What happened
Yamana Gold (AUY) dropped 15% last month, according to data from S&P Global Market Intelligence, as investors responded to the company's fourth-quarter earnings report.
In terms of metals production, Yamana glittered in 2017. The company reported annual gold production of 977,000 ounces, far-exceeding the initial guidance of 920,000 ounces. Moreover, it crushed expectations by reporting silver production of 5 million ounces and copper production of 127 million pounds, surpassing initial silver and copper production outlooks of 4.7 million ounces and 120 million pounds, respectively. But these figures weren't enough to outshine the sore spots that investors found on the income and cash flow statements.
Image source: Getty Images.
So what
Primarily, Yamana lost its luster, in the eyes of shareholders, after reporting a net loss of $0.21 per share for 2017, far below analysts' expectations that the company would report a net profit of $0.05 per share for the year. Dig below the surface, however, and we find that the surprise on the bottom line doesn't stem from Yamana's poor operational performance during the year. Instead, the net loss is largely attributable to writedowns.
In 2017, Yamana recorded a $356.5 million non-cash impairment loss, or $0.38 per share, on Gualcamayo and related exploration assets in Argentina as the company has reclassified these as assets held for sale.
Besides the income statement, the company's cash flow statement was another source of disappointment for investors. Whereas the company reported $652 million in operational cash flow in 2016, it generated $484 million in 2017. This metric, again, is not a reflection on the company's poor performance per se. Management, instead, attributed the year-over-year decline in operational cash flow to tax payments of $76.7 million to Brazilian authorities during the year and lower advanced payments received on metal purchase agreements.
Now what
Yamana's decline in February shouldn't scare off investors who are bullish on the company's future. Instead, shareholders should keep a close eye on the development of Cerro Moro -- a project that management expects to play a critical role in helping the company grow earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flow in the years to come. According to management, development of the project remains on schedule, and production is expected to ramp up in the coming months. Once the mine commences operations, investors should confirm that it achieves management's 2018 estimates: gold production of 85,000 ounces and silver production of 3.75 million ounces.
