What happened
Shares of Yamana Gold (AUY) rose nearly 14% today after the company released second-quarter 2018 earnings and production results. While investors have been looking forward to the ongoing ramp-up of Cerro Moro, an important growth project for the company, higher-than-expected production from existing mines during the quarter actually provided the boost.
As a result, management said operations are well-positioned to exceed full-year 2018 gold production guidance of 900,000 ounces. Copper production is also expected to exceed previous expectations of 120 million pounds for the entire year. While Yamana Gold didn't provide specific production ranges or totals, investors are simply happy that operations are humming along and the ramp-up of Cerro Moro hasn't hit any snags -- something other gold miners can't claim for their crucial growth projects.
As of 3:15 p.m. EDT, the stock had settled to a 9.8% gain.
Image source: Getty Images.
So what
In addition to lifting guidance, albeit vaguely, Yamana Gold turned in a pretty solid quarter of operations. While second-quarter 2018 revenue grew less than 1% compared to the year-ago period, operating income soared 87.5% in that span. Net income during the most recent quarter settled at $12.4 million, compared to a net loss of $42.8 million in the second quarter of 2017.
Yamana Gold achieved total metals production on a gold-equivalent basis of 240,271 ounces during the second quarter of 2018, marking a 7% increase from the year-ago period. Perhaps most important for investors, especially regarding the business's ability to generate cash flow, is that gold and copper production costs during the first half of the year were lower than the full-year expectations. Silver production costs were above expectations in the first half of 2018, but management expects them to trend lower in the back end of the year.
Now what
The update provided during the second-quarter 2018 earnings release was exactly the type of news investors have been waiting for. Yamana Gold stock has moved sideways since the beginning of 2017 (prior to today's pop, shares had literally delivered gains of 0% in that span) as the market waited to see the gold miner deliver on growth plans.
It's still relatively early in the life of Cerro Moro, but operations appear to be on track. That, coupled with surprising production totals from existing mines, provides optimism that the company can transition into its long-awaited "cash generation" phase of life. A few more quarters similar to this could make that vision a reality.
