Why Yamana Gold Stock Could Keep Moving Higher


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"] latest results prove that the company’s turnaround is here to stay. Though the gold miner stuttered a bit in the third quarter, it managed to provide enough evidence that it is pulling the right strings to boost its business.

Let’s take a closer look at the reasons why Yamana stock looks on track to rise higher even after gaining nearly 50% this year.

Yamana Is Gradually Getting Better

Yamana Gold’s results will look like a mixed bag at first glance. The company’s revenue was down nearly 16% year over year during the quarter to $357.8 million. This missed the Wall Street consensus by nearly $15 million.

Yamana’s quarterly gold production came in at 238,600 ounces. However, production fell substantially on a year over year basis as gold output was down 22%. More specifically, Yamana recorded total gold production of nearly 210,000 ounces during the quarter as compared to almost 269,000 ounces a year ago.

This reduction in output was a result of the sale of the Chapada mine that was completed in early July. The sale is having a positive impact on Yamana’s cost profile, bottom line, and cash flow.

Yamana’s all-in sustaining costs increased to $1,039 an ounce as compared to $988 per ounce in the same period last year.

However, Yamana was saved to some extent by favourable gold prices. The company managed to increase its adjusted net earnings to $49.5 million during the quarter as compared to $23.6 million in the prior-year period. Thanks to this, Yamana’s net free cash flow nearly doubled to $100 million in the third quarter.

This improved bottom line and cash flow performance can be attributed to the fact that Yamana enjoyed a gold price of $1,473 an ounce during the quarter. That was nearly 21% higher than the year-ago period. By comparison, the company’s costs increased at a slower pace of only 5%. According to Yamana’s press release:

The change was largely driven by higher gross margins due to favorable metal price increases with stable costs across Yamana mines and a positive net change in working capital.

However, for Yamana to sustain the momentum, the company needs to boost production to take advantage of higher gold prices.

What Next for Yamana Gold?

Analysts expect Yamana Gold’s revenue to drop in the double digits this year, driven by the sale of Chapada. However, the 2020 revenue is expected to decline just 3.5%, which is not surprising as the comparisons will become more favourable.

More importantly, the company’s earnings are expected to pick up the pace next year. Analysts expect Yamana to deliver earnings of $0.19 per share as compared to an estimated $0.11 per share in 2019. This seems possible given the strength in gold prices, and also the fact that Yamana is taking steps to boost production.

So, it would be a good idea for investors to keep holding Yamana stock because it seems capable of delivering more upside.

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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