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Is Yamana Gold Making Any Progress in Reducing Its Debt?

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Financial leverage to improve

Yamana Gold (AUY) is committed to reducing its net debt by $300 million by the end of 2017. The company is targeting a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of below 1.5x.

The above chart shows the financial leverage for Yamana compared to its peers. The company expects improvement in its financial leverage in 2016 as debt reduction initiatives continue and as EBITDA rises on higher production.

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Efforts to reduce debt

Yamana recently announced the spin-off of its Brio Gold unit. The proceeds from the spin-off of Brio Gold should enable Yamana to reduce its net debt. Apart from this, Yamana raised a total of $178 million through the completion of its Mercedes mine sale and the monetization of its Sandstorm (SAND) warrant holdings. On October 3, 2016, the company announced the completion of its sale of the gold and silver Mercedes mine in Mexico for a consideration of $122.5 million in cash and ~$22 million in shares, equity securities, and net smelter royalties.

Yamana also sold share purchase warrants to purchase 15 million shares of Sandstorm Gold for total proceeds of ~$33.6 million. The total proceeds from both of these transactions will also be applied to reducing debt.

Yamana’s peers (RING) have also been involved in similar portfolio restructuring transactions. AngloGold Ashanti (AU) sold its Cripple Creek & Victor mine to Newmont Mining (NEM), and Barrick Gold (ABX) sold its Nevada assets to Kinross Gold (KGC).

Comfortable liquidity position

The company had over $240 million in cash and cash equivalents and approximately $824 million in undrawn credit available at the end of 3Q16. Its debt maturities are also manageable, with only $94.4 million due over the next 12 months.

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