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Can Yamana Earnings Weather the Gold Storm?

Yamana Gold (NYSE: AUY  ) will release its quarterly report on Wednesday, and investors already understand that the plunge in gold prices that came in April will have a huge negative impact on the company's financial success. Yet even as other less healthy gold miners expect sizable losses, Yamana earnings should remain positive and give the company a good chance to endure the adverse pricing environment with minimal damage.

As difficult as it is to find and extract gold from the ground, it's easy for investors to understand what happens to mining companies when the prices they get for their products drop. In the long run, Yamana obviously needs to see higher gold prices to maximize profits, but could low prices actually help the company by giving it some new opportunities? Let's take an early look at what's been happening with Yamana Gold over the past quarter and what we're likely to see in its quarterly report.

Stats on Yamana Gold

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$484.64 million

Change From Year-Ago Revenue


Earnings Beats in Past Four Quarters


Source: Yahoo! Finance.

How bad a hit will Yamana earnings take?
Analysts have taken down their views on Yamana earnings substantially in recent months, cutting their June-quarter estimates by more than 40% and their full-year 2013 and 2014 views by 35%-45% as well. The stock price has also faltered, with losses of 11% since late April even after a more sizable decline earlier in that month that corresponded to falling gold prices.

Across the gold industry, falling prices have spelled trouble for mining companies that rely on revenue from gold sales to drive their profits and cash flow. After its initial drop, gold prices have fallen another $100 per ounce since late April, and even though gold has risen from its lowest levels more recently, reduced investor demand for shares of the SPDR Gold (NYSEMKT: GLD  ) ETF and other investor-friendly vehicles for investing signals a potential shift in long-term sentiment away from the yellow metal after its long bull-market run.

But Yamana has benefited from its low cost structure, and it only intends to make its operations even cheaper going forward in light of low gold prices. Despite already having cash operating costs of less than $400 per ounce, the company expects to cut those costs by another $100 per ounce, doing its best to increase efficiency and maximize profit margins in a tough environment. Weak prices for byproduct metals like copper and zinc have added to Yamana's woes, but it and peer Goldcorp (NYSE: GG  ) have kept enough of a lid on their expenses to remain profitable even with gold at current levels.

In fact, the current environment could create opportunities for Yamana. As other producers struggle, Yamana's relatively healthy balance sheet could let it buy up assets from weaker players at cheap prices. In doing so, Yamana will likely have to compete against streaming companies Royal Gold (NASDAQ: RGLD  ) and Silver Wheaton (NYSE: SLW  ) , which will look for similar chances to profit from cash-hungry metals producers. But if low prices continue, there could be enough opportunities for everyone to benefit.

In the Yamana earnings report, watch to see how cost-containment initiatives are proceeding. If the company can deliver expected cost savings, then the stock could recover more quickly than many are expecting even if gold prices remain low for the foreseeable future.

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Related Tickers

9/30/2016 4:04 PM
AUY $4.31 Down -0.12 -2.71%
Yamana Gold CAPS Rating: ***
GG $16.52 Down -0.13 -0.78%
Goldcorp CAPS Rating: ***
GLD $125.64 Down -0.43 -0.34%
SPDR Gold Trust CAPS Rating: **
RGLD $77.43 Down -1.39 -1.76%
Royal Gold CAPS Rating: ****
SLW $27.03 Down -0.62 -2.24%
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