Yamana Gold Inc. (AUY, Financial) closed the third quarter reporting adjusted earnings per share from continuing operations - basic and diluted - of two cents, 100% higher than its second quarter of 2016 (one cent) and 200% higher than its third quarter of 2015 (negative two cents). Yamana missed analysts’ expectations on third quarter adjusted EPS from continuing operations by two cents.
Source: Yahoo Finance
Concerning revenue for the third quarter of 2016, Yamana Gold reported revenue of $464.3 million, a 9.4% increase on a year over year basis and missed analysts’ expectations with $53.72 million.
Higher third quarter revenue on a year over year basis was the result of “higher average realized price for gold and silver, offset by lower silver and copper sales and a significantly lower price for copper.” (Yamana Gold’s 3rd Quarter 2016 MD&A ).
During the third quarter of 2016, Yamana gold sold 296,330 ounces of gold (flat on a year over year basis), 1.5 million ounces of silver (-31.8% on a year over year basis) and 22.1 million pounds of copper (-24.1% on a year over year basis).
The chart below shows the quantity of precious metals sold during the third quarter, third quarter 2016 and third quarter 2015 total revenue generated by the miner and per ounce/pound sold:
Source: Yamana Gold’s Third Quarter 2016 MD&A
During the third quarter, the average realized price of gold was $1,337 per ounce (+19.2% on a year over year basis), $19.53 per ounce of silver (+31.3% on a year over year basis) and $2.14 per pound of copper (-25% on a year over year basis).
Increases at Chapada (65%), Minera Florida (19%), Gualcamayo (6%) and Canadian Malartic (5%) from the previous quarter of 2016, led the gold mining company to produce 328,604 ounces of gold, a 3% increase on a year over year basis. In the same quarter of 2015, Yamana produced 320,346 ounces of gold.
Year over year gold production increases at Jacobina (4%), El Peñón (4%) and Fazenda Brasileiro (1%), plus the production of 8,628 ounces from the recently acquired RDM, were partly offset by decreases at Chapada (11%), Pilar (6%), Gualcamayo (3%) and Minera Florida (1%).
In the third quarter, “due to higher sustaining capital expenditures and mine development, in line with plans, and the appreciation of certain currencies in the jurisdictions in which the company operates,” the Brazilian real and Chilean peso in particular, all-in sustaining costs (AISC) from continuing operations and cash costs from continuing operations, both on a co-product basis, were higher than those of third quarter 2015. Costs were $965 and $692 per ounce of gold produced in the third quarter of 2016 versus $844 and $643 per ounce of gold produced in the third quarter of 2015.
During the third quarter, total cost of sales for gold was $1,038 per ounce sold, +5.3% on a year over year basis, due to the same reasons mentioned before.
Concerning the production of silver and copper from continuing operations, in the third quarter Yamana Gold produced 1.6 million ounces of silver (-23.8% on a year over year basis) and 29.6 million pounds of copper (-12.9% on a year over year basis). Decreases in silver and copper production were due to lower silver grades from certain areas and “lower feed grade and lower recovery rate at Chapada, as well as the down time of the in-pit gyratory crusher, which was under repair in July.”
In the third quarter, mainly “due to the appreciation of the Brazilian real and Chilean peso," cash costs per ounce of silver and copper produced, both on a co-product basis, were higher than those of a year before. Costs were $9.79 per ounce of silver produced in the third quarter of 2016 versus $8.77 per ounce of silver produced in 2015 and $1.60 per pound of copper sold in the third quarter versus $1.43 per pound of copper sold in the same period in 2015.
During the third quarter of 2016, total cost of sales for silver and copper were $15.36 per ounce of silver sold and $1.91 per pound of copper sold, respectively +8.4% and +15.1% on a year over year basis, due to the reasons previously mentioned.
Cash flows from operating activities of continuing operations was $178.6 million, a 111.6% increase on a year over year basis, and are “expected to remain positive at the prices of gold, silver and copper observed as at Sept. 30, 2016, following continued cost reduction efforts.”
Approximately 46.6%, or $83.3 million, of cash flow from continuing operations was spent to maintain the existing asset base (sustaining capex), a 51.7% increase on a year over year basis.
During the third quarter, Yamana Gold used approximately $11.7 million of cash flow to repay debt that amounted to $1.745 billion at Sept. 30, 2016, a 1.6% decrease from Dec. 31, 2015, signaling the company’s effort to reach its net debt reduction target over the next twelve months . The debt cost approximately $17 million that Yamana paid during the quarter.
Net debt reduction of $300 million over two years and a leverage ratio below 1.5 over time are two targets that Yamana set at the beginning of 2016. The sale of the Mercedes mine in Mexico to Premier Gold (TSX:PG, Financial), plus the sale of 15 million share-purchase warrants of Sandstorm Gold Ltd. (SAND, Financial) for total net proceeds of approximately $33.55 million, have provided Yamana with approximately $156 million in cash, which will be used to reach the two targets.
For the third quarter of 2016, the company declared quarterly dividends totaling 0.005 cents per share.Shareholders of record at the close of business on Dec. 30, 2016 will receive payment on Jan. 13, 2017. The dividend is an "eligible dividend" for Canadian tax purposes.
Net debt was $1.5 billion at Sept. 30, 2016, as compared to $1.7 billion at Dec. 31, 2015.
Source: Yamana Gold’s Q3 2016 MD&A
“The company's debt maturity profile remains very manageable and well positioned, especially in the short- to medium-term with a total of $94.4 million scheduled debt payments by the end of 2017 and a cash balance of $244 million at the end of the third quarter,” Yamana said in its third quarter report.
In other news, the miner will spin off Brio Gold through the distribution of the purchase rights of Brio Gold common shares to its shareholders as a dividend in kind. Brio Gold will operate as a standalone company and Yamana Gold will better focus its mining activities on its core assets.
At the moment, Yamana Gold is trading at $3.41 (-0.29%) and gained 83.33% year to date.
The enterprise value/EBITDA is 8.58 and the price-book (mrq) is 0.66.
Disclosure: I have no positions in Yamana Gold Inc.
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