How Did the Market React to Yamana’s Exploration Update?



Yamana’s results miss

Yamana Gold’s (AUY) 2Q16 results were weaker than expected. The company reported EBITDA (earnings before interest, tax, depreciation, and amortization) of $148 million, which was lower than consensus expectations of $167 million. The miss was mainly driven by weaker production and higher-than-expected costs. Issues at its Chapada mine and foreign exchange rate movements were responsible for the cost miss. To reflect this, the company had increased its cost guidance for 2016. Since its 2Q16 results until September 6, the company has lost 14.4%, while the VanEck Vectors Gold Miners ETF (GDX) lost 6.2% in the same period.

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Reaction to exploration update

Investors were probably concerned about the weaker production growth going forward, which could also impact the costs negatively. The exploration update seems to have eased some of these concerns. After the update, the company’s stock rose by 7% while GDX rose by 4.8% on the same day.

Relative outperformance

The company has also outperformed GDX year-to-date. While GDX increased by 109% until September 6, Yamana’s stock has gained 163% in the same period. The SPDR Gold Shares ETF (GLD), which tracks the spot price of gold, has risen by 25%. By comparison, Agnico Eagle Mines (AEM), New Gold (NGD), and Eldorado Gold (EGO) have risen by 107%, 140%, and 20%, 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.

In the next part of this series, we’ll look at Yamana’s exploration update for Chapada.


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