Yamana Gold Inc.

Yamana Gold Inc. (TSX: YRI) is a Canada based precious metals producer with significant gold and silver production, development stage properties, exploration properties, and land positions throughout the Americas, including Canada, Brazil, Chile and Argentina. 

Key Highlights:

• Strong Performance from Malartic and Jacobina Mines: The company reported record production from Malartic and Jacobina mines with quarterly gold production stood at 92,106 and 47,503 oz, which exceeded the company’s expectation. This is impressive, and the current expansion plans across these mines are likely to support the company’s upcoming performance.
  

• Exploration Highlights: During the second quarter, the company conducted several exploration activities, which are discussed below:
  1. The company conducted exploration in Canavieiras Central mineralized reefs with solid grades and widths along 500 metres of new strike length, defining a continuous mineralized zone.
  2. Executed Infill and exploration drilling at the north end of the Morro do Vento sector, which confirms good grades and widths for conversion to indicated mineral resources.
  3. After the exploration drilling program, the management expects excellent potential for mineralization near the south of the João Belo mineral resource area.
     

• Ample Liquidity to support future operations: The company reported impressive liquidity of ~USD 1.5 billion, which includes USD 702.0 million of cash and cash equivalents and available credit of USD 750.0 million. This seems adequate to fulfil its long-term and short-term capital requirements.

Q2FY21 Financial Highlights:

• YRI announces its quarterly result, wherein the company posted a higher revenue of USD 437.4 million, jumped from USD 303.4 million in the previous corresponding period (pcp). The growth was driven higher by 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, significantly higher than 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 difference was primarily due to a mammoth deferred income tax expense of USD 145.3 million.

Source: Company Report

Risks: The company’s performance is correlated to the gold prices. Hence, volatility in the gold prices are likely to dampen the company’s income and cash flows.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company’s performance in the recent past was favoured by strong realization prices coupled with an increase in volumes. Notably, cash from operations stood at USD 313.6 million in 9MFY21, jumped from USD 221.3 million in pcp, supported by higher net earnings. Moreover, the stock of YRI carries a dividend yield of 2.6% on an annualized basis, higher than the persisting interest rates. 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) upside. For the said purposes, we have considered peers like Kinross Gold Corp, B2Gold Corp, Agnico Eagle Mines Ltd etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 5.69 on August 03, 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 August 03, 2021). Analysis by Kalkine Group

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

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