Yamana Gold Spikes 9% On Earnings Beat; Strong Guidance

Shares in Yamana Gold (AUY) spiked 9% on Friday, and rose a further 2% after-hours, following the company’s second quarter earnings report. Non-GAAP EPS of $0.07 beat Street expectations by $0.04.

However, GAAP EPS of $0.00 missed by $0.03 while revenue of $303.4M also fell short of Street expectations by $13.03M, and was down 34.5% from the same period last year.

AUY reported gold production of 164,141 ounces and net free cash flow of $60.3M. Lower than expected costs were largely driven by Malartic. At Jacobina, throughput averaged 6,853tpd, ahead of Phase 1 optimization objectives of 6,500tpd. At Malacrtic, record throughput of 63,991tpd was achieved in May.

Looking forward, AUY reiterated its 2020 production guidance of 890,000 GEO, comprised of 786,000 ounces of gold and 10,250,000 ounces of silver. “Production is currently tracking above guidance and, as the year progresses, the company will evaluate further updates to production guidance” it said. 2H20 AISC (all-in sustaining cost) was also reiterated at $1,020–1,060/oz while 4Q20 is expected to have lower costs and higher production.

In a bullish move, Yamana also boosted its annual dividends by 12% to $0.07, marking the third dividend increase of the year and representing a yield of 1.2%.

“Management is confident it will exceed annual guidance and noted it expects 2H20 production to represent >54% of formal full year output guidance” commented RBC Capital analyst Josh Wolfson following the report.

According to Wolfson, Yamana’s outlined 2020 guidance implies 2H spending per quarter would increase to $40m for sustaining capital, $20m for exploration capital, $20m for capitalized exploration, and $7m for exploration expenditure.

He notes that Cerro Moro is expected to improve, but the operation could miss revised targets. As of July, 70-80% of the workforce was back on site, and output is expected to return to steady state in 4Q. Outperformance from Malartic, El Penon, and Minera Florida is expected to offset this, he added.

For instance, at Malartic’s open pit, Barnat is progressing ahead of schedule and 4Q higher grade is expected. Meanwhile at the Malartic underground project, Yamana and its partner have authorized surface infrastructure construction and an exploration ramp into the Odyssey and East Malartic targets (2-year completion timeline), enabling the extraction of a bulk sample of up to 40,000t of ore.

Wolfson has a hold rating on AUY and $4.50 price target. With shares up over 60% year-to-date, his price target indicates 29% downside potential from current levels. Overall analysts are cautiously optimistic with a Moderate Buy consensus and a $5.36 average price target (15% downside potential). (See AUY stock analysis on TipRanks).

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