Here's Why Yamana Gold Needs More Debt Reduction

Yamana Gold Inc.'s (USA) (NYSE: AUY) positive free cash flow during the next two years could help further reduce its debt, said an analyst Tuesday.

The company last month cut its debt using proceeds of a C$299 million ($236 million) offering of 56.5 million shares. Meanwhile, Credit Suisse's Anita Soni reinstated coverage on the company with a Hold rating and target price of $4.50.

Shares of Yamana are off 60 percent in the past year and changed hands recently at $3.59, down 3.75 percent.

The company, whose operations are largely in Latin America, could beat earnings expectations through potential joint ventures and growth in its reserves, according to Soni.

But the analyst said Yamana needs to further cut its debt through cost reductions or the sale of assets. The company's ratio of debt to equity remains well above its peers.

Yamana is currently "working through a turn-around of its under-performing assets and refocusing on profitability," Soni said. Before raising her rating on the shares, Soni said the company needs to provide a three-year growth plan and meet earnings expectations.

The company has missed quarterly earnings expectations by wide margins in three of the past four quarters. Yet, 18 analysts following Yamana have a mean rating of Overweight and a $5.95 target, according to FactSet.