Bank of America upgraded Compania de Minas Buenaventura SAA (ADR) BVN to Buy from Neutral, lifting its price target from $10 to $14. Among the key drivers for their decision, the analysts mentioned Cerro Verde's ramp-up, higher gold prices and a solid cost performance on direct operations.
Cerro Verde implies copper at US$2.10/lb, and the stock trades at EBITDA 2017 multiple of 6.75x compared to SCCO, which implies copper at $2.5/lb and trades at 13x.
The analysts expect the company to pay $100–125 million in dividends for Buenaventura next year driven by the ramp-up of Cerro Verde, which represents a 4 percent yield for Cerro Verde alone.
The analysts noted that the growth in gold will potentially cause upside movement in Buenaventura. "Key updates could come from: (1) Yanacocha's Projecto Integral — aims to revamp production to 900k oz as of 2019 and extend mine life (+US$1.5/sh for BVN); (2) Alejandra vein — 80–100k oz project for 2018 (+US$0.5/sh); (3) San Gabriel — 200k oz gold project for 2019 (US$1.0/sh NPV) and (4) Cerro Quilish — 300–500k oz project with potential NPV of US$2–2.5/sh for BVN," according to Bank of America analysts.
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