Yamana Gold Incorporated has been dramatically oversold in our view so today we decided to buy the JAN 2009 Call Options at a strike price of $5.00 for $1.20 per contract. This stock has suffered more than most during the current de-leveraging exercise and the dash for cash, which we consider to be an aberration when compared with similar stocks.
From its recent lofty heights of around $19.00 Yamana fell approximately 70% and has traded as low $3.31. The snap back has already begun so we are not in at the bottom however; we thought it better to wait for some signs of recovery before making a move. If you have already bought then give yourself a pat on the back, you are braver then we are.
Our expectation is that the US Dollar is coming to the end of its rally and will fall as quickly as it went up, if not quicker. The price of oil is also looking like it has been oversold recently and it too could stabilise and then head north. Paper money is being manufactured out of thin air bringing with it inflation, albeit with a lag time, but that’s our view.
Something else of note, at the time of placing this order, is that Yamana has a P/E ratio of 12, Kinross Gold is 26, Agnico Eagle is 46, Randgold is 56.
Just a reminder of how Yamana Gold sees the situation taken from a recent communiqué them:
“We remain committed to delivering value to our shareholders. Yamana continues to be one of the lowest cash cost companies in the industry and we are uniquely positioned with a declining cost structure and increasing production all in gold. We have the stability of the jurisdictions in which we mine. Most of our 2009 and 2010 production estimates are based on mines that are or will be built by the end of this year. We are well positioned with cash, cash equivalents, and growth both in production and cash flow, and other valuable assets. We have many upcoming positive events expected for the end of this year and we are currently on track to deliver on these milestones”.
Yamana Gold has a market capitalisation of $4.06 billion, a P/E ratio of 13.33, with 699.21 shares outstanding and is trading at $5.81 as we write, with current volume at 8.68 million shares.
Yamana Gold Incorporated trades as AUY on the New York Stock Exchange and as YRI on Toronto Stock Exchange and as YAU on the London Stock Exchange.
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Note: At this point during todays trading session our order has only been partially filled, so we will wait and see what the rest of day the brings as we dont want to chase the price.