In a gold industry that is positively plagued by broken promises and missed opportunities, Yamana Gold (NYSE: AUY ) continues to earn special distinction as the most effective and reliable operator in the business. Goldcorp (NYSE: GG ) takes a close second, even with the uncharacteristic challenges that company faced (and overcame) during 2012. Primero Mining (NYSE: PPP ) takes honorable mention, and will soon join their ranks if former IAMGOLD (NYSE: IAG ) CEO Joe Conway continues apace with his outstanding, value-multiplying achievements.
For his part, Yamana CEO Peter Marrone proved once again that his rather lucrative compensation package is money well spent. Yamana met consensus estimates for the fourth quarter of 2012 with adjusted earnings of $0.26 per share. Impressively, even as the industry at large has suffered disappointing margin contraction as construction costs and mine operating costs have risen sharply, Yamana's net profit margin of 31.3% stands almost exactly where it did two full years ago when I hailed: "They Broke the Mold With Yamana Gold."
Yamana has not been immune to cost pressures, but has proven far more effective than most at keeping them contained. The company still expects cash costs to remain below $365 per GEO after by-product copper production from Chapada is factored in, while Yamana's target for keeping all-in sustaining cash costs beneath $800 per GEO for 2013 continues to clinch its position as the industry's lowest-cost operator (bar none!).
One of the industry's most substantial growth spurts continues to proceed smoothly, as the company reiterated guidance for 1.75 million gold-equivalent ounces (GEOs) as next year's target (representing a 46% increase over 2012 output of 1.2 million GEOs!). The capacity to then sustain long-term output at that level is beautifully supported by Yamana's consistent success on the exploration front. I have long-touted Yamana's uncommon potential for organic resource expansion throughout its property portfolio as one of the company's most substantial engines of shareholder value creation, and Yamana delivered on that thesis in spades during 2012!
The miner's expanded reserve base of 19.3 million GEOs -- an incredible 93% of which corresponds to existing operations and projects under development -- is sweetened further by the uncommonly conservative gold-price assumption of $950 per ounce on which the estimate is based. That doesn't mean Yamana sees $950 gold on the horizon, but rather reflects an ethos of conservative project assessment and mine management that focuses appropriately upon higher-quality, higher grade ounces. That new guiding paradigm that the gold mining industry is finally adopting after running far astray of shareholder interests, Yamana Gold has maintained all along. That's why the $30 price objective for Yamana's shares that I outlined back in 2011 remains etched in Foolish stone, and frankly I consider this stock at present levels one of the deepest and lowest-risk bargains available in the gold patch.
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