Canaccord's winter harvestWINTER HARVEST: SELECT M&A OPPORTUNITIES WITHIN OUR COVERAGE UNIVERSE
In periods of great market volatility, it takes strategic investors time to ascertain the true
long-term value of assets. However, we believe strategic investors are about draw a line in
the sand on fundamental values. In this Flash Update, we have examined our coverage
universe for synergistic opportunities, and offer a number of intriguing scenarios below.
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Steve Butler's comments on Yamana:
Yamana Gold (AUY : NYSE : US$4.28 | BUY, US$11.50 target)
Valuation Metrics
Basic shares outstanding (M): 699.2
Market Capitalization (M): US$2993 Ent. Value (M): US$3275
2008E Op. CF before w/c changes (M): US$560 2008E Op. Earn. (M): US$465
Likely Acquirers: Barrick, Kinross or Newmont.
Rationale: Production growth, capture of flagship El Penon assets, regional synergies
dependant upon acquirer.
Discussion
Potential acquirers: Barrick, Kinross or Newmont. A reasonable geographic fit with Barrick
in Chile/Argentina and Kinross in Brazil. Flagship asset is El Penon.
• Growth and value remains compelling.
• Yamana still trades at a heavily discounted valuation, at only 4.1 times 2009E cash
flow versus sector average of 10.5 times and 0.57 times 5%/spot gold NAV versus
sector average of 1.19.
• We estimate production growth from 1 Moz in 2008 to 1.4 Moz in 2009 and 1.67 Moz
by 2012 (conservatively below corporate target in excess of 2 Moz).
• Flagship asset in Yamana is clearly El Penon, which contributes 30% to our NAV. If we
assumed that the market would otherwise apply a higher stand-alone multiple of 1.4
times NAV for a flagship asset like El Penon (conservative in context of historical
Meridian Gold multiple which ranged between 1.5-2 times NAV, always at the top end
of sector), then this would imply all other assets in Yamana are being valued at only
0.3 times NAV for resultant 0.64 times multiple.
Next Catalysts: Analyst tour in late November 2008 expected to provide greater details on
ramp up and other developments at Gualcamayo, and expansion efforts at Chapada, El
Penon and Jacobina.