DEZ
<< By Michael J. DesLauriers
22 Feb 2006 at 04:26 PM EST
TORONTO (ResourceInvestor.com) -- Management at Yamana Gold [TSX:YRI; AMEX:AUY; AIM:YAU] have proven repeatedly that they have the best interests of their shareholders in mind, and their aggressive, intelligent approach has paid off handsomely for investors – a trend which appears likely to persist. Yamana has become to the mid-tiers what Goldcorp is to the seniors.
Today, the company announced its intention to acquire Desert Sun Mining [TSX:DSM; AMEX:DEZ], a combination that will allow Yamana to continue on its steep growth curve in terms of its production and resource base. The transaction price represents a 21.1% premium over Desert Sun's 5-day weighted average price, with Desert Sun shareholders receiving 0.6 of a share in Yamana for each full Desert Sun share. The deal values Desert Sun at approximately $500 million on a non-diluted basis and is expected to close in early April.
This announcements comes on the heels of the company’s acquisition of RNC Gold [TSX:RNC], which should close by the end of the month.
As the December lift-off (see below) in the company’s share price illustrates, the market seems to be paying attention and Yamana now represents the perfect high growth, mid-tier proxy for retail and institutional investors to play with. Though some question the quality of the assets, in a rising gold price environment, the current vehicle will be a market darling.
Following the deal with RNC, Yamana was projecting production rates of 400,000 ounces of gold this year, more than 550,000 in 2007 and 650,000 in 2008 and at the time the company stated its objective of achieving the 750,000 level by 2008. With today’s Desert Sun deal, the 2008 number would appear to exceed 800,000 ounces of annual production at a cash cost below $125!
What’s more, according to the company’s President and Chief Executive Officer, Peter Marrone, Yamana is “now targeting production of 1.0 million ounces by 2008.” Yamana is also “ targeting other gold consolidation opportunities in Brazil and elsewhere in Latin America.”
RI believes that a good fit for Yamana could be Jaguar Mining [TSX:JAG], another company operating in Brazil with an exciting growth profile. Comparatively, Yamana could get their hands on JAG relatively cheaply, as the market is currently only valuing the story at around C$150 million – accretive deals are the name of the game. Jaguar hopes to achieve annual production of 230,000 ounces by 2008.
Conclusion
Although Yamana will have a market capitalization approaching C$2.5 billion post-acquisition, it still appears cheap relative to peers given its exciting growth profile and low-cost production. If indeed Yamana can pull off production rates in the seven figures by 2008, cash flows will be substantial and the market will be forced to award the company a multiple more in line with its peers. Indeed, if metal prices hold up and Yamana can deliver on its promises, the stock will look cheap at twice the price.
Shares in Yamana ended the day at C$9.71 on the TSX, while Desert Sun rose 15% to settle at C$5.72.>>
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