaventura to increase 2011 gold output by 9 pct as two mines open (2010-11-11).
6. ↑ ^{6.0 6.1} Compania Mina Buenaventura 2010 Half Report (2010).
7. ↑ ^{7.0 7.1 7.2} Buenaventura 2009 Annual Report Consolidated Statement of Income (2010-02-25).
8. ↑ ^{8.0 8.1 8.2 8.3} Compañia de Minas Buenaventura Announces Third Quarter 2010 Results (2010-10-28).
9. ↑