Yukon-Nevada: The valuation disconnect
Yukon-Nevada is one of my favorite risk/reward plays in the current market. It is a classic example of a good company making a bad mistake. Mr. Market with its short-term view hits the company’s valuation hard. The company then quietly goes about its business and makes all the right moves to fix the mistake. Yukon-Nevada is at a point where the company is close to returning to operation levels before the mistake but the shares still trade at a substantial discount to valuation of peers.
In March ’10, management made a presentation comparing the company’s valuation to the peers. I expect Yukon-Nevada to make an announcement regarding its production rate. Management has stated that by July 2010 the company should be producing 150K ounces of gold. The March ’10 presentation shows valuation of peers at the 150K production levels, trading at market cap of 600-1.8B (the market valuation takes into account the reserves at these companies, which the management presentation doesn’t get into). Yukon-Nevada sports a market cap of less than 200M. So we could see a major increase in YNG shares once Mr. Market comes to its senses.
Management also mentioned a goal of raising production levels to 400K ounces of gold in a 2 year timeframe. If management is successful in hitting it goal, we are looking at a home-run compared to current valuations.