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Yamana Gold Improves Its Financial Flexibility in 3rd Quarter

After the market closed on Thursday, Yamana Gold Inc. (NYSE:AUY) issued its third-quarter operating and financial results.

During pre-market trading on Friday, investors were enthusiastic about the Canadian mid-tier mining company's financial results as free cash flow doubled to nearly $100 million and net debt was cut in half to approximately $950 million from the prior-year quarter. The share price was up 10.65% to $3.74.

The change in free cash flow resulted from higher realized metal prices per ounce (gold was up 21.4% to $1,473 and silver was up 12.8% to $17.10), and from strong operations at the Jacobina gold mine in Brazil and the El Penon gold/silver mine in Chile.

Yamana Gold also produced the metals from the Cerro Moro mine in Argentina, the Minera Florida mine in Chile and the Canadian Malartic mine 50% joint venture with Agnico Eagle Mines Limited (AEM).

The miner produced 209,923 ounces of gold and 2,484,155 ounces of silver in the third quarter of 2019 at a higher all-in sustain cost of $1,039 per ounce, up 5.2% from the year-ago quarter due to the company's decision to intensify exploration activities in the second part of 2019.

Improved financial flexibility was mainly achieved thanks to the retirement of $800 million of debt in senior notes announced in August 2019 using the upfront payment Yamana Gold received from Lundin Mining Corporation (TSX:LUN) for the sale of the Chapada mine in Brazil. The deal with Lundin, which was valued over $1 billion, was completed on July 5 earlier this year. Now, the Canadian miner expects a substantial expansion in future profit margins, since the financial cost to sustain operations will be much lower.

The balance sheet as of Sept. 30 had total funds for $850 million, including about $100 million in cash and cash equivalent and $750 million in lines of credit.

These reserves are judged sufficient to finance strategic developments of Jacobina, where the miner targets to increase annual gold production by 40% to 225,000 ounces within 4 years, and of Canadian Malartic, where the company aims to expand production and the life of operations. Yamana Gold is also advancing the Agua Rica mineral project in Argentina for the construction of long life, economically robust mining activities.

Additionally, Yamana Gold posted GAAP earnings per share of 21 cents, beating consensus estimates by 18 cents, on $357.8 million in revenue. This reflects a 15.8% decline in revenue year over year and falls $14.8 million short of expectations.

Sell-side analysts recommend an overweight rating for shares of Yamana Gold Inc., suggesting that the share price will outperform either the industry or the whole market within 52 weeks. The average target price of $4.21 reflects a 16.3% upside from Thursday's closing price of $3.38.

The share price has risen 45% over the past year through Oct. 24 to above the 100- and 200-day simple moving average lines. It is still below the 50-day simple moving average line.

The stock has a market capitalization of $3.23 billion and a 52-week range of $1.78 to $3.78.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.