Hear that grumbling sound? Yamana Gold (NYSE: AUY ) announced results this week, analysts found those results weak, and the share price has been tweaked. Let's take a look under the hood and make sure my top pick is still good.
Production was a bit light for the quarter, but Yamana told us in January to expect as much. Despite the early warning, analysts' revenue and earnings estimates significantly overshot the reported numbers. Sales rose 9% sequentially to roughly $219 million, versus the average expectation of more than $300 million, and per-share earnings were a fraction of the Street estimate.
So what the heck happened? Even though Yamana is undeniably a gold (and silver) story, copper appears to be the main culprit. The accounting here is borderline bewildering, but the company explained that mine operating earnings were "highly affected" by copper's drop.
On account of the accounting quirks, these earnings results aren't representative of the new Yamana. Like Barrick Gold (NYSE: ABX ) , Yamana hedges its copper production exactly so it doesn't have to worry about the base metal's fluctuations. A more important consideration is the company's rising cost structure, which also seems to be causing analyst shudders.
With a partial contribution from acquiree Meridian's low-cost El Penon mine, I would have expected lower overall cash costs for Yamana in the quarter. Higher costs at other mines more than offset the heavyweight's contribution, though. I'm letting the company off the hook for now, because heavy seasonal rains prevented several mines from targeting deeper, higher-grade deposits.