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Yamana Stands the Golden Test of Time

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I've been catching up with some old schoolmates of mine lately, and it's uniquely satisfying to see those human bonds stand the test of time. While I haven't known this gold company since kindergarten, I have tracked its progress closely now for several years, and it's held up equally well.

Yamana Gold (NYSE: AUY  ) came through again for investors in the third quarter. Its solid performance makes the 74% decline in its share price since March seem all the more overdone. I've made the case elsewhere for the combination of organic production growth and deep value in Yamana's shares. Here, we'll focus instead upon its earnings results, outlook statements, and some developments since the quarter's end.

Yamana posted net income of $150 million on $247 million in revenue. Adjusting for special items, like the $139 million unrealized gain on commodity derivatives, the net looks less inspiring at $31.5 million. However, given the extreme price volatility in gold, silver, and especially copper during the period, it was better than this Fool expected.

On the strength of byproduct credits, Yamana continues to post the most impressive cost metrics in the industry: $140 per ounce. This compares with the $240 cash cost recently reported by Agnico-Eagle (NYSE: AEM  ) , $346 for Goldcorp (NYSE: GG  ) , and $375 reported by Kinross Gold (NYSE: KGC  ) back in August. Even removing the byproduct accounting, Yamana outperformed megaminers like Newmont Mining (NYSE: NEM  ) and Barrick Gold (NYSE: ABX  ) with a $454 cost basis per ounce.

Signaling even wider margins to come, Yamana CEO Peter Marrone expressed the company's view that we've seen the "high water mark" for cost pressures in the industry. Favorable currency conversion rates and lower oil costs will go a long way towards offsetting the negative impact of metal prices, which continue to languish well below third-quarter realized prices.

Since the close of the third quarter, Yamana has taken several steps to raise and protect capital in light of the global financial turmoil. The company sold a 40% interest in the Rossi mine in Nevada to majority holder Barrick Gold for $29.2 million, capitalized on the major dip in copper prices to invoke long-term hedge contracts for $47 million, and initiated substantial currency hedges following the recent dollar rally. These bold moves brought its cash position back up to more than $200 million, and they represent further proof that time seems to be on Yamana's side.

Further Foolishness:

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 85 companies, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Agnico-Eagle, Kinross Gold, and Yamana Gold. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 07, 2008, at 8:54 AM, bizcardnut64 wrote:

    One day you will realize no one cares what you think about AUY. It's been a compelling value for quite awhile. They didn't just become the low-cost prodcuer, they've been that. Who cares, gold is down $300 from it's march high. That is all that people see. Apparently no one realizes that the lower the price of gold on the market, the BETTER investment AUY becomes since they are a low-cost producer. Then again, gold could go back to $1,500 and AUY would still be under $5. 3100+ rate it outperform and less than 100 rate it underperform, yet it continues to outperform. Another case of CRAPS players not backing their picks with their own cash.

  • Report this Comment On November 07, 2008, at 3:19 PM, bizcardnut64 wrote:

    The golden test of time? What a joke! Here's another story talking about what a bargain AUY is, and today's another day that the stock ends down. Earnings don't matter, strength of the company doesn't matter, low production costs don't matter, spot price of gold doesn't matter. Obviously no one pays attention to the companies whose stock they buy and sell.

  • Report this Comment On November 07, 2008, at 4:22 PM, XMFSinchiruna wrote:


    The market is severely dislocated at present, so fundamentals will continue to hold little sway until the underlying commodity prices find solid ground and mount their recovery. For the skillful Fool, this dislocated condition creates a very compelling opportunity indeed. Zoom out from the daily movements and start tracking the larger picture, and I think you'll find the resolve to wait out this temporary phenomenon.

    Fool on!


  • Report this Comment On November 12, 2008, at 7:24 PM, jasperyes wrote:

    Why is there no metric by which readers can see the performance of contributors' recommendations? That way novice investors would have some insight as to whether contributors are worth listening to or not.

    Christopher Barker has been banging a gong about Yamana all the way down (probably because he owns them). Anyone who listened to him will be sore now.

    I think he and many others do not understand that we are in a traders market. Fundamentals are irrelevant. If you want to invest based on fundamentals go away and come back in a year.

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