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Alberto Abaterusso
Alberto Abaterusso
Articles (1171) 

Yamana Gold Pours First Gold and Silver at Cerro Moro

The Argentina mine will boost the company's production and cash flow

May 17, 2018 | About:

Yamana Gold (NYSE:AUY) has informed its shareholders through its website that it has poured the first gold and silver bars at Cerro Moro.

Cerro Moro is a mineral deposit located in the Argentinian province of Santa Cruz, where the miner will extract gold and silver from orebodies that are characterized by a high concentration of metal in the ore. The asset offers the Canadian producer the option to mine the precious metals through open pits and underground mining techniques.

The production of saleable metal will be hit sometime during the second part of fiscal 2018. Meanwhile, the ramp up of production at the deposit is proceeding as planned. Grades are also higher than planned and the mineral stockpile is already ahead of schedule. Yamana Gold is estimating ore stashes of 42,300 tonnes averaging 21.5 grams of gold and 995 grams of silver per ton of mineral.

From Cerro Moro, Yamana Gold forecasts to add to its annual production, a volume of 85,000 ounces of gold and 3.75 million ounces of silver in 2018. The gold output from Cerro Moro will account for approximately 9% to 9.5%. Yamana Gold will enjoy a 75% boost in the annual total production of silver, thanks to the asset. The cash flow from operations and the free cash flow will meaningfully advance once Cerro Moro is online. The metal will be put on the market at a substantial lower cost than the company’s average.

At Cerro Moro, the company is forecasting the following costs:

  • Total cost of sales: $1,100 per ounce of gold sold versus a 2018 guidance of $1,010 to $1,030 per ounce.
  • Total cost of sales: $15.25 per ounce of silver sold versus a 2018 guidance of $15 to $15.25 per ounce.
  • Co-product cash costs: $510 per ounce of gold produced versus a 2018 guidance of $630 to $650 per ounce.
  • Co-product cash costs: $7 per ounce of silver produced versus a 2018 guidance of $9 to $9.25 per ounce.
  • Co-product all-in sustaining costs (AISC): $650 per ounce of gold produced versus a 2018 guidance of $850 to $870 per ounce.
  • Co-product all-in sustaining costs (AISC): $9.15 per ounce of silver produced at Cerro Moro versus a 2018 guidance of $12.25 to $12.5 per ounce.

The market was unexpectedly cold following the news. The share price of Yamana Gold was down 1% to $2.79 at the end of regular hours trading on Wednesday, May 16.

However, I anticipate more upsides in the market value of Yamana Gold over the next several days of trading. Investors who are interested in gaining exposure to the commodities through the stock have an opportunity. The share price is below the 200, 100 and even the 50-SMA line:

The share price is also below the midst of the 52-week range of $2.21 to $3.80 per share. The average target price of $3.86 per share indicates that there is still a nearly 40% upside in the market value of the stock down the road. Of course, the commodities also must remain supportive for the rest of the year.

In addition, Cerro Moro also has catalysts for 2019 and 2020. Gold production is expected to grow 47% in 2019 compared to 2018 and 4% in 2020 compared to 2019. The production of silver is also forecasted to jump 60% in 2019 compared to 2018 and about 38.3% in 2020 compared to 2019. In 2019 and 2020, the production of the precious metal from Cerro Moro will account for about 13.5% of the total output for gold and 58% to 64% for silver.

At Cerro Morro, Yamana Gold is also undertaking exploration activities. It is targeting the  advancement of about 110,000 ounces of gold equivalent. It is also targeting the discovery of about 250,000 new ounces of gold equivalent as inferred mineral resources.

In addition, the exploration team will identify future drill objectives through scout drillings, sampling and mapping. Those activities may also cause a stock appreciation.

As of May 16, Yamana Gold has a market capitalization of $2.66 billion, a price-book ratio 0.62 times versus an industry median of 2.06 times and an enterprise value-to-earnings before interest, taxes, depreciation and amortization of 57.66 times. The industry median is  9.9 times. Yamana Gold has a 12-trailing month Ebidtda of 3.9% versus an industry median of 25%.

(Disclosure: I have no positions in any stock mentioned in this article.)

About the author:

Alberto Abaterusso
Alberto Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds a MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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