Buenaventura Weighs on Silver, Peru ETFs

Shares of Peruvian silver miner Compania de Minas Buenaventura BVN are plunging nearly seven percent today after Credit Suisse downgraded the stock to Neutral from Outperform. The bank also slashed its price target on Buenaventura to $27.60 from $35.20.

Even $27.60 seems far-fetched with Buenaventura currently trading below $20.

"With no positives in sight, one of the only factors that could help is a rally in precious metal prices. The stock has dropped YTD on the back of a change in production profile, and then followed the adjustment in precious metal prices. We do not believe BVN has any catalyst in the near future that could trigger a rally," said Credit Suisse in a research note.

That prognosis and today's reaction is proving to be bad news for several ETFs. The Global X Silver Miners ETF SIL, the largest silver miners ETF by assets with $225.7 million, is lower by 1.6 percent, though volume is light. Interestingly, Buenaventura is not even a member of SIL's 31-stock lineup.

SIL's smaller, more lightly traded counterpart, the iShares MSCI Global Silver Miners Fund SLVP, is down almost two percent. That ETF allocates 7.64 percent of its weight to Buenaventura.

Silver futures are lower as well. That combined with the Buenaventura downgrade are proving to be a toxic brew for SLPV and SIL, which were already off 35 percent and 36.6 percent, respectively, year-to-date at the start of trading Tuesday.

The Buenaventura news is also having a modest impact on the iShares MSCI All Peru Capped Index Fund EPU. That allocates 8.56 percent of its weight to the silver miner, making the stock the fund's third-largest holding.

To put it mildly, EPU has proven to be sensitive to gyrations in mining shares. Not only is Peru a major gold producer, the country is the world's largest silver producer and the ETF devotes almost 42.6 percent of its weight to materials stocks.

"If gold and silver prices were to rally, we would expect a positive reaction in BVN, though we would expect it to underperform its precious metal peers. Despite an interesting upside potential to our NPV, we are rating it with a Neutral (from Outperform) on the lack of catalysts despite the 27% upside," said Credit Suisse.

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