Yamana Gold Inc. ( AUY ) announced on Feb. 14 its drilling results from the exploration activities it is advancing at its El Pe??n, Minera Florida, Gualcamayo and Chapada properties.
From El Pe??n in Chile, one of the company's three main mines along with Chapada and Canadian Malartic, the miner achieved the following drilling results in order to narrow the available high grade strikes of ore and reduce costs.
What do these results mean? What effects will they have on the company's financial standing and market value?
First of all, Quebrada Colarada, Providencia and Bonanza are the names of the different blocks of mineral deposits at El Pe??n.
Secondly, using one of the results above as an example, I will determine the significance of the drilling results. From hole number UER0114 drilled at the Providencia block, the company says it "intersected 1.1 meters of 30.0 g/t Au and 1,267.0 g/t Ag". This means the exploration team was able to narrow the mineralized area and found a very rich strike of ore over a subspace of 1.1 meters.
The values 30.0 g/t of gold and 1,267.0 g/t of silver refer to the concentration of gold and silver in the mineralized length. The higher the concentration, the richer the deposit. The grade of an ore deposit influences operating costs. The lower the grade is, the higher the costs are to extract and process one ounce of gold or silver from the deposit and vice versa. If a deposit is not characterized as having a sufficient concentration of gold in the ore, the company's economics can be dramatically affected when gold and silver trades low on the market, with repercussions on the stock's value.
By narrowing the mineralized area, Yamana will be able to focus on those block's with the highest concentration of gold and silver. As a result, there may be a drop in production, but it will be at considerably lower operating costs.
According to the company, "exploration will concentrate on near mine discovery and growth, and will continue over a longer term to execute a local and district exploration program for another large vein discovery that can sustain and possibly return long-term production to pre-2017 levels."
At Chapada in Brazil, one of Yamana's other cornstone mines, exploration activities are mainly focused around the recently discovered Sucupira to define and expand mineral resources in the proximity of the principal open pit. At Sucupira "the mineral body has an Inferred Mineral Resource of 490,000 ounces of gold and 426 million pounds of copper."
In order to achieve its goal of developing its mineral deposits at Minera Florida in Chile and grow mineral resources at Gualcamayo in Argentina, Yamana reporterd encouraging drilling results from exploration activities undertaken at Las Pataguas, Potenciales, Cerro Condor and Las Vacas.
Yamana Gold is trading around $3.43 per share on the New York Stock Exchange and has gained 22.06% year to date.
The gold stock is trading at 0.66 times its book value and at 8.50 times its Ebitda.
Disclosure: I have no position in Yamana Gold Inc.
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This article first appeared on GuruFocus .
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