Win us with honest trifles

Yanacocha: Buenaventura gets the instant gratification…

…and Newmont gets the prize. There have been background rumours for about a year on a deal between Newmont (NEM) and Buenaventura (BVN) for BVN’s 43.65% portion of Yanacocha, today they became reality:

Under the terms of the agreement Newmont will acquire Buenaventura’s interest for $300 million plus contingent payments of up to $100 million, in part tied to higher metal prices. Concurrently, Newmont will transfer its ownership interest in the La Zanja joint venture to Buenaventura in exchange for royalties on any future production from the La Zanja operation. Newmont will also contribute $45 million to Buenaventura to cover future closure costs at La Zanja.

Buenaventura calls it, “..delivering on opportunities to unlock value from assets to enhance liquidity” which is one way of admitting your debt pile is killing you, I suppose. However, BVN isn’t like your average miner and hates selling shares to market (the Benavides family wants to keep tight control, it’s a generational thing), so with the next phase of Yanacocha, i.e. Yanacocha Sulfides, set to drain the company of cash at a bad time, this deal makes sense. The market gets that, as seen today with BVN’s price pop…

…but NEM won’t mind. They’ve won the big prize and with the financial heft to fund Yanacocha Sulfides alone, Tom Palmer has definitely come out on top with this deal. The mine and its next phase of life is the epitome of World Class and will now produce copper and gold for decades and NEM must be pleased to have secured 95% of the mine at this price because let’s face it, the ticket would have been a lot more if BVN didn’t feel backed into a corner and one look at the long-term comparative price chart…

…shows how the Covid crisis came at a bad moment for BVN. So NEM gets 43.65% of one of the world’s most profitable, long-term mine projects for an outlay of U$300m, which compares to the U$48m Sumitomo paid the IFC for its 5% in 2018. As for the extra payments due to BVN, they will disappear next to the capex bill for Sulfides and the world will hardly notice. Meanwhile, with NEM reportedly wanting to fully consolidate the asset, we may get a better feel for the discount if a deal between Sumitomo and NEM for the 5% remnant materializes. This desk best-guesses U$60m.

PS: The decision to defer the build decision on Sulfides until later in 2022 also makes more sense now. As for the politics, NEM knows the current government is a minor detail and has seen a lot worse. Peru will remain miner-friendly and the big money knows it.

1 Comment

    Very very bad move by BVN, but market like it!? For now. Remind me of someone getting margin call and selling best assets in portfolio to meet call because that is where the gains are at so as to ride the worst losers down even further. Horrible BVN mgmt decision. No doubt further huge operational losses on horizon. BVN burn through NEM $300mm in no time.


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