Company Spotlight: Yamana Gold

Yamana Gold is a Canadian-based gold producer with seven operating mines located in Brazil, Argentina, Chile and Mexico. The company is focused on growing its production and cash flow and has plans to bring three new mines into production in 2013. It also has several promising exploration stage properties as well as significant land positions.

Yamana’s mine operations

Yamana has seven operating mines all of which are located in politically safe countries that have a long history of mining.

The company’s primary focus is gold production, though is also mines other industrial and precious metals including silver, copper, molybdenum and zinc.

In 2012 45% of Yamana’s production came from its properties in Chile, 25% from Brazil, 20% from Argentina and 10% from Mexico.

yamana mines map

In addition to its producing mines, Yamana has three advance stage development projects all of which are due to go into production in 2013.

The company also has several promising exploration stage projects which it continues to develop. In 2012 Yamana plans to spend approximately $125 million in order to continue to build on its successful record of replacing and increasing mineral reserves and mineral resources.

In 2011, the Company increased total gold equivalent ounces in the proven and probable reserves category by 2 million ounces to 18.6 million ounces, an 11% increase over the previous year.

Yamana Gold’s Recent performance

In 2011 Yamana produced a record 1.10 million gold equivalent ounces* at a cash cost per ounce of just $50 once by-product from silver, copper, molybdenum and zinc are taken into account. For the year revenue increased by 29% to $2.2 billion, and cash flow generated from operations increased 48% to $1.3 billion or $1.70 per share.

In August this year Yamana successfully completed the acquisition of Extorre Gold for $403 million. Yamana’s CEO, Peter Marrone, was quoted saying, “It is a relatively small transaction in that it represents only 3% of Yamana’s market capitalization, yet it could ultimately deliver more than 10% of our total gold equivalent production.”

*Gold equivalent ounces or GEO. This is an industry term which helps investors compare different companies’ production and resources. GEO is simply the total gold, silver and other metals found in the ore, expressed as a single figure. Any non-gold ounces are converted to their equivalent value in gold using a ratio dependent on the prevailing gold price.

Yamana Gold’s Outlook

Yamana is forecasting production in 2012 of between 1.175 and 1.310 million gold equivalent ounces (GEO). However production is expected to increase by more than 60% by 2014, taking it to a sustainable level of around 1.75 million gold equivalent ounces. Even without a substantial increase in the price of gold, this production growth will contribute to a considerable jump in earnings.

Yamana’s forecast cash cost per ounce of production for 2012 is forecast to be around $200 per ounce, making it one of the lowest cost gold producers in the industry. Importantly, even as production increases this cash cost is expected to remain low.

Yamana’s Resources (millions of ounces)

Measured and Indicated

Inferred

 

Gold

Silver

Gold

Silver

Total

13.19

23.38

9.14

63.42

Figures as of 31 December 2011

Why own Yamana Gold’

Yamana is the world’s 6th largest gold mining company and it has a diversified portfolio of properties which are located in some of the world’s most stable mining jurisdictions. These properties provide sustainable gold production as well as substantial near-term production growth which will be financed internally.

Yamana offers significant exposure and leverage to the gold price through its current production and its growth in mineral resources. It is also very well run thanks to a board and management team that are highly respected within the industry.

Yamana pays quarterly dividend of $0.065 per share and it has increased its dividend by 55% over the past 12 months. Despite its recent acquisitions, the company also has $500 million in cash.

Morgan Stanley has set a price target for Yamana of $25, while RBC Capital has recently increased its target price from $21 to $24. Our price target for Yamana (in the next 2-3 years) is higher still at $30. This is based on the company achieving production of 1.75 million ounces at a cash cost of around $200, and a gold price of $1,700 an ounce (current gold price $1,730).

A 5 year chart of Yamana Gold (AUY) (Click on the chart for a larger version)

yamana 5 year chart

Chart courtesy of stockcharts.com

Over the past 2 years gold is up 23% while Yamana is up 74%.

Yamana Gold was founded in 2003 and is headquartered in Toronto. The company is listed on the New York Stock Exchange under the symbol AUY and the Toronto Stock Exchange under symbol YRI. The stock is also listed on the London Stock Exchange under the symbol YAU though the spread tends to be much wider on the LSE.

Yamana Gold: Company data

Company Name Yamana Gold Inc.
Website www.yamana.com
Exchange / Ticker NYSE: AUY
Share Price US$20.39
1 Year Performance 25.4%
10 Year Performance  678%
Dividend Yield 1.28
Market Cap 15,322.34M
Shares Outstanding 751.46M
Earnings per Share (EPS) 0.48
P/E Ratio 42.05
Beta 0.67
52 Week Range 19.88 – 20.50

Source: Google Finance

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