EUR 850.00 For Business Accounts Only

Morningstar | Despite Operating a Number of Mines, Buenaventura's Profits Are Primarily Generated by Just Two

Compania de Minas Buenaventura's direct operations currently account for roughly half of EBITDA, but equity investments will account for a larger share in the future. Key equity investments include a 45.95% ownership in Yanacocha, operated by Newmont, and a 19.58% stake in Cerro Verde, operated by Freeport-McMoRan.Historically, Yanacocha has been a major gold producer, but production has been declining and reserves depleting. The Quecher Main expansion extends the mine's life albeit at lower production. More important, the project will keep the mine open as further expansion projects are studied. Cerro Verde produces around 500,000 tons of copper per year, following the successful ramp-up of an expanded plant.Investors must consider Buenaventura's lack of diversification. First, Yanacocha and Cerro Verde account for nearly half of EBITDA, concentrating profit in just two mines. Second, Buenaventura faces material geopolitical risks, as 100% of its direct operations and equity investments are in Peru. However, the company has significant experience working with the Peruvian government, which has helped mitigate some of this risk.Our long-term nominal gold price forecast is $1,300 per ounce in 2020 dollars. In recent years, investment demand weakened as the Federal Reserve raised rates amid the strength of the U.S. economy. This downward pressure on gold prices should soften in the near term, as the U.S. central bank appears to be opting for a more dovish approach due to rising economic uncertainty.On the back of stabilizing investment demand and improving jewelry demand in China, we expect gold prices to reach a nominal price of $1,300 per ounce by 2020.