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Here's Why Yamana Gold Rose 22.8% in December

Maxx Chatsko, The Motley Fool

What happened

Shares of gold miner Yamana Gold (NYSE: AUY) rose nearly 23% last month, as investors looked forward to a big 2018. While it's been one of the worst-performing gold stocks on the market in recent years, the company has some of the best growth prospects in the industry. Much of the potential will be realized in the year ahead -- with more to come in 2019.

When coupled with lower operating expenses and a relatively clean balance sheet, booming production between now and the end of the decade could lay the groundwork for delivering Yamana Gold closer to its former glory, when it boasted a market cap over $10 billion. Today it sits at less than one-third of that.

The December gains allowed the stock to deliver an 11% gain for the calendar year.

Toy construction workers building successively taller columns of coins.

Image source: Getty Images.

So what

Management hasn't been shy about touting the company's awesome growth potential. Both gold and silver production are expected to soar in 2018 and 2019 as the Cerro Moro mine ramps up activities. The result: a 17% bump in gold production and over 200% increase in silver production between 2017 and 2019. 

Precious Metal

2017 Est.

2018 Est.

2019 Est.

2017 to 2019 % Change

Gold

0.94 million ounces

1.03 million ounces

1.1 million ounces

17%

Silver

4.74 million ounces

10.0 million ounces

14.5 million ounces

206%

Data source: Yamana Gold investor presentation.

The immediate influx of cash flow first will be used to lower the company's net debt-to-EBITDA ratio from 2.8 at the end of 2017 to its short-term goal of 2.0, and then eventually to 1.5. Management also promises to use some portion of its extra earnings on development-stage assets and directly creating shareholder value through increased dividend payments. 

Now what

Wall Street is right to be excited about what 2018 brings for Yamana Gold stock. Mining companies usually deliver incremental production gains or simply offset production declines elsewhere. Bringing an additional 10 million ounces of annual silver production on line in just two years is almost unprecedented. And given the depressed stock price of the company recently, it promises to force an abrupt readjustment to its market cap, assuming progress is achieved without any surprises.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.