Yamana Gold's War Chest and Potential Acquisitions

by: FP Trading Desk

Yamana Gold Inc. (NYSE:AUY) expects its sale of three mines for $200-million will allow the company to better focus on its core assets and operating jurisdictions. It also plans to advance its high-returning development-stage projects.

“In the end, the plan is aimed at lowering cash operating costs, increasing margins, reserves, production and cash flow per mine,” Wellington West analyst Steve Parsons told clients.

But the senior gold producer has also built up a war chest of approximately C$1-billion in cash and equivalents, undrawn credit and proceeds from mine sales. This has prompted the analyst to suggest Yamana may emerge as a “buyer of significance.”

Yamana operates six mines and has several development/expansion projects in progress in Brazil, Argentina and Chile. Its core operations include the high-grade El Penon gold-silver mine in Chile and the Chapada copper-gold mine in Brazil.

While the disposal of non-core operations will take a bite out of earnings and cash flow, with an acquisition looming, the negative impact may be short-lived, Mr. Parsons said.

He believes Yamana will look to add a larger-scale asset than those it sold. Those relatively near-term, intermediate producers with a long life in stable geopolicitical jurisdictions include Osisko Mining Corp. (OSKFF.PK), Detour Gold Corp. (OTCPK:DRGDF), Jaguar Mining Inc. (NYSE:JAG) and Romarco Minerals Inc.

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