Why Shares of Yamana Gold Jumped 11% in January

Rising 46% through 2016, shares had quite the luster entering the new year -- even more so as they enter February.

Scott Levine
Scott Levine
Feb 9, 2017 at 1:13PM
Energy, Materials, and Utilities

What happened

Yamana Gold (NYSE:AUY), a leader among gold-mining companies, celebrated a fortuitous start to the new year, as its stock climbed 11% through January.

So what

Providing preliminary results, management announced that it expects to report that it met fourth-quarter and fiscal 2016 guidance, achieving gold production of 319,000 ounces and 1.27 million ounces, respectively. In addition, the company, estimating co-product all-in sustaining costs of $914 per gold ounce, expects to report that it achieved its fiscal 2016 guidance between $880 and $920 per gold ounce.

Perhaps more appealing to investors was the company's expectation that costs will continue to come down. According to its press release, management expects costs to decrease over the next few years as Yamana "optimizes operations and grade profiles improve at Canadian Malartic and Jacobina, and as Cerro Moro begins to contribute to production in early 2018."

Gold bars sit on a table in front of a stock chart.

Image source: Getty Images.

During an investor presentation, management reported that construction was ahead of schedule at the company's Cerro Moro mine in Argentina. Affirming its expectation that the mine will commence gold production in early 2018, management believes Cerro Moro can eventually become one of the company's cornerstone mines. 

In addition to its success at Cerro Moro, the company reported on the advancement of the Suruca expansion project at the Chapada mine in Brazil. Gold production -- expected to total between 45,000 and 60,000 ounces over an initial mine life of four to five years -- is expected to commence in 2019. According to management's preliminary results, Chapada produced 107,000 ounces of gold for fiscal 2016.

Although shares rose, they may have risen even more had it not been for a minor bump in the road. On Jan. 7, Yamana suspended operations at its El Penon mine in Chile after several union members staged a sit-in at the employee camp; however, operations resumed less than two weeks later. According to the company's press release, the interruption in operations did not have a significant impact on mine and consolidated production, and the company "expects to recover production from other operations shorter term and from El Penon throughout the year."

Now what

Through the divestment of its Mercedes mine and spinoff of Brio Gold in 2016, Yamana is working to streamline its portfolio, concentrating on organic growth. Investors can interpret the successful construction of Cerro Moro -- within the budget of $224 million through 2017 and 2018 -- and execution of expansionary projects such as Suruca as signs that the company is effectively executing its portfolio optimization strategy. Furthermore, investors can look for additional green flags from the company, in the form of positive results from exploration activities at El Penon and Canadian Malartic.