Yamana’s Q1 profits plunge as costs rise

Despite producing more gold than a year ago, Toronto-based Yamana Gold (YRI-T, AUY-N) wasn’t able to buck the trend of miners posting shrinking first-quarter profits amidst dipping metal prices. Profit for the first quarter of 2013 was US$102.1 million, or US14¢ per share, down 40% from US$170 million, or US23¢ per share, a year ago.

Adjusted earnings were US$117 million, or US16¢ per share, declining 36% from the year-earlier period, and also falling below the estimate of US18¢ per share.

Yamana attributes the lower earnings to weaker gold and copper prices, higher costs and lower equity earnings from its 12.5% stake in the Alumbrera copper-gold mine in Argentina.

It says earnings from its share in Alumbrera dwindled to US$100,000 from US$10.9 million a year ago, as revenues from the mine decreased on the back of reduced copper prices and copper sales volumes, combined with rising operating costs.

CIBC analyst Alec Kodatsky, who had anticipated adjusted earnings of 20¢ per share, says the miss was largely due to Alumbrera and operational challenges at Yamana’s Jacobina gold mine in Brazil, where the company experienced higher dilution due to poor development work, as well as lower grades. As a result, output at Jacobina plummeted, nearly doubling cash costs.

Overall revenue for the quarter fell 4% to US$534.9 million, despite Yamana boosting gold production and sales over the same quarter of 2012.  

Total gold-equivalent production and sales were 291,312 oz. and 284,872 oz., compared to production and sales of 278,832 oz. and 273,494 oz. (The gold-equivalent ounces sold in both periods exclude Alumbrera’s output, which is considered as an equity investment.)

Also hurting the bottom line were the average realized prices for gold and copper, which both slid 4% to US$1,620 per oz. and US$3.58 per lb., while the average realized price for silver sank 9% to US$29.81 per oz.

This drove by-product cash costs up 31% to US$383 per equivalent oz. gold in the quarter, co-product cash costs also rose 13% to US$587 per equivalent oz. gold, while all-in costs came to US$856 per oz.

For the full-year, Yamana expects to produce in excess of 1.44 million equivalent oz. gold, up at least 20% over last year’s output.

It forecasts full-year cash costs to come under US$365 per equivalent oz. gold, assuming a by-product copper credit of US$4 per lb.

By year-end, Yamana says it aims to reduce all-in costs by US$150 per equivalent oz. gold by trimming operating, capital, exploration and general corporate expenses.

CIBC’s Kodatsky notes despite the cost reduction efforts, the producer is not shying away from growth, as it plans to boost annual output to 1.75 million equivalent oz. gold by 2015.

“We think it will take time, but delivering on cost reduction targets while maintaining the build out of the pipeline is achievable, and if delivered should be rewarded by the market,” Kodatsky says. He has lowered his target to $19 from $25 and maintains a “sector outperform” rating.

Yamana updated the market on some of its new projects, which should contribute to its growth. It’s ramping-up the Ernesto/Pau-a-Pique mine, and has started commissioning C1 Santa Luz, while commissioning at Pilar should begin in mid-year. All three projects are in Brazil.

Yamana closed May 2 at $11.97, after dropping 6.5% the previous day to $11.66 on the first-quarter results.

It has roughly US$342.6 million in cash and equivalents.