Full Nesbitt ReportAfter a brief hiatus, we have resumed research coverage of Yamana Gold Inc. (YRI) with an Outperform rating and a $17 target price given its good growth profile and strong near-term cashflow potential. Attached is today's research comment.
Key reason's for Yamana's rating are:
Growth – production is forecast to increase fivefold from 2005 to 2007 with the start-up of production at Chapada and Sao Francisco and the acquisition of Jacobina.
Attractive Valuation – while its 0%-NAV premium is in line with its peers, Yamana is trading at very attractive near-term earnings and cash flow multiples.
Attractive Cost Profile – treating the Chapada copper as by-products will mean that Yamana is expected to report significantly negative operating costs. However, even on a gold equivalent or operating margin basis, YRI’s Brazilian cost base is attractive relative to its peers, despite lower grades and the recent strengthening of the Brazilian real.
Balance sheet – the company no longer has significant debt.
Copper Exposure – copper is expected to account for nearly 50% of revenues from 2007-2008.
YRI has acquired a suite of development projects that it is now bringing into production. The company is poised to significantly increase production over the next couple of years, from just over 100,000 ounces in 2005 to over 600,000 ounces in 2007.
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