Yawanna Keep Yamana

Sometimes the runner that sprints to win the day is the very one that lagged the pack through the early going.

Although shares of Yamana Gold (NYSE: AUY  ) have appreciated some 170% since I suggested back in October 2008 that Yawanna Have Yamana, compared to golden multibaggers like IAMGOLD (NYSE: IAG  ) and Eldorado Gold (NYSE: EGO  ) ... Yamana has actually been a noteworthy laggard.

In fact, over the past two years of this multiyear marathon, Yamana has been bringing up the rear. Even titans like Barrick Gold (NYSE: ABX  ) and Newmont Mining (NYSE: NEM  ) have fared better over that period, which is definitely not something I thought I'd be saying two years ago.

Like a well-conditioned athlete that's picking its moment to surge, however, Yamana still appears poised to reward patient shareholders with relative outperformance over many of its gold mining peers as this bull market matures. Despite the palpable frustration on Wall Street with Yamana's less-than-stellar earnings result for the fourth quarter of 2009, I maintain that this low-cost leader is one high-grade producer that yawanna keep around.

A sequential production decline -- associated with operational hiccups at El Penon that will persist through the first quarter of 2010 -- brought Yamana's yearly total to 1.02 million gold equivalent ounces (GEOs). Even adding production from discontinued operations to tally 1.2 million ounces, Yamana's production remains well shy of its previously targeted pace of achieving 2 million ounces by 2012. The revised plan sees just 1.5 million ounces by 2013, highlighting the more justifiable portion of the market's frustration.

Also dampening investor enthusiasm is Yamana's persistent exposure to derivative and currency-related losses that mercilessly chip away at the bottom line. In the fourth quarter, those hits included some $45.2 million from future income tax adjustments, derivative losses, and foreign exchange losses. Derivative losses from miners like Yamana and Kinross Gold (NYSE: KGC  ) have been a tough pill to swallow for gold investors, but perhaps those items might be better received without an added $15.4 million in executive bonuses and stock-based compensation.

As a longtime Yamana shareholder, I share in the multiple disappointments of these reduced production targets, operational snags, and annoying kinks in the bottom line. However, I believe that the market has gone entirely too far in discounting the shares for these well-documented ills. Beyond a hopeful development pipeline that includes four new mines approved for construction, Yamana is eyeing substantial reserve growth in 2010 and investing some $80 million in exploration. I stand by my recent selection of Yamana Gold as the best bargain among gold miners ... a designation with which 73% of 1,100 readers responding to our Motley Poll agreed. In case some Fools are having second thoughts, I truly believe that yawanna keep Yamana.

Fool contributor Christopher Barker's selection of Yamana Gold for his silverminer CAPS portfolio has outperformed the S&P 500 by roughly 131 percentage points since November 2008. The stock has earned three stars out of five, with more than 3,500 investors expecting further outperformance. Join the free Motley Fool CAPS community today, and share your own outlook for Yamana Gold.

Christopher Barker can be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He tweets. He owns shares of Eldorado Gold, IAMGOLD, Kinross Gold, and Yamana Gold. The Motley Fool has a gilded disclosure policy.


Read/Post Comments (6) | Recommend This Article (18)

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 March 05, 2010, at 10:46 AM, mtt04 wrote:

    I have one word for this stock

    POS

  • Report this Comment On March 05, 2010, at 10:47 AM, mtt04 wrote:

    I have one word for this stock

    POS

  • Report this Comment On March 05, 2010, at 10:48 AM, mtt04 wrote:

    they hand off all their juicy projects to another company controlled by the Pres. Aura Minerals.

    They keep disappointing every quarter every year. \

    Move on.

  • Report this Comment On March 05, 2010, at 12:58 PM, XMFSinchiruna wrote:

    mtt04,

    In point of fact, those discontinued operations were far from their juiciest prospects.

    http://www.fool.com/investing/general/2009/06/11/yamana-trim...

  • Report this Comment On March 05, 2010, at 2:12 PM, scrivener1 wrote:

    If I had a large stake in AUY, I might keep it for the long run, but I only own a very small share. I have lost almost 20%. I read somewhere on Motley Fool to sell once you reach a 20% loss otherwise, you will have to wait a long time to recover.

  • Report this Comment On May 23, 2010, at 8:19 AM, silvermind wrote:

    Hey Chris,

    Is there any contractual limit to keep the $15.4million "but perhaps those items might be better received without an added $15.4 million in executive bonuses and stock-based compensation." from happening every year? If so, then I'm with you.

    Bill

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