Nesbitt UpgradeYAMANA GOLD INC. (YRI-TSX; AUY-AMEX) CRAIG MILLER
Rating: Outperform Price: $2.81 Target: $4.25 2004E EPS: $0.05 2005E EPS: $0.12 2006E EPS: $0.23
Price & Target in CDN$, all other values in US$
Title: Final Feasibility Study for The Chapada Cu-Au Deposit; Valuation Increases
Event: Yamana announced the results for the final feasibility study on the Chapada copper-gold deposit (100%) in Brazil. Hatch Associates, an independent engineering firm, completed the study.
Impact: Positive. The study determined that the after-tax 8% net present value for the project was US$227 million using commodity price assumptions of US$1.00/lb Cu and US$375/oz Au. The after-tax IRR for the project was 32%, and the payback was two years. The economics for the deposit were improved from the previous assumptions. Our NAV estimate for the company increased 9%.
Forecasts: Chapada is expected to be put into production in 2007 following two years of construction in 2005 and 2006. The capital requirement for the project of $177.9 mm has been funded in our model by $100 mm in debt incurred in 2005, with the remainder coming from the company’s balance sheet.
Valuation: Yamana’s shares are trading at a 28% discount to our 0%NAV estimate at a spot gold price of $394.90 per ounce. Copper cash flows from Chapada are discounted at 10% in our 0%NAV estimate for the gold assets.
Recommendation: We are maintaining our Outperform rating and increasing our target price to $4.25 from $3.90.