Mining for Profits with Peru's Buenaventura Mines

Includes: BVN, EPU, EWZ, GLD
by: Invest With An Edge

By Brandon Clay

For many investors, “Latin America” equals “Brazil.” That’s not a bad idea. Brazil is the region’s largest economy and the 10th largest economy in the world. iShares MSCI Brazil Index (NYSEARCA:EWZ), the primary ETF tracking Brazilian equities, is up 40% in the past three months. Even more investors will take note of Brazil’s vast investment potential now that Rio de Janeiro will host the 2016 Summer Olympics. We’ve discussed the two faces of Brazil before. Long term, it’s a good place to invest.

However, there is more to Latin America than just Brazil. Peru is another destination to consider, especially given the emerging bull market in precious metals. The iShares MSCI All Peru Capped Index (NYSEARCA:EPU) is up 30% in the past three months, so investors are obviously warming to the Peru investment story. This makes Compania de Minas Buenaventura (NYSE:BVN) worth a look right now.

Translated into English, the company is called “Good Luck Mines.” The name fits; with gold and silver prices escalating, Buenaventura Mines is in the sweet spot of a new bull market. The stock may be a tad overbought at the moment, up 50% in the past three months and closing at its 52-week high on Wednesday. Long-term investors might want to wait for a pullback – but there are reasons to consider buying sooner.

For one, the fundamentals are strong for Buenaventura Mines. Worldwide gold demand rose to $102 billion in 2008, and it’s likely that number will head higher in 2009. Peru is actually the seventh-largest gold producer in the world with annual production of around 160 million tons. Peru is also a leading silver miner, producing 118.3 million tons last year.

BVN operates seven Peruvian mines and has minority stakes in several others. Buenaventura also partners with U.S. mining giant Newmont (NYSE:NEM) in Peru’s Yanacocha, one of the world’s most profitable gold mines. The two companies are working together on the La Zanja mine, which could start turning out 100,000 tons of gold per year in 2010.

Gold prices hit an all-time high today and appear to be heading higher. Investors with a precious metals allocation have several ways to play this move. For one, you could buy bullion. Storage costs and other risks usually deter investors from that route, but it’s perfectly acceptable to buy gold coins or bars. Second, you could buy the SPDR Gold Shares ETF (NYSEARCA:GLD) or similar ETFs. GLD tracks gold bullion prices and has been trending up since late August. The third way is to buy one or more gold producer stocks. BVN should be a strong candidate, and its home in the growing Peruvian economy is an added feature. Check out BVN.