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"Yamana Gains After Profit Tops Analysts’ Expectations

By Stewart Bailey

March 5 (Bloomberg) -- Yamana Gold Inc., the owner of the Chapada mine in Brazil, gained the most in more than three months after fourth-quarter profit topped analysts’ expectations.

Yamana rose $1.11, or 11 percent, to C$11.32 a share at 4:21 p.m., the biggest gain since Dec. 29. The stock has climbed 20 percent this year.

Chief Executive Officer Peter Marrone plans to more than double gold output by 2012 to exploit higher prices, which made their eighth straight annual gain last year. Toronto-based Yamana, like rivals Agnico-Eagle Mines Ltd. and Goldcorp Inc., is reaping the benefit of lower operating costs after declines in the price of fuel, equipment and steel.

Yamana has “exceptional growth, a better than average cost structure and a strong balance sheet,” Ron Coll, a mining analyst at Jennings Capital Inc., said today in a note to clients. He recommends buying the shares and says they may rise to C$12 within 12 months.

Yamana’s profit before some one-time items was 5 cents a share, according to research notes from Jennings and Salman Partners Inc. That tops the 4-cent average estimate of 18 analysts surveyed by Bloomberg.

Net income surged to $179.4 million, or 25 cents a share, from $47.1 million, or 8 cents, a year earlier, the company said. Sales slid 48 percent to $114.1 million after the company accounted for a $74.1 million pricing adjustment for copper sold in the previous quarter.

Declining Costs

“We began to experience declining costs during the fourth quarter, confirming the expected downward trend and further increasing our margin to the gold price,” Marrone said yesterday in a statement.

Marrone, who agreed to buy Meridian Gold Inc. and Northern Orion Resources Inc. in 2007, shunned acquisitions last year to develop Yamana’s own mines. Now, he may acquire smaller rivals to help boost gold output to 2.2 million ounces by 2012 and curb reliance on copper production after a rout in base-metal prices.

Profit was boosted by $128 million in foreign-exchange gains and a $56 million gain on hedge contracts for its copper output, Marrone said today in a telephone interview from Toronto. Those helped offset the loss from adjustments made to copper concentrate sold, he said.

The company has fixed the price of 50 million pounds of copper to be sold this year at about $3 a pound and 26.5 million pounds at $1.54, he said.

Gold prices, which touched a record $1,033.90 on March 17, averaged $796.85 in the fourth quarter, 0.5 percent higher than a year earlier. Copper averaged $1.77 a pound during the period, compared with about $3.28 a year earlier.

Gold-equivalent production, which includes other metals, rose 11 percent to 254,774 ounces, the company said. The cost to produce an ounce of gold was $383, Yamana said."