Yamana Gold [stock_market_widget type="inline" template="generic" color="default" assets="YRI.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has been in a tough spot this year as the gold miner’s stock has declined more than 15% on account of weak operational performance, and there seems to be no turnaround in sight after the company’s latest set of results.
Yamana delivered a mixed first-quarter report, with its revenue falling short of Wall Street estimates and earnings coming in slightly better than expectations. The company also promised that it is working toward expanding its output in the future. But will that be enough to help the stock turn around?
What’s Wrong with Yamana?
Yamana’s total gold production for the first quarter of 2019 came in at 235,958 ounces, while silver production stood at 3.02 million ounces. For comparison, Yamana produced 199,555 ounces of gold in the prior-year period, while silver production was around 899,261 ounces.
Yamana’s output increased substantially on a year over year basis, but that didn’t help the company increase its revenue because of lower prices.
The company recorded an average realized price of $1,301 per ounce of gold for the quarter, down from the prior-year period’s average realized price of $1,328 an ounce. At the same time, the realized price of silver fell from $16.93 an ounce to $15.52 an ounce year over year.
However, Yamana’s total cost of sales increased to $1,098 an ounce during the quarter as compared to $1,049 in the year-ago period. The lower prices and higher costs combined to hurt Yamana’s operating cash flow, which fell to just $12.4 million in the quarter as compared to $122.4 million in the year-ago quarter.
So what Yamana needs is an improvement in gold prices, and that might arrive in the future thanks to the U.S.-China trade tensions. The good news is that the company is setting itself up to take advantage of an improvement in gold prices by focusing on expanding its production.
Yamana Aims to Expand its Output
Yamana Gold has taken steps of late to improve shareholder returns by selling some of its non-core assets such as Chapada. The sale had raised $1 billion for Yamana, and it is now directing the proceeds toward other assets in a bid to boost production.
The company has pointed out that it will expand its Brazilian operations by way of a $100 million investment to increase its production by 80,000 ounces a year. This production increase will be achieved with the help of the Jacobina mine, where the first expansion phase will increase the capacity to 6,500 tons per day.
The second, and larger, expansion phase will increase the plant capacity to a range of 8,000 tons-8,500 tons per day. This will boost Yamana’s production at the mine to 225,000 ounces a year in the next three years.
Yamana seems to be pulling the right strings to improve its output, and its initiatives should result in long-term gains as gold prices increase. In all, investors can consider taking advantage of the weakness in Yamana stock to build their long positions because there’s a good chance of a turnaround in the future.
