Today, we look at one of the mining stocks we recommend. Yamana Gold operates eight gold mines spread around four countries in Central and South America that are relatively free of political risk. In December, the company also formed a subsidiary, Brio Gold, to hold several of its Brazilian mines. Yamana is considering several options that could help it realize the maximum value from Brio, including a sale, a merger with another producer, or a spinoff. Although still well below its 2015 high of $1,303, gold has rebounded and the shares of Yamana Gold have gained 65% in the past month.
YAMANA GOLD (Toronto symbol YRI; www.yamana.com) owns eight operating gold mines in Mexico, Brazil, Chile and Argentina. It also holds a 12.5% stake in the Alumbrera copper/gold mine in Argentina and has a number of other properties in advanced stages of development.
The company has decided to go ahead with building a $398.0-million mine at its Cerro Moro gold and silver property in Argentina. Production could begin as soon as late 2017.
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The mine will produce an average of 102,000 ounces of gold and 5.0 million ounces of silver over its eight-year life—and its lifespan could be extended with further exploration drilling.
In the three months ended June 30, 2015, the company’s gold production rose 7.1%, to 298,818 ounces from 279,118 a year earlier. That was mainly due to its 50% stake in the Canadian Malartic gold mine in Quebec, which it purchased last year.
The company teamed up with Agnico-Eagle Mines in June 2014 to buy Osisko Mining, which owned Canadian Malartic, for $1.5 billion. This mine contributed 68,440 ounces to Yamana’s latest quarterly output.
Mining stocks: Proceeds from eventual Brio Gold transaction likely earmarked to pay down debt
The higher production helped offset a 7.5% decline in gold prices over the same period. As a result, Yamana’s cash flow rose slightly, to $149.3 million from $149.0 million. However, cash flow per share fell 15.8%, to $0.16 from $0.19, on more shares outstanding.
Yamana holds cash of $119.1 million, or $0.13 a share. Its $1.8 billion of debt is a high 95% of its currently depressed market cap.
In December 2014, the company formed a new subsidiary called Brio Gold to hold some of its Brazilian mines. The company has hired National Bank Financial and CIBC World Markets as financial advisors on this project. It’s now considering a number of options to maximize Brio’s value, including a sale or merger with another producer. It will then likely use the proceeds to pay down debt.
Yamana Gold pays a dividend of $0.02 per share, which yields 2.5%.
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