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Can Yamana Gold Continue Its Strong Run in 2016?

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Yamana Gold’s performance in the gold sector

As of February 19, 2016, Yamana Gold’s (AUY) stock has risen 40% YTD (year-to-date) on an absolute basis. Even on a relative basis, the company has outperformed the VanEck Vectors Gold Miners ETF (GDX). GDX has risen 30% YTD, while the SPDR Gold Shares ETF (GLD), which tracks the spot price of gold, has risen 14%.

By comparison, Agnico Eagle Mines (AEM), New Gold (NGD), and Kinross Gold Corporation (KGC) have risen 29%, 28%, and 57%, respectively, during the same period. Eldorado Gold Corporation (EGO) has fallen 3% YTD.

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Historically, Yamana Gold has lagged behind its peers. Due to its high financial leverage, it is a higher beta play on gold versus peers. This led its share price to rise relatively more than its peers’ shares when the gold rally started at the beginning of 2016. Its relative discount to peers might also have been one of the reasons for investors’ interest in the stock. We’ll discuss Yamana Gold’s valuation later in this series.

Earnings in line with expectations

Yamana Gold’s 4Q15 earnings came in almost in line with Market expectations. Its EPS (earnings per share) came in at -$0.01 against consensus expectations of -$0.02. Marginally higher EPS were mainly due to income tax recovery, which offset the revenue decline and higher operating costs.

Yamana Gold had pre-reported its production and costs, so there were no major surprises there. The company also reported posttax impairments of $1.8 billion, which was higher than Market expectations.

Series overview

In this series, we’ll discuss key takeaways from Yamana Gold’s 4Q15 earnings. We’ll also analyze its recent developments with regard to its asset purchases and progress toward debt reduction. We’ll aim to interpret how the company’s management is trying to position itself within the context of this volatile gold price environment.

Investors can access the gold industry through gold-backed ETFs such as the SPDR Gold Shares ETF (GLD) and the VanEck Vectors Gold Miners ETF (GDX). Agnico Eagle Mines accounts for 2.8% of the total holdings of GDX. Continue to the next part of this series for a discussion of Yamana Gold’s reserves and resources.

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