Shares of emerging mining powerhouse Yamana Gold Inc. have plummeted more than 20% in the last month, a much worse performance than the gold sector as a whole. UBS Securities analyst Tony Lesiak calculates that Toronto-based Yamana is trading at a 22% discount to the senior gold group average.
What’s going on? Mr. Lesiak figures that the stock is firmly caught in “show me” mode. Yamana has grown very fast in the last few years, and he believes that investors are concerned about earnings dilution from recent acquisitions and possible future ones. They also want to see more evidence that the company’s growth forecasts are achievable and that it can control costs.

“In particular, concerns are mounting as to whether El Penon, Minera Florida and Chapada are being pushed too hard, and if Gualcamayo will start up on time,” he wrote in a note to clients. “On the other hand, we believe little value has been attributed to Agua Rica, Esquel, the Chapada pyrite option and the growing resource base in Mexico, Brazil and Chile.”

Yamana shares are currently trading in the $14 range, which is well below Mr. Lesiak’s prior target of $19.50. He is cutting his target to $19.00 to reflect more conservatism in his outlook. But with a huge disconnect between the current stock price and his target, he is upgrading it to “buy” from “neutral.”

SOURCE: National Post

Last 5 posts by Ted Gottsegen

• Bank of America reports Monday (10/20) - October 17th, 2008
• At what point do we become Russia? - September 10th, 2008
• Gold keeps going down along with Yamana (AUY) - September 3rd, 2008
• Sears Holdings (SHLD) 57% Short Interest and LL Cool J - August 19th, 2008
• Play the played out: Potash Corp (POT) - August 13th, 2008