Yamana Gold: A Top Stock For A High-Inflation Environment (NYSE:AUY)

Introduction

Yamana Gold (NYSE:AUYIt is one of the most well-positioned names for the current inflationary chaos. It is a gold miner and its production last year topped one million gold equivalent troy ounces. Its operations include exploration, development, and mining.There are many opportunities in many countries, including Canada and Brazil, Chile, Argentina, and Chile. The company is currently in growth mode. It plans to expand its production profile as well as its resource base in the next few years.

We are Yamana Gold long-term here for full disclosure Contra the HeardThe name has been owned by us since it was purchased at CAD $4.96 on Toronto Stock Exchange last year. The name is now considered a hold due to its capital appreciation and lower upside than it was when it was purchased. We also consider the portfolio weight to be a strong factor in determining whether the name should be retained. Yamana is a strong candidate to weather high inflation.

Macro Factors – Gold Miners and Inflation

Yamana is a good choice for high inflation because it is in the precious and gold space. Although the gold sector is not always reliable, it can still perform well in inflationary environments. This article was written by FidelityThis chart shows how materials performed against other sectors during four inflationary periods. These events include the infamous 1966 to 1980 inflation. Energy crisisAs well as the period of 1942 to 1951 and 1987 to 1991, 2003 to 2008, and 2003 to 2008,

The chart shows that materials performed well between 2003 and 2008, and 1966 to 1980. However, the sector was flat in 1942-1951 and declined from 1987-1991. These results mirror those in the graphic below by Morningstar via CNBC:

Finally, Hartford FundsThe equity market is not as efficient as precious metals or mining stocks, but it has been proven that they can outperform them. However, the odds of the sector outperforming the equity markets are much lower than flipping coins.

The gold sector is able to perform well in inflationary times but is not as consistent than the energy industry. Yamana and gold are therefore more volatile than energy companies like ENERGY. North European Oil Royalty Trust(NRT), which is also my pick for the top stock during a high inflation environment competition. NRT is available for those who are interested.

Corporate Overview and Growth Strategy

Yamana has a solid corporate foundation due to its solid balance sheet and consistent Cash flowIt has a well-diversified and highly-productive mining portfolio that includes properties across Canada, Brazil and Chile. It also has a great growth profile and many development plans in the works.

Yamana was Day for Investor/AnalystIn April, management presented the company’s three-year production goals, 10-year outlook, long-term development plans, and 10-year outlook. The company produced one million equivalent gold ounces in 2021. Between 2022 and 2024, it aims to increase this number by 6% to 1.06 millions gold equivalent ounces. In the coming year, the all-in-sustaining-cost is expected to be around $1,080.

Yamana also presented their 10-year outlook at this event. It stated that they plan to increase the gold equivalent ounces from 1.25 million to 1.5 million ounces by 2031, eventually grow to 1.5 million ounces through the development of existing resources into mining, and go beyond 1.5million longer-term.

The organization will continue to expand existing operations and develop more new deposits to meet these goals. The Jacobina Phase 2 Brazil project is important, as well as the Odyssey Mine and Wasamac Mines in Canada. These three projects are currently in development and are expected online in the coming years. Yamana will now focus on advanced projects with low capital requirements once the mines are in operation. These advanced projects are described in the chart below. The management also hopes to include longer-term projects that will eventually push Yamana’s production profile above the 1.5 million-ounce mark.

Yamana’s development pipeline is robust and should allow it to grow its production profile over the years. Shareholders should be rewarded if Yamana can develop these expansion projects on schedule and within budget. This will result in capital appreciation, strong free cash flow generation and dividend growth. This combination of attributes positions Yamana well for an inflationary environment.

Risks and Valuations

Although the company’s prospects look bright, there are still risks. Execution is the primary risk. The mining business is complex and requires excellent operational execution. Yamana has a great growth plan. However, long-term success of the company will depend on its operational excellence.

Yamanas valuations are another risk. Seeking Alpha’s valuation table below indicates that the stock is more costly today than it has over the past five year, which may make investors uncomfortable. However, the price of gold today has improved over the past five year and the company’s growth profile also has improved. These valuations should be included in any article about Yamana.

The peer comparison table also shows mixed results in terms of valuations. Yamana’s valuations are often on the high end, as shown in this Seeking Alpha peer comparison table. Considering the organization’s significant growth profile, these valuations may be justified.

As discussed in the Macro Factors section, gold’s poor performance in high inflation environments is another risk. Materials, miners, gold companies and other industries do better than most, but energy’s returns tend to be better and more consistent. Inflation can still be beat by energy, so it is still the best sector.

The potential inconsistency risk that cryptos could pose for gold miners and gold traders is increased by their emergence onto the investment scene. It was not available during inflationary episodes in the past so it is impossible to predict how it will perform. It is still a viable alternative to gold. It is also a good inflation hedge, and like gold, offers some protection against certain features inherent to a fiat money system. To cut a long story, crypto could be stealing some of the thunder of gold and diminishing the prospects for yellow metals.

Investors must also be aware of changing trends or a reverse in inflation. Recessions can be caused by higher prices. They often cause a decline in demand, which causes commodity prices to fall. Yamana, as well as energy and gold names, will suffer from this.

Conclusion

Yamana has many features that will allow it to excel in times of high inflation. It is located within the gold sector which tends to perform better than other industries during inflationary times, though not as consistently. It also has a well-diversified portfolio of mining assets spread across many countries. The company also boasts a strong growth record with many expansion projects in progress. Yamana is a good investment option for investors who want to beat inflation. It has a high capital appreciation potential and offers the possibility of dividend growth. As with all securities investors must be aware of the risks, including poor operational and mine development execution.

Disclaimer:

These opinions are imperfect and subject to change, and should not be considered advice or guidance. Although the information contained in this article is believed to be reliable and accurate, it is not guaranteed by its author.