According to the consensus compiled by Thomson Reuters, 77% of analysts covering Yamana Gold (AUY) stock have recommended a “buy,” while 15% have recommended a “hold.” AUY’s target price represents an upside potential of 58% based on its current market price of $3.90.
Yamana’s “buy” ratings have improved to the current level of 77% from 31% a year ago. Yamana saw upgrades from Macquarie, National Bank Financial, GARP Research, GMP Securities, and BMO Capital Markets in 2018.
The latest rating upgrade came from BMO Capital Markets, which upgraded the stock from “market perform” to “outperform.” BMO’s analysts mentioned that the stock’s discount is no longer justified after its second-quarter production update. The update showed significant progress on one of its key new projects, Cerro Moro.
Q2 2018 results
Yamana’s results for the second quarter of 2018 pleasantly surprised investors and analysts on several counts, including higher-than-expected production. Due to better-than-expected operational results, the company feels it is well positioned to exceed its fiscal 2018 guidance of gold (GLD) and copper production. Much of the company’s production and cost improvement is due to the start-up of its newest mine, Cerro Moro.
Cerro Moro: A game changer?
Yamana Gold (AUY) announced the ramp-up of commercial production at its newest mine, Cerro Moro, on June 26. Currently, the mill throughput rate at Cerro Moro is ~900 tons per day, which is 90% of its capacity. It is a significant operation for Yamana, which is expected to contribute meaningfully to Yamana’s production growth at below-average costs. Once Cerro Moro fully ramps up in 2019, it should triple Yamana’s silver production and increase its gold production by ~20% YoY (year-over-year).
Yamana’s all-in sustaining costs are expected to be less than $600 per ounce of gold, and it expects its cash flow and free cash flow to change significantly in the first half of 2018 due to the Cerro Moro start-up. Analysts are quite optimistic about the company’s Cerro Moro mine.
Yamana’s peers (GDX) are also trying to increase their profitable productions. Barrick Gold’s (ABX) production growth is falling, but Agnico Eagle Mines (AEM), Newmont Mining (NEM), and Goldcorp (GG) have steadily increased their production profiles due to their strong project pipelines. The upside to Kinross Gold’s (KGC) production growth lies in the Tasiast Phase Two expansion.