Yahoo Finance Yamana Gold Is Reducing Its Stake in Brio Gold
- By Alberto Abaterusso
In line with its strategy to improve its financial situation, Yamana Gold Inc. (AUY) is progressively reducing its retained equity interest in Bio Gold Inc. (BRIO.TO).
From the sale of a volume of 26,667,000 ordinary shares of Brio Gold to a group of underwriters at a share price of $3 Canadian ($2.20) per ordinary share, Yamana Gold will get proceeds of approximately $80 million Canadian that will be used to lower its net debt. As of the first quarter that amounts to approximately $1.47 billion.
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The intrinsic value of AUY
Through this transaction, the second after the one that occurred on March 6 when the Canadian midtier gold producer sold 6 million of Brio gold's common shares to an arm's length institutional shareholder for a total amount of $20.1 million Canadian, Yamana Gold is trying to maximize the proceeds that it can get from the reduction of its stake in Brio Gold.
Since Brio Gold is a high operating cost leverage mining company, Yamana Gold bears, through its direct investment in this company, a considerable risk represented by the uncertainty in the future movements of the price of gold.
Should the Fed decide to proceed with a substantial increase in the interest rate, gold will start to downtrend affecting significantly the economics of Brio Gold with repercussion on its market value.
Brio Gold is a mining company with a portfolio of assets that is located in Brazil and that is composed of three operating mines, Fazenda Brazileiro, Pilar and Riacho dos Machados. The mining company is also proceeding with the recommissioning of Santa Luz. Brio Gold is operating as a stand-alone company after the spinoff from Yamana Gold's operations, the completion of which was announced by Yamana Gold Dec. 24, 2016.
However, at that time Yamana Gold communicated its intention to remain a shareholder of Brio Gold and "after giving effect to this offering," writes the company, "Yamana will own 59,868,922 common shares of Brio Gold representing in the aggregate 53.2% of the issued and outstanding common shares of Brio Gold on a basic basis and 50.5% on a fully diluted basis," assuming the group of underwriters has fully exercised the option to purchase an additional 2.67 million of Brio Gold's common shares.
Peter Marrone, Yamana Gold's chairman and CEO, commented on the offering: "The proceeds from the sale advance our stated goals of increasing our cash balances and decreasing our net debt. Further, we believe that reducing our interest in Brio Gold and creating liquidity will lead to additional opportunities with our remaining holdings in Brio Gold."
Yamana Gold is trading at $2.77 per share on the New York Stock Exchange, up 4 cents or plus 1.28% from the previous trading day with a price-earnings (P/E) ratio of -7.30, a price-sales (P/S) ratio of 1.45, a price-book (P/B) ratio of 0.58 and an EV to EBITDA ratio of 7.45.
Starting mid-April the gold stock has been downtrending. It has lost 2.50% year to date.
The average analyst sets a target price of $3.81 per share ranging between a low of $2.05 and a high of $6.50. The recommendation rating is 2.8 out of 5.
Disclosure: I have no positions in any stock mentioned in this article.
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This article first appeared on GuruFocus.
Warning! GuruFocus has detected 3 Warning Signs with AUY. Click here to check it out.
The intrinsic value of AUY
