Yamana Gold (AUY, Financial) reported a mixed set of numbers recently with declining earnings on a year-over-year basis, but better than the Street expectations. Its revenue improved from last year, driven by higher production and lower costs. But the miner has some headwinds on account of underperforming operations. There is more to this story, which we shall see in detail, but first let’s have a look at its numbers or the present quarter.
Analysis
Its revenue for the quarter rose marginally to $450.9 million from a year ago period of $430.5 million. On the other hand, adjusted earnings declined to 5 cents a share from 7 cents last year, but edged the consensus estimate of 4 cents per share.
The revenue numbers look quite decent but the earnings picture definitely needs a brush up. Since last year, Yamana has been restructuring its business to reduce the operating cost and capital spending. Along with this, the management was looking for opportunities to acquire new and better assets than existing in its portfolio, while focusing on its core operations to deliver best production and cash flow. In this direction, the company had acquired Canadian-based Osisko Mining Corp in partnership with Agnico-Eagle Mines Ltd.
Looking ahead
This was a joint agreement between Agnico and Yamana and both the companies individually own 50% stake in Osisko. Both the firms will benefit from this deal as Osisko’s Canadian Malartic mine in Quebec is a stable mine producing around 500,000 to 600,000 ounces of gold per year and is estimated to have a life of 16 years. Yamana’s chairman and CEO Peter Marrone cited that this was a low risk deal for the company to find its way into the Quebec.
This is a step ahead in Yamana’s initiative to focus on the America’s. In South America, the company is also focusing on Chile in addition to its presence in Brazil. Apart from this, it is also counting on the Argentinean mine Cerro Moro, which is considered as a cornerstone asset by the company.
The mine is expected to start production in 2016 and is believed to be a source of positive cash flow for Yamana. Executive Vice President Darcy Marud said, “Cerro Moro is one of our future stars in this company. And we are currently working on a program to eliminate uncertainties.”
Another valued asset is the Corpo Sul mine, which is an extension of the Chapada deposit. The gold miner is extremely focused on such valuable assets and pursues optimizations, expansions, and cost reduction at each of them for further enhancement.
Apart from this, Yamana also has assets, which have only modest contributions to cash flow. But it is determined to improve their situation. Some mines in the portfolio are in a state of dormancy, which at the moment are not contributing to the cash flow, but the company believes that these assets have significant potential to generate above average returns throughout the project development cycle. Auga Rica and Suyai are mines that can be categorized under this head.
It is carrying out the feasibility study at Auga Rica and has high level of stakeholder engagement. This could enhance product value considerably. All in all, the company has some high return mines in its portfolio, which could strengthen its balance sheet in the coming years and is making continuous efforts to improve its cost structure to increase efficiency.
Conclusion
Currently it does not have any trailing P/E, but its forward P/E looks impressive at 14.41. Although from a long term perspective the company seems to be good but in the near term there are some headwinds on account of stalled mines. Some of them are yet to start production, while others are currently dormant adding further pressure on its business.
