Is Yamana Gold Inc. a Good Investment?

Yamana Gold Inc. (TSX:YRI)(NYSE:AUY) has had a stellar year. The stock is up significantly, but does this mean it’s a good investment?

| More on:

Gold producers haven’t been this happy in nearly five years.

The price of the precious metal continues to rise. An ounce of gold now costs US$1,320. By way of comparison, just a few months ago gold was selling for less than US$1,100 per ounce, reaching the bottom of a steep drop that started in 2011, when prices were as high as US$1,900 per ounce.

While prices dropped, gold producers were left with expensive mines and fairly inefficient processing standards. Most gold producers were forced to implement strict cost-cutting efforts and work hard at becoming more efficient.

One such gold producer is Yamana Gold Inc. (TSX:YRI)(NYSE:AUY). Yamana has had a tremendous year so far, benefiting greatly from the rally in gold prices, prompting many investors to consider an investment in the gold producer.

Here’s a look at the company and why you should consider investing.

Yamana’s explosive growth

Gold-producer stocks have shot up considerably during the current rally, and Yamana is no exception to this. The stock is currently priced at $7 and is up by 170% year-to-date.

While this is an incredible increase, looking out over a longer term provides some input to the jump in price and brings the company down from the stratosphere. Over the past five years, the stock has been down by 45%. Keep in mind that the time frame was when gold was significantly more expensive, but Yamana was also significantly less efficient.

The fact that Yamana has become more efficient is a key part to the rise in price. One of the main metrics that miners use as a measure of costs and efficiency is the all-in-sustaining-costs figure. This is basically the cost of production in addition to all other costs relating to sustaining production. During the boom years when gold was high priced, the all-in sustaining costs for gold producers could be well over US$1,100 per ounce.

Yamana has managed to get this figure down to US$806 per ounce, which–when coupled with an increase in gold prices–results in a much more favourable environment for the miner.

Yamana’s upcoming results

Yamana will provide second-quarter results next week. The company is widely expected to beat revenue forecasts for the quarter. With gold prices up and production forecasts showing an increase of over 2%, the company should be in line for more positive results stemming from both the production and price upticks.

These increases should propel the company to post a profit for the quarter, and that’s not including any efficiencies the company may have made in terms of bringing costs down and reducing debt.

In terms of debt reduction, last year the company managed to reduce debt by US$286 million with a further US$300 million reduction targeted over the next few years. This reduction only improves the bottom-line results for the company, which should contribute to the better-than-expected results that some analysts are calling for.

In my opinion, Yamana represents a unique opportunity for long-term investors looking at precious metals. The company still has a ways to go to meet the earnings and profits that were commonplace when gold was significantly more expensive, but today’s Yamana is leaner and more efficient.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

More on Metals and Mining Stocks

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »