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Yamana Gold Misses Earnings Expectations by 2 Cents

- By Alberto Abaterusso

Yamana Gold Inc. (AUY) reported a loss of 1 cent per share, a 133.3% decrease on a year-over-year basis, in its first-quarter 2017 earnings. The Canadian midtier gold producer missed analysts' expectations on earnings by 2 cents.


The numbers were "mainly due to higher costs as a result of a stronger Brazilian real and Chilean peso as well as lower grade and recovery in the current period at certain of the Company's mines, mostly at Chapada," reported the miner.

The gold producer also provided the market with a guidance on 2017 production.

Revenue came in at $403.5 million, a 0.65% increase on a year-over-year basis and missed analysts' expectations by $19.42 million. Revenue in the first quarter was slightly higher than those of the same quarter in 2016 because of the higher average price that Yamana Gold realized from the sale of one ounce of gold (2.6% on a year-over-year basis), silver (15.7% on a year-over-year basis) and copper (20% on a year-over-year basis) that counterbalanced the negative influence on first-quarter revenue from the decline in the number of ounces of gold (3.1% on a year-over-year basis), including Brio Gold's (BRIO.TO) production, and silver (33.5% on a year over year basis) sold during the quarter.

The latter was mainly a consequence of lower production of gold (9.2% on a year-over-year basis) and silver (40% on a year-over-year basis) reported by the Canadian midtier gold producer in first quarter versus the production of the comparable period in 2016.

Excluding the contribution from Brio Gold, total first-quarter revenue was $350.56 million computed according to an average realized gold price of $1,220 per ounce, an average realized silver price of $17.29 per ounce and an average realized copper price of $2.57 per pound. Therefore, the total revenue, including Brio Gold, per one ounce of gold was $1,209, per one ounce of silver was $17.28 and per one pound of copper was $2.35.

The portion of gold production - excluding Brio Gold's production - was 215,647 ounces of gold (the total production, including also that one from Brio Gold, was 257,533 ounces of gold), an 11.4% decrease on a year-over-year basis, while the production of silver and copper during the first quarter of 2017 was 1.08 million ounces and 26.5 million pounds.

In the first quarter Yamana sold 217,681 ounces of attributable gold (267,916 is the total amount of ounces of gold sold including Brio Gold), 1.17 million ounces of silver and 25.2 million pounds of copper.

The production and sale of gold accounts for an estimated 80% of the company's entire business.

Increased gold production on a year-over-year basis at Gualcamayo (3%), Jacobina (7.2%) and from Brio Gold (3.75%) were not enough to counterbalance decreased gold production at Chapada (9.3%), at El Pe??n (40.4%), at Canadian Malartic (3%) and at Minera Florida (16%). The company says that at El Pe??n "the right-sizing and optimization of the mine was the main reason for the overall reduction in production for the mine compared to the first quarter of 2016."

According to Yamana Gold's first-quarter report, the change in another and more efficient hauling contractor at Minera Florida, limited usage of the stockpile at the beginning of the rainy season and lower grades of ore processed at Chapada and planned grade and mine sequencing at Canadian Malartic were the other (minor) reasons why first-quarter gold production was lower compared to first-quarter 2016 gold production.

During the first-quarter Yamana Gold sustained a total cost of $1,045 (up 9.1% on a year-over-year basis) for once ounce of gold sold, $15.14 for one ounce of silver sold (up 25.5% on a year-over-year basis) and $1.81 for one pound of copper sold (down 0.5% on a year-over-year basis).

The cash cost on a co-product basis was $687 for one ounce of gold produced (up $84 per ounce on a year-over-year basis), $10.36 for one ounce of silver produced (up $2.68 per ounce on a year-over-year basis) and $1.78 per one pound of copper produced (up 24 cents per pound on a year-over-year basis).

While the all-in sustaining costs (AISC) on a co-product basis were $912 for one ounce of gold produced (16% higher on a year-over-year basis), $14.24 for one ounce of silver produced (36.5% higher on a year-over-year basis) and $2.13 for one pound of copper produced (15.1% higher on a year-over-year basis).

The increase in costs sustained by Yamana Gold during the first quarter of 2016 compared to the same quarter of one year ago, was mainly a consequence of local currencies' appreciation (Brazilian real and Chilean peso) toward the U.S. dollar combined with "higher tonnage throughput to compensate for generally lower feed grades and lower recovery rates at most of the mines," reported the company.

The AISC also increased because the company used more funds during the first quarter as capex compared to the same quarter of 2016 anomalously marked by a "low development and sustaining capital spend," reports the company.

The cash flow from ongoing operations decreased by 48% from $116.2 million in the first quarter of 2016 to $51.3 million in the first quarter of 2017, writes the company, "as the result of reduction of cash flows from operating activities related to net change in working capital."

After having considered advance payments on a metal purchase agreement of $4.4 million, sustaining capital expenditures of $51.5 million and payments for interest and finance expenses of $18.9 million, the net free cash flow for the first quarter of 2017 was -$23.1 million, a 151.1% decrease from the same figure of the first quarter of 2016.

Before net changes in the working capital the cash flow generated by the company from operations was $117.2 million in the first quarter versus a CFO of $115.1 million in the first quarter of 2016.

For 2017 the company expects to produce 940,000 ounces of gold, 2.2% higher from the previous guidance on gold production but significantly lower than 2016 gold production due to the development in 2016 of a new production plan for El Pe??n mine. The company believes that "the revised plan is more conducive to sustainable production over a long period and takes into account existing mineral reserves, conversion of mineral resources and recent narrow vein discoveries."

For 2017, the total cost of sales, on a consolidated basis, is expected to range between $945 and $965 per ounce of gold sold, to be approximately $14.20 per ounce of silver sold and $1.70 per pound of copper sold.

For 2017, the total cost of sales, on a consolidated basis, is expected to range between $665 and $675 per ounce of gold produced, to be approximately $10.55 per ounce of silver produced and $1.60 per pound of copper produced.

For 2017, the co-product AISC, on a consolidated basis, is expected to range between $890 and $910 per ounce of gold produced, to be approximately $14.30 per ounce of silver produced and $2.00 per pound of copper produced.

Yamana Gold is trading at $2.50 per share and has lost 11% year to date; the gold stock is trading at 0.52 times the book value and 6.90 times the EBITDA.

Disclosure: I have no positions in Yamana Gold.

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