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« GOLD: The transfer of real wealth from the West to the East | Main | CAMBIOR: Up 18% today »

Yamana Gold Inc.


This is one of Canada’s intermediate gold producers focusing its gold production in Brazil, where it has four operating gold mines along with various exploration interests.

Yamana also has mines in operation in Honduras together with a number of concessions in Nicaragua.

We looked at this stock sometime ago when it was $4.04 and a new addition to our Watch List. For various reasons we did not get around to making an investment.
Warren Buffet and Bill Gates give a talk at Washington University in 1998, during which, Warren said that one of the barriers to success was that we get in our own way. I guess we got in our own way when analysing Yamana and not buying the stock then.

At the time it was added to the list another favourite of ours was Agnico Eagle, which was $13.65 at the time and got the vote ahead of Yamana. Interestingly, as of yesterday, they have both increased in value by 140% since then. So, may be it is time to revisit this quality gold miner again.

Yamana is ambitiously targeting annual gold production of one million ounces by 2008, not bad for a so-called intermediate gold producer. Geographically, there are a lot worse places than Brazil so we would be happy to be there. Yamana’s gold production is all unhedged, which is a ‘must have’ on our selection criteria. As we believe that gold prices will rise, then this stock should respond accordingly. However, they have hedged 50 million pounds of 2007 copper production and 90 million pounds of 2008 copper production. We would have preferred Yamana not to do this, although a pull back in base metals has been widely forecast by some analysts. We, ever the sceptics remain to be convinced that the global economy is slowing down. If you live in New York and house prices slip you tend to think it’s all over. The world outside of New York is a huge place, China will be the next super power and what happens in the States will have a lesser impact on the markets going forward.

From the chart below we can see that this stock has suffered in the recent pull back, however that is the time to buy a stock, not when all the indicators are banging their heads on the ceiling. It should also be noted that Yamana didn’t get dragged down as far as a lot of other gold mining stocks so this stubbornness could be considered as a sign of strength. Anyway, the volume is still strong, the RSI has just turned up and the MACD is fairly flat. It should also be noted that each low is higher than the last low, which is encouraging.


We conclude that this stock is a buy. However, we don’t have the cash to buy at this point, may be we will have to examine the Cambior situation and decide if the cash is better invested in Iamgold or Yamana. Decisions, decisions!

Yamana is listed on the TSX: YRI; AMX: AUY; LSE (AIM) YAU

14 September 2006

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Reader Comments (3)

Earlier this year, I bought the extremely successful Desert Sun Mining (DEZ) which was later (after I sold) taken over by Yamana Gold.
I would certainly advise anyone to have a look at Yamana's fwd p/e. AUY has so far proven to be an extremely succesful industry consolidator and is certainly a bargain at prices below 10 USD! As mentioned, I've added at 9.78 and will take the hit should gold go down further, as this stock is already cheap and will not lose much more of its value.

September 15, 2006 | Unregistered CommenterJoey

We think that you are correct, but we will try to sit on our hands and observe for a few days until the picture for gold prices becomes a little clearer.

September 15, 2006 | Unregistered CommenterBob

The forward price earnings ratio would appear to drop from about 70ish to about 10! if the earnings estimates are correct. Earnings per share for 2006E are about 0.16 cents and for 2007E they rise to around the dollar mark, inviting prospects indeed.

September 15, 2006 | Unregistered CommenterBob

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