San Gabriel Will Become Main Gold-Producing Asset Starting In Q4 2025

Key Takeaways

• The San Gabriel project and UDF mining method are set to improve Buenaventura's production efficiency, potentially boosting revenue and net margins.
  
• Improved financial positioning and strategic investments enhance long-term growth prospects and investor returns, stabilizing earnings and EPS with resumed dividends.
  
• Increased costs and project risks at San Gabriel could pressure margins and challenge Buenaventura's future revenue and profit growth.

Catalysts

Engages in the exploration, development, construction, and operation of mineral processing business.

• The San Gabriel project is expected to become Buenaventura's main gold-producing asset in the coming years, beginning production of its first gold bar in the fourth quarter of 2025. This could significantly boost revenue as it ramps up to a production capacity of 120,000 ounces of gold per year.
  
• Buenaventura's successful bond issuance has improved its financial position by providing greater liquidity and flexibility, which could enhance long-term earnings stability and growth as the company invests strategically.
  
• The company is implementing the UDF mining method—aimed at optimizing ore recovery and reducing dilution—in its operations, which could potentially improve net margins by decreasing costs and increasing extraction efficiency.
  
• Stable copper and silver production expected from El Brocal and Uchucchacua could support consistent revenue streams, sustaining operational growth through the flagship assets.
  
• Buenaventura has resumed dividend payments after enhancing its balance sheet in 2024. This return to investor returns, combined with potential increases as San Gabriel ramps up, could improve the company's earnings per share (EPS) in the medium term.

Compañía de Minas BuenaventuraA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Compañía de Minas BuenaventuraA's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 35.0% today to 38.1% in 3 years time.
• Analysts expect earnings to reach $523.2 million (and earnings per share of $2.06) by about March 2028, up from $403.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, up from 9.8x today. This future PE is lower than the current PE for the US Metals and Mining industry at 23.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.1%, as per the Simply Wall St company report.

Compañía de Minas BuenaventuraA Future Earnings Per Share Growth

Risks

• The increase in all-in sustaining costs for silver and gold, driven by lower grades and increased exploration activities, could pressure net margins and future earnings.
  
• The rise in copper cash costs due to lower by-product credit contributions suggests potential challenges in maintaining net profit margins if commodity prices fall or costs rise further.
  
• Dependence on the successful and timely completion of the San Gabriel project introduces execution risks, which could impact future revenue growth if delays or cost overruns occur.
  
• Potential reductions in the reported reserves for San Gabriel may indicate challenges that could affect long-term production, potentially impacting revenue projections and investment returns.
  
• Risks associated with obtaining and maintaining necessary permits for San Gabriel, highlighted by management, could delay project timelines and impact the company’s revenue and profit growth outlook.

Valuation

• The analysts have a consensus price target of $15.91 for Compañía de Minas BuenaventuraA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.5, and the most bearish reporting a price target of just $14.4.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $523.2 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 10.1%.
• Given the current share price of $15.59, the analyst price target of $15.91 is 2.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.