Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

3 Takeaways From Yamana Gold's Q3 Earnings

By Scott Levine - Nov 30, 2016 at 11:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Can investors enjoy golden slumbers following this gold miner's recent performance?

Yamana Gold ( AUY 0.77% ) recently released its Q3 earnings. Reporting a $0.01 loss per share, Yamana came up short of analysts' expectations of $0.05 in earnings per share. But there's much more to a company's quarterly performance than just one number, so let's dig in and mine the report for some of the more interesting nuggets.

Image source: Getty Images.

Mining the production figures

Successfully bouncing back from an unexpectedly poor second quarter, Yamana reported 328,604 ounces of gold production in Q3 -- a 3% increase year over year. Consequently, management affirmed its gold-production guidance for fiscal 2016 of 1.26 million to 1.3 million ounces.

Reporting a 65% quarter-over-quarter improvement in gold production, Chapada -- one of Yamana's three cornerstone mines -- played a pivotal role in the reiteration of management's guidance. In fact, Chapada, which returned to normal throughput levels in September following mechanical failures in Q2, is expected to extend its performance improvement through the fourth quarter and into 2017. 

In addition to Chapada, Yamana reported improved gold production at another of its cornerstone mines: Canadian Malartic. Located in Quebec, the Canadian Malartic mine reported a 5% increase in gold production quarter over quarter. But not all of Yamana's cornerstone mines reported improvements; the El Penon mine, located in Chile, reported a 0.5% decrease in gold production quarter over quarter.

Yamana's three cornerstone mines account for approximately 50% of the company's annual gold production.

Digging out of debt

Building upon its success in reducing its net debt by $286 million through fiscal 2015, Yamana's management identified a new goal at the start of fiscal 2016: a $300 million drop in net debt by the end of 2017. The company took a large step toward achieving that goal during the third quarter, reducing its net by $163 million -- considerably more than the approximate $40 million reduction it reported in the second quarter.

How was the company able to effect such a significant decrease? The largest driver of the reduction was the completion of the sale of the Mercedes mine in Mexico, for which the company received $123 million in cash.

Image source: Yamana Gold corporate website.

As a result, the company ended Q3 with $244 million in cash and cash equivalents. 

Management also acknowledges its strong cash flow as another driver in its ability to reduce its net debt during the quarter. Generating $78.3 million in net free cash flow during the third quarter, Yamana reported only $8.4 million during the same period last year.

Looking a bit at EBITDA

When evaluating a company's finances, oftentimes investors will turn to the company's earnings before interest, taxes, depreciation, and amortization, or EBITDA. Believing this provides a more accurate of a company's profitability than just its net income, investors may weigh this more heavily than other metrics, as it strips away subjective charges, such as depreciation, that afford accountants room for massaging. 

Yamana, for example, reported a net loss of $11.2 million, but this doesn't provide the full picture of the company's profitability. Turning to its EBITDA, we find that the company reported $160.7 million for Q3 -- a 22% increase year over year. The company also benefited from an expansion in its EBITDA margin year over year. Whereas the company reported an EBITDA margin of 31% in Q3 2015, it reported an EBITDA margin of 35% for Q3 2016.

For another perspective on the company's EBITDA, it's important to consider the company's pipeline, since management contends that EBITDA growth will be driven by the organic generation of cash flow. The most advanced project in its pipeline is Cerro Moro, located in Argentina. According to management, the project is ahead of schedule, and first gold production is expected in early 2018. Management estimates annual gold production of approximately 150,000 ounces in the mine's first three years.

The takeaway

Yamana Gold had some cause for celebration in the third quarter. With normal operations resuming at Chapada, the company seems to be back on track. But it's imperative to acknowledge how the company benefited from the market price of gold. During the third quarter, Yamana reported an average realized gold price per ounce of $1,337 -- 19% higher than the $1,122 it reported during the same period last year. It will be interesting to see how adversely this affects the company in the fourth quarter.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Yamana Gold Inc. Stock Quote
Yamana Gold Inc.
$3.92 (0.77%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.