Peter Marrone is the highest-paid CEO in the gold sector. But since he continues to make good on his company's solidly progressing growth spurt, investors are likely to view the compensation as a prize well-earned.
The $11.45 million outlay for 2011 to Yamana Gold's (AUY +0.00%) chairman and CEO not only surpassed the compensation received by his peers at substantially larger producers Barrick Gold (ABX +0.63%) and Goldcorp (GG +0.00%), but even scraped past the sum earned by the head of Canada's largest bank: Toronto-Dominion Bank (TD 0.83%). With a package that generous comes a lofty set of expectations, and I'm pleased to report that Marrone's Yamana continues to deliver phenomenal production growth at some of the industry's leading cash costs.
Yamana grew production by 11% to yield a record 310,490 gold-equivalent ounces (GEOs) for the third quarter, thanks largely to production from the new Mercedes mine (since achieving commercial production back in February). The company enjoyed record quarterly revenue of $612 million on the strength of that production growth, with lower metal prices (particularly for silver and copper).
A 14% year-over-year decline in copper prices sent by-product cash costs climbing to $201 per GEO from $94 in the prior-year period. However, co-product cash costs of $531 per ounce -- just 13% above the prior-year mark -- were more indicative of underlying industrywide cost escalation combined with anticipated variances in ore grades. Eldorado Gold (EGO +4.71%) reported an impressive third-quarter-cash cost of just $493 per ounce, but as industry earnings continue to unfold, I expect we'll see co-product cash costs trending well over $600 per ounce.
Meanwhile, Yamana's monumental build-out phase -- in which annual output is seen expanding by nearly 42% over the next two years -- came with a very positive report card showing substantial progress at each of the underlying projects. Yamana is currently building three mines in Brazil: Ernesto/Pau-a-Pique, C1 Santa Luz, and Pilar. Since the names don't exactly roll off the tongue, for our purposes let's shorten the first two to "Pau" (pronounced "pow") and "Luz."
- Pau is already 96% complete, and Yamana expects commercial production at a rate of 90,000-100,000 ounces per year to commence in about four to six months.
- Luz is 90% complete, with that mine's addition of another 100,000 ounces of gold per year (130,000 ounces for each of the first two full years) set to begin around the middle of 2013.
- Pilar -- where the company is already studying a potential fast-tracked expansion from 120,000 to 140,000 ounces per year -- is already 66% complete even with that additional capacity built in. Yamana sees initial start-up commencing mid-2013, with commercial production following four to six months later.
With the first two projects already so close to physical completion, Yamana has reached a very attractive phase of its build-out initiative; whereby a major portion of the potential for delays or cost overruns that commonly plague mine construction has already passed without a hitch. Any risks to Yamana's optimal execution of its growth spurt, in other words, are on a steady downward slope from here. If you ask me, that gathering confidence in Yamana's outlook for sustainable output of 1.7 million GEOs by 2014 offered the most likely catalyst for the stock's 7% advance Wednesday.
With its break-out to a new all-time high beyond $20 per share, the shares have already delivered a five-bagger performance since I explained why "Yawanna Have Yamana" back in 2008. I have characterized my $30 price target as one of the easiest calls I've made, and I look forward to watching that plan unfold just as Peter Marrone does the same with his.
- Add Yamana Gold to My Watchlist
- Add Goldcorp to My Watchlist
- Add Barrick Gold to My Watchlist
- Add Eldorado Gold to My Watchlist
