Contra Guys: We’ve taken a shine to the companies that took over miner Yamana, for now anyway

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We’re waiting patiently after Agnico and Pan American swooped in to acquire the Toronto-based miner

to the sidelines, albeit one can conclude this suitor was not a complete loser, grabbing an ultra-steep US$300-million break fee. It is hard to imagine why the management of Yamana agreed to such a rich number, as from this angle it makes zero sense. It smacks of a desperation to sell, when by all management’s prior statements, it was firing on all cylinders. We are skeptical that there was a close alignment between the interests of the top dogs and the wider shareholder base.

It is well-managed with revenue of about $5.74-billion and a reasonable debt load of $1.49-billion. Sales have been mounting year after year, and the bottom line has been a healthy black for the past decade, with one blemish in 2013. Its full ownership of the Canadian Malartic mine in Quebec, with an estimated mine life to 2039 and all-in sustaining costs that should be under $750 a gold ounce in the future, will animate the income statement.

Setting initial sell targets for Agnico and Pan American is where things get complicated. In this case, we feel that the former could hit $85 and the latter $35. If the integration of the mines goes very well, these targets could be low.

 

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