YNG: Huge discount to cash flow generation

Yukon-Nevada has been an extremely good buy for us. One of the main reasons for the buy was the huge discount to cash flow. The company’s second half of 2010 cash flow is very good, but the 2011 cash flow is what is mind boggling. One of the analyst for Bryon Capital Markets recently talked about the 2011 cash flow projections:

Why we like Yukon Nevada is not only for its production growth and its development project in the pipeline, but also because of the fact that it’s still got a table-pounding value proposition. Our 2011 production forecast, 237,000 ounces, produces a cash flow estimate of $0.16 a share. That puts the forward price multiple of our estimated cash flow at a little over three times, a level normally not seen by anyone generating such significant profitable gold production.

Based on my buy prices, I got in at less than 2x 2011 cash flow estimates. It is absurd that a gold producer is selling for such low multiples. Even with the recent increase in the share prices, the company still sells at a huge discount. I see 2011 as the big break-out year for the company.

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