Yamana Gold's New Equity Will Enable More Project Development - TD Newcrest

Yamana Gold Inc.'s (AUY) new C$135-million equity financing doesn't do much for the company's earnings per share in 2009, but according to TD Newcrest analyst Steven Green, it does provide the company with a much needed buffer to fund its project development and debt repayments over the next few years.

"We believe the equity issue was a prudent move to shore up its cash balances given the state of the markets," Mr. Green said in a note to clients.

In addition to the new equity financing, the analyst noted that Yamana Gold also announced an additional C$200-million revolving credit facility and now has C$250-million available in undrawn credit and C$250-million in cash. The company's total debt, meanwhile, stands at C$580-million with a current repayment schedule of approximately C$84.2-million per year.

Mr. Green wrote:

We estimate the company will have plenty of cash flow to fund its debt repayment and project development with free cash flow (prior to debt repayment) of approximately C$850-million over the next four years.

When combined with his lowered copper price forecasts, the equity issue results in a reduction of Yamana's net asset value from C$6.79 to C$6.17. Mr. Green's estimates for earnings per share and cash flow per share in 2009 also dropped from C$0.45 to C$0.31 and from C$0.83 to C$0.69, respectively.

TD Newcrest's new copper price estimate for 2009 is $1.40 per pound, down from $2.25 previously.

As a result of his forecast changes, Mr. Green lowered his price target from $12 to $11 and reduced his rating from "action list buy" to "buy."

Comments

[silverwood:]

Yamana is an excellent company with a very intellengent and respectible CEO, Peter Marone. AUY does have signification copper byproduct that they were hedging at higher prices, I believe they will ride out this deflationary period well and copper price will rebound later in 2009. My opinion is to buy/accumulate AUY on significant pull backs and then be patient.

Jan 06 10:44 PM

[West Coast ...:]

Case in point: Marrone is a good CEO - UNFORTUNATELY he throws tones of money at the wrong companies (Northern Orion) at the peak of valuation and now that the juniors are trampled in the dust he does... NOTHING! Something is wrong here, and their IR is not responding to requests for clarification (ever since I got more specific ;-).

Jan 07 03:34 PM

[relmor:]

I think the answer lies in why arent all juniors owned by other companies right now. Too obvious. That kind of scramble is done behind closed doors. You wont know whats going on, ever, with a company as a stockholder, so you cant stop trying. Its a guessing game which companies are run legitimately and which ones are run as fronts for the central bank goals. I believe AUY might be such one of those companies. They knew to hedge copper(not many did) and they overpayed for Norther Orion. And now they buy nothing... Maybe juniors havent bottomed yet, or maybe some of them have poison pills preventing take overs....Who knows...Just buy on dips and hold long term...If you think AUY is overhyped, there are tons of other options...

Jan 07 05:52 PM

[relmor:]

With projected gold prices in the coming years, increased production, and that copper hedge, I see AUY as fair value around 10 dollars a share. Thats still 8 dollars off its high(stocks usually overexaggerate and get overvalued in a bull market(thats over now).

Jan 07 05:54 PM