Analysts: New Yamana Gold Guidance 'More Realistic'

| About: Yamana Gold (AUY)

Yamana Gold Inc. (NYSE:AUY) slashed its production outlook at its analyst day in Toronto Wednesday. The company still plans to reach two million ounces in 2012, but it cut the guidance for each year leading up to that.

According to analysts at Paradigm Capital and BMO Capital Markets, the new development plans appear "more realistic" than the previous ones. For that reason, Don MacLean and Don Blyth of Paradigm called it a positive development for the stock, even though some short-term pain is possible.

However, they also noted that cost guidance was higher than expected. They said they may reduce their net asset value estimate on Yamana by 10% to 15%, but that does not change their view that Yamana shares are attractive at these levels.

"Given Yamana's relatively low costs, strong cash flow and growth, we would expect [the stock] to attract a higher valuation multiple than it does," they wrote in a note to clients.

"Weaker-than-projected quarterly operating results, a recurring theme, and a lack of confidence in the 2012 2.1 [million] ounce [production] target overhangs the valuation. Yesterday's downward guidance is hopefully an important step towards setting more achievable, credible goals."

BMO Capital Markets analyst David Haughton noted that the changes to the outlook highlight the risks of Yamana, but the stock already trades at a discount to many of its peers  He maintained an "outperform" rating on the stock and a target of US$10.00 ($11.94) a share.

The Paradigm analysts put their "buy" rating and $20.00-a-share target under review.