What happened

Shares of Yamana Gold (NYSE:AUY) took off on Friday, rallying more than 10% by 10:45 a.m. EDT. Driving the gold mining stock higher was its better-than-expected third-quarter report.

So what

Yamana Gold cashed in on higher precious metals prices during the third quarter. That enabled it to produce $49.5 million, or $0.05 per share, of adjusted net earnings. This result was not only an improvement from the $0.02 per share it earned in the year-ago period but also beat the analysts' consensus by $0.03 per share. Cash flow, meanwhile, was even higher at $157.4 million, enabling the company to generate a net $99.9 million of free cash after capital expenses.

Gold nuggets on top of cash.

Image source: Getty Images.

That strong free cash flow -- which was 36% above the average of the last three quarters -- came even though Yamana's gold production declined 22% year over year. The catalyst was a significant uptick in the price of gold, which averaged $1,473 an ounce during the quarter, up from $1,213 in the year-ago period. The company also benefited from an increase in the price of silver from $15.16 an ounce to $17.10.

The gold miner used its strong free cash flow, as well as the proceeds from a previous asset sale, to pay off $800 million in debt during the quarter. Overall, net debt decreased by $810.3 million to $948.9 million. That significant debt reduction will enable the company to generate more free cash from the interest savings, allowing further debt reduction.

Now what

Yamana Gold is focusing on its most profitable mines so that it can generate cash. That's giving it the funds to shore up its balance sheet as well as pay an increasingly attractive dividend. Because of that, it could be a golden opportunity for investors seeking a precious metals stock.