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G. P. Rouse
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I am an independant technical analyst/trader - I have 7yrs of individual market participatory experience using technical analysis methodology along with 3 years at a small investment fund. I have also been involved in an entrepreneurial role with a consumer driven web-start up I co-founded... More
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  • AUY: A cup and handle filled with fundamentals 0 comments
    Nov 7, 2010 7:56 PM | about stocks: AUY, KGC, TRQ, AU, GG
    With gold prices at record levels, and this new $1,000 gold quote largely accepted in the new world, AUY could be poised to make a run higher. Looking at the relative performance of the stock compared to other juniors such as KGC, AU, and GG, you can see AUY has lagged and stalled during these recent boom times in junior miners. It is showing some of the worst performance among some of it's equivalents.

    3 Mines To Commence In 2012

    A 3yr period of a stagnating bottom line may be about to change as Yamana plans for 3 mines to commence in 2012. The company currently produces around 1.1 million GEO's and expects that number to hover or slightly rise for 2011 as more efficiencies are constructed and worked through existing mines. It's what it expects to do in 2012 that matters - the company expects production to jump, reaching near 1.5 million GEO's by 2012 with the addition of 3 mines coming into production: C1 Santa Luz (Brazil), Mercedes (Mexico), Ernesto/Pau-Au-Pique (Brazil).

    With an expected near 30% jump in production numbers coming in 12-16 months and we continue to see rising prices in gold, this makes a good case to own AUY for the long-term. Nothing has come online since 2009 in terms of Gold expansion, since the 20 month construction of Gualcamayo in Argentina. This 2012 production expansion means rising revenue. With the increase in projected gold production of 400,000 ounces, this adds nearly $500 million in revenue using an avg. price of $1,200 an ounce. This increases the current $1.4 billion in revenue(ttm) to $1.9 - 2 Billion in projected revenue, a near 35% jump in revenue.


    If we look at a simple Book Value comparison in a couple of the junior miners, we can see AUY trades at 1.22 Price to Book - that's puts AUY trading very near book value as of today. With GG and KGC trading at 2 and 2.23 Price to Book respectively, AUY could almost double to get where KGC and GG are trading. And to reach the relative Price to Book of AU and IVN, AUY would have to rise 2-3x in price.


    Junior Miners Current Price as of 11/05/10 Book Value Price To Book EBITDA in Millions
    AU 49.31 8.69 5.66 -686  


    46.23 23.07 2 1072  


    11.71 9.41 1.22 592  


    18.84 8.46 2.23 1025  


    25.5 3.47 7.65 -297  

    The Book Value and Price To Book value are telling you that AUY is undervalued and could be headed higher. Based on a possible technical formation called the Cup and Handle AUY could be headed for $15 dollars in the near term, and if we valued it at a Price to Book of 2, we'd be trading around 18. And if the market valued AUY according to an AU and IVN book value, AUY would be in the 30's, heading to $40.

    The technical formation above is a continuation pattern. The trend has been up, but stalled in the past 3 years as Yamana focused on integrating new efficiencies in production, rather than new production. Now Yamana is ready to ramp up production and the last time they did this, AUY went from $2 to a high near $18 dollars from 2005 - 2008. With gold prices elevated, production getting set to rise, a book value that may be lagging its coming rising production, Yamana is set to run and possibly even jump a few times.

    Disclosure: No Position
    Stocks: AUY, KGC, TRQ, AU, GG
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  • Is Gold's current upward medium term trend all but over - so what about those miners? http://bit.ly/bh9gfJ
    Oct 30, 2010
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