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Yamana (AUY) to Divest Its Royalty Portfolio for $65 Million

Yamana Gold Inc. AUY recently agreed to divest a portfolio of royalty interests to Guerrero Ventures for total consideration of $65 million. Also, the company stated that the contingent payment will be received upon declaration of commercial production at the Deep Carbonates Project (DCP) at the Gualcamayo gold mine.  

Yamana’s latest move is in sync with the company’s efforts to optimize portfolio and improve financial flexibility. Moreover, the company believes that the divestiture will boost its general exploration programs and contribution to the dividend reserve fund. The deal also enables Yamana to receive a considerable stake in a new royalty company with a strong asset base.  

Guerrero will purchase two portfolios of precious metals stream, royalty as well as gold loan assets from Yamana and Orion Resource Partners (USA) LP for $65 million and $268 million, respectively. Per the arrangement, Guerrero will satisfy the purchase price of Yamana by issuing $45 million in common shares of Guerrero stock and by paying cash consideration of $20 million on closing.

Yamana’s portfolio of assets, which are being sold under the agreement, consists of 1% net smelter return royalty (NSR) on gold production from the Riacho dos Machados gold mine, 2% NSR on oxide gold production from the Gualcamayo gold mine, 1.5% NSR on production from the DCP and 2% NSR on production from the Suruca project.

Upon closing of the transaction, Guerrero plans to change its corporate name to Nomad Royalty Company Ltd. Yamana is expected to hold around 13% of the outstanding shares of Nomad, on a pro-forma basis. Yamana expects the transaction to be completed in second-quarter 2020, subject to standard closing conditions.

Shares of Yamana have surged 56.1% in the past year compared with 30.5% growth of its industry.

Yamana expects to produce 857,000 ounces of gold and 11.5 million ounces of silver in 2020. Total cost of sales is expected between $1,130 and $1,170 per gold equivalent ounces for 2020. AISC for gold is expected to be $980-$1020 per ounce for 2020.

Zacks Rank & Key Picks

Yamana currently carries a Zacks Rank #3 (Hold).

Few better-ranked stocks in the basic materials space are Daqo New Energy Corp DQ, Sibanye Gold Limited SBSW and Impala Platinum Holdings Limited IMPUY, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy has an expected long-term earnings growth rate of 29%. The company’s shares have surged 70.7% in the past year.

Sibanye has an expected long-term earnings growth rate of 20.4%. Its shares have returned 108.2% in the past year.    

Impala Platinum has an expected long-term earnings growth rate of 26.5%. The company’s shares have surged 108.7% in the past year.

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