Can Yamana’s Brio Assets Rerate Significantly?
Can Yamana’s 2016 Initiatives Restore Investor Confidence?
Asset monetization
You might recall that Yamana Gold (AUY) was trying to monetize Brio assets since it believed its full value wasn’t being appreciated by the Market. However, late last year, it concluded that in the short to intermediate term, the division carried more value within the company. The company is now trying to increase the value of Brio Gold.
With the RDM (Riacho dos Machados) acquisition, Brio Gold has three producing mines. RDM is expected to ramp up to 250,000 ounces this year, while C1 Santa Luz will contribute another 100,000 ounces per year when ramped up. The company expects to update the technical studies for C1 Santa Luz by the middle of the year.
Performance of Brio assets
Yamana’s Brio assets performed well during the quarter with declining cash costs. The company maintained that new discoveries will further improve production and costs, particularly Pilar and the increase in proven and probable reserves at Fazenda Brasileiro.
Possible rerating
During its earnings call, Yamana Gold mentioned that “nothing is for sale and everything is for sale.” It elaborated that it will depend on the price of the offer, by comparison, to value in the company. It will also depend on the use of proceeds. However, regarding Brio assets, the company cited the example of Pilar, which was unsuccessful for the company in 2014 but turned it around in 2015. Now the company is getting the kind of production from this asset as it would expect from a high-quality asset. The company thinks the same thing can be replicated with RDM (Riacho dos Machados) and C1 Santa Luz. So these assets should drive higher value by being inside the company rather than outside of it.
As the technical studies for these projects get completed, a favorable outcome could lead to a rerating of Brio assets, which should be positive for the company.
Other miners (GDX) such as Newmont Mining (NEM), Barrick Gold (ABX), AngloGold Ashanti (AU), and Kinross Gold (KGC) are eyeing portfolio optimization to reduce costs and increase margins. KGC makes up 2.8% of the Market Vectors Gold Miners ETF (GDX).
Let’s continue to the next part of this series to see Yamana Gold’s progress on reducing financial leverage as seen in its 1Q16 results.
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