Yamana Gold - All You Need To Know About The Q2 2016 Results

| About: Yamana Gold (AUY)
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Summary

AUY produced 313,000 ounces of gold at a very respectable and low cost of 664 per ounce and $964 on an all-in sustaining basis.

AUY generated $202 million in operating cash flow in 2Q'16.

I recommend to take a large chunk off the table now, and keep the cash for a re-test of the $3.75 area.

Picture: El Peñon. Yamana Home site.

Yamana Gold (NYSE: AUY)

This article is an update of my preceding article on Yamana Gold published on May 7, 2016.

On May 4, 2016, Yamana Gold provided the Second-quarter 2016 results.

Conference call transcript 2Q'16, click here.

1 - Actual Total Gold Production for Yamana for 2Q'16.

Gold Segment Q2'16 Q1'16

Q4'15

Q3'15 Q2'15 Q1'15
Chapada 17,299 21,039 34,498 32,029 30,172 22,360
El Peñón 54,123 56,448 59,375 51,983 55,404 60,527
Gualcamayo 40,264 36,603 73,063 44,076 37,558 46,176
Mercedes (to be sold) 22,948 24,304 52,864 20,155 19,306 24,270
Canadian Malartic 72,502 73,613 72,872 76,603 68,440 67,894
Minera Florida 24,211 25,712 29,180 28,989 26,298 28,113
Jacobina 29,002 29,971 28,728 28,080 21,318 18,590
Brio Gold 52,737 40,371 39,181 38,430 35,211 31,178
Pilar 22,806 21,847 - - - -
Fazenda Brazileiro 16,873 18,524 - - - -
RDM 13,058 - - - - -
Total 313,086 308,061 345,788 325,897 298,818 304,874

Note: On April 29, 2016, the Company closed on the restructuring procedures and concurrently attained control of RDM. The financial and operating results of RDM subsequent to this will be consolidated beginning in the second-quarter of 2016.

Graph 2Q'16 Production Snapshot per mine.

Brio Gold > Pilar, RDM and Fazenda Brazileiro

Price of Gold per Oz - YTD:

2Q'16

1Q'16

4Q'15 3Q'15 2Q'15 1Q'15 4Q'14 3Q'14
AUY Realized gold price $ 1,267 1,183 1,104 1,122 1,196 1,217 1,199 1,276

Q2'16 Financial Snapshot

Presentation July 29, 2016. Link here.

Q2'16 Q1'16 Q4'15 Q3'15 Q2'15 Q1'15

Revenue in

$ Million

466.5 430.3 463.0 448.9 455.0 458.1

Gold Production

K Oz

313,086 308,061 345,788 325,897 298,818 304,874

Silver production

M Oz

1.791 1.927 1.960 2.200 2.372 2.480

Copper production

in M lbs

23.2 25.9 43.7 34.0 33.6 29.9
Realized gold price $ 1,267 1,189 1,101 1,122 1,196 1,217

Net income

$ Million

34.8 38.4 (1842.2) (115.0) (7.0) (135.2)

EPS

$/share

0.04 0.04 (1.95) (0.12) (0.01) (0.14)

Adjusted EPS

$/share

0.04 0.03 (0.01) (0.02) (0.01) (0.04)

Mine operating earnings

$ million

63.7 90.0 46.9 49.7 56.2 38.2

Adjusted operating cash flow before change in non-cash working capital

$ million

202.0 128.1 150.5 133.9 149.3 96.0

AISC gold

Co-product

$/Oz

964 804 784 841 896 893

AISC Silver

$/Oz

12.31 10.64 11.46 11.32 11.71 10.45

Cash and Cash equivalent

$ Million

93.4 124.6 119.9 138 119 121.1

Long-term debt

$ Million

1,662.4 1,732.6 1,676.7 1,859.0 1,859.0 1,817.0

Dividend per share

$/share

0.005 0.005 0.005 0.015 0.015 0.015

Shares outstanding (diluted)

in million

948.1 947.67 946.56 946.56 913.72 913.7

Commentary:

Yamana Gold released its 2Q'16 on July 28, 2016. Revenue was $466.5 million up 8.4% quarter over quarter. The quarter results were a disappointment, I must admit.

Chapada mine underperformed in 2Q'16, with a production of only 17,299 oz, due to a mechanical failure with its crusher and some weather related problems. The issues has been resolved and fixed now.

M. Peter Marrone, CEO, said in the conference call:

At Chapada there were several factors that impacted production and that included where mechanical failure with our in-pit crusher. There were also weather related issues which made access to higher grade ore more difficult. The operations would have been able to compensate for the disabled in-pit crusher while it was under repair by mining higher grade softer ores. These softer ores could be processed directly at the plant and bypassing the in-pit crusher, the in-pit crusher creates more efficient management mostly for harder and lower grade ores.

However, the company was forced to reduce its mine guidance for 2016 following the situation that may not be temporary?

So as a result of the production shortfall in the second quarter, production in Chapada is now expected to be 110 million pounds of copper and 106,000 ounces of gold for this year.

On a side note, Brio division has delivered a good production this quarter, and Canadian Malartic continues to be impressive.

M. Peter Marrone announced in the conference call a new guidance for 2016 with a few minor changes.

We continue to expect between 1.26 million ounces and 1.34 million ounces of gold and 6.9 to 7.2 million ounces of silver that was our original guidance at the beginning of the year modified to include RDM that continues to be our guidance today. We are also expecting over 110 million pounds of copper from Chapada this year. We've updated our full-year consolidated cash costs and all-in sustaining costs guidance for this year... We are now expecting cash costs of $635 to $675 per gold ounce and all-in sustaining costs of $880 to $920 per ounce.

Finally, Yamana indicated on July 28, that it has agreed to sell its Mercedes Mine in Mexico to Premier Gold, and will use the cash to reduce debt.

Pursuant to the Agreement, Yamana will receive consideration in the form of cash and equity securities, the value of which was $140 million at the time of negotiations. Total cash and equity securities consideration is summarized as follows:

  1. Cash consideration of $122.5 million;
  2. Approximately 6 million Premier common shares; and
  3. Approximately 3 million Premier common share purchase warrants (exercisable at C$4.75 per common share for 24 months from the closing of the Transaction).

The Company expects to use the proceeds from the Transaction to reduce the Company's net debt position.

Conclusion:

The quarter was not catastrophic, whereas, on the weak side. However, production was disappointing and AISC too high for comfort. In other circumstances, these results would have been satisfactory, but we have to look at them through the to look at them through the "lens of bloated stock price theory". At nearly $6 shareholders expect much better.

I recommend to take a large chunk off the table now, and keep the cash for a re-test of the $3.75 area. However, gold price is of a paramount importance, and if momentum pushes it to over $1,375/$1,400 per ounce, AUY may eventually reach $6.75?

Note: Do not forget to be one of my followers on AUY and get updated on the most recent AUY news (contracts, sales and earnings results).

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.