Yamana Gold Inc. (TSX: YRI) is a Canada-based precious metals company that 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:

• Healthy 3-Year production guidance: Robust momentum at Canadian Malartic, Jacobina, and El Peón, as well as strong fourth quarters at El Peón and Cerro Moro, helped the Company to beat its 1,000,000 GEO projection for the year. Furthermore, the business aims to grow gold production to 930k oz by FY2024 from 885k oz in FY2021 over the next three years.

Source: Company Presentation 

• Robust rise in Cash flows from operating activities and free cash flows: For FY21, the company's cash flows from operating activities were USD 742.3 million, and cash flows from operating activities before net change in working capital were USD 784.6 million, representing significant increases of 20% and 14%, respectively, over the previous corresponding period. In addition, its Net free cash flows climbed to USD 547.4 million from USD 455.6 million in the previous year. Higher gross margins on sales as a result of greater production account for the majority of the rise.

• Strong liquidity along reducing debt: On December 31, 2021, the Company had cash and cash equivalents of USD 525 million and available credit of USD 750.0 million, for total available liquidity of approximately USD 1.3 billion. Furthermore, the company reduced its debts to USD 772.8 million from USD 993.8 million, which is a key positive.

• Industry beating margins and strong cash flows: The Company maintained its pace and witnessed spirited performance across its margin matrix. In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q4 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this. 

Source: REFINITIV, Analysis by Kalkine Group 

Risk associated with investment

The Company’s financial performance is mostly dependent on the price of silver and gold, which directly affects its profitability and cash flow. Any drawdown in the prices of these metals would impact the group’s performance.

Financial overview of FY 2021

Source: Company Filing

• The company reported its revenue in FY 2021 at USD 1,815.4 million, up from USD 1,561 million in the previous corresponding period. The 16% increase was primarily attributable to higher gold sales volumes in the current period as well as higher realized prices for both gold and silver compared to 2020.
• Mine operating earnings in the reported period fell slightly to USD 635.1 million against USD 702.4 million in the previous corresponding period. The fall in mine operating earnings was partially due to higher depreciation.
• On the back of higher finance cost at USD 134.4 million compared to USD 77.0 million in pcp, the company’s earnings before tax declined to USD 384.5 million against USD 490.1 million in FY 2020.
• Primarily due to the above-discussed rationales and higher income tax, the company’s net income was reduced to USD 88.8 million compared to USD 203.6 million in pcp.

Valuation Methodology (Illustrative): Price to Cash Flow

*1USD=1.28CAD

Analysis by Kalkine Group 

Stock recommendation

The company's production of 1,011,180 GEO in FY 2021 surpassed its previously announced guidance of 1,000,000 GEO. Furthermore, during the next three years, the company plans to increase gold production from 885k oz in FY2021 to 930k oz in FY2024, which is a significant positive. On the back of higher gross margins recognized on sales as a result of increased production, the company clocked higher free cash flows of USD 547.4 million compared to USD 455.6 million in pcp and carry substantial consolidated liquidity of USD 1.3 million, which appears to be sufficient to fund its planned projects, with a probability of paying dividends on account of the favorable business climate. Additionally, the company is deleveraging its balance sheet by cutting debt, which is a critical positive that might lower finance costs, resulting in improved margins shortly. Hence considering the aforesaid facts, we recommend a “Hold” rating on the stock at the closing price of CAD 6.25 on February 18, 2022.

One-Year Technical Price Chart (as on February 18, 2022). Source: REFINITIV, Analysis by Kalkine Group 

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

Disclaimer

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