Yamana Gold Inc. (AUY) continues to build upon the successes of 2011 moving forward on all fronts, despite a challenging operating environment in Argentina and rising costs. Second quarter production indicates Yamana remains on track to meet 2012 guidance with by-product costs remaining under $250 per gold equivalent ounce (geo).
The problems befalling mining companies in Argentina have affected Yamana as well in both positive and negative ways. On the negative side, export sales from Alumbrera were affected during the quarter with the obstacles overcome and the export backlog expected to be cleared out by the end of the year.
On the positive side, Yamana was able to add Extorre Gold to its development pipeline. Extorre's Cerro Morro project, located in the Santa Cruz province of Argentina, sits in an emerging region, with 1.36 million indicated geo and 1.05 million inferred geo. The area has seen increased activity from majors and mid-majors in 2012, with Eldorado Gold (EGO) linking up with Hunt Mining earlier this year.
Exploration programs continue to yield success across the board. The current exploration program at Pilar has confirmed that the area surrounding the deposit is an area of clustered mineralized zones. Efforts are underway to determine if the area can be developed further, utilizing existing infrastructure (mill has already been increased by 30% from the feasibility level), or developed as a series of multiple mine complexes.
Exploration at Corpo Sul has confirmed that the metallurgy is similar to neighboring Chapada. The plan now is to determine if the the higher grade material can be blended with the existing material or developed as a new mine alongside Chapada.
El Pinon continues to show significant advancement in terms of discovery and delivery of material. Fortuna Este has been expanded along a strike length of 800 meters and two new structures have been discovered along the southern portion of Dorada.
The Elizabeth vein at Pampa Augusta Victoria remains an exploration target for 2012, with the mineralization exhibiting high silver values. Pampa Augusta Victoria is being fast tracked, which will contribute to production at El Pinon, with the potential of increasing production above the current level of 440,000 geo per year.
In Mexico, work continues in and around Mercedes, with current drill work centered around proving up resources from inferred to indicated at the Marianas Zone extension and Lupita. In April, Yamana reached an agreement with a subsidiary of Tara Minerals Corp. to acquire a group of concessions located 65 kilometers northeast of Mercedes, totaling 7,060 hectares in size. Drilling has started, with results expected by the end of 2012.
Financially, Yamana remains in excellent shape, and despite flat commodity prices, the dividend has been increased again to $0.065 cents per share, indicating confidence in future cash flows.
As most gold majors and mid-majors continue to struggle opening new projects, Yamana has moved along to open its newest mine, Mercedes, six months ahead of schedule, and has continued to advance its development pipeline with the goal of achieving 1.75 geo's of production by the end of 2014.
I believe all gold (SPDR Gold Trust ETF: GLD; PowerShares DB Gold Double Long ETN: DGP) stock investors should have Yamana as a core holding in their portfolios, with production growth driving investor returns. The dividend yield of approximately 1.35% provides a nice bonus for a stock with excellent management and a solid growth profile.
Disclosure: I am long AUY.