What Drove the Earnings Miss for Yamana Gold in 2Q16?



Yamana’s earnings miss

Yamana Gold (AUY) released its fiscal 2Q16 results on July 28, 2016, after the market closed, and held the conference call the next day. The company reported EBITDA (earnings before interest, tax, depreciation, and amortization) of $148 million, which is lower than consensus expectations of $167 million.

The miss was driven by weaker production and higher-than-expected costs. Issues at the Chapada mine and foreign exchange rate movements were responsible for the cost miss. The company has now increased its cost guidance for 2016.

The company also made two significant announcements on July 28. The first involved the decision of recommissioning of C1 Santa Luz project, and the second involved the sale of its Mercedes mine.

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Stock reaction to earnings miss

Yamana’s stock price reacted negatively to the earnings miss and cost guidance downgrade. The stock closed 3% lower on July 29, 2016, as compared to a 3% rise for the VanEck Vectors Gold Miners ETF (GDX).

As of July 29, 2016, Yamana’s stock has risen a whopping 300% YTD (year-to-date). Even on a relative basis, the company has outperformed GDX. GDX has risen by 117% YTD, while the SPDR Gold Shares ETF (GLD), which tracks the spot price of gold, has risen by 26%.

By comparison, Agnico Eagle Mines (AEM), New Gold (NGD), and Eldorado Gold (EGO) have risen by 115%, 105%, and 33%, respectively.

Historically, Yamana Gold has lagged behind its peers. Due to its high financial leverage, it’s a higher beta play on gold compared to its peers. This led its share price to rise relatively more than its peers’ shares when the gold rally started at the beginning of 2016.

Series overview

In this series, we’ll look at key takeaways from Yamana Gold’s 2Q16 earnings and call. We’ll also analyze its recent developments with regard to its asset sales and progress toward debt reduction. Yamana’s inconsistent operational performance has been the main concern for investors. In this series, we’ll attempt to see if some of those concerns are subsiding.

Investors can access the gold industry through gold-backed ETFs such as the SPDR Gold Shares (GLD) and the VanEck Vectors Gold Miners ETF (GDX). Agnico Eagle Mines accounts for 2.8% of the total holdings of GDX.

In the next part of this series, we’ll look at Yamana Gold’s production growth.


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