EUR 850.00 For Business Accounts Only

Morningstar | Yamana's Strong Performance Continued Into 3Q

Yamana Gold's portfolio includes mines in Central America, South America, and Canada. Chapada in Brazil produces over 100,000 gold ounces, 250,000 silver ounces, and 125 million pounds of copper annually. Chapada's significant byproduct production anchors it low costs. In 2014, the company jointly acquired Canadian Malartic with Agnico Eagle Mines. While we think they paid full price, development of the exploration assets could provide upside. Canadian Malartic produces more than 300,000 attributable ounces annually, making it the company's largest mine by gold ounces.The key driver of Yamana's profit potential is Cerro Moro. Cerro Moro has the potential to produce roughly 125,000 gold ounces and 6 million silver ounces annually, with a mine life of eight years. However, Yamana failed to deliver on its development projects in Brazil, leaving it lagging behind its peers.Yamana's developments at Pilar and C1 Santa Luz failed to deliver as planned. In an effort to refocus on its core assets, Yamana placed these Brazilian assets into Brio Gold. In 2016, Yamana separated it through a purchase rights offering, bur remained its majority shareholder. In 2018, Leagold announced the acquisition of Brio, which will end Yamana's involvement in the underwhelming assets.Our long-term nominal gold price forecast is $1,300 per ounce in 2020. Investment demand has weakened further as the Federal Reserve raises interest rates, weighing on near-term gold prices. However, Chinese and Indian jewelry demand should eventually fill the gap left by investment demand. Strong preferences for gold in these countries drive high income elasticity, and rising incomes should result in robust jewelry demand growth over the next few years. Strong demand will lead to a production shortfall, requiring a higher incentive price to encourage additional mine production. However, cost deflation caps the potential upside from an otherwise strong demand story. Depreciation in producer currencies, lower oil prices, and general mine cost deflation stemming from the end of the Chinese-driven commodity boom have helped drive cost reductions, lowering the marginal cost of production.