Yamana: Stock Down on Concerns about Costs and Forecasts

Shares of emerging mining powerhouse Yamana Gold Inc. (AUY) have plummeted more than 20% in the last month, which is a much worse performance than the gold sector as a whole. UBS Securities analyst Tony Lesiak calculates that Toronto-based Yamana is trading at a 22% discount to the senior gold group average.

What's going on? Mr. Lesiak figures that the stock is firmly caught in "show me" mode. Yamana has grown very fast in the last few years, and he believes that investors are concerned about earnings dilution from recent acquisitions, and possible future ones. They also want to see more evidence that the company's growth forecasts are achievable, and that it can control costs.

In a note to clients he wrote:

In particular, concerns are mounting as to whether El Penon, Minera Florida and Chapada are being pushed too hard, and if Gualcamayo will start up on time. On the other hand, we believe little value has been attributed to Agua Rica, Esquel, the Chapada pyrite option and the growing resource base in Mexico, Brazil and Chile.

Yamana shares are currently trading in the C$14 range, which is well below Mr. Lesiak's prior target of C$19.50. He is cutting his target to C$19.00 to reflect more conservatism in his outlook. However, with a huge disconnect between the current stock price and his target, he is upgrading it to "buy" from "neutral."

Comments

[lon249:]

A raise to a "buy" is long overdue --it's wealth of reserves not only foretell enormous earnings potential but make it a jewel of a takeover candidate!

2008 Apr 06 09:39 AM

[six17:]

Enter your comment hereJr. Take a look at Central Sun Mining, you have to go with proven talent. Peter Tagliamonte was brought in to rescue a disaster in the making. He averted, what would have been one of mining greatest environmental mishaps in Costa Rica. Talk about a horror story (2006-2007) Mr. Tagliamonte did the right thing in closure in BellaVista and in Trononto; he closed out the old Glencairn MGT, brought in his guys from the DEZ days.
Mr. Tagliamonte is rebuilding the former la Libertad now Orosi with the Gretchel mill. A double savings in both cost and time. The expected recoveries rate doubles to 95%, coupled with the drilling result from Dr. Bill Pearson. There is soon the be a new resource and reserves for this gold district.
Just when it sounds to good to be true we are in Nicaragua with Danny “oh boy “Ortega shade of pink as the Presidenta. CSM relationships to the people of Nicaragua woven in as the 3rd largest employers adding schools, medical clinic ,company stores ,housing and a partnership with the government to building a new power supply, updating and adding to the existing grid.
Mr. Tagliamonte is not one with a history to sugar coat or over promise. His track record is one of over delivering, is going to look pretty pretty good in 2009 with a forecasted 250k oz gold produced.
Back to auy Peter Marrone, I once called him a “schoolyard bully”. AUY owns quite bit of CSM, has since the American league trade of one mine and one fine mine manager for 20% of Glee. You think Peter M would have made a call during the slippage of BellaVista? As the writer pointed out he had his hands full or was that tied? My best guess is and was that Peter M was trying to get all the glee for nothing. Mr. Tagliamonte stood up to him. He made some tough decisions, brought in some of “his guys”, and got rid of the sleepy reputation of the former mgt. Might I suggest a wakeup article for your readers.

2008 Apr 06 10:49 AM

[six17:]

sorry guys typo 150 oz forecasted, oh is Cramer back on the yamana mamma?

2008 Apr 06 10:52 AM

[whiteowl:]

"emerging mining powerhouse"? That remains to be seen, doesn't it?

I sold my AUY a long time ago, when I started to worry that management is more interested in building a global empire than they are in building gold mines.

At some point, the jet-set allure takes over and fundamentals are left behind.

I decided to switch my gold money into a company whose management actually seems to enjoy, and to be focused on, building gold mines. I'm not here to pump it, but the name is Agnico-Eagle.

AEM and KGC are two names in the sector that I believe are preferable investments to AUY. There may be others. Beware the "empire builders" with loftier ambitions on their mind than simply creating value for stockholders.

All just my opinion, of course.

2008 Apr 06 10:55 PM

[Chancer:]

Stay away from Central Sun Mining and anything with Peter Tagilamonte in it's management. Investors lost a ton of $ on it's predessor: Glencairn due to Peter T's management and that was Peter's failing management team.
Rendon is just pumping here because he still owns a ton of the stock after the huge reverse split of Glencairn into Central Sun. Both companies were "pump and dump."

2008 Apr 07 04:45 PM

[Dan Schmeidler:]

Yamana will trade well upwards of $20 by the time they are reporting Q3 08 earnings. Why even bash the stock now that it is trading at around $14. ($13.50 last week). Do you really expect it to crash and burn like a WM or MER or LEH or CYN. Since so many people are going crazy talking of Gold falling to the $700's (and below), why not just put the Gold juniors (and seniors) in the same sector as the financials. Just let me know how and which way you decide to compre inflated balance sheets backed by even more inflated securitization to the supply/demand patterns that drive some of the growth/earnings for the (gold) miners. Or even better, let me know how on earth it would be possible for the financials to be trading higher than the miners in about 6 months. I heard some articles talking about inflation not being a concern anymore. I say, make those people go long the financials and short gold. Maybe in a few years those bank shares will come in handy when it's time to record capital losses on your taxes. But of course, according to them, Gold will also be trading at $300 by then.

2008 Apr 08 04:29 AM