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Will Yamana’s Chapada Mine Sale Improve Its Shareholder Returns?

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Nov. 20 2020, Updated 3:30 p.m. ET

Dividends to double

Yamana Gold (AUY) announced today that it has agreed to sell its Chapada mine to Lundin Gold (LUNMF) for $1 billion. Due to this transaction, Yamana will increase the annual dividends by 100% to $0.04 per share, implying a yield of 1.6%. The company expects to cover this increase from savings on interest payments due to the planned debt retirement. Yamana also announced it would purchase up to 5% of its shares on the Toronto Stock Exchange and the New York Stock Exchange. Yamana has also identified organic opportunities to grow higher-margin production.

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Returns over production growth

Rather than production, the company is focusing on generating free cash flows and increasing shareholder returns. In its investor presentation, the company also said that “substantial capital” was required to maintain gold production at Chapada. The redirection of cash flows towards Chapada would have limited opportunities for increased shareholder returns.

Investors’ focus on returns

Investors have become quite wary of the risks the gold miners (GDX) were taking to increase gold (GLD) production. Many miners, including Barrick Gold (GOLD) and Newmont Mining (NEM), were punished for their push towards increasing production through mistimed acquisitions at the peak of the commodity price cycle.

In January, Eldorado Gold (EGO) announced that it would be resuming mining and heap leach operations at its Kışladağ mine in Turkey. With this announcement, the company suspended its previously announced mill project. Its stock price was handsomely rewarded for this move. IAMGOLD Corp (IAG) also announced on January 28 that it would be deferring its decision to proceed with the construction of its Côté Gold project in Ontario. The company’s decision came as a relief for investors and analysts alike. IAG climbed more than 9% on January 28.

You can also read Yamana Gold: Why Wall Street Says “Buy” for Yamana’s analyst ratings.

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