Compania de Minas Buenaventura SA (NYSE ADR: BVN) is the largest publicly traded precious metals company in Peru.
As such, it stands to profit handsomely from the record high gold prices we're now seeing on a daily basis.
Gold prices hit another intraday record yesterday (Wednesday) topping $1,801 on the Comex division of the New York Mercantile Exchange (NYMEX). Gold prices rose to new record highs on both Monday and Tuesday as well.
Indeed, gold has been on a bull-run since 2007, but Standard & Poor's U.S. credit rating downgrade and the escalating sovereign debt crisis in Europe have the yellow metal continually testing new highs.
For instance, the European Central Bank (ECB) on Tuesday was forced to intervene and buy Italian and Spanish bonds as yields ticked higher. The cost for Italy to continue to issue new public debt, or even to roll its current pile, had reached the same levels that caused Greece, Ireland and Portugal to seek government support.
It's important to note that fear stemming from European and U.S. debt isn't just pushing individual investors into precious metals. It's also driving central banks around the world to flee fiat currencies for hard physical assets - especially gold.
Indeed, global gold sales are climbing as more countries stock up on the yellow metal.
South Korea spent more than $1 billion over the past two months on its first gold purchases in more than a decade, doubling its national holdings. The Bank of Korea said even though prices have already hit historic highs, it was the right time to diversify its foreign reserves.
"South Korea's central bank seems a little late to the party, but gold investors should continue to expect price support as central bankers around the world are underinvested in the yellow stuff," Sean McGillivray, head of asset allocation at Great Pacific Wealth Management, told Reuters.
You know it's bad out there when central banks are buying gold at record highs, with expectations that other central banks will be adding to their own hoards as the risk of continued devaluation of the U.S. dollar continues.
With gold heading for new highs, it's time to buy Compania de Minas Buenaventura SA (**).
Compania de Minas Buenaventura SA
There are four key factors strengthening the outlook for Compania de Minas Buenaventura SA:
- The company has great fundamental growth.
- It gets more than 70% of its revenue from the precious metals market.
- It generated a 3% increase in second-quarter gold production.
- And it has no hedges.
The company, headquartered in Lima, Peru since it started operating in 1953, currently enjoys amazing fundamental growth in its key markets due to the bull-market conditions for both precious and selected base metals.
It owns a 43.65% stake in Yanacocha, Latin America 's largest gold mine and most profitable in the world, and is also involved in the production of silver, copper, zinc and lead.
The metals-price surge and increased sales in gold and copper helped push Buenaventura's second-quarter net income to $204.2 million, up 83% from the same quarter in 2010. Total second-quarter revenue was $343.3 million - up 52% from the same period a year before - with 70% generated from precious metals. The company generated $1.4 billion in revenue in the last twelve months.
Buenaventura boosted gold production in the second quarter due to the up-tick in global gold demand. It increased gold production 10% from the same quarter last year, and raised silver production by 11%.
The company also has zero hedges, meaning it can capture the full upside move in metal prices and then focus its capital on new-project development.
Buenaventura has a market cap of $10.27 billion, with an enterprise value of $9.97 billion once net cash and debt are taken into account.
Compania de Minas Buenaventura SA pays a 1.5% dividend, which on a yield basis should increase as the U.S. dollar drops over the longer haul. The stock yesterday (Wednesday) fell 90 cents, or 2.18%, to close at $40.46 a share.
Filled with fear and uncertainty, even central banks are turning to gold to stabilize their balance sheets. That means the companies that produce gold will continue to turn huge profits as a result. So it's time to buy Compania de Minas Buenaventura SA using limit orders.
The stock is trading around $40.00, closer to its 52-week low than 52-week high, even while gold is setting new records. I like this. It gives us a chance to build a position in a great company below elevated levels.
Let's go ahead and build our position slowly using limit orders. The market pullback on Aug. 4 has given patient investors a chance to buy the stock in the low $40 range.
I would not be surprised if these lows are retested.
(**) Special Note of Disclosure: Jack Barnes has no interest in Compania de Minas Buenaventura SA (NYSE ADR: BVN).
Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.
Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column earlier this week, Barnes analyzed Linkedin Corp. (NYSE: LNKD).
News and Related Story Links:
- Money Morning:
Short-Term Drop in Gold Prices Overrun by Profit Potential
- MarketWatch:
Gold futures jump to record on equity slump.
- Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
- JackBarnes.com:
Confessions of a Macro Contrarian.