Compañía de Minas Buenaventura: Mining

THE COMPANY: Buenaventura is South America’s largest producer of precious metals with almost 60 years of experience. Its majority shareholder is the Peruvian Benavides family, which owns 25% of the company. Some 75% of Buenaventura’s revenues are derived from the production of gold and silver. In 2011 Buenaventura’s production totalled 1.04m troy ounces of gold (of which 476,000 troy ounces came from its direct operations) and 16.24m troy ounces of silver.

Buenaventura is listed on the Lima Stock Exchange (BVL), and it accounts for more than 7% of the exchange’s total market capitalisation. In 1996 Buenaventura became the first Latin American mining company to list on the New York Stock Exchange.

The company also produces copper, zinc and lead mainly from its subsidiaries: the copper and molybdenum mining firm Cerro Verde (led by FreeportMcMoRan, in which Buenaventura owns 19.35%); the zinc, lead and copper miner El Brocal (Buenaventura controls a 53.75% stake in the operation); and the gold mining firm Yanacocha (run by Newmont, the company is 43.65% owned by Buenaventura). Buenaventura has joint ventures for exploration with other major mining producers such as Gold Fields and Southern Copper. All of Buenaventura’s mining operations are located in Peru, but it has also undertaken exploration in Mexico and Chile, albeit with modest success thus far.

In 2011 the company’s revenues reached $1.49bn, 42.56% more than in 2010 thanks to higher commodity prices and slightly increased production from La Zanja and Tantahuatay, both new operations with an annual production of 100,000 troy ounces of gold. Net income jumped 28.5% year-on-year to $861.4m, an all-time high. Buenaventura has a price-to-earnings ratio of 12.2x and offers a dividend yield of 1.9%.

STRATEGIC DEVELOPMENTS: Buenaventura is committed to expansion projects that could increase its net income 37% by 2014. As part of its direct operations, in 2012 Buenaventura will start the Breapampa project for 60,000 troy ounces of gold per year and Mallay for 1m troy ounces of silver per year. In Rio Seco, in northern Lima, it is also developing a Manganese sulphate plant, which will clean silver concentrates from Uchucchacua and will allow the company to sell manganese to the agriculture market. Uchucchacua accounts for 67% of the company’s total silver production. Buenaventura’s main development project is Chucapaca, a joint venture with Gold Fields that amounts to 7.6m equivalent troy ounces of gold in resources.

Cerro Verde will expand its concentrator mill treatment capacity from 120,000 tonnes of ore per day to 360,000 tonnes per day and will yield an annual production of about 1bn copper pounds by 2014. The capital expenditure required is $4bn. The board has approved the project and is now expecting construction permits and negotiating with the local population of Arequipa about the location, construction and operation of a water treatment plant that will clean the Chili River to provide water for the mine. Cerro Verde is listed on the BVL and its market capitalisation is 9.6% of the exchange.

El Brocal will expand its concentrator mill treatment capacity from 10,000 tonnes of ore per day to 18,000 tonnes per day by end-2012. The polymetallic San Gregorio project has a zinc grade at 6.61%, notably higher than that of the producing open pit mine Tajo Norte (3.5%). El Brocal is also listed on the BVL and its market capitalisation is 1.4% of the exchange.

Yanacocha produces 1.25m troy ounces of gold annually and is developing the $4.8bn Minas Conga project that could produce 600,000 troy ounces of gold and 90,000 tonnes of copper per year. Although it has received board approval and environmental and construction permits have been awarded, the project has recently faced unexpected protests from the local community and regional politicians with concerns over availability of water supply. The central government has called a panel of experts to recommend enhancements to the approved environmental study and will take a final decision on the project’s development.