A Must-Buy Gold Stock: Yamana Gold Inc. (USA) (AUY), Goldcorp Inc. (USA) (GG), IAMGOLD Corporation (USA) (IAG)

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The Canadian-based gold producer Yamana Gold Inc. (USA) (NYSE:AUY) engages in the production, exploration, extraction and processing of gold and other precious metals. The company has operations in Brazil, Argentina, Chile, Mexico and Colombia.

Quarterly Earnings

On Feb. 20, Yamana Gold Inc. (USA) (NYSE:AUY) released its earnings for the fourth quarter of 2012. The company reported earnings of $169.2 million, or 22 cents a share, versus $89.6 million, or 12 cents a share, in the same quarter last year.

The chief reasons behind this profit boost were high sales and strong production, which compensated for higher operating costs.

Revenues grew 11% to $629.5 million amid a 17% rise in gold output. Average realized price increased to $1,692 an ounce, from $1,670 an ounce a year earlier. As far as production was concerned, Yamana Gold Inc. (USA) (NYSE:AUY) produced 1.2 million gold equivalent ounces—9% higher than the previous year.

Going Forward

According to the company, new development projects at its latest mines will make sure Yamana increases production by at least 20% this year. The company should be increasing production at its Brazilian mines, especially at the Ernesto/Pau location. C1 Santa Luz and Pilar are under construction, first output at both mines is expected by the end of this year. In Argentina, development work has already started on the Cerro Moro project.

In 2013, Yamana Gold Inc. (USA) (NYSE:AUY)’s focus will be on internal growth rather than on new acquisitions. As Chief Executive Peter Marrone said, “We're not at the stage of considering acquisitions at this point, we have two mines that start operations this year, three that reach commercial production this year and we have Cerro Moro.”

Yamana has plans of investing $470 million in capital projects, which includes $40 million on Cerro Moro and $445 million on sustaining capital.

Earnings Forecast for 2013

In 1Q 2013, analysts expect Yamana to earn $0.21 per share on revenues of $625.34 million. For the full year, analysts’ estimates stand at $1.50 a share on $3.45 billion in revenue. Yamana expects an output of 1.44 million to 1.60 million ounces this year, an increase of 20% from the previous year.

Valuation

Yamana Gold is trading at a forward P/E (1yr) of 9.52x, making it a rather cheap buy in its industry. Incorporating a dividend yield of 1.80% into its PEG gives us a healthy PEGY of 1.23. Yamana Gold Inc. (USA) (NYSE:AUY)’s high operating margin of 38% shows that the company has been able to mint substantial profits despite the recent drop in gold prices. According to the sell side, it has a mean recommendation of 2, showing that Yamana is amongst the top buys in the gold industry.

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