There isn't any doubt that Yamana Gold Inc. (USA) (NYSE:AUY) may be a good candidate for the long run, especially if 2016 will not be the right year for a definite rise in the price of gold.
With this article I will also try to set the period to start a position for long-term investors.
A strong asset base and a low cost base will allow Yamana Gold to reduce its margins even if the price of gold will not continue the uptrend we have seen during the first part of 2016. I will explain why I think that.
Look at the picture below: the cost-to-sales of gold ratio slightly decreased from 2013 to 2015, but in 2015 the ratio is more or less at the same level of 2 years before when the price of the precious metal started to fall.
In 2015, the company was also able to increase operations at lower grade mines (Chapada mine) that normally involve higher cost of extraction, to increase the production of gold and to contain costs, while the price of gold fell by 13% from $1,227.188 (February 2015) to $1,068.253 (December 2015).
Have a look at the picture below. The production increased with 6.5%, AISC per ounce decreased with 1.8%, while the average realized gold price per ounce decreased with 8%:
The increase in the production of gold mainly came from Chapada (9.3% of the total gold production in 2015), with an average
grade of 0.20 (g/t); from Canadian Malartic (22.4% of the total gold production in 2015), with an average grade of 0.97 (g/t); from
total Minera Florida (8.8% of the total gold production in 2015), with an average grade of 1.50 (g/t); from Jacobina (7.6% of the total
gold production in 2015), with an average grade of 2.03 (g/t) and from Pilar (6.5%), with an average grade of 4.09 (g/t).
Yamana Gold Mineral proven reserves have an average grade of 0.44 (g/t) and total gold proven mineral reserves (Yamana Gold
Mineral proven reserves plus BRIO Gold mineral proven reserve) have an average grade of 0.47 (g/t).
What we can expect in the near term:
The moves of Yamana Gold's share price in the near term, like any other gold stocks, depend on its volatility respect to the changes in the price of gold, the impact of the next earnings announcement on its market value and the analysts' opinions.
For the next quarter, analysts expect EPS of $-0.01 ranging between a low estimate of $-0.04 and a high estimate of $0.05:
But the next earnings announcement, which is forecasted to be negative, will likely not have any impact on the share price that instead will be able to sustain the momentum that it has gained in the last few months for the following reasons:
As cyclical stocks, Yamana Gold share price will follow the upswing from March through late May or the first part of June. Look at the below picture for other gold stocks and the NYSE ARCA GOLD BUGS INDEX. Newmont (NYSE:NEM) and Eldorado (NYSE:EGO) have a lower historical Beta gold than Yamana Gold.
Yamana Gold is historically more volatile than gold. The beta gold that measures the exposure of Yamana Gold's returns to the changes in the price of gold is 1.98 over the period from January 2005 to December 2015. Yamana Gold's historical beta gold is higher than the average of the gold stock industry:
Recently the stock has been upgraded by the analysts:
Considering the recent EPS history of Yamana Gold, the earnings announcements didn't have any impact on the share price of the stock:
Yamana Gold Inc. (TSX:YRI) will release its first quarter 2016 results after market close on May 4, 2016.
My point of view:
Yamana Gold Inc. is a good candidate for the long run and will be able to increase its margins even if the price of gold does not continue its uptrend we have experienced at beginning of 2016.
Actually, considering that the company has the lowest average reserve grade (0.63 g/t) when compared with its peers (1.06 g/t), it proved to be a good performer just when gold trades at its lowest:
For the next 2 months Yamana Gold will be able to sustain the momentum it has gained in the last few months because of the reasons I have explained in this article.
Following a drop in prices that often leads to the yearly low being made sometime late July, this particular period of the year may offer an interesting entry point into this long run candidate, especially if you think like I do that 2016 will not be the right year for a definite rise in the gold price. If you decide to start a long position in Yamana Gold during that period, consider that buying pressure from short sellers may push the share price of the stock higher.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.