Yamana Gold Inc. has finally provided an update on its Agua Rica development project in Argentina, and the economics look very strong.
The company now envisions Agua Rica as a standalone project producing 282 million pounds of copper and 136,000 gold equivalent ounces a year. The internal rate of return (IRR) is estimated at 15% assuming gold prices of US$950 an ounce and copper prices of US$2.25. The IRR jumps to 24% using higher prices (US$1,050 gold and US$3.25 copper).
Analysts are generally pleased with the numbers, which suggest Agua Rica will be a very robust project.
The company is seeking a strategic partner to share the estimated US$2.1-billion construction cost, and BMO Capital Markets analyst David Haughton expects that it will get one.
Analyst Dan Rollins of UBS Securities anticipates that capital costs will come it at US$2.4-billion, above Yamana's current target. His production forecast for Agua Rica is largely in line with the company's estimates. He did not make any changes to his valuation for Yamana given the lack of an updated feasibility study on Agua Rica. He rates the stock a "buy" with a price target of $16.00 a share.