In a series of recent articles we investigated the country risk of various mining jurisdictions in which U.S.-listed precious metal miners are active. We collated country risk ratings for these countries from eight different sources and averaged these ratings into compounded country risk scores. The most recent results from this work can be found in this article. Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article. We used our compounded country risk score to evaluate country risk exposure for selected gold and silver mining companies using 2011 production results and reserve statements. As 2012 data becomes available we are providing updates and in the present article we would like to do so for Yamana Gold (AUY).
Yamana Gold is a fast growing gold mining company with low cash production costs and a healthy balance sheet. The market capitalisation is $10.7B and the forward P/E is given as 10.1 on Yahoo.com. Analysts give a median price target of $22.0 for Yamana Gold shares, which is over 50% up from the share price of $14.28 at the time of writing. Last year's gold production was 1.19 gold-equivalent ounces, which puts Yamana Gold firmly among the world's top 10 gold producers.
Yamana Gold operates and explores in Mexico, Argentina, Brazil and Chile. The table below gives the 2012 numbers for production, reserves and resources at each of Yamana's mines and projects. For the computation of gold equivalent ounces we used a silver to gold ratio of 50. which is the same as Yamana Gold uses in its reports. Only precious metal contents was considered for the computation of gold-equivalent reserves and resources.
Consolidating the production and reserve data into a table showing data for each country of exposure results in the table below. The data is already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. Country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).
Numbers have changed only slightly from the scores computed using 2011 data. The risk rating based on production numbers remains slightly above, but comparable to Barrick Gold (ABX). The risk rating on 2012 reserves was reduced slightly compared to the previous year due to disproportionate reserve increases in Brazil compared to the reserves in Argentina. However, the risk ratings based on reserves and resources are considerably higher than the risk rating based on production and put Yamana Gold on par with Kinross Gold (KGC).
Note: 2011 resource scores did not differentiate between measured and indicated resources and inferred resources.
According to our collected data Yamana Gold's country risk is predominantly governed by the exposure to Argentina, which is considered a high country risk jurisdiction. Considering the percentage of mineral resources that Yamana controls in Argentina, and considering ongoing exploration in Argentina (most recently in Cerro Moro) this exposure is unlikely to be reduced significantly in the short term. Investors should consider this risk carefully, but also weigh the risk against the potential rewards that could eventuate from Yamana Gold's properties and mines in Argentina.