Nesbitt Comment On YRIYAMANA GOLD INC. (YRI-TSX; AUY-AMEX) Heather Douglas, CFA
Rating: Outperform
Price: $10.94
Target: $17.00
2005A EPS: -$0.01
2006E EPS: $0.27 â
2007E EPS: $1.64 á
Price & Target in C$, all other values in US$
Title: Resuming Coverage with an Outperform Rating
Event: We are resuming coverage following a period of restriction that began April 12. Analyst responsibility has changed to Heather Douglas from Craig Miller.
Impact: Neutral. Through a series of acquisitions, Yamana has acquired a suite of development projects that it is now bringing into production. Its key asset is the Chapada copper-gold project in Goias, Brazil, which is scheduled to start in late 2006. The Jacobina project in Bahia, Brazil, acquired through the merger with Desert Sun, has exploration and expansion potential. The company recently renegotiated and repaid its long-term debt, using the proceeds of an equity raising.
Forecasts: Yamana is poised to significantly increase production over the couple of years, from just over 100,000 ounces in 2005 to over 600,000 ounces in 2007. Copper represents a significant portion of its expected revenues over the next several years (about 50%).
Valuation: Yamana is trading at an 11% premium to our 0%-NAV at spot of $8.89 per share, which is in line with the North American intermediate average of 7%. However, it is trading at very attractive near-term EPS and CFPS multiples relative to its peers, reflecting expected strong copper prices. Our C$17 target price is based on a 15% premium to NAV at $700/oz, 12x 2007E CFPS, 17x 2007E EPS and $300/oz adjusted market capitalization.
Recommendation: We are resuming coverage of Yamana Gold Inc. with an Outperform rating, given its good growth profile and strong near-term cash flow potential.