Sold out this morning. Regrettably, the Q2 update was a huge disappointment.
I was able to overlook the net loss in Q1 (despite the POG averaging $1720/oz), as extensive refurbishment was ongoing and there was considerable downtime. However, in Q2 their net loss per oz of gold was even worse ($60.7 loss per oz sold in Q1 vs $130.60 loss per oz sold in Q2) – I don't think there are any excuses at this stage.
A couple of days ago a Q2 update was released for another company I'm a shareholder in (a tiny $5m market cap explorer listed on the LSE, Vane Minerals Plc), who have a tiny artisan mining operation in Mexico producing a little over 1000 oz per quarter. For three quarters now they have been posting a net profit of over $1000 per oz, while the comparative giant YNG with a valuation 100x higher produces 25-30x more oz yet posts a loss of $130.60 per oz. It's abysmal. I've tried looking for resonable excuses but can't find any.
Even after taking into account the $114 decline in the POG in Q2, these numbers suggest cost of sales improved by a paltry $44.1 per oz in Q2 relative to Q1. This despite a near-doubling of production and with major refurbishment work ongoing throughout much of Q1. This simply isn't good enough. If they can produce 25,249 oz of gold but can't sell it for a net profit even with POG averaging $1606 over the quarter, it really brings into question whether they have a viable business.
I can't blame the 20% downtime for these results as even accounting for that I calculate they still would have posted a net loss. Even with production ramped up to their target, I still see a Company struggling with a marginally profitable operation with a very real risk of insolvency if the POG slips. With management suggesting cash costs at Jerritt Canyon could potentially come down to below the US $400/oz level, I can only view this with deep skepticism based on the Q2 results indicating cash costs of $1737/oz. If a doubling of production in Q2 reduced cash costs by only $44.1 per oz, then their cash cost targets appear fanciful if not grossly misleading.
I conclude an investment here demands considerable faith both in YNG and in the future price of gold – the former they have not earned, and the latter ought to be unnecessary given the scale of their production and the already high POG.
Having skimmed the supplemental 'Management Discussion and Analysis for Q2 2012', it appears the management are cognizant of all this and anticipate challenges ahead (also evidenced by the fact they released it at 8pm on a Friday night, a classic slot to mitigate any -ve market reaction to bad news): -
“... there can be no assurance that the Company will be able to obtain additional financial resources, or achieve profitability or positive cash flows. If the Company is unable to generate positive cash flows or obtain adequate financing, the Company will need to further curtail operations and exploration activities. ” - YNG MDA Q2 2012
“Management believes that further financing can be obtained in order to ensure that full steady state mining operations are maintained which will ultimately provide ongoing positive cashflows. At period-end management was pursuing further financing to supplement cashflow from operations and meet its capital commitments. ” - YNG MDA Q2 2012
So, I'm out. I was a big believer in the YNG turnaround story, I put my money on it, but these latest numbers suggest the story has changed: it's no longer about refurbishing the old plant and returning to production, it's now a story of clawing desperately to improve margins in the face of an uncertain future. With YNG once again not holding the cards and with private financiers feeding at the trough, I struggle to see how profits will ever trickle down to shareholders in a meaningful way. In my estimation, YNG is essentially a private company which happens to be publicly listed.
Perhaps I'll take another look if those apocalyptic King World News predictions come true and POG hits a few thousand $/oz.
GLA.
all imho, dyodd