Yamana takes US$536M impairment charge in Q4

Yamana Gold (TSX: YRI; NYSE: AUY) saw its fourth-quarter earnings diminish after several of its exploration projects and operations took impairment charges partly due to the decline in metal prices.

The Toronto-based miner posted a quarterly net loss of US$583.9 million, down from a US$169.2-million profit a year ago, after booking an after-tax impairment charge of US$535.8 million.

Breaking down that non-cash charge: US$182.8 million was for Yamana’s exploration projects; US$168.2 million for the new Ernesto/Pau-a-Pique gold mine in Brazil; US$88 million for the Jeronimo deposit in Chile; US$70 million for the 12.5%-held Alumbrera copper mine in Argentina; and US$55 million for the Jacobina gold mine, also in Argentina. The impairment test used long-term prices of US$1,300 per oz. gold and US$3 per lb. copper.

Removing those writedowns and other one-time items, adjusted earnings were US$36.7 million, or US5¢ per share, in an 81%-decrease from a year ago. Adjusted yearly earnings slumped 60% to US$273.4 million, or US36¢ per share, but were in line with analyst expectations.

Yamana blames the dwindling 2013 profits on lower metal prices, declining gold, copper and silver sales, rising cash costs and lower equity earnings from Alumbrera.

Peter Marrone, the company’s CEO, calls the sudden, nearly 30% decline in the gold price last year “almost unprecedented,” adding it prompted the company to introduce a cost-containment strategy in the second quarter of 2013. 

But that initiative didn’t stop Yamana’s revenue from sinking 33% to US$420.7 million in the quarter and 21% to US$1.8 million in 2013, as production and sales slipped.

Cash flow per share from operations were US22¢ for the quarter and US94¢ for 2013, well below 2012 levels.

“Our 2013 cash flow of 94¢ per share is striking, given we achieved that level with that unprecedented fall in gold price, and while we were developing several new mines,” Marrone said on a conference call.

The company is commissioning three new mines in Brazil — C1 Santa Luz, Pilar and Ernesto/Pau-a-Pique — and ran into permitting delays and problems at these projects last year. While Yamana says it cleared those hurdles at year-end, it attributes the 2013 production miss to these operations.

Production for 2013 amounted to 1.2 million equivalent oz. gold, below the guidance of 1.3 million equivalent oz. gold. Annual copper production was 130.2 million lb.

This year Yamana expects production to grow by 16% to 1.4 million equivalent oz. gold. All-in sustaining cash costs should come in below US$925 per equivalent oz. gold. on a co-product basis. This is similar to the costs Yamana achieved in last three quarters of 2013 after it implemented its cost-savings program.

It also anticipates producing 134 million lb. copper at cash costs of US$3.20 per lb. this year. 

“We have a more reliable budgeted production goal, we’ve tried to balance production with costs and we have a comparatively low-cost structure. All of this is aimed at the preservation and maximization of cash flow,” Marrone said.

To boost its cash flow, the miner has halved its 2014 total capital expenditures to US$480 million and cut its annual dividend by 42% to US15¢ per year. The latter should save it US$83 million a year.

“We see little downside in a reduced dividend, as capital will be redeployed to the next growth phase: Cerro Moro and Suyai, both in Argentina. We continue to view AUY as a leader in both production growth and low operating costs, while maintaining a conservative balance sheet,” Cowen and Co. analyst Adam Graf writes in a note.

Yamana closed Feb. 19 down 20¢ at $11.32. It has an $8.5-billion market capitalization. It ended 2013 with US$220 million in cash and equivalents.