In an April 3 research note, Andrew Kaip, an analyst with BMO Capital Markets, weighed in on Yamana Gold Inc.'s (YRI:TSX; AUY:NYSE; YAU:LSE) recent asset sale and shared insights from his site visit to its Cerro Moro project in Argentina.
He noted that the company sold its indirect 50% interest in the exploration properties of Canadian Malartic Corp., including the Kirkland Lake and Hammond Reef properties, to Agnico Eagle for $162.5 million in cash. He described the transaction as "positive" because it "improves liquidity during the pivotal ramp-up period at Cerro Moro and the longer-term net debt outlook."
The company anticipates achieving commercial production at Cerro Moro before mid-2018. As such, all of the forecasted 85 Koz of gold production from that mine would contribute to cash flow, Kaip noted.
After the post-sale period of restriction ended, BMO Capital reinitiated coverage on Yamana with a Market Perform rating and a $3 per share target price. Yamana is currently trading at around $2.65 per share.
Yamana released 2018 guidance of 900,000 ounces (900 Koz) of total gold production, excluding Brio Gold and Gualcamayo, at an all-in sustaining cost (AISC) of $725–745 an ounce ($725–745/oz). According to Kaip, these numbers are in line with BMO's estimates of 903 Koz of gold at an AISC of $737/oz.
Guidance for Cerro Mayo production in 2018 is forecasted to be 85 Koz of gold and 3.8 million ounces of silver at a co-product AISC of $650/oz gold and $9.15/oz silver. "Yamana is expecting very little pre-production, contingent on a smooth ramp-up to 1 thousand tons per day," Kaip explained.
The analyst reported that during the March visit, "we saw Cerro Moro tracking well to budgets and timeline" as it advanced through the commissioning stage. With the mill and tailings storage done, the focus was on the mill and flotation circuit. The back end of the plant was nearly ready for testing.
Mining at the underground Escondida zone was "sufficiently advanced" and moving to stope development, wrote Kaip. Open pits were being "pioneered," and staffing was far along.
Yamana had made changes to its mine plan for Cerro Moro, including decreasing silver production and reducing the size of future stockpiles. BMO views these changes as positive as they derisk execution at the mine once it is in production.
In terms of exploration, Yamana is having success with its refocused efforts at Cerro Moro, Kaip indicated. For one, they led to discovery of the Veronica vein, which "looks as if it will add to the resource base and support higher production for longer."
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Disclosures from BMO Capital Markets, Yamana Gold, April 3, 2018
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Yamana Gold.
Disclosure 9: BMO Capital Markets makes a market in Yamana Gold.
Disclosure 16: A BMO Nesbitt Burns Inc. research analyst has extensively viewed the material operations of Yamana Gold.
Disclosure 17: Yamana Gold, Barrick Gold and Goldcorp has paid or reimbursed some or all of the BMO Nesbitt Burns Inc. analysts travel expenses.
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