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

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »

Metals and Mining Stocks

Top Canadian Gold Stocks to Buy Now

Canadian gold mining stocks such as Barrick Gold and Kinross Gold are two top investments in October 2024.

Read more »

todder holds a gold bar
Stocks for Beginners

Is the Worst Over for SSR Mining Stock?

SRR Mining stock has been rising higher after recent earnings performance that made a bit of a comeback. So is…

Read more »