Yamana Gold Inc. (TSX: YRI) is a Canadian-based precious metals company which is engaged in the production of precious metals like gold and silver. The group operates through the development stage properties, exploration properties, and land positions across Canada, Brazil, Chile and Argentina.  

Key Updates:

• Exceeds FY21 production guidance: For FY21, the company reported its full year production of 1.1 Gold Equivalent Ounces (GEO), higher than its guidance of 1.0 million GEO. This was underpinned by strong momentum from the Canadian Malartic, Jacobina, and El Peñón mines. Notably, during the fourth quarter of FY21, the group registered production of 281,388 GEO, comprised of 240,718 ounces of gold and 3.14 million ounces of silver.

               Source: Company Report

• Registered higher Gold Sales: The company reported a higher gold sale of 728,853 oz in 9MFY21, as compared to 629,565 oz in pcp. Moreover, the average realized price per ounce stood at 1,800 in 9MFY21, higher than 1,739 per ounce in pcp. This has supported the company’s topline, which stood at USD 1,311.6 million, significantly higher than USD 1,099.3 million in pcp.

• New Mineralized Zones Discovered: During the fourth quarter of FY21, the group discovered a potential mineralized zone across the Wasamac mine which would provide a production platform of 200,000 ounces per year, along with a minimum mine life of 15 years. This mine is located nearby the prolific Abitibi-Témiscamingue region of the mining-friendly province of Quebec, and hence provides a higher potential of gold discovery in coming days.
• Improved prospects from the Jacobina Gold belt: The corporation is conducting its second phase expansion program in the Jacobina Mine, and is expected to be completed by Q2FY22. This is expected to enhance the gold production (in Jacobina mine) to almost 230 koz, from 186.206 koz and 178 koz production achieved in FY21 and FY20, respectively. Moreover, Jacobina Gold Belt offers ~155 Km of exploration potential, and hence, the company is focusing on enhancing its regional exploration program across this belt, which looks promising.              

Source: Company Presentation 

• Bullish outlook of Gold: International Gold price has remained in an uptrend since October 2021 due to rising bond yield. Moreover, being a defensive asset class, gold is gaining traction due to the overvalued equity market. Recently, we have seen a growing interest in the Gold ETF segment, which implies that investors are pouring their investments in the same. Continuation of the above trend would support the company’s sales volume in the coming days.
  

• Constant increase in dividend payment: Since FY19, the company has consistently increased its dividend payment supported by stable cash flow generation, which is a key positive. During 9MFY21, the group reported a total dividend payment of USD 75.2 million, significantly higher than USD 36.3 million in pcp.

Source: Company Presentation 

• Improved D/E Ratio: At the end of Q3FY21, the group’s D/E ratio improved to 0.19x from 0.23x in Q2FY21, which indicates prudent capital management. Moreover, this is better than the industry median of 0.24x. The company’s net debt to EBITDA stood at 1.31x in Q3FY21, which is lower than the industry median of 1.47x. A lower ratio indicates higher debt protection metrics of the firm.

Key  Risks:

The company’s performance is correlated to the international gold prices, and price volatility in the commodity prices are likely to dampen the company’s income and cash flows on account of lower realization.

Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report) 

• Improved revenue: YRI announced its quarterly result, wherein the company posted its revenue of USD 452.2 million, higher than USD 439.4 million in pcp. The growth was supported by higher sales of 252,637 GEO in Q3FY21 versus 230,452 GEO in pcp.

• Slightly lower Mine operating earnings: The group posted its Mine operating earnings of USD 154 million, which is marginally lower than USD 157.3 million in pcp. This was primarily due to higher cost of sales coupled with a surge in the depreciation expense.

• Lower operating earnings: The quarter reported a surge in the exploration and evaluation expense (USD 10.9 million v/s USD 3.6 million in pcp), and a higher net other operating expense (USD 10.6 million v/s USD 6.8 million in pcp), partially offset by lower General and administrative costs (USD 19.5 million v/s USD 21.4 million in pcp). Operating earnings stood at USD 113 million v/s USD 128.6 million in pcp.
• Decline in net earnings: The company reported a slide in its net earnings at USD 25.9 million, as compared to USD 55.6 million in pcp. This was primarily attributable to lower operating earnings coupled with a significantly higher finance cost (USD 75.9 million v/s USD 17.5 million in pcp).

Top-10 Shareholders:  Top ten shareholders of the company together hold approximately 26.61% stake, Van Eck Associates Corporation, The Vanguard Group, Inc.  are the major shareholders in the company with an outstanding position of 10.58% and 3.13%, respectively.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales based

 Analysis by Kalkine Group

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

Stock Recommendation:

The company showcased a strong operational performance in Q4FY21 and in FY21, respectively and has generated strong cash flows. Cash and cash equivalents increased by more than USD 65 million to more than USD 305 million in Q4FY21, increase from USD 240 million in Q3FY21. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like First Majestic Silver Corp, Agnico Eagle Mines Ltd etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of YRI at the closing price of CAD 5.27 on January 26, 2022.

One-Year Technical Price Chart (as on January 26, 2022). Analysis by Kalkine Group 

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

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