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Can you find the misrepresentations in this report on Yamana Gold?



August 06, 2008 – Comments (7)

Read this and if you notice any misrepresentations state them in the comments.  If you have read my posts on gold stocks previously this could be an easy catch.  I think the way investors read it it implies something very different then the truth.


TORONTO (Reuters) - Yamana Gold (YRI.TO: Quote) reported a 20 percent drop in quarterly profit on Wednesday and said it may consider selling assets that don't meet its production cost standards.

The Canadian gold miner, which acquired Meridian Gold and Northern Orion Resources last year, earned $42.1 million, or 6 cents a share, in the second quarter. That was down from $52.8 million, or 14 cents a share, in the year-before period.

Stripping out the impact of a $40.5 million foreign exchange loss and other items, Yamana earned $102.7 million, or 15 cents a share.

Analysts had expected a profit of 16 cents a share before exceptional items.

The Toronto-based miner's quarterly revenues rose 83 percent to $336.9 million as realized gold prices surged to $893 an ounce.

Quarterly cash flow rose 94 percent to $176.5 million.

Production rose 122 percent to 257,498 gold equivalent ounces.

Cash costs per ounce, when using by-product silver and copper sales as an offset, were negative $140 an ounce, compared with negative $434 an ounce a year earlier.

Cost inflation has been a headache for miners as energy, labor and equipment have risen sharply in the past year.

Yamana has also had to deal with the sharp appreciation of the Brazilian currency.


In an interview, Yamana Chief Executive Peter Marrone said the company might sell higher-cost assets as it focuses on its core Chapada and El Penon mines in Brazil and Chile, respectively.

"We have an average cash cost in this company that is below industry average, and when we look at our core assets, well below industry average. Anything that does not perform according to that average, we would look at as non-core," Marrone said.

"We would be looking to trim things that are not producing according to expectations."

Yamana's most expensive operations during the quarter were Sao Francisco in Brazil at $667 an ounce and San Andres in Honduras at $642 an ounce.

Marrone also said the company was not planning any more acquisitions. Other miners such as Goldcorp (G.TO: Quote), Kinross (K.TO: Quote) and Barrick (ABX.TO: Quote) have been buying up small players with development-stage properties to take advantage of low valuations.

Yamana has seven operating mines and five development projects, with properties in Argentina, Brazil, Chile, Mexico, Honduras and the United States.

The company expects to produce between 610,000 and 685,000 gold equivalent ounces over the rest of the year.

It also expects to boost its annual production to 2.2 million gold equivalent ounces by 2012.


7 Comments – Post Your Own

#1) On August 07, 2008 at 1:09 AM, AnomaLee (29.09) wrote:

what is it?

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#2) On August 07, 2008 at 2:11 AM, dwot (29.15) wrote:

Production rose 122 percent to 257,498 gold equivalent ounces.

Cash costs per ounce, when using by-product silver and copper sales as an offset, were negative $140 an ounce, compared with negative $434 an ounce a year earlier.

 Consider what they wrote above.  Gold equivalent ounces means that they take other metals and they convert what those metals contribution would be in dollars relative to gold.  So say gold $900 and copper $4, 225 pounds of copper would be an equivalent of gold.  So they are counting the other metals in the gold equivalent.

The very next statement they use cash costs.  This means they look at how many ounces of gold and they take the income from the other metals and subtract it from the cost for each ounce of gold.

Essentially, they count the base metals twice with the way they write this up.  No where do they tell you the actual number of gold ounces they produced.  

I have found in discussions with investors when they do their calculations they will use the gold equivalent and multiply that by the price of gold and then come up with an estimate of costs using the cost per ounce from the cash costs, so the company is going to make $900 x 257,000 and an extra $140 x 257,000 for those other metals.

That part of the reporting I find grossly misleading.

My guess is that 1/2 of the money is not coming from gold and you essentially have copper trading at a forward P/E of about 42.

Average realized gold price per ounce $ 893 $ 911
Average realized silver price per ounce $ 17.20 $ 17.49
Chapada average realized copper price per lb $ 3.81 $ 3.73

Gold sales (ounces) 193,150 380,350
Silver sales (millions of ounces) 2.9 5.3
Chapada payable copper contained in
concentrate sales (millions of lbs) 35.2 68.4

172 million gold,  50 million silver, $134 million copper,more than half not from gold.

I went digging for the truth...

Average cash costs for the quarter net of by-product credits were $(140) per ounce compared to
$(434) per ounce for the comparative quarter ended June 30, 2007. On a co-product basis
average cash costs for the quarter from Chapada were $0.98 per pound of copper and $345 per
ounce of gold. Including Alumbrera consolidated co-product cash costs were $1.24 per pound
of copper and $276 per ounce of gold for the quarter. This compares to $0.72 per pound of
copper and $325 per ounce of gold in the second quarter of 2007.

On another point, try to figure out those adjustments...  I spend a lot of time trying to sort them up, but I give up.  It looks like they don't want to acknowledge that costs are up enormously  once you account for the difference in the exchance rate.  Let's ignore the exchange rate and assume that had nothing to do with the reason why the price of gold went up...

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#3) On August 07, 2008 at 2:48 AM, AnomaLee (29.09) wrote:

I quickly noticed the statement on exchange rates and energy costs, but the statement on reserves didn't stand out given a short anttention span.

I'm glad I asked instead of guessing and remaining ignorant.

Thank you...

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#4) On August 07, 2008 at 7:34 AM, devoish (71.86) wrote:

I knew the share dilution was too easy.

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#5) On August 07, 2008 at 10:33 AM, dwot (29.15) wrote:

This gold equivalent and cash cost thing that quite a few companies use in press releases is extremely misleading.

The dilution is huge.  That was due to a 3 way merger.  Northern Orion was sitting on millions in cash and they gave to share holders in the other company.

But, on another point, what a disaster, three companies merged and earnings are less then when it was not merged.  I did not go back and verify the merge date, but I am assuming the last year figure is before just due to the earnings being about 40% of last year instead of  about 80% had share count remained the same.

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#6) On August 07, 2008 at 12:02 PM, anchak (99.91) wrote:

I wanted to rec this 10 times.... I am long Yamana just tepidly....mainly because of the Gold story ....but I have continuously noticed this obfuscation not just from them - all around. Makes it very difficult to hold gold producers ahead of earnings - they want to hold onto their High P/Es.

Seems none can match up their production figures.

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#7) On August 07, 2008 at 1:04 PM, dwot (29.15) wrote:

anchak, I think history will repeat itself on what I think of as the technology age gold rush.  The historical gold rushes had most people losing everything.  The machines and technology for extracting the gold got better, but the gold yield declined.  If you look at the end of the gold rush all that was left was the big machines for the time for getting at the rock and grinding it.  Everything was sufficiently explored and the existing technology left nothing left to mine.

You look at every gold producer out there and their gold reserves/resources are declining.  They are are dramatically increasing their mining rate for the same, and in some cases still have declining yields.  The cost increases for the declining grades have become absolutely critical.  

And then when you think the gold story through, well, gold is going up because of currency declines, which is another huge source of cost increases.  Gold may go to $1600 or $2000, but there are going be extremely dramatic things that will probably affect cost should that happen.

And gold mines seem to have about 10 year lifes, means you need 10% return.  Where does the money come from to build replacement mines otherwise?  It doesn't have these kinds of returns and these companies seem to be sinking themselves with new debt/equity to build new mines.

Goldcorp is one I've followed closely and they still can't finance replacement mines from earnings?  They were debt-free about 2 years ago and they've racked it right on again to build new mines.  A company with that many mines should be able to finance new mines out of earns, otherwise that should be a strong signal that there is going to be a serious problems.

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