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XMFSinchiruna (27.47)

They Broke the Mould With Yamana Gold

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February 24, 2011 – Comments (31) | RELATED TICKERS: AUY , GG , AEM

AUY fair value = $30+

They Broke the Mould With Yamana Gold

Consider this juicy tidbit: Thanks to the company's 188 million pounds of low-cost copper production to offset its gold mining costs, Yamana expended only $50 to procure each of the 1.05 million gold equivalent ounces (GEOs) the company mined during 2010! With gold averaging more than $1,200 for 2010, Yamana logged a year for the industry's record books with a competition-busting 4-digit cash margin per GEO. Yamana's per-ounce profitability continues to outrank those of much larger producers like Barrick Gold (NYSE: ABX) and Newmont Mining (NYSE: NEM), which reported 2010 by-product production costs of $341 and $260 per ounce, respectively. On a consolidated basis, mine operating earnings still performed admirably at 44% of 2010 sales.

.....

Partly as a result of that exploration success, Yamana expanded the scale of its targeted four-year production growth spurt from 50% to 65%, and now eyes massive 2014 output of more than 1.7 million GEOs. That growth will be fed by four new mines coming online in 2012 and 2013, and is wholly independent of any eventual production from the Agua Rica project in Argentina. For those who enjoy considering the very long-term outlook, consider that Agua Rica alone accounts for more than one-third of Yamana's GEO reserves, and a gargantuan 80% of the company's 12.2 billion-pound copper hoard.

.....

While non-producing exploration plays like Seabridge Gold (AMEX: SA) and Rubicon Gold (AMEX: RBY)rocket higher with each successive resource expansion, I marvel at the extent to which shares of profitable gold producers like Yamana and Agnico-Eagle appear to receive little adjustment from the market for meaningful reserve growth. I have previously posited fair value for Yamana at $30 per share at gold prices beneath the current level, and I for one am content to wait patiently for the market to correct this collective error in judgement. routinely see their shares

31 Comments – Post Your Own

#1) On February 24, 2011 at 10:20 PM, mhy729 (30.74) wrote:

Thanks for this update on Yamana!  I hold a nice chunk with a cost-basis around 10, accumulated near the lows last year.  I've been trading in and out of most of my PM positions, but AUY is one I plan on simply holding as gold ascends.

Kinross is another larger-cap miner I am holding (since 2008).  What are your thoughts on KGC?  Paulson seems to have significantly pared back his stake.

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#2) On February 24, 2011 at 10:57 PM, XMFSinchiruna (27.47) wrote:

mhy729

KGC is dirt. They could conceivably, eventually make good ... but I don't see how they could ever catch up to the future performance of an AUY, AEM, or a GG.

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#3) On February 24, 2011 at 10:58 PM, XMFSinchiruna (27.47) wrote:

TMFSinchiruna

Disclosure: I still own a minscule piece of that dirt, but only because it's what's left of my old Bema Gold stake and its free money ... up like 400% even considering KGC's pathetic performance.

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#4) On February 25, 2011 at 12:40 AM, mhy729 (30.74) wrote:

Wow, not quite what I'd hoped to hear, but I certainly appreciate the plain-spoken thumbs down.  Good thing then that I never added to the position since opening it back in '08.  I honestly did feel more optimistic on it when I first heard of Paulson's interest (don't recall when that was exactly, maybe around the time of the Red Back acquisition), but to hear your decidedly negative outlook certainly changes things.

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#5) On February 25, 2011 at 1:00 AM, Valyooo (99.41) wrote:

Let me sum up this article:

Sinchi wrote an article about AUY.  So, it will probably go up soon.  Like everything else he writes about.

So, I will give it the green thumb right now.

:)

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#6) On February 25, 2011 at 8:16 AM, XMFSinchiruna (27.47) wrote:

Valyooo

AUY shares have been ignoring me for years. :)

mhy729

The flip side to my blunt remarks from last night is that KGC could hardly be seen going lower. Even with its less-than-ideal geographical profile, and the huge burden of proof it carries for making the most of prior acquisitions, this stock could still move well in time ... just not enough in my opinion to play catch up.

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#7) On February 25, 2011 at 8:44 AM, XMFSinchiruna (27.47) wrote:

This is a must-read!!

http://www.mineweb.com/mineweb/view/mineweb/en/page504?oid=121483&sn=Detail

:)

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#8) On February 25, 2011 at 10:34 AM, Gonzhouse (75.72) wrote:

Thanks for the Primero update.  Would you recommend buying MNOCF a.d.r or wait for the US Listing?

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#9) On February 25, 2011 at 10:40 AM, outoffocus (23.09) wrote:

Wow.  Good stuff! Makes me wanna buy more Yamana!

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#10) On February 25, 2011 at 10:50 AM, XMFSinchiruna (27.47) wrote:

Gonzhouse

Consider the GPL example!

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#11) On February 25, 2011 at 11:12 AM, Predaking (29.53) wrote:

Thanks for the thoughts on AUY. I read the report on their recent quarter and was blown away by some of the numbers. I just don't get what is holding this stock back.

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#12) On February 25, 2011 at 11:16 AM, jtnrt330 (< 20) wrote:

What do you think of UURAF with it announcement of REE production?

Thanks for all your help.

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#13) On February 25, 2011 at 11:41 AM, silverminer (30.62) wrote:

jtnrt330

Sorry, I'm not familiar with it, and I'm too swamped to have a look at the moment. Thanks for understanding.

C

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#14) On February 25, 2011 at 11:47 AM, bothisellhigher (29.02) wrote:

Thanks for yet more input on why AUY is a terrific investment.  It is rather puzzling to see this stock still around $12.50 though.

Oh well, the arrow still points up, and as you say....$30 fair value.  Or gold $2000 which ever comes first?

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#15) On February 25, 2011 at 12:57 PM, silverminer (30.62) wrote:

bothisellhigher

precisely :)

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#16) On February 25, 2011 at 12:58 PM, jesusfreakinco (28.92) wrote:

Chris,

What are your thoughts on when we start to see a divy being offered more by miners?  I know most probably think the cash flow is better off in exploration and acquisition, but the divy offers a nice floor and disincentive for shorts.  Thought?

JFC

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#17) On February 25, 2011 at 1:49 PM, XMFSinchiruna (27.47) wrote:

jesusfreakinco

We've seen the beginning, they've stated their intention to increase them further, and I look for steady increases in both scale and prevalence of yields through the industry over the next couple of years. The mid-tiers with solid organic growth potential are in the best position to become aggressive with dividends.

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#18) On February 25, 2011 at 2:58 PM, jesusfreakinco (28.92) wrote:

TMFSinchiruna

It probably goes without saying, but it would be great to see an article on free cash flow and potentials of divies.  A lot of us are trying to position our portfolio to take advantage and aren't able to understand the dynamics of what drives companies to offer divies and what allows them to do so.  Appreciate your work!

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#19) On February 25, 2011 at 3:01 PM, XMFSinchiruna (27.47) wrote:

jesusfreakinco

GG and AEM are your best bets for divies. They combine the incredible FCF with demonstrable commitment to shareholders over time.

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#20) On February 25, 2011 at 3:10 PM, XMFSinchiruna (27.47) wrote:

Anyone else raising a touch of cash into today's strength? I can't help myself ... I feel the need to get my cash allocation higher, and some of these gains YTD are so swett for only being February.

Remember, Fools, even though 1,000 arguments can be made for why pms should just continue rocketing higher without pause, the volatility we've seen in recent days should make it clear the near-term is impossible to call with certainty. Plus, those who've been around pms for a while know that March brings a traditionally weakened demand into the mix. While everything points to those traditional dynamics no longer being in play, the previously spurned Fool within continues to respect the March curse just a touch. :)

I know everyone's situation is totally different, but I just wanted to remind folks the mantra that I live by: I will never regret locking in profits. At the same time, I am certainly not inclined to withdraw any positions entirely, but rather to slice a bit off from the top of some noteworthy outperformers.

Don't let this comment spook you, since of course the trend will continue higher, and it's the trend that's your friend. Just a friendly neighborhood reminder that volatility of this nature can be profitable if we maintain some cash on the sidelines to take advantage of relative dips along the way.

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#21) On February 25, 2011 at 3:19 PM, XMFSinchiruna (27.47) wrote:

I should also mention, I've also done some buying today. :) Just so we're all clear I haven't shed a single ounce of near-term bullishness... I just like to be opportunistic and methodical in my effort to keep my cash coffers stoked to pounce upon volatility. I understand that approaqch may not be for everyone. When you're as heavily allocated into pms as I am, such a formula becomes increasingly important, IMO.

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#22) On February 25, 2011 at 3:52 PM, MoneyWorksforMe (< 20) wrote:

What positions have you been trimming Sinch?

The only miner I can think of trimming right now is GPL..Love it overall but it has had one hell of a run since the correction...

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#23) On February 25, 2011 at 4:00 PM, XMFSinchiruna (27.47) wrote:

MoneyWorksforMe

I'm not permitted to say, MWM. I have a quiet period surrounding individual trades.

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#24) On February 25, 2011 at 4:10 PM, MoneyWorksforMe (< 20) wrote:

Hmm on second thought...This looks like it's having an EXK type move...I really think this will continue to outperform until it nears EXK's p/e...But that's another 75% away from it's current price...lol...

Since I purchased GPL many months ago, I have been treating it as an inexpensive EXK...with the recent listing on the NYSE it seems to now have even more in common...

Regardless of the near term movement, I will likely refrain from trimming this one, for fear it will quickly leave me behind if a don't near perfectly time it. I will only look to add to this position when the opportunity arises as I have in the past...

I

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#25) On February 25, 2011 at 4:12 PM, MoneyWorksforMe (< 20) wrote:

Okay no problem...I kina figured that.

Thanks again for the great information you provide on this sector...

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#26) On February 26, 2011 at 11:04 AM, skypilot2005 (< 20) wrote:

On February 25, 2011 at 10:34 AM, Gonzhouse (71.73) wrote:

Thanks for the Primero update.  Would you recommend buying MNOCF a.d.r or wait for the US Listing?

FYI:

Different US Brokers are charging different commissions for trading MNOCF. 

 During the same week recently, one of my brokers charged me an extra $1 per share to buy it.   A different one charged me the normal commission.

 I own several Canadian companies and this is the first time that broker charged me extra.  

 If it is a concern of yours, a little prior DD with your brokers commision schedule may be fortuitous.

 

Sky Pilot

 

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#27) On February 27, 2011 at 9:55 AM, XMFSinchiruna (27.47) wrote:

skypilot2005

That's preposterous! $1 per share? I would fight that tooth and nail if the existence of such an alternate commission structure were not disclosed to you in advance.

And then I would find a new broker. But that's just me. :)

I left my last broker after they nearly backed out trades due to an undisclosed policy regarding limits to micro-cap pink sheet exposure as a % of total account. 

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#28) On February 27, 2011 at 10:23 PM, skypilot2005 (< 20) wrote:

Sinchi,

I think they had a pop up window before, I "pulled the trigger"  but, I know it didn't disclose the $1 per share fee.  Otherwise, I would have put my safety back on.  :)

Thanks to you, I am still ahead on the purchase.  

The account is one of my IRAs. 

I do most of my trading out of one of my 401Ks.  I bought some for that account too, and the charge was normal. 

 That 401K  I might add is up over 150% since 2009 due to my perusal of your writings and a modest amount of D. D. of my own.

I was 100% in cash when the crash occurred.  You see, I bought my first stock in 73' and remember the truly bad stock market and the important lesson I learned is to lock in profits from time to time.  

 I also, remember the very high inflation rates of the 70s.  It's my opinion that you are absolutely correct in recommending  profitable hard asset companies at this time.

 I've made a lot of money  off of them and sleep well at night.  I feel this deficit spending is going to come home to "roost", eventually. 

Years ago, I minored in economics and many Keynesian  macroeconomic principles I believe, still apply and are credible.

One area I've also, dabbled in is REITs. I have some tremendous returns there, as well.  Not as good as your recommendations but well above market average. But, they are a minor portion of my portfolio.

Thanks again Chris, for all of your thorough work and professional attitude.  I can tell you truly care about your readers' best interests.

 

Skypilot

 

 

 

 

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#29) On February 27, 2011 at 10:40 PM, skypilot2005 (< 20) wrote:

 Sinchi,

 You said, "I left my last broker after they nearly backed out trades due to an undisclosed policy regarding limits to micro-cap pink sheet exposure as a % of total account. "

Are you saying they have a policy regarding the type of equities you can hold in your account?

Skypilot

 

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#30) On February 28, 2011 at 12:08 AM, XMFSinchiruna (27.47) wrote:

skypilot2005

Yeah, they placed a 10% cap for pink sheets < $1.

I said adios!

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#31) On February 28, 2011 at 9:39 PM, skypilot2005 (< 20) wrote:

TMFSinchiruna

Sounds like you were dealing with some Bolsheviks.  :)

 

 

 

 

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