Yamana Gold Inc

Yamana Gold Inc (NYSE: AUY) is a US-listed producer of precious metals. The Company has production and exploration properties and land positions of gold and silver across the Americas.

Investment Highlights – Yamana Gold Inc – Buy at USD 4.93

• Despite the challenges presented by the covid-19 pandemic, the Company has shown strong gold production and generated robust cash from operations.
• In the last one year, the Company delivered a substantial return of ~28.05 and delivered higher returns compared to the benchmark Index.
• Over the course of 2 years (Q4 FY2018 – Q4 FY2020), the Company’s operating profit surged from USD 16.1 million in Q4 FY2018 to USD 333.4 million in Q4 FY2020, reflecting a growth trajectory of ~ 355.06%.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 48 level), which means the stock price could increase in the short term.

Key Risks

• The Company is exposed to financial risk with fluctuations in Gold price and exchange rates.
• The Covid-19 pandemic can disrupt the supply chain, and planned production might not be achieved.

Financial Highlights – Q4 and FY2020 (31 December 2020) (released on 12 February 2021)

(Source: Quarterly Report, Company Website) 

• In the fourth quarter of the financial year 2020, driven by higher realized prices for gold and silver, the revenue increased to $461.80 million. The revenue for FY2020 declined.
• The operating earnings in Q4 FY2020 and FY2020 increased to $333.4 million and $585.8 million, respectively, reflecting improved revenue and net impairment reversal of mining operations.
• Driven by the positive impact of foreign exchange on the costs and strong precious metal prices, the Company reported strong cash flows from operating activities of $181.5 million.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown an increase in financial performance in the fourth quarter of the financial year 2020, while financial performance declined in FY2020. The trading performance in Q4 FY2020 was benefited by higher realized prices for gold and silver and positive impact of foreign exchange. Despite the lockdown restrictions, the Company maintained production in the fourth quarter as per the plan. AUY’s mine earnings in Q4 FY2020 increased significantly by 282%, reflecting strong operational performance and precious metal price environment. The Company has sufficient liquidity to manage the business and meet capital allocation objectives. The stock made a 52-week low and high of USD 2.23 and USD 7.02, respectively.

Based on the factors discussed above, we have given a “Buy” recommendation on Yamana Gold Inc at the closing price of USD 4.93 (as on 11 February 2021), with lower double-digit upside potential based on 13.20x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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