Will This Gold Producer Reach Its Quarterly Goals?

This week, Yamana Gold (NYSE: AUY  )  released its first quarter earnings report. Let's examine the company's results compared to the market expectations. 

Earnings expectations
Analysts  estimated the company's revenue reached nearly $450 million -- a 14.7% drop, year over year. Furthermore, Yamana Gold's earnings per share were expected to be around $0.06. Nonetheless, the company didn't meet its goals as its quarterly revenue came in at $356 million; its net loss per share was $0.04. Most of this fall is related to the 20% plunge in the average quarterly price of gold. Silver also tumbled by over 31%. Finally, the company also didn't reach its gold production goals.  

The decline in the company's profitability has already resulted in a 42% slash in its divided payment. Despite this fall, the company's annual dividend yield, which is currently around 2%, isn't far off other gold producers'; Goldcorp's (NYSE: GG  ) dividend yield, for example, is roughly 2.4%. 

Yamana Gold expects to increase its production in 2014. Despite these expectations, it didn't reach its quarterly goals, which further dragged down its quarterly earnings. 

Gold production
The company has revised down its 2014 outlook from an average of 1.685 million of gold equivalent ounces produced to 1.4 million of GEO  produced. Most of this drop is attributed to the reduced production projections in the Chapada, C1 Santa Luz, and Pilar mines. Despite this lower outlook, on a yearly basis the company expects to augment its gold equivalent production by nearly 17%, year over year.

Based on this estimate, during the first quarter of 2014, the company's gold equivalent production should have reached around 350,000 GEO. Alas, the company's gold equivalent production was only 272,000 -- a 6.6% drop from the first quarter in 2013. 

Looking forward, the recent decision to purchase Osisko Mining with Agnico Eagle Mines  (NYSE: AEM  ) for $3.9 billion may improve Yamana Gold's operations. This agreement was higher by 11% than Goldcorp's hostile offer, which was priced at $3.6 billion. Yamana Gold and Agnico Eagle will form an equally joint acquisition entity that will hold Osisko Mining.  

The company's production costs are also a factor that could impact its bottom line. 

Cost of production
In 2013, the company's all-in sustaining cost reached $814 per GEO. Moreover, during the first quarter of last year, the all-in sustaining cost was higher at $856 per GEO. This year, however, Yamana estimates its all-in sustaining cost to fall below $850 per GEO. According to the company's recent quarterly earnings report, its all-in sustaining cost reached $820 per GEO -- well below the annual estimate. This result has slightly offset the negative impact the plunge in precious metals had on its profitability.  

Yamana's recent earning report didn't impress its investors as its stock has declined in the past several days. But the company is still making the right moves by expanding its operations and meeting its costs reduction goals. Even though, it didn't reach its quarterly production targets, the company is capable of accelerating its production in the coming quarters in order to reach its annual production goals.  

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Lior Cohen

Lior has been a contributor for the Fool since 2012. His main interests are in commodities, and energy and materials companies.You can follow him on Twitter to stay up to date with his industry analysis. @tradingnrg

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Related Tickers

9/2/2015 4:02 PM
AUY $1.73 Down -0.06 -3.35%
Yamana Gold, Inc.… CAPS Rating: ***
AEM $23.62 Down -0.51 -2.11%
Agnico-Eagle Mines… CAPS Rating: ***
GG $13.76 Down -0.01 -0.07%
Goldcorp, Inc. (US… CAPS Rating: ***