YNG: Steady state production and cash flow positive

It has been a very long time since the company said it has reached steady state production. I initially bought my stake in YNG in late 2010. A few weeks after I bought my shares, YNG reported it had reached a steady state of production. Since then the company has run into many problems related to production and capital.

Today the company reported that it has been running at steady state production for over a month. This is a huge step in the company’s turnaround. Reaching steady state and cash flow positive is a vindication to the management team and their belief on the assets at YNG. The market is still extremely undervaluing YNG, with a market cap of a mere 350M. If the company can keep production running at current levels, the market will believe in the company and the correct this valuation gap.

Great job by management at working through all the problems.

4 responses to “YNG: Steady state production and cash flow positive”

  1. Great job???? I’m sure these financings were just all part of the plan.

    – $20mm to sell gold at $850 an ounce
    – $7 million worth of UNITS at 23c.
    – $6 million abortion of a financing with warrants, bonus shares, conversion down to 15c. And they announce this ONE BUSINESS DAY before announcing steady state.

    Management has consistently shown that they cannot estimate how long their initiatives will take, wildly underestimates their cost, and then are forced into punitive financings in order to keep the lights on. Sheer brilliance.

    And it ain’t that cheap anymore after all the dilution, forward sales, and rising costs. But I’m sure that roaster that’s worth a billion dollars will save shareholders. Too bad no one has offered them half that.

    • Welcome to mining companies. I’m disappointed in the equity raise and dilution. I didn’t expect this. The lesson that I’ve learned is that mining companies have a Texas mentality. It is a hit-or-miss. Or in baseball parlance, an Adam Dunn approach. If you connect it is a home run otherwise it is a strikeout. Mining companies, if they succeed then they can be worth multiples of what they stock traded at. If they don’t work out then the dilution will kill you. Management has this mindset. So when it comes to capital raise, the equity is looked at from this lens. The dilution is not concerned a huge issue by management as they believe that a success will make even the diluted shares worth multiples.

      Back to YNG, first a big correction. The gold forward is not at $850/oz. The $850 is the floor for per ounce rate. So at current prices, gold is trading at over $1,600 oz. So YNG will get the difference between $1,600 and $850, $750/oz when it gives an oz per the gold forward. Plus the gold forward is not really a dilution. It is more of getting capital now for production in future. The rest of the dilution is not great but it is minor dilution compared to the shares O/S. Again, if you see it as how I see mining companies, then this minor dilution is just a mindset with management in mining companies have.

      If you believe that there is substantial value with the roaster then it is very cheap. The company is current running at 160-170K oz of gold production. So that is something like 130M of cash flow. The company has a market cap of around 350M. So less than 3x cash flow. Now the question is what the resources are and the valuation of the roaster. My belief is the company is worth lots more. I think you won’t have to wait too long to see if I’m right.

  2. Fair enough. With respect to your last point, the market cap may be 350mm but the EV is much higher because of the negative working capital and forward sales.

    Bottom line is it comes down to trust. They may have the mill running up to expectations now but they will find a way to disappoint on another front–feed to the mill, perhaps?–they always do. Cash costs are still going to be high and the thrashed balance sheet is a big negative.

    If we were in a runaway bull market, I could see maybe holding this. But when you can buy a quality, proven miner that trades at a reasonable multiple, why not go there? CGA, for example, has a solid cash position, decades of production ahead, exploration potential and yet trades at 5x cash flow. Heck, even ABX is cheap. So many better options.

    • I think it boils down to trust in management. It was always a play on management. Turnarounds are a bet on management’s ability to turn the company around. I’ve believed in YNG’s management from the start. I still believe in the company and management.

      As for the EV, yes you need to account for the gold forward. But then why not account for a new plant put in place at the site? A brand new plant that is working as planned is worth something too. Anyways, in the end if you believe in the management and their plan then YNG is cheap. If you don’t believe in the management then no price is going to make YNG cheap enough to buy.

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