Yamana produces more but misses expectations

Yamana Gold (YRI-T, AUY-N) reported impressive production– results but failed to impress the market with its latest financial -results.

With earnings per share (EPS) of 23¢, the gold producer missed the street estimate of 25¢ per share, as compiled by Thomson Analytics. But despite missing analyst forecasts, earnings were up 15% over last year’s 21¢ EPS for the same period.

Failing to meet expectations could have been behind the slight drop in Yamana’s share price. The stock was off 3%, or 38¢ to $14.15, on 3.4 million shares traded May 2.

Speaking on a conference call about the quarter’s results, Yamana CEO Peter Marrone emphasized the operational side of the story, saying that the company is focused on looking for dependable and organic growth.

Dependable growth was evidenced by a 4% increase in production to 278,832 equivalent oz. gold for the quarter, at cash costs of US$292 per oz. — which was slightly better than planned.

With more production and higher gold prices, it is little wonder that revenues jumped 18% to US$560 million while cash flows from operations registered at US$220 million, or 30¢ per share.

Yamana’s kitty also finished the quarter well stocked, with US$868 million in cash and equivalents. The hefty cash surplus on the balance sheet was further complimented by an improved debt structure.

Marrone explained on the call that the company took advantage of low rates by tapping the private debt market for $232 million in capital. It used the funds to clean up its line of credit and better match its liabilities to its longer-term assets. The debt has a 10-year average maturity and an interest rate of 4.5%, which Marrone says is well below what it had been paying on the line of credit.

With the balance sheet in better shape, Yamana is set to drive production higher over the next three years.

Marrone said the company expects to turn out between 1.2 million and 1.3 million oz. gold for the year, which would represent a 14% increase over last year’s totals — but it doesn’t plan to stop there. Yamana targets producing 1.75 million oz. gold by 2014, which is expected to be the first full year in which all four of its new mines will be in production.

C1 Santa Luz and Ernesto are under development in Brazil, and are expected to go into production later this year.

Pilar — also in Brazil — is expected to reach production next year, and so is Mercedes in Mexico, which went into production just two months ago.

The company also has the promising Agua Rica project in Argentina, which is a large-scale copper, gold, molybdenum and silver porphyry deposit in the northwestern part of the country.

With a key pipeline asset, a wholly owned producing mine and an interest in another mine, the recent move by the Argentine government to nationalize the Argentine assets of Spanish oil producer Repsol YPF has spooked some resource investors.

Marrone, however, expressed confidence in the direction the government is taking.

“I believe the actions of the government in the oil and gas sector are driven by realities of particular economic circumstances, rather than ideology,” he said.

He reminded listeners that the country has held an 8% average economic growth over the last nine years, and that it has the highest gross domestic product per capita in South America.

“The measures introduced by President Cristina Fernandez de Kirchner are aimed at controlling inflation and maintaining the stability of the currency,” Marrone said. “And as an investor, I can support them.”

As for the most recent addition to the company’s growing portfolio of mines — Mercedes — early results were promising.

The mine reached commercial production in February and contributed 23,953 equivalent oz. gold at an average cash cost of US$534 per oz. for the quarter.

Yamana’s other contributions include the Chapada mine in Brazil, with 26,000 oz. gold and 30.3 million lbs. copper produced at a cash cost of US$348 per oz.; El Penon in Chile, with 72,700 oz. gold and 1.89 million oz. silver at $442 per oz.; Gualcamayo in Argentina, with 39,263 oz. gold at $436 oz.; Jacobina in Brazil, with 30,493 oz. gold at $666 per oz.; Minera Florida in Chile, with 24,705 oz. at US$748 per oz.; and Fazenda Brasileiro in Brazil, turning out 14,059 oz. at cash costs of US$1,037 per oz.