Why Yamana Gold Is a Golden Buy

Yamana Gold (AUY) announced fourth quarter ended December 31, 2015 total revenue of $463.0 million, down 15 percent year-over-year from $542.9 million during the same period last year.

Yamana declared fourth quarter of 2015 adjusted operating loss of $7.5 million or $0.01 of adjusted loss per share compared to adjusted operating loss of $16.2 million or $0.02 of adjusted loss per share in fourth quarter of 2014.

The gold mining company reported continued decline in its top line growth primarily driven by the rising mining expenditures and ongoing slowdown in the global commodity demand and pricing environment, thus eating into the margins of the key metals exploring companies.

Impressive moves

Yamana is continuously executing superior cost control with all-in sustaining costs for both By-Product and Co-Product having declined significantly and further cost structure optimization is estimated with strategic cost control initiatives.
In addition, Yamana has notable balance sheet flexibility owing to moderate debt repayments executed over near-term. Importantly, the strategic mining operations at Cerro Moro are forecasted to start adding to the company’s key cash flows during 2018.

The gold exploration company is again observed to be improving upon its cash position by minimizing year-over-year upon the remaining revolving credit facility and total debt position which is expected to drive significant free cash flows for the company, encouraging it to invest into strategic growth operations while delivering impressive shareholder returns.

The significant cost-optimization efforts of Yamana by strategically managing the near-term debt repayment schedule and minimizing the year-over-year net debt position is believed to sustain the company’s much-needed free cash flows mandatory for continuing its daily operations profitably and planning for future growth investments while distributing attractive shareholder returns.

Yamana has increased the complete fiscal year 2015 gold inferred mineral resources estimate to 15.2 million from 13.9 million of gold inferred mineral resource forecast for complete fiscal year 2014 and further potential remains to enhance production, minimize costs and increase existing mineral reserves and mineral resources. The smaller gold reserves for 2015 compared to the prior year is primarily due to mine depletion, mine model adjustments at Pilar and Mercedes and C1 Santa Luz deposit ounces having shifted to M&I reserves. In addition, significant production results at Chapada highlight the company’s successful mining program and additional growth potential.

The company’s 2016 mining schedule objectives include at Chapada: growth of mineral reserves at Sucupira believed to be achieved through Sucupira delineation, improve upon near mine objectives targeted on Santa Cruz and others; at El Peñón: expand recognized veins including, Abundancia Corridor, Borde Norte, Ventura and Dorada Sur. Yamana is focused on improving mineral reserves to successfully deliver on its production targets and planned life of mine. Focused discovery of 200k to 500k near present infrastructure; at Canadian Malartic: Yamana is uniquely exploring Odyssey mineral reserve with inferred resource expected to be drilled by year-end 2016; other exploration opportunities include,

Long-term demand seems strong

Yamana seems hugely positive about the long-term demand for the shining metal and thus, has strategically extended its year-over-year gold production at each of the major gold mines which is expected to deliver sustainable long-term company growth while offering impressive stakeholder returns.

Yamana strategically declared first quarter of 2016 dividend of $0.005 per share, payable April 14, 2016 as of March 31, 2016 and in line with its continued commitment to deliver attractive shareholder returns despite the tough global operating environment.

According to a latest Bloomberg Research, the ore grades of key mining companies capturing a majority of the mining industry market share have hugely declined since 2003 and suggesting that further discovery is getting tougher. Moreover, product innovation and resource scarcity are two key factors that are making well-established mining companies lead the market while throwing out other smaller players out of the competition.

The long-term growth outlook for key metals mining companies such as Yamana Gold is primarily determined by the extent of product innovation being exhibited by the company and superior mining technologies leveraged by Yamana to explore gold, silver and copper at minimized mining costs, thus developing on the company’s key margins.


Overall, the investors are advised to “Hold” their position in Yamana Gold, Inc. considering gloomy near-term growth prospects while solid long-term expansion prospective with slowly but steadily improving global commodity demand and pricing environment and stabilizing the supply of the key commodities. However, the profit margin of -115.05% seems disappointing and PEG ratio of -7.34 indicate no growth but decline. Moreover, Yamana needs to optimize its debt-burdened balance sheet with significant total debt of $1.93 billion against weaker total cash position of $249.20 million only, restricting the company to continue its daily operations profitably.
Published on Apr 15, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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