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Summary Yamana Gold recently announced its third quarter 2015 financial results. Total gold production of 325,897 ounces is a 9% increase from last year, with solid all-in sustaining costs per ounce of $841. Operating cash flow after changes in non-cash working capital was strong at $77.6 million. Foreign exchange hedges that will eliminated by year end will improve the company’s AISC on its core gold mines by $40 per ounce. Debt remains a little high, but a recent streaming transaction with Sandstorm Gold is a step in the right direction; shares are becoming attractive. Yamana Gold AUY data by YCharts Recent Stock Price: $1.95 Shares Outstanding: 946.56 million Market Cap: $1.85 billion 52-Week Range: $1.42 – $4.84 Gold miner Yamana Gold (NYSE: AUY ) recently reported its third-quarter 2015 financial results, and low all-in sustaining costs, higher production levels and a recent streaming transaction should all be seen as positive developments for the stock. First, I’ll discuss the company’s financial results, before giving an updated valuation. Strong Production: In the quarter, Yamana produced 325,897 ounces of gold (9% increase from last year), with notable increases seen at the Jacobina mine (32% increase), Gualcamayo (17%), and at Canadian Malartic (12%). Low AISC: More importantly, all-in sustaining costs came in at $841 per ounce, leading to cash flows form continuing operations after changes in non-cash working capital of $77.6 million, or $.08 per share. But without its non-core Brazilian gold mines, AISC would actually have been $748 per ounce. Brio Gold Outperforms: The monetization plan at the company’s Brazilian mines is going as planned. Yamana saw production of 38,430 gold ounces and an improvement in AISC to $866 per ounce at these mines. The company is still aiming to monetize these non-core Brazilian assets (either through an IPO, a straight-up sale, or a joint-venture), and these strong results should certainly help it achieve that goal. It’s still hard to tell how much Yamana can get for Brio Gold at this point in time, but the fact that Yamana has reduced AISC from $1,002 in the first quarter to $866 this past quarter is real positive news. Balance Sheet Improving: Yamana ended the quarter with $137.8 million in cash and equivalents, but this does not include the $148 million upfront payment Sandstorm Gold (NYSEMKT: SAND ) made to Yamana in the latest streaming transaction. So, the company’s current cash balance should actually be around $285 million, and Sandstorm is also required to make another $4 million payment in six months. Yamana also gained 15 million share purchase warrants in the deal, with a strike price of $3.50 and a term of five years (Sandstorm currently trades just under $3 per share). Declining Debt: In addition, Yamana’s total long-term debt declined to $1.86 million in the quarter, down from $2.025 billion a year ago, with a net debt position of $1.75 billion. However, following the streaming transaction, its net debt position would actually be reduced to $1.6 billion, with just $147 million left of its revolving credit facility, according to the corporate presentation (the plan is to get this balance to zero by the end of the year). Finally, Yamana’s debt repayment schedule remains flexible, as the company owes just $97 million in 2016, $18 million in 2017, and $112 million in 2018. Final Thoughts: In conclusion, I really think Yamana is about to turn a corner as the company is delivering on its operations, has reduced its net debt with a favorable streaming transaction, and has made significant progress at its Brio Gold mines. With an EV/EBITDA of just 4.38, shares look attractively valued here and could outperform peers on a gold price rebound. Scalper1 News
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