The Gold Report - Thu, Apr 5, 2018

Senior Gold Producer's New Mine Is on Time and Budget

Analyst Andrew Kaip with BMO Capital Markets provided an update on what transpired during the period in which his firm was prohibited from writing about this miner.

Mine truck

In an April 3 research note, Andrew Kaip, an analyst with BMO Capital Markets, weighed in on Yamana Gold Inc.'s (YRI:TSX; AUY:NYSE; YAU:LSE) recent asset sale and shared insights from his site visit to its Cerro Moro project in Argentina.

He noted that the company sold its indirect 50% interest in the exploration properties of Canadian Malartic Corp., including the Kirkland Lake and Hammond Reef properties, to Agnico Eagle for $162.5 million in cash. He described the transaction as "positive" because it "improves liquidity during the pivotal ramp-up period at Cerro Moro and the longer-term net debt outlook."

The company anticipates achieving commercial production at Cerro Moro before mid-2018. As such, all of the forecasted 85 Koz of gold production from that mine would contribute to cash flow, Kaip noted.

After the post-sale period of restriction ended, BMO Capital reinitiated coverage on Yamana with a Market Perform rating and a $3 per share target price. Yamana is currently trading at around $2.65 per share.

Yamana released 2018 guidance of 900,000 ounces (900 Koz) of total gold production, excluding Brio Gold and Gualcamayo, at an all-in sustaining cost (AISC) of $725-745 an ounce ($725-745/oz). According to Kaip, these numbers are in line with BMO's estimates of 903 Koz of gold at an AISC of $737/oz.

Guidance for Cerro Mayo production in 2018 is forecasted to be 85 Koz of gold and 3.8 million ounces of silver at a co-product AISC of $650/oz gold and $9.15/oz silver. "Yamana is expecting very little pre-production, contingent on a smooth ramp-up to 1 thousand tons per day," Kaip explained.

The analyst reported that during the March visit, "we saw Cerro Moro tracking well to budgets and timeline" as it advanced through the commissioning stage. With the mill and tailings storage done, the focus was on the mill and flotation circuit. The back end of the plant was nearly ready for testing.

Mining at the underground Escondida zone was "sufficiently advanced" and moving to stope development, wrote Kaip. Open pits were being "pioneered," and staffing was far along.

Yamana had made changes to its mine plan for Cerro Moro, including decreasing silver production and reducing the size of future stockpiles. BMO views these changes as positive as they derisk execution at the mine once it is in production.

In terms of exploration, Yamana is having success with its refocused efforts at Cerro Moro, Kaip indicated. For one, they led to discovery of the Veronica vein, which "looks as if it will add to the resource base and support higher production for longer."

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