Three Reasons to Invest in Yamana Gold

If you are in the market as an investor or trader, it is almost impossible not to get a solicitation about the next hot gold stock. The claims range from the incredible to the ridiculous. Some of them may become the next “Big Thing”, but most likely not. What makes these pitches so enticing is all of the hype surrounding gold. Some of the solicitations I have read question whether gold will top $2,000 an ounce when it still hasn’t topped $1,000. If the hyperinflation hits, as many pundits say it will, then such numbers are not out of the realm of possibility.

In Yamana Gold Inc. (AUY), investors have a chance to invest in a pure gold play that is making money, is fundamentally sound and has excellent growth potential. Canadian-based Yamana engages in significant gold production, gold development stage properties, exploration properties, and land positions in Brazil, Argentina, Chile, Mexico and Central America. It also has mining interests in other metals, most significantly copper and silver. The company has 9 operating mines and 3 development-stage properties. According to the company, they are actively pursuing growth by expansion of their existing operations, new exploration and strategic purchases of other gold mineral properties in the Americas.

The stock traded as high as $11.77 on May 29th and dropped to $8.44 at the close of Monday’s trading. In its recent chart, AUY is trading at its lower Bollinger Bands range, a bearish condition signaling that the stock is weak relative to the recent price action. MACD reflects a bearish signal, with the indicator trending below its 9-day moving average signal line, indicating downwardly trending moving averages. HOWEVER, I believe that this stock has significant growth potential.

Several recent developments lead me to believe this stock is due to rise:

1. Yamana Gold announced recently that its shares have been added to the FTSE Gold Mines Index, which reflects the global performance of shares of company’s primarily engaged in gold mining.

“Yamana is pleased to be recognized as a premier global gold producer and to join the impressive group of companies comprising the FTSE Gold Mines Index,” said Peter Marrone, Yamana’s chairman and CEO. “Yamana considers that becoming a member of this prestigious index will further increase global investor awareness and its visibility among index-tracking funds.”

The index restricts listing to those companies with sustainable and attributable production of more than 300,000 ounces per year, deriving the majority of their revenues from mined gold. This single fact is going to do more to drive accumulation in the stock than almost any other factor.

2. Yamana has shown a commitment to be a low-cost producer. The company has stated (and facts seem to bear them out) that it is working diligently to shed costs and to keep its operating costs low. The company has recently shed some of its smaller, lower yield mines and are focusing on their larger, more productive mining properties.

3. The price of Gold itself. While gold has recently dropped in price, it appears that long-term gold will rise. This can only bode well for Yamana Gold and its lean operations.

Since Monday, the share price for Yamana Gold has rebounded strongly closing at $8.78 on Tuesday and, mid-day on Wednesday, trading as high as $9.26.

I believe that the climb has only started for Yamana.

Disclosure: No positions

Comments

[Whippet:]

I'm long AUY. One of the most compelling reasons to do so is their lack of hedging at low gold prices, unlike Barrick. This levers them much more strongly against the metal.
Take the recent move down as a buying opportunity. This stock's risk:reward at this price is extremely attractive over the next 12-24 months.

Jun 24 04:29 PM

[GMiki1:]

Not all is rosy at Yamana. Jim Puplava, an AUY stockholder, talks this week at his Financial Sense Newshour about recent asset sales there as being underpriced, which is why analysts have downgraded the stock. Check more deeply if you want to invest here.

Jun 24 09:49 PM

[Windsun33:]

The mutual funds have been buying a lot of AUY lately www.thebuylist.com/def...

Also, they have recently increased it's estimate of gold production from some fields due to higher than expected assay results.

That said, it is still highly dependent on the price of gold, which could go either way.

Jun 25 09:00 AM

[arlin:]

exactly right

On Jun 24 09:49 PM GMiki1 wrote:

> Not all is rosy at Yamana. Jim Puplava, an AUY stockholder, talks
> this week at his Financial Sense Newshour about recent asset sales
> there as being underpriced, which is why analysts have downgraded
> the stock. Check more deeply if you want to invest here.

Jun 25 09:22 AM

[GoGains:]

Thanks for the information. I own AUY and will promply sell when the index funds are through feeding on FTSE Gold Index. Why? We are in a generational bear market. When the general market tanks, index funds drag their constituants along, down, down, down and also increase their volatility at the worst of times.

Jun 25 02:15 PM

[Mongoose:]

I am sticking with AUY,GG,KGC,and JAG. Good Luck Gold Traders.

Jun 25 10:41 PM

[User 422955:]

I'm long AUY. The article gives no comparative information or even opinion. Why is Yamana a BETTER buy than other gold stocks? That's the question, Mr. Brown.

Jun 27 07:26 PM