Can Yamana Gold Narrow the Valuation Gap More?


Oct. 30 2018, Updated 9:01 a.m. ET

Yamana Gold’s valuation

Yamana Gold’s (AUY) valuation multiples, which represent how much investors are willing to pay for a stock based on analysts’ estimates, have ranged between 4.3x and 9.8x over the last five years. Currently, Yamana Gold is trading at a forward EV-to-EBITDA multiple of 5.3x.

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Yamana Gold’s multiple versus historical multiple

Yamana Gold is trading at a 17% discount to its last five-year average multiple. The company is trading on par with the average multiple of intermediate peers (GDXJ) Agnico Eagle Mines (AEM), Eldorado Gold (EGO), Iamgold (IAG), and New Gold (NGD), which have forward EV-to-EBITDA multiples of 10.6x, 5.8x, 3.4x, and 4.5x, respectively.

Narrowing the valuation gap

Historically, Yamana Gold used to trade at a discount to its peers due to its inconsistent operating performance and balance sheet concerns. The company has mainly eliminated the discount. With the start-up of the Cerro Moro mine, Yamana Gold’s production and costs are expected to improve significantly. The company’s free cash flow generation should also increase and sidestep its balance sheet concerns. While growth in the gold mining industry is difficult to come by right now, Yamana Gold is expecting to triple its silver production and increase its gold production by one-fifth next year. Yamana Gold’s valuation could rise more.

Consistent operational performance at all of the mines could help restore investors’ confidence in Yamana Gold. Investors seeking exposure to gold miners while diversifying their risk could consider the VanEck Vectors Gold Miners ETF (GDX), which invests in senior and intermediate gold miners.


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