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Yamana Gold Sells Chapada Mine, Boosts Dividend And Announces Buyback Plans

Published Mon, 15 Apr 2019 11:52:18 -0400 on Seeking Alpha

Yamana Gold (AUY) has just announced major news: the company is selling its Chapada mine to Lundin (OTCPK: LUNMF) for a total consideration of over $1 billion. The news is very material, so let's immediately get to the details of the transaction.
The compensation that Yamana will receive in exchange for its Chapada is the following:
$800 million in cash. Additional cash payments of up to $125 million based on the price of gold over the five-year period from the date of closing. $100 million payment contingent on the development of a pyrite roaster at Chapada by Lundin. 2% net smelter return royalty on gold production from the Suruca deposit. The gold price-linked payment will require higher gold prices: $10 million per year for each year over the next five years for average prices over $1350/oz, $10 million per year for each year for average prices over $1,400/oz, and $5 million per year for each year over $5 million for average prices of $1450/oz. I'd note that these targets are realistic, but they imply gold starting a new material uptrend following years of range-bound trading:

On the other hand, any longer-term investment in gold equities with a time frame of, say, five years hardly makes sense if the investor does not see gold prices over $1,400/oz on a five-year horizon.
Thanks to the transaction, the company is going to increase the annual dividend by 100% to $0.04 per share and purchase up to 5% of the outstanding common shares on Toronto Stock Exchange... Read more