Yamana Gold Stock: Cheap Valuation (NYSE: AUY)
Gold Yamana (NYSE: AUY) is a large gold-producing company with a market capitalization of approximately $4.19 billion dollars. In terms of valuation metrics, currently it is trading roughly at an enterprise value to revenue ratio of approximately 2.42, a price to cash flow ratio of approximately 5.9, an enterprise value to EBITDA ratio of 3.96, a price to book valuation of 0.94 and a price to sales ratio of 2.33. These metrics show that this stock is trading at a very cheap valuation metric in my opinion.
(Source: Corporate presentation of Yamana Gold)
What can also be seen in the screenshot above is that overall cash costs and all-in sustaining costs will also decrease as production increases.
Over a ten-year forecast, Yamana Gold should be well over GEO’s one million ounces. See screenshot below:
(Source: Yamana Gold Corporate Presentation)
As can be seen in the screenshot above, Yamana Gold’s potential to exceed production well over one million ounces of gold relates to the development of its Wasamac project, which is expected to be commissioned. line by 2026. What I love about its future growth is that it’s fully funded either by cash from its balance sheet or its future cash flows. This means that there will be no need to issue a capital increase thus diluting the shareholders, or to access credit facilities, which would increase the debt of the company, thus increasing the cost of interest, which could eventually lead to lower profits, if too much debt is removed. However, this production orientation is based on the accelerated production profile, which in my opinion, an accelerated production profile has the potential for potential delays. What I like about this production profile is that they won’t depend on new exploration discoveries to sustain it.
In terms of company assets, Yamana has five active producing mines and four development assets. See screenshot below:
(Source: Yamana Gold Corporate Presentation)
In terms of assets, its Canadian Malartic mine, which Yamana expects to produce 340,000 to 361,000 GEO in 2021at an all-inclusive sustaining cost of approximately $885 per year ounce. Yamana Gold owns approximately 50 percent of this mine, and it is Canada’s largest gold mine. mine. The Odyssey project has an underground mineral resource of approximately 14.4 million ounces of gold. Production of this segment is expected to begin in 2023 in the Odyssey zone, and production from the high-grade East Gouldie zone is expected to begin with 2027. From 2029 to 2039, this is expected to produce approximately 500,000 to 600,000 ounces of gold.
Its Cerro Moro project is Yamana’s newest mine and underground project, which began production in 2018. This mine is expected to produce approximately 87,000 ounces of gold and 5.355 million ounces of silver in 2021at an all-inclusive sustaining cost of approximately $1,225 per gold equivalent ounce. It is planned to maintain this rate of production until 2030however, there is potential for extending the mine life if exploration is successful.
Its El-Penon project is expected to produce 155,000 ounces of gold and 4.365 million ounces of silver in 2021bringing it to a total of approximately 215,000 gold equivalent ounces, at an all-in sustaining cost of approximately $870 per year. ounce.
Its Jacobina project is an underground mine expected to produce 170,000 ounces of gold in 2021at an all-inclusive sustaining cost of approximately $765 per year ounce. This company is expected to increase its organic production growth by implementing the second phase of its expansion project. Phase two of its expansion project is expected to increase its production rate to approximately 230,000 ounces of gold per year, with a reduction costs, thereby significantly increasing its profit margins. There is a phase three on this project to increase its production growthbut I would wait to see if they can run phase two first, before talking about phase three.
Yamana Gold’s fifth producing asset is its Minera Florida asset. This is an underground mine, which is in the process of transitioning to newer, higher grade zones which could lead to a future increase in production and a longer mine life. In 2021, this mine is expected to produce approximately 84,000 ounces of gold at an all-inclusive sustaining cost of approximately $1,105 per year ounce. This mine has the potential to increase production up to 120,000 ounces annually.
As noted above in the ten-year production outlook, most of its production growth is expected to come from its advanced Wasamac project. It is an underground mine, 100% owned by Yamana Gold, located west of its Canadian Malartic mine. This project has a resource estimate of 1.9 million ounces of gold on a proven and probable basis base, with grades of 2.56 grams per tonne. The first four years of production are estimated at 200,000 ounces of gold, then an average of 169,000 ounces of gold for the rest of the mine. life. The estimated life of this mine is expected to be 15 years or longer.
In financial terms, his total assets divided by the ratio of total liabilities equals approximately $2.5 of assets for every dollar of liabilities. I would say that is a good ratio, because the company is not very indebted. Its current ratio is 1.71, and in terms of operating cash flow divided by its current liabilities, Yamana Gold has a ratio of 1.05. This means that Yamana Gold has enough operating cash flow to pay off all debts due within a year or more. less.
In terms of the income statement, Yamana Gold posted a net loss of $94.1 million in the last trimester. Overall, revenue increased $100 million on an annual basis (YOY), mine operating profit increased on a YOY basis, operating profit and EBIT increased significantly significant on a YOY basis base. However, what caused the significant loss was the large deferred tax charge of $145.3 million dollars last quarter. If you look at the balance sheet, Yamana’s tax problem is unresolved as it estimates it has $1.3846 billion in deferred tax liabilities. I’d like to see them aggressively reduce those tax debts over the next four to five years. quarters. In terms of actual profits, Yamana Gold is very profitable because the deferred tax liability is a non-cash item Objecthowever, income statement results are what I believe drive action, so this needs to be addressed.
In terms of cash flow, Yamana Gold generated $60 million in free cash flow last quarter. However, if you add in the net cash used in the acquisition of investments and other assets, Yamana only generated $41.30 million in free cash flow. If you want to include interest paid, it only generated $19.5 million in free cash. to flow. Operationally, Yamana Gold looks very profitable.
What I like about this company is its Canadian Malartic mine, which is a very large mine with low costs as stated above and has huge production potential. I also like its Jacobina mine, which is expected to increase production by around 60,000 ounces, with the potential to significantly reduce costs.
I also like the company’s valuation metrics, which to me show that they are trading at a really cheap price. Its balance sheet appears to be sound in most respects, with the exception of its growing tax liabilities, and operationally, on a cash flow basis, Yamana appears to be in good health, especially as part significant portion of its CAPEX in the last quarter comes from its acquisition of Monarch gold.
The risk involved in investing in this stock is its tax obligations. As noted above, Yamana Gold has a significant amount of tax debt that it will need to begin paying off over the next four to five quarters at least, which may depress earnings. Another risk is the price of gold, I expect gold to consolidate for at least the rest of this year, and potentially into 2022. I expect gold to rise significantly over the next decade, I think there’s still some consolidation left. This could push the price down or cause it to trade sideways.
Additionally, Yamana appears to be focused on rewarding shareholders by announcing a new share buyback program, where it reserves the right to buy up to 5% of the company’s outstanding actionswhile paying an annual fee dividend of approximately $0.12 per share. I don’t think that will do much to drive up the stock price in the short term as earnings will be unpredictable due to its tax liabilities, however, as earnings smooth out I think that commitment to shareholders may increase the value of Yamana Gold shares in the future.
In conclusion, I think based on the valuation, Yamana is cheap, financially strong and should do well during this gold bull market. I would like him to start reducing his tax debt very aggressively.