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Alberto Abaterusso
Alberto Abaterusso
Articles (1384) 

Yamana Gold Is Near 52-Week Low

The miner has some potential short-term catalysts

October 29, 2018 | About:

The stock of Canadian gold producer Yamana Gold Inc. (NYSE:AUY) is trading below the 200-, 100- and 50-day simple moving average lines after a 12% decline for the 52 weeks through Oct. 26. The share price of $2.33 as of Oct. 26 is just 3 cents over the 52-week low of $2.30 and more than 60% below the 52-week high of $3.80. The company's market capitalization on the New York Stock Exchange is approximately $2.21 billion.

Two other indicators suggest the stock is cheap, which are the price-book ratio of 0.53 versus an industry median of 1.74 and the EV-to-EBITDA ratio of 4.6 compared to an industry median of 9.3.

As of Oct. 28, the average analyst would suggest holding or buying Yamana Gold. The hold recommendation is explained by the Canadian miner's tendency to stay below the industry median in terms of the earnings before interest, taxes, depreciation and amortization margin of total sales when the bullion doesn’t trade high enough. This has been the case for the trailing 12-month period through the third quarter of 2018, when Yamana Gold reported an EBITDA margin of 26.5% compared to higher margins from other miners like Goldcorp (NYSE:GG), Newmont Mining Corp. (NYSE:NEM), Newcrest Mining Ltd. (ASX:NCM) and New Gold Inc. (NGD).

During the period, the bullion averaged $1,297 per troy ounce. This suggests the yellow metal has to trade over $1,300 an ounce for Yamana Gold to reach its competitors in terms of EBITDA margin. Of course, a substantial advancement in the margin will propel the share price on the stock market.

But if the commodity gets a boost in the final quarter of the year, the miner is well positioned to take off because of the existence of some short-term catalysts.

The first one is represented by Cerro Moro in Argentina. Thanks to its first full quarter of saleable production, the total gold output of Yamana Gold increased 11% year over year to 269,000 ounces. The all-in sustaining cost declined 2.9% year over year to $849 per ounce. Investors have also noticed a positive outcome in terms of higher adjusted net profit. Yamana Gold beat consensus on third-quarter non-GAAP earnings per share by one cent. Revenue, however, decreased 15.5% to $51.1 million. The loss in sales was attributed to lower metal prices. The company expects the Argentinian asset to produce 920,000 ounces of gold for the year, up from its previous guidance of 900,000 ounces.

Production at Cerro Moro will also help offset lower silver production from the El Peñón mine in Chile. The production of silver is predicted to be 7.55 million ounces.

The second catalyst is the Chapada open-pit gold-copper mine in Brazil. Here, the operator has reported strong performance for a while. The asset will continue improving in the last quarter as well. So the miner has increased full-year guidance for copper production to approximately 125 million pounds, reflecting a 5 million-pound growth from the initial guidance.

As a result of the aforementioned operating factors and the impact of an expected stronger U.S. dollar toward local currencies, Yamana Gold will also benefit from lower costs than initially guided for full fiscal 2018. Lower costs will positively impact the gold margin.

The Canadian miner will support fourth-quarter operations with a total liquidity of $805.7 million, which is composed of cash on hand and equivalents as well as a line of credit. The company's net debt amounts to $1.66 billion.

The average target price of $3.86 per share is reflecting a 66% upside from the share price at close on Friday.

Disclosure: I have no positions in any securities mentioned in this article.

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About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

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 an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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