Yamana Gold Remains a Flawless Gem

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.

Are you puzzled or unnerved by the dramatic sell-off in gold mining equities that I've termed goldageddon? I strongly encourage existing shareholders to hold their ground with redoubled determination, and I urge onlookers to take a very close look at the highest-quality major producer by accessing my premium research report on Goldcorp today (click here).


Read/Post Comments (7) | Recommend This Article (19)

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  • Report this Comment On February 22, 2013, at 7:46 AM, Hazza83 wrote:

    Hi Chris. I've been a follower of your articles for about a year now, and invested in Primero about 20 months ago. Its done very well, but obviously come off those highs experienced after the positive tax ruling. Things still look good going forward, and I'm happy to keep holding.

    I am looking at diversifying my exposure to gold miners somewhat and having seen IAMGOLDs stock plummet over the last 12-15 months, I am wondering if there is more midterm value to be found there? Its current market cap is almost 1/4 of Yamana's. Its P/E is a mere 7.5, as compared to 31.5 for Yamana (Per Yahoo Finance). I understand IAG currently has cost pressures and is expected to continue to experience such pressures throughout 2013, but if one was willing to wait beyond that, do you think it might also be a good bet? At current prices, which would you choose?

    Thanks in advance!

  • Report this Comment On February 22, 2013, at 8:23 AM, XMFSinchiruna wrote:

    Hazza83,

    As much as it pains me to say it, since I was quite bullish on the stock before their outlook turned suddenly sour, I think there are too many similar values in the industry with fewer headwinds in front of them to render IAMGOLD a top choice at this juncture.

    It's definitely a value here, but the stock's not likely to join the broader rally when it comes to the same degree as many peers and smaller competitors.

  • Report this Comment On February 23, 2013, at 6:31 AM, azinsd wrote:

    TMFSinchiruna,

    While I appreciate your frankness regarding your change of heart with IAG, I too must be frank in expressing my surprise. The strength of your previous language on this company mixed with the suddenness of your changed outlook puts into question the depth of your due diligence. I accept things change and there are unknow variables but again the previous bullishness combined with sudden pivot is a bit alarming.. What has substantively changed? Please know I am a grateful reader but I've rarely seen your assessments contrast so rapidly.

    Azinsd

  • Report this Comment On February 23, 2013, at 1:28 PM, texasflyfish wrote:

    Azinsd

    Sinchiruna is probably too modest to defend himself on IAG. I would like to suggest three things in regards to your post:

    1. No one is right 100% of the time.

    2. In the real world, unexpected things happen.

    3. When it comes to mining equities, you need to be diversified.

    Christopher Barker's due diligence is the best I have found even compared to $500 a year mining subscription services. And his is posted here free!

    I have used his guidance for several years. Primero Mining was my largest gold equity holding at $2.65/share. The amazing return on Primero dwarfs the small loss in IAG. When the market is down on your industry, your losers look even worse. I try to take a long term, patient approach to gold and silver equity investing. I may be a Fool, but I believe that owning and ADDING NOW to well run precious metal mining companies will appear to be a very smart move in 5 years.

    FWIW

    texasflyfish

  • Report this Comment On February 24, 2013, at 8:43 PM, Stoxxman wrote:

    http://pennystockjournal.blogspot.ca/2011/11/yamana-gold-inc...

    The Company produced 1.3 million gold equivalent ounces in 2012 and is shooting for 1.7m in 2013.

  • Report this Comment On February 25, 2013, at 11:13 PM, Hazza83 wrote:

    TMFSinchiruna,

    Thanks very much for your response. After doing my own DD on IAMGOLD as well as a few other competitors including your own recommendation SGSVF, I too have arrived at a similar conclusion.

    IAG may contain value, but at least for the next year or two, it will struggle to keep up with some of the other competing PM plays.

    I continue to be bullish on PPP (The recent webcast of their year end results was excellent as usual), and CEO Joe Conway never fails to impress. Their new acquisition Cerro Del Gallo is shareholder accretive and at this stage looks like it will be a low cost operation; so important in the current environment.

    I also like SGSVF, but am waiting for more information as to when Xstrata will start to produce silver from Hackett River. I'm not too keen on investing in pure explorers without some sort of income stream.

    Thanks again for your input, and keep up the great work. As texasflyfish noted, nobody is right 100% of the time, and in my opinion, all investors need to do their own DD.

  • Report this Comment On February 28, 2013, at 6:37 PM, azinsd wrote:

    I fully support the support for Sinchiruna - I would gladly pay above and beyond my current MF subscription for his insights - I too benefited greatly from his call on Primero and others.

    And I certainly don't hold him responsible for the current price attached to IAG or any other beat up PM stock.

    My point is that there was a very strong thesis put forward on IAG that wilted rather quickly. Perhaps it's the MF format, but discovering this "reversal" in the discussions on a glowing Yamana article (that hadn't recently been touted compared to IAG) was surprising to read.

    I remain bullish on IAG's solid, investor-oriented management, its diverse and extensive gold mine reserves, its Niobium mine and its generous dividend.

    Historically, I've seen Mr. Barker's resolve strengthen when the market misasseses a company - I understand there may be near term "headwinds" for IAG due to "hard rock" and "all in costs" but all miners face this. Even in a "A touch of tarnish" Sinchiruna held to his thesis and if that's changed I would just like to know the rationale.

    Again, a big fan with some constructive, hopefully fair feedback.

    azinsd

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