Can Yamana Gold's Stock Continue Its Upward Trend?

NEW YORK (TheStreet) -- Shares of Canadian gold producer Yamana Gold (AUY) have risen 14% during the past three months, raising the question of whether they have more room to run.

The stock, though, was off 7 cents to $8.43 on Tuesday morning, and it's down 1.7% year to date, compared with a 4.3% gain for the Standard & Poor's 500 Index

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This year, Yamana has benefited from its acquisition of a 50% stake in Osisko Mining. Agnico Eagle Mines (AEM), another Canadian gold producer, acquired the other 50% of Osisko.

Yamana and Agnico are operating Osisko's Malartic mine in Quebec. That is helping lead to higher production for Yamana, and because the production costs are lower in Malartic than for Yamana elsewhere, the company's production cost per gold ounce is coming down.

In the second quarter, Yamana's all-in sustaining cash costs, which include all expenditures related to producing gold such as capital expenditures, general and administrative and exploration expenses, dropped by 3.7% to $915 per ounce. Despite the drop, the company's cash profit per ounce fell by 13.3%, mainly because of a decline in the price of gold.

Overall, Yamana's second-quarter's adjusted earnings of 5 cents per share topped analysts' estimates by a penny. Revenue rose 4.7%, driven by a 12.3% increase in production.

Besides the higher production from the Malartic mine, Yamana's Gualcamayo project in Argentina doubled its quarterly output from last year as another underground mine started to produce. The company expects to further expand production from this project in the coming quarters.

If Yamana continues to increase its production and lower its production costs, it is likely to hit its earnings targets, which would bode well for the stock.

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For further reading: What Could Impede This Gold Company

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates YAMANA GOLD INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate YAMANA GOLD INC (AUY) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • YAMANA GOLD INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, YAMANA GOLD INC swung to a loss, reporting -$0.59 versus $0.59 in the prior year.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 129.0% when compared to the same quarter one year ago, falling from $102.10 million to -$29.61 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, YAMANA GOLD INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $38.98 million or 77.57% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The share price of YAMANA GOLD INC has not done very well: it is down 18.86% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

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