An industry leader in gold mining, Yamana Gold (AUY) is expected to report its first-quarter earnings on May 1. Management has high hopes for the company's performance in 2019. Besides an increase in annual gold production, compared to 2019, the company, presumably, will recognize a more glittering cash-flow statement than what it reported last year.
Investors will be eager to see the company's quarterly results and if the company seems to be well-positioned to realize its lustrous expectations for the coming year; however, digging through a miner's earnings report can be overwhelming, and it's not uncommon to feel buried under the piles of facts and figures. So, let's prepare for the company's report by keying in on some points we can expect management to address.
Does Cerro Moro serve up more cash flow?
For some time, management has boasted of the boon to the company's cash flow statement that Cerro Moro will provide. For example, in the company's June 2018 press release announcing the start of commercial production at the Argentina-based mine, management stated that "Cerro Moro is expected to generate a disproportionate amount of cash flow and free cash flow relative to the comparatively small-scale nature of the operation."
Because Cerro Moro achieved commercial production in Q2 2018, a year-over-year comparison relating to gold and silver production is not possible. Instead, investors can monitor how well the mine tracks toward achieving the forecasted 2019 gold and silver production of 130,000 ounces and 6 million ounces, respectively. Likewise, investors should confirm that the mine is on track to achieve its 2019 all-in sustaining costs (AISC) forecast of $890 per gold equivalent ounce (GEO) sold.
Yamana doesn't break out, on an individual basis, how each mine contributes to the company's cash flow, so investors will have to look for management's commentary addressing Cerro Moro; moreover, they can see if the company reports Q1 2019 operating cash flow and net free cash flow higher than the $122.4 million and $8.5 million, respectively, which it reported in Q1 2018.
A peek through the window of opportunity
With Yamana Gold's portfolio soon to be a lot smaller thanks to the planned sale of Chapada, it will be increasingly important to follow the progress of development and expansion projects found in the company's pipeline -- especially considering management's lack of interest in acquisitions.
For one, investors can look for news related to the Agua Rica project. Located in Argentina, Agua Rica took a big step forward when Yamana announced that it had inked an integration agreement with Glencore and Goldcorp last March to develop the project. Yamana, which retains 56.25% ownership in the project, expects that a pre-feasibility study of the project will be completed in 2019. According to preliminary studies, Agua Rica has a mine life of more than 25 years and anticipated average annual production of approximately 520 million pounds of copper-equivalent metal, including gold, molybdenum, and silver.
In terms of an asset in the production phase, investors should look for commentary related to the Canadian Malartic Extension Project, which represents $34 million in budgeted expansion capital expenditures in 2019. Management expects the Extension Project will be completed this year, resulting in contributions from Barnat coming late in 2019 and more significant contributions in 2020 and 2021.
Counting the costs
According to management's initial cost guidance, Yamana was expected to report all-in sustaining costs (AISC) per gold equivalent ounce (GEO) of $920 to $960 in 2019. However, that forecast was provided prior to the company's announcement of the sale of Chapada -- one of the company's more profitable assets. While management hasn't provided updated AISC guidance for 2019, investors can still assess how well the company fared in controlling costs during Q1.
At Canadian Malartic, the company's lone asset in the Great White North, management forecasts AISC to be $730 per GEO -- marginally lower than the $732 per GEO it reported in 2018 -- while a more significant reduction in expenses is forecast for Minera Florida. Whereas the company reported AISC of $1,327 per GEO in 2018, it foresees AISC of $990 per GEO in 2019 thanks to the transition to newer high-grade zones. Rounding out the look at the company's assets, we find that management expects 2019 AISC per GEO at Cerro Moro, El Penon, and Jacobina to be $890, $1,050, and $890, respectively.
The golden takeaway
While I'm curious to see how well the company did in keeping costs in check last quarter, and whether there's any news regarding Agua Rica, I'll be most interested to see how well Cerro Moro fared. If the company reports lackluster results at the mine, it may indicate that management's expectations were a little too lofty, and the company's future is not as golden as it had previously predicted.