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Yamana Gold

01/08/2015 7:00 am EST


John Buckingham

Editor, The Prudent Speculator

For his more speculative idea for the coming year, value investor John Buckingham—editor of The Prudent Speculator—looks to the gold mining sector.

Yamana Gold (AUY) is a gold producer, developer, and explorer with assets in Central and South America.

Despite the plunge in gold prices since early 2013, the company has maintained a focus on reliability, which includes the growth and protection of reserves, resources, and production inputs.

Although Yamana is heavily invested in the precious yellow (the firm just reported production of 391,000 gold equivalents ounces for Q3 2014), it's also a copper and silver miner.

Through reductions in administrative and exploration costs, AUY has further lowered its gold all-in sustaining cash cost to $807 per ounce.

We are not banking on a grand resurgence in gold prices anytime soon, but we like that management is taking steps to capitalize on the current depressed environment.

Maintaining one of the lowest cash operating costs in the industry, while working to maximize margins via cost-cutting and containment, in addition to infill drilling and equipment upgrading in advance of production increases, should help Yamana navigate these trying times, with the stock potentially rebounding sharply if and when gold prices reverse direction.

While debt levels have climbed over the last few years, only $164 million is due through 2018. Liking a gold miner as a hedge, we note that AUY is off 50% this year, while the price of gold is not much below break even.

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