Yamana Gold Inc.

Yamana Gold Inc. (TSX: YRI) is a Canada based precious metals company which is engaged in the production of precious metals like gold and silver, from its development stage properties, exploration properties, and land positions throughout the Americas, including Canada, Brazil, Chile and Argentina. 

Key Highlights:

• Surge in cash flows: The company registered a surge in the cash flows from operations, which stood at USD 313.6 million in H1FY21 compared to USD 221.3 million in pcp. The growth was driven by an increase in net profit coupled with improved working capital management. Notably, net free cash flow stood at USD 219.7 million in H1FY21, which jumped from USD 151.2 million in pcp.
• Encouraging exploration update: Recently, the company announced the exploration update from the Minera Florida, Cerro Moro, El Peñón and Canadian Malartic mines, wherein the group progress on Phase 2 Expansion at Jacobina with strong exploration results. The exploration program has generated new discoveries within the core mine area, including VNC and Juan Pablo.
• Operational Update: The Company started its operations at the Wasamac project and would focus on drilling 120,000 metres in the rest of 2021 and 2022, including infill drilling of at least 68,000 metres. The management expects better delineate areas to be developed during the first three years of production and would conduct 10,000 metres of drilling on the broader Wasamac property, along with drilling on the adjacent Francoeur projects.

Q2FY21 Financial Highlights:

• YRI announces its quarterly result, wherein the company posted a higher revenue of USD 437.4 million compared to USD 303.4 million in the previous corresponding period (pcp). The growth was driven by higher sales volumes combined with higher realized prices of both gold and silver.
• Mine operating earnings surged to USD 142.3 million from USD 81.6 million in pcp. The quarter witnessed a higher cost of sales, while depletion stood at par with the previous corresponding quarter.
• Operating earnings stood at USD 115.2 million, up from USD 36.1 million in pcp. The growth was primarily driven by higher mine operating earnings coupled with lower general and administrative costs, while higher exploration and evaluation costs remained as a drag.
• Despite the strong growth in top-line, the company failed to retain the momentum and posted a net loss of USD 94.1 million. The decline was primarily due to higher finance costs coupled with higher deferred income tax expense of USD 145.3 million.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s performance is correlated with the gold prices. Hence, volatility in the commodity prices would dampen the company’s income and cash flows.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has ample liquidity with cash and cash equivalents of USD 702.0 million and available credit of USD 750.0 million, which seems to be sufficient to fund its upcoming projects and to distribute dividends. Notably, the company made a dividend distribution of USD 50 million in H1FY21, significantly higher than USD 21.4 million in pcp. Moreover, the stock carries a dividend yield of ~2.9%, which is decent considering the current interest rate scenario. We have valued the stock using the price to cash flow based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Kinross Gold Corp, B2Gold Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 5.21 on September 21, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 21, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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