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:

• Higher dividend distribution backed by elevated cash flows: In Q1FY21, the group distributed a higher dividend of USD 24.8 million, as compared to USD 9.5 million in the previous corresponding period (pcp). The surge was supported by the company’s impressive cash flow from operations, which stood at USD 160.2 million, climbed from USD 129.4 million in pcp. The increase was driven by higher net earnings and improved working capital management. Net free cash flow stood higher at USD 123.5 million in Q1FY21, as compared to USD 91.1 million in pcp.

• A decline in the long-term debt: At the end of Q1FY21, the company reported a slide in its long-term debt at USD 803.7 million, which reflects a 19% decline from Q4FY20. A decline in borrowings is a healthy sign and indicates improved financial flexibility. Notably, the group has a lower D/E ratio of 0.153, which is encouraging considering the capital-intensive nature of the firm.

• Robust Margin profile: The company commands a higher margin than its peers, which indicates higher operational efficiency and is a key positive. Gross margin and EBITDA margin were recorded at 61.2% and 52.1%, respectively, in Q1FY21, higher than the industry median of 49% and 39.4%, respectively. Moreover, the group reported its operating margin at 26.9% in Q1FY21, higher than the industry median of 25%.

• Expansion Strategy: The company acquired Francoeur/Arntfield/Lac Fortune gold property from Globex Mining Enterprises Inc. at a price consideration of USD 15 million. The above mine is situated in Abitibi, Québec, besides the Yamana’s Wasamac Gold Mine project and offers excellent gold exploration potential.
  

Q1FY21 Financial Highlights:

• YRI announces its quarterly result, wherein the company posted a higher revenue of USD 422 million, as compared to USD 356.5 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 stood at USD 149.5 million, higher than USD 99.3 million in pcp. However, the quarter witnessed a higher cost of sales, while depletion stood at par with the previous corresponding quarter.
• Operating earnings jumped USD 113.6 million, from USD 87.7 million in pcp. The growth was primarily driven by higher mine operating earnings, while higher general and administrative costs, the inclusion of other operating expenses and higher exploration and evaluation costs remained a drag.
• Net profit stood at USD 52.3 million, as compared to USD 45 million in the previous corresponding period (pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

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

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

Most of the gold production comes from the Canadian Malartic mine, which reported higher production of 89,550 ounces in Q1FY21, as compared to 64,763 ounces in pcp, despite a lower ore mined due to a reduction in the wastage. Based on technical analysis, the stock has support at CAD 4.5 level. 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 Altius Minerals Corp, Agnico Eagle Mines Ltd etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 5.28 on July 05, 2021.

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

One-Year Technical Price Chart (as on July 05, 2021). Source: REFINITIV, Analysis by Kalkine Group

SSR Mining Inc.

SSR Mining Inc. (TSX: SSRM) is a minerals company focused on mining precious metals in the Americas. More than half of the company’s revenue is attributable to the production of gold, with a significant portion derived from silver production. 

Key Highlights:

• Improved Cash flow: The company remains a leading and sustainable free cash flow generator within the gold mining segment. In Q1FY21, the group reported cash from operations of USD 145.2 million, significantly higher than USD 64.136 million in Q1FY20, supported by elevated net profit. Notably, free cash flow stood at USD 76.642 million, surged from USD 10.233 million a year ago. Moreover, the group expects its ~75% of FY21 cash flow to generated in the second half of the current financial year.
• Diversified Portfolio: The company operates through a diversified portfolio of high-margin, long-life assets and are spread across the USA, Turkey, Canada, Mexico and Peru. Moreover, the group reported more than 21 years of cornerstone asset life, which provides ample exploration opportunities to the company. Notably, the group has conducted new drilling programs across its major projects across Marigold and Çöpler District in Q1FY21, and positive outcome is expected to enhance the company’s asset life.
• Additional Liquidity: Recently, the group has amended its existing undrawn revolving credit facility from USD 75 million to USD 200 million, which also includes an upsized accordion feature of USD 25 million to USD 100 million, while the Facility has been extended till June 8, 2025. In addition to the robust cash flow generation, we believe the above liquidity would be sufficient to meet the company’s near-term capital requirements.

Q1FY21 Financial Highlights:

• SSRM impresses its quarterly results, wherein the company posted revenue of USD 366.484 million, higher than USD 164.463 million in Q1FY20. The growth was aided by the higher gold sales of 173,370 oz compared to 85,742 oz in Q1FY20. Moreover, the average realized gold price stood at 1,798/oz v/s 1,597/oz in the previous corresponding period (pcp), which has also supported the company’s income.
• Income from mine operations jumped to USD 147.820 million, from USD 44.783 million in Q1FY20.
• Operating income stood at USD 128.013 million v/s USD 34.766 million, a year ago. The increase was supported by significantly higher income from mine operations, partially offset by higher general and administrative expense and an increase in exploration, evaluation and reclamation expense. The company’s reported its AISC per gold equivalent ounce sold at USD 1,004, lower than USD 1,261 in pcp.
• Net income soared to USD 59.762 million from USD 23.976 million in the previous corresponding period.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The group’s performance is correlated with the prices of gold, copper and silver. Hence, price volatility in the international market would likely to affect the company’s overall performance.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation:

For FY21, the company expects its consolidated production to remain within the range of 720 – 800 AuEq koz, while expects its All-in-sustainable costs (AISC) within USD 1,050 – USD 1,110 / Au oz. The company is focusing on increase mining rates to exploit latent mill capacity and to accelerate Seabee and Fisher exploration and resource development in order to reach improved operational metrics in the coming days. Based on technical analysis, the stock has support at CAD 17.0 level. We have valued the stock using the EV to Sales based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Alamos Gold Inc, Kirkland Lake Gold Ltd etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 19.98 on July 05, 2021.

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

One-Year Technical Price Chart (as on July 05, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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