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What’s Really Weighing Yamana Down

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Factors impacting Yamana’s estimates

Yamana Gold (AUY) faces short-term concerns related its production and costs. In the medium term, however, its focus on cost cutting, deleveraging, and exploration upsides could lead to a re-rating of the stock.

Yamana reported negative free cash flow in the first quarter due to higher capital expenditure and interest charges. High debt has also been weighing down the stock.

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Analysts’ revenue estimates

According to Thomson Reuters, the consensus forecast for the company’s revenue predicts a 1.9% year-over-year fall to $1.7 billion in 2017. This would be primarily due to expectations of lower production for the year.

Its revenue expectation for 2018, on the other hand, shows an impressive growth of 20.1% as some of its organic growth projects begin. The company could see revenue growth of around 14.6% in 2019.

Earnings estimates

Yamana’s EBITDA (earnings before interest, tax, depreciation, and amortization) growth also implies strength going forward—after 2017. Its EBITDA margin is expected to decline in 2017 to 34.8%, as compared to 35% in 2016.

However, from 2018 onward, as production increases and unit costs decline, its EBITDA growth should pick up. It has expected margins of 41.7% and 44.2% for 2018 and 2019, respectively, which bear testimony to this theory.

To be sure, Yamana has a strong project pipeline, but so do peers (GDX) (SGDM) Newmont Mining (NEM), Agnico Eagle Mines (AEM), and Goldcorp (GG). Investors looking to diversify risk can invest in gold miners through the VanEck Vectors Gold Miners ETF (GDX). The SPDR Gold Shares ETF (GLD) provides exposure to spot gold prices.

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