Yamana Gold (AUY, Financial) witnessed a declining cost structure during fiscal year 2014 and still its basic assets performed better than the past when it had extremely robust cost structure during the fourth quarter.
Operations in focus
Yamana reported 3% year-over-year increase in Chapada gold and copper equivalent production at Brazil primarily due to a significant production contribution from Corpo Sul. There’s continued solid operations at in-pit crusher during the fourth quarter of 2014 and Yamana is believed to get the complete advantages of that in the first quarter of 2015.
The increase in Yamana’s production at some of its key sites is expected to be partially offset by the declining cost structure in 2014.
Yamana plans to optimize its operations from the real-time recoveries and expects to gain significantly from other innovative discoveries. As a consequence of these key optimizations, the company’s key recovery is estimated to enhance by over 5%. Therefore, Yamana is expected to benefit from the fresh discoveries at Sucupira and Santa Cruz with superior production grade.
In Jacobina for the fourth quarter, Yamana reported 13% enhancement in the grade over the 2013 level. It also reduced the cash costs to the minimum level for the year and 16% lesser than the fourth quarter of 2013.
Yamana’s new mine discoveries during the quarter coupled with the improvement in the mining grade for each of the key mines is forecasted to improve the company’s cash flows and thus significant shareholder returns.
In El Penon at Chile, Yamana illustrated a record fourth quarter 2014 production and 5% above its third quarter level. The overall costs in the fourth quarter also benefited from higher gold grades. Yamana’s Ventura discovery is in line with the company’s earlier superior grade layered structure and is expected to continue to define and explore its growth opportunities in 2015.
In Minera Florida, Yamana registered the highest fourth-quarter 2014 production owing to enhanced gold grades, better throughput and recoveries. There was 17% year-over-year decline in the cash cost. Considering Gualcamayo operations at Argentina, Yamana’s fourth quarter production increased 32% compared to the fourth quarter of 2013.
The increase in fourth quarter 2014 production in addition to improved grade quality is estimated to advance the company’s overall cost structure.
In Canadian Malartic, the fourth quarter 2014 production grew 2% and costs declined 7% compared to previous quarter. Again, Yamana achieved over 53,000 tonnes per day of mill processing in the fourth quarter of 2014. At Mercedes, Yamana enhanced its fourth quarter 2014 costs by 6% compared to the same period last year and costs enhanced by 7% compared to third quarter of 2014.
Yamana is currently integrating some key assets into C1 Santa Luz, Pilar and Brio Gold Brasileiro and has declared the formation of a 100% self-controlled wholly owned subsidiary for keenly focusing on these non-core assets of the company.
The greater production at lower costs is estimated to greatly benefit Yamana and enable it to grow better than its key competitors in this increasingly tougher pricing environment.
Yamana Gold stock fell due to the World Bank issuing a bearish estimate for worldwide economic growth which is only being supported by the U.S. alone. Further, TheStreet Ratings team rates Yamana Gold Inc. as a "sell" with a ratings score of D due to several declining factors which are believed to have a greater impact that any positives. The company's limitations are viewed in several areas, like its poor earnings per share growth, declining net income, unsatisfactory return on equity and overall weakness in the stock’s historical performance.
The consensus estimate among 27 polled investment analysts for Yamana Gold Inc. expects it to outperform the market. The analyst’s sentiments got better on Feb 04, 2015 from the earlier consensus estimate which directed investors to hold the stock.
Conclusion
Overall, the investors are advised to stay away from the stock as of now looking at the poor company valuations. The PEG ratio of 3.13 is also disappointing compared to the solid industry’s average of 0.39. The profit margin of -65.11% suggests no profit but loss. Moreover, Yamana has a debt-laden balance sheet with total debt of $2.07 billion against the total cash position of $264.55 million only and thus restricting the company growth, going forward.
