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XMFSinchiruna (27.53)

Yamana's Pivotal Moment

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March 08, 2011 – Comments (20) | RELATED TICKERS: AUY

This will eventually be seen as the crucial pivoting point between Yamana's extended stay in limbo and its resurgence to catch the pack of golden outperformers.

 

Yamana, Partners To Integrate Agua Rica Into Alumbrera Mine 9:20a ET March 8, 2011 (Dow Jones) Yamana, Partners To Integrate Agua Rica Into Alumbrera Mine
DOW JONES NEWSWIRES
Yamana Gold Inc. (AUY) and its joint-venture partners in the producing Alumbrera mine in Argentina have struck an agreement which will see Yamana's nearby development-stage Agua Rica project ultimately integrated into Alumbrera.
The Toronto-based miner's Alumbrera partners are Xstrata PLC (XTA.LN) and Goldcorp Inc. (GG). Subject to Xstrata and Goldcorp exercising their option to have Alumbrera acquire Agua Rica, and following the integration, Xstrata, Goldcorp and Yamana would respectively own 50%, 37.5% and 12.5% of the combined project. Those are the stakes the companies now own in Alumbrera, a large and low-cost gold and copper mine in western Argentina.
Given that Yamana would own 12.5% of the combined project, it's effectively selling 87.5% of Agua Rica. It will receive initial payments totaling $110 million from the two partners. Upon approval to proceed with construction at Agua Rica, it will get another $150 million, and a final $50 million once commercial production is achieved.
The deal includes a deferred consideration revenue stream from the project, which Yamana said will allow it to retain positive exposure to the majority of the significant gold resources at Agua Rica.
According to Yamana's website, Agua Rica is a large-scale copper, gold, silver and molybdenum deposit expected to produce 370 million pounds of copper and 148,000 ounces of gold annually during the first 10 years of production.
The companies expect significant synergies from the move, which comes at a time of strong global demand and prices for both copper and gold.

 

20 Comments – Post Your Own

#1) On March 08, 2011 at 9:53 AM, Jbay76 (< 20) wrote:

So what do you think Yamana will do with the money they are getting for selling such a huge allocation of their Agua Rica project?

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#2) On March 08, 2011 at 10:01 AM, XMFSinchiruna (27.53) wrote:

It's development capital, both for ongoing construction and for Agua Rica itself. I haven't read over the particulars of the deal yet, including the "deferred consideration revenue stream", so I'm issuing my official reaction to the development as yet. But at first glance its a positive step toward accelerating the market's overdue revaluation of the shares.

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#3) On March 08, 2011 at 12:23 PM, amoldov (32.46) wrote:

Is there a silver equivalent to Yamana ... maybe Pan American? I mean a silver miner overlooked by the market.

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#4) On March 08, 2011 at 1:37 PM, XMFSinchiruna (27.53) wrote:

Here's Yamana's formula for its deferred gold revenue stream:

Halifax, Month Day, 2007

65% of payable gold produced X (spot gold price - ($450 + 10% X         (spot gold price - $1000))), up to a maximum of 2.3 million ounces         paid to Yamana At $1,440 gold, I calculate that to = $2.18B assuming the full 2.3m oz. Could someone kindly check my math?

 

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#5) On March 08, 2011 at 1:38 PM, XMFSinchiruna (27.53) wrote:

At $1,440 gold, I calculate that to = $2.18B assuming the full 2.3m oz. Could someone kindly check my math?

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#6) On March 08, 2011 at 3:28 PM, amoldov (32.46) wrote:

It's 1.41B according to the formula, for the full 2.3m. My math must be pessimistic...

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#7) On March 08, 2011 at 3:36 PM, geneticbiscuit (98.77) wrote:

Yup, 1.41B =  0.65 x (1440 - (450 + 0.1x(1440-1000))) x 2,300,000

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#8) On March 08, 2011 at 3:42 PM, catoismymotor (< 20) wrote:

I'd help but I always forget to carry the 1.

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#9) On March 08, 2011 at 3:54 PM, XMFSinchiruna (27.53) wrote:

I think you guys might be misinterpreting the 65% part. But let me run my thinking by you so you can help make sure I'm not missing something.

The way I read the clause, that's 65% of payable gold production, meaning the formula will applied to 65% of gold produced until the 2.3 million-ounce cap has been reached. Therefore, I don't see the 65% entering into the formula at all. If anyone has an argument for how I may be reading it wrong, I'm all ears. 

Let's run the numbers again using $1,400 gold, since that's the price I've chosen for my write-up.

I get $1,400 - ($450 +10% of ($1,400 - $1,000) X 2.3 million oz.

$1,400 - ($450 + $40) X 2.3m oz.

$910 X 2.3m oz. = $2.09B

I will run it by Yamana for confirmation, but I'm pretty sure that's the correct interpretation. As I said, though, I'm open to alternate interpretations.

Thanks for your help!

Sinch

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#10) On March 08, 2011 at 4:31 PM, Valyooo (99.57) wrote:

Sinchi,

Sorry to be off topic but I don't know how else to ask you.  I finally took some profits on GPL (it was hard to not do so earlier) and I used the proceeds to buy some SIL (now my silver components are 50/50 GPL/SIL).  Good or bad move?  SIL has been underperforming SLV for 6 months, which makes no sense at all to me. I figured 6 months is long enough.  Is the disconnect a good buying opp or a sign of bad things to come?  HL is only 5% of it, so that can't be a huge dragging factor.  I don't have the time/inclination to learn about how to fully analyze mining stocks (one day I will, but now I am job hunting, finishing college, learning TA, and learning about energy first) which is why I like things like SIL.  If you think SIL is a bad choice, maybe I will park my money in CEF instead.

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#11) On March 08, 2011 at 4:33 PM, Valyooo (99.57) wrote:

I would like to add that I am not of the type who thinks that just because a stock has had a huge run up that it is over valued.  Just that I don't know enough about GPL to justify having it as my only silver position.

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#12) On March 08, 2011 at 4:38 PM, XMFSinchiruna (27.53) wrote:

Valyooo

SIL is a fine choice fopr someone with just a couple of holdings in the sector. Just keep an eye on the major holdings, which include ADRs like Fresnillo and Penoles. Both solid companies, but I would watch them nonetheless. Also keep an eye on Pan American for developments re: Navidad. What that said, as ETFs go, I think it's a great one-stop shop.

As far as your comment on another blog suggesting that critiques of SLV are ill-founded, as I responded there, you are mistaken on that point. Mark my words.

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#13) On March 08, 2011 at 4:41 PM, Valyooo (99.57) wrote:

Anything in particular to keep an eye on for those companies?

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#14) On March 08, 2011 at 5:57 PM, XMFSinchiruna (27.53) wrote:

Valyooo

No, just watch them as you would any holding.

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#15) On March 08, 2011 at 6:14 PM, Valyooo (99.57) wrote:

Also, do you think if oil goes back down to the 90s that silver will get hurt short term?

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#16) On March 08, 2011 at 7:32 PM, Valyooo (99.57) wrote:

By the way, I just saw your resposne to me in your Hecla thread.  Funny, when it dove, I was thinking "people must have just read sinchi's article" haha.  Obviously it was not your fault that HL messed up, so those scathing you are out of their mind.

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#17) On March 08, 2011 at 9:17 PM, geneticbiscuit (98.77) wrote:

"I think you guys might be misinterpreting the 65% part."

Very possibly.  I tend to think of these things in a much more cynical way - basically that they are worded by a PR specialist to make the average reader think it is way more valuble than it really is.  Take this statement:

 "Yamana’s royalty stream is on 65 per cent of Agua Rica gold production, up to a maximum of 2.3 million ounces, and Agua Rica is projected to produce 370 million pounds of copper and 148,000 ounces of gold each year for the first 10 year."

Seems to me that expectations are 96,200 oz of production/year that the royalties are applied to (148,000 x 0.65).  The 2.3M oz (royalty payble) would take 24 years to produce at this rate...  Again, this is the pessimistic viewpoint given the existing statement (and I'm very green in the PM sector so it's quite possible/almost certain that I'm missing something here), but I think it is worth digging deeper to find out what they really meant.

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#18) On March 09, 2011 at 1:04 AM, Valyooo (99.57) wrote:

@MoneyWorksforme

Yes, true, it spiked for a long time...but using that logic, you should never sell silver, because it could always spike higher.  Not selling at the highs last time would have been disastrous (I think we are nowhere close, just saying).

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#19) On March 09, 2011 at 9:34 AM, XMFSinchiruna (27.53) wrote:

geneticbiscuit

Your math is correct, and no further digging is required. The 2.3 million ounces will indeed take many years to reach, but that is the nature of a precious metakls revenue stream... it's highly reliable revenue for the long-term ... something long-term shareholders should be thankful for.

Often, these very large scale projects are assessed for potential throughput capacity expansions immediately after they reach commercial production. With total gold reserves of 6.56 million ounces, there is every possibility that 2.3 million ounce portion could be reached within the first ten years if a capacity expansion is pursued.

Either way, the value of the deal is $310 million plus one monster revenue kicker that would equal $2.09 billion at today's gold prices. It could be more, or it could be less, depending upon where prices settle into a new normal for the very long haul. 

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#20) On March 09, 2011 at 11:22 AM, XMFSinchiruna (27.53) wrote:

Here is my final analysis of the deal:

http://www.fool.com/investing/general/2011/03/09/the-biggest-gold-deal-of-2011.aspx

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