The sale of a Brazilian copper mine will give this gold producer as much as $1 billion to help pay down its high debt and saveover $35 million a year in interest costs.
The company has also added to its remaining properties—all gold mines—with another site set to up its production and cash flow. The acquisition will also help sustain its dividend, which the company will now boost by 100%.
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YAMANA GOLD (Toronto symbol YRI; www.yamana.com) has agreed to sell its Chapada copper mine in Brazil to Lundin Mining (symbol LUN on Toronto) for over $1.0 billion. (All figures except share price and market cap in U.S. dollars.)
Yamana will get $800 million U.S. when the deal closes, plus up to $125 million based on the price of gold and a further $100 million based on Lundin’s planned mine improvements.
The company’s debt is $1.8 billion U.S., or a high 101% of its market cap. The Chapada sale will let Yamana sharply lower that amount and save over $35 million a year in interest costs.
It will use some of that savings to boost its annual dividend by 100%, to $0.04 from $0.02. The stock will then yield 1.6%.
Meanwhile, Yamana’s five remaining mines will give it a focus on gold and steady cash flow.
The company expects Cerro Moro to produce 85,000 ounces of gold and 3.75 million ounces of silver in 2018. That will rise to 125,000 ounces of gold and six million ounces of silver this year. Yearly output then rises to 130,000 ounces of gold and seven million ounces of silver by 2020.
Yamana also holds 20.5% of Leagold Mining (symbol LMC on Toronto). That gold producer owns mines in Mexico and Brazil.
In the three months ended September 30, 2018, the company’s overall gold production rose 10.5%, to 246,788 ounces from 223,272 a year earlier.
Higher costs and lower gold prices offset Yamana’s increased output, and that pushed down its revenue by 10.0%, to $416.8 million from $493.4 million. (All figures except share price and market cap in U.S. dollars.) In addition, cash flow fell by 36.2%, to $120.7 million, or $0.09 a share, from $135.8 million, or $0.14, a year earlier.
The company held cash of $148.9 million, or $0.13 a share, on September 30, 2018. As mentioned, its debt was $1.8 billion U.S.
With a full year’s contribution from Cerro Moro, Yamana should produce 956,000 ounces of gold in 2019. Cash flow per share should be $0.65 U.S. for 2019, with shares trading at just 2.9 times that estimate.
Like most gold stocks, the company’s shares are heavily influenced by gold prices. Still, Yamana’s positive cash flow and steady production give it speculative appeal.
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