How Low Can Yamana Gold Inc Go?

Yamana Gold is an interesting but risky bet on gold-price upside.

May 31, 2014 at 8:18AM

Yamana Gold (NYSE:AUY) and Agnico Eagle Mines (NYSE:AEM) have parted paths since they won the battle with Goldcorp (NYSE:GG) over Osisko Mining. Yamana Gold shares are down 12% year to date, while Agnico Eagle Mines is up 22% and Goldcorp is up 14%. Agnico Eagle Mines has recently shown strong results and could afford an acquisition of Osisko Mining's size. Meanwhile, Yamana Gold's results were weaker, making the company more vulnerable.

Weak first quarter
During its first-quarter earnings call, Yamana Gold stated that historically this period is weaker than the rest of the year. While this is certainly true, this year's first quarter was weaker than the year-ago period. The company produced less gold and generated less revenue. In comparison, Yamana Gold's acquisition peer Agnico Eagle Mines managed to grow its revenue and earnings from the first quarter of 2013 despite the drop in the price of gold, thanks to increased production.

While Yamana Gold's revenue decline was largely due to lower gold prices, costs also played a role. The company's first-quarter all-in sustaining costs were $975 per ounce of gold, while they were $856 per ounce in the first quarter of 2013. On the positive side, Yamana Gold stated that it was front-loading its capital spending and expects full-year all-in sustaining costs to be less than $925 per ounce.

Will the Osisko Mining acquisition help?
Yamana Gold's operating cash flow dropped to $39 million in the first quarter, while the company's capital spending was $146 million. As Yamana Gold stated, it is prioritizing cash flow; but the company has a lot of work to do to achieve better cash flow generation. The addition of 300,000 ounces of gold annually from Osisko Mining's Canadian Malartic could help, as the mine's expected all-in sustaining costs are less than $800 per ounce for the life of the mine.

However, the related share dilution and the increase in Yamana Gold's debt level should worry investors. The company's debt has already grown from $861 million a year ago to approximately $1.3 billion at the end of the first quarter. Meanwhile, the company felt pressure on its earnings and operating cash flow. Still, the debt remains in perfectly reasonable borders, but it is the thing worth observing.

Is the downside over?
Yamana Gold's share price reacted heavily to the acquisition of Osisko Mining. As a result, the company trades at 18 times its future earnings and at a 20% discount to its book value. In comparison, Agnico Eagle Mines trades at a 32 forward P/E and with a hefty 80% premium to its book value. It looks like most of the pressure is in the past for Yamana Gold shares.

However, there is one important thing to consider. Gold prices have stalled at around the $1,300 per ounce for more than a month. Yamana Gold's joint acquisition of Osisko Mining is a bet that gold prices will not suffer further downside. Otherwise, it does not make sense to increase debt and dilute shareholders. That said, if gold prices drift toward the $1,200 mark, Yamana Gold shares could be punished more heavily than its peers.

Bottom line
Yamana Gold is an interesting bet for those who expect upside in gold prices in the near term. However, the risks are worth thinking about, as the company became more vulnerable to gold-price downside because of the recent acquisition.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers