Analysts trimmed their outlooks for Yamana Gold Inc. after the company’s fourth quarter earnings failed to beat expecations. Yamana pre-released production and overall costs on Jan. 12, so there were no major operational surprises in the results. However, given the more than 5% selloff in its shares on Thursday, some see a buying opportunity.
The lower valuations are the result of declining gold reserve grades at the company’s Jacobina (Brazil), Minera Florida (Chile) and Mercedes (Mexico) mines. However, a 50% increase in the situ value given to the Agua Rica (Argentina) project from $500-million to $750-million from Canaccord Adams analyst Steven Butler, partially offsets the reserve changes.
He cut his target price from US$18.25 to US$17.75, but maintained a Buy rating.
RBC Capital Markets analyst Michael D. Curran also noted that cash costs of US$366 per ounce were higher than expected due to higher costs at the Jacobina and El Penon (Chile) mines. However, this was partially offset by lower-than-expected costs at the new Gualcamayo mine in Argentina.
Yamana was able to successfully replace gold reserves mined in 2009, keeping total reserves at 17.6 million ounces. However, this still leaves it below the peer group average.
“With flattish operating forecasts for the next two years while new mines are built, we see some risk that Yamana shares remain rangebound for several quarters until closer to realizing the next phase of growth for the company in 2012,” Mr. Curran told clients, trimming his target from US$14 to US$13 and downgrading Yamana from Outperform to Sector Perform. He added that investors appear to be adopting a “wait and see” position with respect to Yamana’s growth story and RBC has a muted outlook for gold prices over the next few quarters.
Anita Soni at Credit Suisse cut her target on the stock from US$13 to US$12.25 and left Yamana at a Neutral rating.
After the company reported that operations at Minera Florida had been temporarily suspended as a result of the earthquake that hit Chile on Feb. 27, 2010, the analyst lowered her 2010 production estimates and raised her cash costs outlook. Operations at El Penon were not affected by the quake.
While Yamana continues to trade at a discount to its peer group considering its relatively low operating costs, low political risk and strong balance sheet, Raymond James analyst Brad Humphrey nonetheless lowered his target multiple from 2.0x to 1.8x. He said this better reflects the company’s flat production profile and limited reserve growth in 2009. Despite trimming his price target from US$18.50 to US$16.60, he continues to recommend investors buy Yamana, maintaining an Outpeform rating.