Gold Outlook
Coronavirus fears worked as an amazing positive catalyst for gold on Tuesday as news on the outbreak pushed the price per ounce up approximately 0.7% to $1,589.85 on the London bullion market and $1,600.00 on the Comex gold futures market.
Gold is already up about 20.4% over the last 12 months through Feb. 18.
Projecting the metal beyond the first quarter of 2020, concerns about elevated volatility and uncertainty due to trade conflicts and global economic slowdowns will likely feed the demand for gold as a safe-haven asset, causing the price per ounce to continue its rally in the quarters ahead.
Yamana Gold
Investors may want to take advantage of the next gold bull market through the Canadian intermediate gold producer Yamana Gold Inc (AUY, Financial), as this stock usually gains impressive returns when the underlying commodity uptrends.
In the past year, on the tailwind of the rise in the price of gold, shares of Yamana Gold grew almost 60%, topping the VanEck Vectors Gold Miners (GDX, Financial) exchange-traded fund (the benchmark for the mining industry) by more than 30%.
The stock has an overweight recommendation rating from sell-side analysts on Wall Street, indicating that its share price is projected to outperform most of its competitors within a year. The average price target is $4.53 per share.
The stock is not cheap as its share price of $4.37 as of Feb. 18, which trades above the 200-, 100- and 50-day simple moving average lines and hits the top limit of the 52-week range of $1.78 to $4.37.
Thus, I would wait to increase any holding in Yamana Gold until its share price shows more weakness.
Yamana Gold mines precious metals from its mineral deposits located in Canada, Argentina, Brazil and Chile, which account for approximately 8.82 million ounces of gold equivalent in proven and probable reserves grading 2-2.4 grams of metal per ton of mineral. The estimate considers metals prices assumptions of $1,200 per ounce of gold and $18 per ounce of silver and excludes the Agua Rica mine in northwest Argentina.
In 2019, Yamana Gold produced 900,340 ounces of gold and 10,640,156 ounces of silver for a total production of about 1.02 million ounces of gold equivalent, which exceeded the company’s guidance. The precious metal was mined bearing cash costs of $667 per ounce of metal sold and all-in sustaining costs of $978 per ounce of metal sold.
Thanks to strong mining activities in Brazil, Argentina and at El Peñón in Chile, as well as higher metals prices, the company posted a robust 29% year over year growth in the operating cash flow to 521.8 million and an impressive 63% year over year growth in the free cash flow to $219.8 million in 2019. The significant increase in the free cash flow allowed Yamana Gold to accomplish a sizeable 46.5% reduction in the net debt to $890 million as of Dec. 31, 2019.
A stronger balance sheet and a projected lower Gold Equivalent Ounces ratio for 2020 (85.78 as per analysts’ forecasts versus actual 86.02 as of 2019) position the Canadian miner strongly to continue to post higher free cash flow and upgrade mineral reserves.
Current mineral measured and indicated resources give the possibility to fish for fresh ounces in a basin of approximately 13.3 million ounces of gold equivalent grading between 1.05 and 1.5 grams of metal per ton of mineral, excluding Agua Rica.
Disclosure: I have no positions in any security mentioned.
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