Top gold stock shows cash obsession is what investors want

By James Attwood

(Bloomberg) - The fact that Cia. de Minas Buenaventura SAA is beating rivals in the stock market at a time it's generating the most cash in seven years says something about what investors are looking for in gold stocks.

Buenaventura's U.S. shares have surged 63 percent in the past two years, the most among peers. A focus on efficiency at existing mines, while spending cautiously on projects, has helped bring down leverage metrics. Chairman Roque Benavides said analyst estimates of about $60 million free-cash flow this year, the most since 2011, "sounds reasonable."

Speaking in an interview in Lima Tuesday, he vowed to keep trying to squeeze as much cash as possible from current operations as the company moves forward on potential new mines such as San Gabriel and Trapiche "without hurry or pause."Even after outperforming other gold companies in the past two years, Buenaventura still trades at a heavy discount to mostIt's a consistent mantra in the gold industry as companies prioritize value over volume after a painful downturn exposed high costs and debt. Benavides said he expects to continue lowering debt from current levels of about 1.4 times earnings before interest, depreciation and amortization.

More cash also will allow more project development and more dividends for investors, he said. While the company could issue bonds at some point, it would have to be for a specific project, Benavides said. He ruled out doing any streaming deals as a way to raise money.

Even after outperforming other gold companies in the past two years, Buenaventura still trades at a heavy discount to most. Its shares fetch 13 times estimated 2018 earnings compared with a peer-group average of about 23, according to data complied by Bloomberg.

Some of that discount can be explained by the Peru-focused miner's lack of geographical diversification, and the fact that it has multiple small to mid-sized assets, which can be harder work for analysts to assess, Benavides said.

"Right now we are focused on being more efficient in our operations in Peru but we're always alert to opportunities abroad," he said. He still sees Peru as the most attractive mining country in the region.

"We are not the cosmopolitan company in five continents," he said. "We believe in being focused, and focused geographically."

The company's project pipeline means it will have a greater exposure to copper, a metal that "appears to have a brilliant future," Benavides said. Its Yanacocha venture with Newmont Mining Corp. "is going to wind up a copper mine like many in the north of Peru,'' he said.