Yamana Gold Inc.

 AUY Details

Yamana Gold Inc. (NYSE: AUY) is a Canada-based gold and silver producer. Its allied activities consist of exploration, extraction, processing, and reclamation. The company operates in five mines in the Americas, namely, Canadian Malartic (50% interest), Jacobina (Brazil), El Peñón (Chile), Cerro Moro (Argentina), and Minera Florida (Chile). The company generates most of its revenues from the Canadian Malartic mine, a 50% partnership with Eagles Mines Limited (AGNICO). As of May 24, 2021, AUY’s market capitalization stood at USD 5.02 billion.

Operations and Development Projects Overview (Source: Corporate Presentation, May 2021)

Approved Construction on Odyssey Underground Gold Project: On February 12, 2021, Yamana Gold and Agnico Eagle accepted the expansion in its Odyssey venture at their Canadian Malartic mine in Quebec, Canada. This venture is expected to be Canada’s largest underground mine operation. It entails the improvement of the continuity of deposit withinside the Canadian Malartic and Barnat pits. According to the deposit’s considerable potential, the life expectancy of the mine could expand until 2039. From 2029 onwards, the Odyssey mine is expected to yield a median of 545,000 ounces of gold per annum.

Q1FY21 Results: The company reported an 18.37% increase in revenue to USD 422 million in Q1FY21 (ending March 31, 2021) compared to USD 356.40 million in Q1FY20 (ending March 31, 2020), primarily due to high sales volume and high realized prices for both gold and silver during the quarter. Gold production was 201,117 oz in Q1FY21 as compared to 192,238 oz in Q1FY20. Sales totaled 203,539 oz of gold at an average market price of USD 1,798 /oz in Q1FY21 compared to 193,816 oz of gold at an average market price of USD 1,583 /oz in Q1FY20. Net earnings increased 16.22% to USD 52.30 million in Q1FY21 compared to USD 45 million in Q1FY20. As of March 31, 2021, the company had cash and cash equivalents of USD 678.10 million and available credit of USD 750 million, making the total available liquidity of approximately USD 1.40 billion with total debt (current plus long-term) of USD 994.40 million.

Key Risks: The COVID-19 outbreak can cause supply chain delays disruptions, labor shortages, shutdowns, social unrest, government actions, etc., thus leading to a loss of production and/or other operations.

Outlook: AUY is planning to increase its projects to build its future pipeline. The company has invested around USD 1.33 billion for their Odyssey project at their Canadian Malartic Mine in Quebec, Canada, and is expecting to produce 862 Koz of gold and 10 Moz of silver in FY21. Gold output is estimated to rise further to 889 Koz in FY23.

Production and Cost Outlook (Source: Company Presentation, May 2021)              

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

AUY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: AUY has increased by 13.41% in the past three months and is currently inclined towards its middle point of 52 weeks’ range of USD 3.99 to USD 7.02. We have valued the stock using the EV/EBITDA multiple based relative valuation method and arrived at a target price of USD 5.68. Considering the surge in the stock price in the past three months, fluctuation in gold prices, growth potential, and current valuation, we recommend a “HOLD” rating on the stock at the closing price of USD 5.24, up by 0.58% as of May 24, 2021.