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Yamana Gold: The Recent Decline Isn't Justified

Nov. 02, 2021 3:42 PM ETPan American Silver Corp. (PAAS), YRI:CA37 Comments


  • Yamana is performing exceptionally well both operationally and financially.
  • The current operations more than support Yamana's $3.8 billion valuation.
  • Yamana is getting zero value for MARA, even though its 56.25% stake is worth ~$2.5 billion at current gold and copper prices.
  • Yamana is well-positioned to deliver on all of this value.
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Yamana Gold's (AUY) financial results that were released after the close last Thursday were exceptional. Revenue increased to $452.2 million compared to $437.4 million in Q2 2021, while operating cash flow surged 24% QoQ to $190.6 million. This, despite lower realized prices for

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This article was written by

SomaBull profile picture

I’m a private investor with a strong track record of outperformance, and also currently work as a research consultant for high-net-worth clients who invest in the precious metals sector.

My focus was mostly on Tech/Internet when I started investing, but almost 20 years ago I became extremely interested in the gold and silver sector as I anticipated a major bull run.

I’ve been doing in-depth research on gold and silver miners since then. I'm familiar with their stories, their stock patterns, their highs and lows, their operations/projects, their successes and failures, their management teams and turnover at the top, and all other facets of these precious metal companies.

This sector is my singular focus as I expect a massive bull market will unfold. These mining stocks are the cheapest they have been in over a decade, some in fact, are near multi-decade lows as they are oversold and significantly undervalued. I expect strong appreciation in these mining stocks as the bull market in gold and silver recommences.

I believe in buying value, and not chasing the next hot stock. I use several basic investing principles, the main one being buying the balance sheet. I wait for opportunities to present themselves and then establish positions. I believe in doing your homework, and I have a very research intensive focus.

*Disclaimer* I am not a Certified Financial Advisor. My research and articles should not be interpreted as a recommendation to purchase, sell, or hold any security at any time. The accuracy, completeness, or timeliness of the information posted in my articles is not guaranteed. Do not rely on any statement that I make in my articles. All readers and subscribers should always conduct their own research and should consult a professional financial advisor when it comes to making investment decisions.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of AUY,AEM either through stock ownership, options, or other derivatives. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (37)

Their update this morning nailed it. Not many other miners can brag like Yamana can. They're doing great!
@passionatepiper65 Agreed, though I had to smile at their comment:
"However, as part of the normal course of business when negotiating labour agreements, a labour action was commenced."
Chaffey profile picture
Seems to me there is just too much money chasing too few stocks. That's why we have inflated stocks. BR has 9 trillion under management? A lot of money just driving stock prices.
Interesting publication yesterday: " Elevated Inflation Not Enough For Gold " by author Russ Koesterich-CFA, JD, Managing Director & portfolio manager for BlackRock's Global Allocation Fund. BR is the world's largest asset manager with over $9 trillion under management. If they are nibbling in the Precious Metal space, just may be we should pay attention. This should prove to be a good entry level in AUY.
Spitfire MK V profile picture
Be careful here , Marrone and Co. have a history of over promise , under deliver through poor execution and strategies . The price on the street is for a reason , don't bet the farm on this flea bag .
Tippman profile picture
@Spitfire MK V No. I bet the house.
Nice write up, thanks.

Recently took a new position at C$4.85 and looking to add.
SilverisREALMoney profile picture
Yamana is one of my favorite miners b/c of it's healthy mix of gold and silver production. I like the $5 call options with April expiry. Gran Colombia, Kinross, and B2Gold are also massively undervalued imo. Thanks for the write up.
@SomaBull Re: Nov 2/21---Your comment " AUY is a core holding that should be at $8.00, not $4.00. Below it you state--" This company generates free cash flow @ $1500--$1600--$1700. It doesn't matter if gold drops $100 per ounce AUY will still be making money. Could you possibly consider a publication with the opposite view moving from defense to offence--FCF @ $2000-$2100-$2200 etc. How important is a rise of $100 per ounce? How soon cold this "DEBT" be removed from this balance sheet ( Net Zero ) moving forward? I believe these are issues, you are about to visit sooner rather later.
Chaffey profile picture
Price of gold didn't help today. I know how to pick losers...he he .
Cashdollar profile picture
The company should do a 10:1 reverse stock split. This would get the share count down. Some investors and mutual funds won't consider stocks with a share price below $5. It's purely psychological but I think it would help.
Investor since ‘73 profile picture
@Cashdollar That sounds good at first blush and it’s true that many institutional buyers won’t consider ‘penny’ stocks, now defined as under $10 but history shows that reverse splits are disastrous the vast majority of the time. I guess it’s seen as a desperate attempt to legitimize a company. This company should be able to get there simply based on it’s fundamentals. Higher production, lower AISC, higher dividends, lower debt, great prospects from exploration, etc. should, at some point begin to mean something to investors. Not all miners are equal.
Chancer profile picture
@Investor since ‘73:
I just sold my last US oil producer, because their IR dept. tipped me they would reverse split 1:5 increasing my average cost from $3.60 to $18, and reducing my shares by 80%. No thanks.

I own AM at $4.17. They raised their share price by paying a higher dividend, which I have always said is better and faster than buybacks and reverse splits.
claymore58 profile picture
@Chancer Throw in debt reduction, and you are spot on!
Currently Sandstorm has a 0.25% royalty, which converts to a 20% gold stream at 30% of the gold price for an advance payment of $135-225m for the life of the mine. Equally, SAND gets no imputed value for this royalty/asset.
Yes the Gold stocks are being severely punished, due to lack of heavy weight institutional ownership in the sector. Please see David Kranzler-" The Set-Up For Precious Metals is Historic ". Both articles are an excellent read and the combination speaks volumes as what to expect looking forward. Attacking the gold stocks from the short side is one thing, but $GOLD may be another issue.
astute pathways profile picture
I will be in gold this month....since Dec -January are strong months for Metals
astute pathways profile picture
The 2.5 billion value assigned to MARA is much less ,when you factor in all the costs to extract the metals...What surprises me more is that gold prices are not higher with Bidens administration money giveaway and inflation...Thanks for nice article
@astute pathways I think the author’s valuation was based on DCF and even used a conservative 8% discount rate. All costs to extract the metals were factored into the model (see note on aisc)
markh profile picture
Excellent article SomaBull; AUY remains one of my core gold/silver holdings, and the copper exposure doesn't hurt either. While it languishes in price, there is some solace in at least collecting a reasonable dividend and ability to generate additional income in relatively safe out-of the money put option sales. Long term hold it is and the tide will come in eventually, IMHO. Cheers
AUY is spending it's capital smartly and the street hates it! True for all the other miners too.

No mergers with large premiums, large debt borrowings, and big banks cannot make money selling their products to miners and investors....the miners learned from their mistakes a decade ago and now get no respect. Some day it will shine on these miners, until then just trade the swings.
AUY had a C $21 M private placement in Ascot Resources (AOT AOTVF) in April 2021 for 6.4% of the common stock. Ascot is expected to have gold production in Q4 2022. Do you think Yamana Gold will take (1) an equity position and increase ownership (2) remain with a 6.4% position or (3) JV with Ascot pre-production or subsequently next year? Thanks.
It is basically zero earnings growth for three years and a PE of about 13 right now. That doesn't strike me as some great bargain. Why is worth $8 besides wishing?
SomaBull profile picture
@optional- , read the article, I already explained. And, zero growth doesn't mean it should be trading at a 50% discount to fair value of the cash generating ability of its assets. Where is the logic to that argument?

Simont profile picture
@optional- : What other stocks could you buy with P/E around $13, aside of many mispriced gold/silver miners?
@SomaBull , Cash generation that never results in actual earnings is real problem.
Hi Somabull, great article highlighting a very undervalued stock…but then there are so many Gold miners that are undervalued currently. I’ve recently been switching into Streamers and Royalty companies for the diversification and free optionality…they’re also very cheap right now. I still believe that the inflation we are seeing is not transitory and PMs should do VERY a well in the coming years,tony
SomaBull profile picture
@tonyconnolly , thanks. I agree, AUY is just one of many undervalued gold miners.

I am stumped as to why this and other gold stocks are doing nothing.
Simont profile picture
@motto5448 : There are a few reasons. One is the manipulation of the gold/silver price, another is bitcoin and other cryptos siphoning away inflation hedging capital which would have traditionally gone into precious metals and miners.
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