Yamana Gold Stock Has Room for More Upside

Yamana Gold was down in the dumps for the better part of the first half of the year, but it has made a tremendous comeback in the past month. The stock has gained more than 31% during this period, thanks to the rally in gold prices as well as some of the moves that Yamana has made of late.

The company recently released its preliminary second-quarter results, and investors would have probably liked what they saw. Let’s see why Yamana Gold stock could get better as the year progresses.

Yamana Is on Course to Achieve Its Targets

Yamana Gold announced second-quarter gold equivalent production of 257,556 ounces and reaffirmed its full-year guidance of just over 1 million ounces of gold.

A closer look at how some of the mines performed during the quarter will make it evident why investors seem to be upbeat about Yamana Gold’s prospects. First of all, the Jacobina mine in Brazil is expected to deliver 152,000 ounces of gold this year, up from the company’s prior guidance of 145,000 ounces.

More importantly, Yamana said that the Jacobina mine will keep getting better with time. The company has increased the three-year production guidance for this mine with a plan to increase production to 225,000 ounces a year by 2023.

The mine delivered production of 144,000 ounces last year, which means that Yamana was originally expecting a minor increase in output in 2019. But things are now looking better thanks to Yamana’s solid operational execution at the mine. As Seeking Alpha reports:

The mine produced more than 144K oz. of gold in 2018, and the company says it is a year ahead of schedule in its plans to increase sustainable production to 150K oz./year and now forecasts life of mine production of more than 170K oz./year after 2021.

The good news is that Yamana won’t be stopping its development work at the mine anytime soon. The company has announced that it is looking to expand the Phase 2 plant at Jacobina to boost annual production to 200,000 ounces, and then to 225,000 ounces by 2023.

More Positives to Note

The gold miner has recently taken steps to improve its balance sheet and operational profile.

The potential increase in Yamana’s long-term production is not the only reason why investors seem to be upbeat about the company. The gold miner has recently taken steps to improve its balance sheet and operational profile.

Yamana has sold its Chapada mine to Lundin Gold for a value of more than $1 billion. The company will use the proceeds of the sale to extinguish its debt and reduce leverage. According to Yamana’s press release:

The reduction in net debt immediately lowers Yamana’s Net Debt/EBITDA leverage ratio, a measure of financial strength, to 1.5x. The Company continues to target Net Debt/EBITDA of 1.0x by the end of 2021.

What’s more, Yamana will witness a drop in its interest burden to the tune of $40 million annually. So, the potential increase in production at Yamana and the sale of its mine to reduce the debt burden make it a nice bet thanks to the recent increase in gold prices.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
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.

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