Why Yamana Gold Is on Track to Get Better

Yamana Gold’s [stock_market_widget type="inline" template="generic" color="default" assets="YRI.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] second-quarter results turned out to be better than expectations as the miner beat Wall Street’s top-line estimates quite comfortably and met the adjusted earnings per share forecast.

This can be considered as a nice turnaround for Yamana since the company wasn’t doing very well in the first half of 2019. However, a rally in gold prices and the steps taken by Yamana to improve its operational profile seem to be bearing fruit as the latest results suggest.

Yamana Gold Is Back on Track

The company has doubled its annual dividend to $0.04 per share.

Yamana Gold’s gold equivalent output for the second quarter increased 7% year over year to 257,556 ounces. At the same time, the company’s average realized price of gold increased slightly from $1,304 an ounce a year ago to $1,307 an ounce during the second quarter of 2019.

The combination of higher gold output and an increase in the average realized price boosted the company’s revenue to $463.5 million for the second quarter. This was an increase of 6.3% over the prior-year period.

However, Yamana Gold’s earnings didn’t increase by a big factor because of an increase in costs. Yamana’s total cost of sales went up to $1,076 per GEO (gold equivalent ounce) sold during the quarter from $1,009 per GEO in the year-ago period. This increase was in line with the jump in the company’s production.

As a result, Yamana’s adjusted earnings fell slightly year over year, along with its operating cash flow before accounting for working capital changes.

However, the good news for Yamana investors is that the company has doubled its annual dividend. Yamana will now be paying an annual dividend of $0.04 per share. This shows management’s confidence in the company’s operating profile, as well as the potential increase in gold prices that could send Yamana stock higher thanks to an improvement in the financial performance.

The Way Ahead Seems Bright

Yamana Gold has stated that the company remains on track to meet its full-year guidance, though that’s just one of the things to like about the company.

For instance, Yamana is looking to diversify its production portfolio by moving deeper into copper, which is a good thing given that the copper market is expected to get into a deficit in the coming years. Yamana’s decision to focus on increasing its copper production will allow it to take advantage of this deficit and improve its financial performance in the long run.

At the same time, investors shouldn’t forget that improving gold prices will continue to be a tailwind for Yamana Gold. The yellow metal is currently trading near the $1,440 an ounce mark. There’s a likelihood that this price will go higher in the future thanks to several factors such as the global economic uncertainty.

So don’t be surprised to see Yamana Gold’s financial performance get better on the back of a further spike in gold prices as well as an improving production profile. In the end, it can be safely said that Yamana Gold is a stock worth holding onto for the long run on the basis of its latest results.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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