Mr. Peter Marrone reports
YAMANA GOLD ANNOUNCES RECORD FOURTH QUARTER & YEAR END 2011 RESULTS
Yamana Gold Inc. has released its financial and operating results for the fourth quarter and full year 2011.
All dollar amounts are in U.S. dollars unless specified otherwise.
Highlights for the year 2011:
- Record production of 1.1 million gold equivalent ounces (GEO includes silver production at a ratio of
50:1), an
increase of 5 per cent at cash costs of $50 per GEO, including:
- Gold production of 916,284 ounces;
- Silver production of 9.3 million ounces;
- Generated cash margin of $1,517 per ounce, an increase of 28 per cent.
- Flagship operations outperformed in 2011:
- El Penon production increased by 11 per cent to 476,000 GEO;
- Gualcamayo production increased by 18 per cent to 159,000 gold ounces.
Significant financial and operational increases in 2011:
- Revenue increased 29 per cent to $2.2-billion;
- Adjusted earnings increased 59 per cent to $713-million, 96 cents per share;
- Cash flow generated from operations increased 48 per cent to $1.3-billion,
$1.70 per share;
- Cash and cash equivalents of $550-million, a $220-million increase
since 2010 year-end;
- Annual dividend increased throughout 2011 to 20 cents per share.
"We have sought to position Yamana as a predictable, reliable, low-cost gold producer with significant resources and production growth. Our focus has been on generation of cash flow and free cash flow," said Peter Marrone, chief executive officer. "Our focus in 2011 was on operational performance, exploration for discovery of new ounces and cash flow generation. Our philosophy was, and remains, to efficiently convert ounces from the ground to cash flow. Our focus in 2012 will continue to be on the delivery of growth in mineral resources, production, revenue and cash flow."
KEY STATISTICS
(in thousands of U.S. dollars, except per-share amounts)
Three months ended 12 months ended
Dec. 31, Dec. 31,
2011 2010 2011 2010
Revenues $ 568,754 $ 535,130 $ 2,173,325 $ 1,686,811
Cost of sales, excluding
depletion, depreciation and
amortization 178,384 178,341 716,692 631,063
Depletion, depreciation and
amortization 93,611 83,657 356,759 301,912
General and administrative
expenses 32,343 29,533 121,381 108,897
Exploration expenses 9,080 9,485 32,398 39,184
Operating earnings 247,846 238,496 944,962 631,432
Equity earnings from
Alumbrera 1,269 19,124 39,019 49,264
Net earnings $ 89,599 $ 125,569 $ 548,294 $ 466,487
Net earnings per share $ 0.12 $ 0.17 $ 0.74 $ 0.63
Adjusted earnings $ 184,242 $ 170,979 $ 712,896 $ 448,203
Adjusted earnings per share $ 0.25 $ 0.23 $ 0.96 $ 0.61
Revenues of $569-million in the fourth quarter were 6 per cent higher when compared with $535-million in the same quarter of 2010, mainly due to higher realized prices for gold and silver, and increased sales of copper pounds. Higher revenues also contributed to record mine operating earnings of $297-million in the quarter, compared with $273-million in the fourth quarter of 2010. Revenues for the year were $2.2-billion, consisting of sales of 862,321 ounces of gold, 9.1 million ounces of silver and 153.6 million pounds of copper, excluding Alumbrera, compared with $1.7-billion in the same period of 2010 on the sale of 813,113 ounces of gold, 10.1 million ounces of silver and 143.8 million pounds of copper, excluding Alumbrera.
Adjusted earnings were $184-million, or 25 cents per share, in the fourth quarter of 2011, compared with $171-million, or 23 cents per share, in the same quarter of 2010, representing an increase of 8 per cent. Higher adjusted earnings were mainly due to record-high mine operating earnings as a result of more favourable gold and silver realized prices as well as higher concentrate sales volume, partly offset by lower equity earnings from an associate. Record adjusted earnings were $713-million, or 96 cents per share, for the year, a 59-per-cent increase, compared with adjusted earnings of $448-million, or 61 cents per share, for 2010. Higher adjusted earnings were mainly due to increased revenues as a result of more favourable realized prices for gold, copper and silver, and increased production from continuing operations offset by higher other expenses and higher income tax expense when compared with 2010.
Net earnings for the quarter were $90-million, or 12 cents per share on a basic and diluted basis, compared with net earnings of $126-million, or basic and diluted earnings per share of 17 cents, for the fourth quarter of 2010. Despite contribution from record-high mine operating earnings, net earnings were lower as a result of an after-tax $81-million unrealized non-cash impairment loss on investments in available-for-sale securities recorded in the quarter. The accumulated loss was previously recorded in other comprehensive income and has been reclassified to the consolidated statement of operations for the quarter. This loss is unrealized and non-recurring, and does not impact or relate to the company's ability to generate operating cash flows or profit from its operations. As such, the unrealized loss has been excluded from the calculation of adjusted earnings and adjusted earnings per share. The company will recognize a gain on any value of these investments above the level at which they have been written down upon disposition.
Equity earnings from associates were $1-million for the quarter, compared with $19-million in the fourth quarter of 2010. This was due to lower earnings attributable to the company from its 12.5-per-cent interest in Minera Alumbrera Ltd. as a result of lower sales and higher operating costs relative to the comparative quarter of 2010. Equity earnings from associate of $39-million for the year decreased when compared with $49-million in 2010 due to lower earnings attributable to the company from its 12.5-per-cent interest in Minera Alumbrera, mainly due to lower sales, higher operating costs from lower gold and copper grades, and an unfavourable concentrate pricing adjustment recorded in the fourth quarter resulting from the downward trend of the copper price from the third quarter of the year.
Cash flows generated from operations before changes in non-cash working capital items were $320-million, or 43 cents per share, in the fourth quarter of 2011, compared with $287-million, or 39 cents per share, for the fourth quarter of 2010, an increase of 12 per cent. Cash flows generated from operations before changes in non-cash working capital items for the year ended Dec. 31, 2011, were $1.3-billion, or $1.70 per share, compared with $857-million, or $1.16 per share, for the same period last year, representing an increase of 48 per cent.
Cash flows from operations after taking into effect changes in working capital items were $339-million, compared with $251-million for the quarter ended Dec. 31, 2011. Cash flows after taking into effect changes in working capital items for the year ended Dec. 31, 2011, were $1.2-billion, compared with inflows of $681-million for the same period ended Dec. 31, 2010, from continuing operations.
Cash and cash equivalents as at Dec. 31, 2011, were $550-million after debt repayments during the year totalling $55-million and total dividend payments of $100-million.
Total production from operations was 276,918 GEO for the quarter, including the commissioning production from Mercedes and the company's proportionate interest in production from the Alumbrera mine, compared with production of 286,683 GEO for the comparative quarter ended Dec. 31, 2010.
In 2011, production of gold equivalent ounces totalled 1,102,296 GEO, compared with 1,047,191 GEO in 2010, representing a year-to-year increase of 5 per cent, including the commissioning GEO from Mercedes.
Copper production for the quarter ended Dec. 31, 2011, was 45.4 million pounds from Chapada, an increase of 14 per cent when compared with 39.9 million pounds for the fourth quarter of 2010. Additionally, 6.2 million pounds of copper produced from Alumbrera were attributable to the company, compared with 9.3 million pounds in the quarter ended Dec. 31, 2010. Total copper production for the fourth quarter was 51.6 million pounds. Copper production of 166 million pounds from the Chapada mine for the year increased by 11 per cent over production of 149 million pounds in 2010. Tonnage of copper concentrate production at Chapada also increased by 13 per cent over the prior year. Additionally, 32 million pounds of copper produced from Alumbrera were attributable to the company in 2011, compared with 39 million pounds in 2010.
Byproduct cash costs were positive $174 per GEO on commercial production of 268,480 GEO, compared with negative $34 per GEO in the fourth quarter of 2010. Byproduct cash costs were $50 per GEO, comparable with $50 per GEO in 2010. Byproduct cash costs per GEO were consistent with last year, reflecting continuing effective cost constraint and consistent byproduct credits on higher sales volume of copper.
Co-product cash costs for the quarter were $486 per GEO, including Alumbrera, representing a 5-per-cent increase when compared with $465 per GEO for the fourth quarter of 2010. Co-product cash costs for the year were $463 per GEO, compared with $442 per GEO for the year ended Dec. 31, 2010. Co-product cash costs per pound of copper were $1.20 for the quarter from the Chapada mine, unchanged from the fourth quarter of 2010. Co-product cash costs per pound of copper for the quarter, including the company's interest in Alumbrera, were $1.37 per pound, versus $1.23 per pound for the quarter ended Dec. 31, 2010. Co-product cash costs per pound of copper were $1.29 for the year from Chapada, compared with $1.17 for the year ended Dec. 31, 2010. Co-product cash costs for the year, including the company's interest in Alumbrera, were $1.38 per pound, compared with $1.20 for 2010.
Operating mines
Chapada, Brazil
Chapada produced a total of 135,347 ounces of gold contained in concentrate in 2011, compared with 135,613 ounces of gold in concentrate in 2010. Chapada copper production of 166.1 million pounds in the year was 11 per cent higher than the copper production in 2010.
Byproduct cash costs for the year were negative $2,454, compared with negative $2,073 per GEO for 2010. Increased sales of copper and higher copper prices were the main contributing factors to the increase in byproduct credit.
Co-product cash costs for gold were $319 per ounce in 2011, compared with $327 per ounce in 2010. Lower co-product cash costs were primarily due to higher tonnage throughput positively impacting unit costs and improved recoveries, partly offset by lower grades. Co-product cash costs for copper were $1.29 per pound in 2011, versus $1.17 per pound in 2010.
Chapada produced a total of 34,313 ounces of gold contained in concentrate in the fourth quarter, compared with 36,965 ounces of gold in concentrate in the fourth quarter of 2010. Chapada copper production of 45.4 million pounds in the fourth quarter was 14 per cent higher than the copper production during the comparable period in 2010. Lower production of gold in the quarter compared with the fourth quarter of 2010 was mainly due to lower feed grade and recovery, partly offset by increased tonnage of ore mined and processed as a result of the plant optimization initiatives undertaken since the end of 2010. Decrease in gold grade is in line with the life-of-mine plan.
Byproduct cash costs for the fourth quarter were negative $1,715 per ounce, compared with negative $2,863 per ounce for the same quarter of 2010. Lower credit to byproduct cash costs reflects lower copper prices, partly offset by higher copper sale volume compared with the prior year, resulting in higher byproduct cash costs.
Co-product cash costs for the quarter were $320 per gold ounce and $1.20 per pound of copper, compared with $323 per gold ounce and $1.20 per pound of copper for the same quarter of 2010.
Co-product cash costs per ounce of gold and per pound of copper remain largely unchanged in spite of lower feed grade and recovery for gold, reflecting effective cost-control practices by the operation.
In December, 2011, the company completed the feasibility and basic engineering study on the oxides at the Suruca project. Suruca is six kilometres northeast of Chapada. The deposit will support an additional average production of 49,000 gold ounces per year to Chapada's operations over an initial five years beginning in 2013.
The company continues to evaluate the gold and copper production contribution to Chapada from Corpo Sul, which is a recently discovered gold and copper mineralization target at the southwest end of the orebody. A total of 30 drill holes were completed, traced along a strike length of almost seven kilometers, during the fourth quarter of 2011. The mineral resource has higher average grade cores, especially near the current Chapada pit, which could provide opportunity for near-term higher-than-average mineral reserve grades.
Planned production from Chapada will decline in 2012 over 2011 levels, although will increase in terms of gold production in 2013 and in the years to follow, mostly as a result of the start-up of the oxide gold operation at Suruca, and gold and copper production from Corpo Sul beginning in 2014. The company's strategic plan is to ensure sustainable production from Chapada of 150,000 gold ounces and 135 million pounds of copper from 2013 and onward for at least five years.
Jacobina, Brazil
Jacobina produced 121,675 ounces of gold in 2011, compared with production of 122,160 ounces of gold in 2010. The decrease in production was mainly due to lower tonnage of ore processed.
Cash costs were $643 per ounce in 2011, compared with $535 per ounce in 2010.
Gold production at Jacobina was 31,983 ounces in the fourth quarter, compared with 33,718 ounces of in the fourth quarter of 2010. The decrease in production was primarily a result of lower tonnage of ore processed, and lower feed grade and recovery. Increased mine gallery reinforcement work also negatively affected production.
Cash costs were $646 per ounce of gold for the fourth quarter, compared with $495 per ounce of gold in the fourth quarter of 2010, mainly due to mining inflation pressure, an increase in hauling distance and increased secondary development. Additionally, more effort was undertaken on mine development during the quarter, resulting in lower production and higher cash costs in the short term. Costs are expected to decrease in 2012.
The company continues to focus on upgrading the current mineral resources to mineral reserves at Canavieiras and Morro do Vento, and improving overall mineral reserve grade for the mine. Additional drilling during the fourth quarter was completed to upgrade inferred mineral resources to measured and indicated mineral resources at both Canavieras and Morro Do Vento. Successful infill drilling at Canavieiras and Morro do Vento resulted in measured and indicated mineral resource increases of approximately 392,000 ounces of gold in 2.2 million tonnes at 3.83 grams per tonne and 81,000 gold ounces in 814,584 tonnes at 3.09 g/t, respectively, representing potential additional mine life of more than three years. The gold grade at Canavieiras averaged approximately 3.83 g/t, which improved the average grade of global mineral resources and mineral reserves. Mining of higher-grade areas could increase average annual production at Jacobina to 140,000 gold ounces beginning in 2014. Production increases from higher-grade and new gold ounces from new areas will use the existing processing capacity and hence should result in significant improvements in cash cost per ounce.
Fazenda Brasileiro, Brazil
The Fazenda Brasileiro mine produced 55,163 ounces of gold in 2011, compared with 70,084 ounces of gold in 2010.
Production at Fazenda Brasileiro was 15,568 ounces of gold in the quarter ended Dec. 31, 2011. This compares with 19,852 ounces of gold in the fourth quarter of 2010. Cash costs for the fourth quarter were $915 per ounce, compared with $705 per ounce for the same period in 2010. Grade for the quarter was 2.33 g/t, compared with 2.53 g/t for the comparative quarter last year, representing an expected decline in grade of 8 per cent, which impacted cash costs.
The Fazenda Brasileiro mine was acquired in 2003 with 2.5 years of mine life remaining based on known mineral reserves. The company has since been mining at Fazenda Brasileiro for eight years. The mine continues to further outline exploration potential and mineral resource additions are expected in 2012.
The two new mineralization zones, CLX2 and Lagoa do Gato, both discovered in 2009, are identified as having significant potential for high-grade sources of ore for the mill. Both infill and extension drilling confirm the continuity of mineralization in both areas. In 2011, the company continued to develop the high-grade mineral reserves at CLX2, improve mine fleet costs using road trucks and with a focus on increasing mineral reserves and mineral resources. The company is evaluating the possible extension of mine life. Total gold mineral reserves for Fazenda Brasileiro increased by 104 per cent when compared with 2010.
El Penon, Chile
Annual production at El Penon was 475,586 GEO in 2011, representing a year-over-year increase of 11 per cent in GEO when compared with production of 2010, which was the transition year to owner mining. Since conversion to owner mining in early 2010, operational dilution has decreased and feed grade has improved. This, combined with increased capacity, has led to increased GEO production. Production for the year of 475,586 GEO consisted of 306,184 ounces of gold and 8.5 million ounces of silver, compared with 427,934 GEO, which consisted of 256,530 ounces of gold and 9.4 million ounces of silver, produced in 2010. Production of gold has increased consecutively year over year since 2009.
Cash costs were $400 per GEO, compared with $428 per GEO in 2010. Improvement of operational reliability and cost management were the main contributing factors to more than offset the negative effect of a higher exchange rate for the Chilean peso and result in lower cash costs in 2011.
El Penon produced 115,043 GEO during the fourth quarter of 2011. Production for the quarter consisted of 75,407 ounces of gold and two million ounces of silver, compared with 113,800 GEO, which consisted of 74,785 ounces of gold and 2.1 million ounces of silver, produced in the fourth quarter of 2010, primarily due to higher recoveries.
Cash costs were $413 per GEO in the quarter ended Dec. 31, 2011, representing a 2-per-cent improvement, compared with $421 per GEO in the fourth quarter of 2010. The favourable exchange rate of the U.S. dollar versus the Chilean peso, operational reliability and cost management improvements allowed mine management to mitigate the adverse impact of mining inflation.
El Penon has a long record of replacement of ounces by mineral resource expansion. During the fourth quarter of 2011, 251 drill holes were completed totalling over 66 kilometres, with the majority in areas of the North block to extend and define the Al Este, Abundancia and Esmeralda targets, the Fortuna area where infill drilling extended the deposit to depth, and at Pampa Augusta Victoria to better define the Victoria vein to depth and parallel structures to the east. Infill drilling upgraded the previously defined mineral resources to reserves and identified higher-grade areas. Total mineral reserves on a GEO basis for El Penon increased by 20 per cent when compared with 2010, with consecutive increases in mineral reserves on a GEO basis over the last two years.
Continuous exploration effort on high-grade areas at El Penon is expected to return significant near-surface gold and silver values, improve production, provide mining flexibility for a sustainable production level of at least 440,000 GEO per year, and ultimately increase mine life.
Minera Florida, Chile
Annual production at Minera Florida totalled 102,738 GEO in 2011, compared with 105,604 GEO in 2010. Tonnes of ore processed increased by 18 per cent in 2011 from 2010 levels. The combined impact of higher tonnage and higher silver feed grade resulted in an increase in silver production of 31 per cent. Gold production decreased year over year as a result of lower gold feed grade.
Cash costs were $591 per GEO in 2011, compared with $416 per GEO in 2010.
Minera Florida produced a total of 23,151 GEO in the quarter, representing a decrease of 28 per cent, compared with 32,048 GEO in the fourth quarter of 2010, mainly as a result of a strike-related work stoppage at the mine. Operations returned to normal by year-end and a two-year collective bargaining agreement was signed.
Gold grade for the quarter was 3.37 g/t, which was lower than the 4.68 g/t for the fourth quarter of 2010. In 2012 and years to follow, mine grade is expected to be consistent with mineral reserve grade and process efficiency will be augmented by low-cost historical tailings material. In 2012 production is expected to be in excess of 135,000 GEO with the start of production from the tailings retreatment project.
Cash costs for the fourth quarter were $706 per GEO, compared with $479 per GEO in the same quarter of 2010, primarily as a result of the work stoppage and, to a lesser extent, mining inflation, higher energy costs and lower gold feed grades. In 2012, cash costs are expected to return to historical levels.
The company's expansion project at Minera Florida is designed to increase annual production by approximately 40,000 GEO per year for five years through the retreatment of tailings. The construction of the project continues to advance and is expected to be completed in March with first production expected in April. Overall costs are expected to improve with the addition of tailings production given the lack of mining costs associated with the tailings project.
Near-mine exploration at Minera Florida focused on the Portezuelo, El Roble and Tribuna sectors to delineate the extension of the orebodies. Mine development has advanced as planned in areas such as Tribuna and Maqui Clavo I, which are expected to maintain and ensure future production levels.
Gualcamayo, Argentina
Gualcamayo produced 158,847 ounces of gold in 2011, compared with 135,140 ounces produced in 2010, representing an 18-per-cent year-over-year increase. Production increased primarily as a result of mining higher-grade benches.
Cash costs for the year were $441, compared with $506 per ounce in 2010.
Gold production of 40,676 ounces in the fourth quarter compared with 36,239 ounces produced in the fourth quarter of 2010 represents a 12-per-cent quarter-over-quarter improvement. Production increased mainly due to higher grade and higher tonnage processed, partly offset by lower recovery. Management continues to work on recovery improvement.
Cash costs were $424 per ounce in the quarter ended Dec. 31, 2011, representing a 36-per-cent improvement, compared with $662 per ounce in the fourth quarter of 2010, which was adversely affected by the necessary stoppage of conveyor belts and the plant for the expansion of capacity, as a result, ore was transported by truck while the conveyor belts were down and that contributed to higher cash costs in the fourth quarter of 2010.
Development of QDD Lower West advanced to 33 per cent of the overall physical progress, with tunnel advance and equipment and material procurement. Project completion remains on schedule. Brownfield exploration for the fourth quarter of 2011 was focused on increasing mineral resources in the QDD Lower area, which will continue to be the main target in the first half of 2012. Exploration efforts during 2011 at Gualcamayo began late in the year due to limited access to the orebody during the first half of the year. Gualcamayo is expected to contribute more meaningfully to company mineral reserve and mineral resource growth going forward.
Full ramp-up of Gualcamayo's expansions to be completed by mid-2013 are expected to increase sustainable production to over 200,000 gold ounces per year beginning in 2014.
Mercedes, Mexico
The Mercedes mine, located in Sonora, Mexico, is Yamana's newest mine and represents the first of four new mines to begin production during 2012 and 2013.
With mine development and plant commissioning well advanced, and a sufficient stockpile having been created during the mine development period, a first gold pour occurred in mid-November, 2011, marking the formal start-up of commissioning production at the mine, which was originally planned for the middle of 2012.
Commissioning period production was 8,438 gold equivalent ounces since the first gold pour in the fourth quarter. Mining is at a rate consistent with the original plan, and the plant is ramping up to the rate of 1,500 tonnes per day as contemplated in the feasibility study. At the end of the quarter, approximately 100,000 tonnes of ore were stockpiled, and inventories in circuit and in process were approximately 2,900 GEO. Commissioning activities continue to advance as planned. Production for the month of January, 2012, was 8,959 GEO, representing the second consecutive monthly production in excess of 8,000 GEO. Subsequent to the year-end, Mercedes reached commercial production as of Feb. 1, 2012, upon achieving sustainable levels of operations based on qualitative and quantitative factors. In its assessment, management reviewed achievement of milestones at a sustainable level, including, but not limited to, a significant portion of planned capacity, production levels, grades and recovery rates, achievement of mechanical completion and operating effectiveness, obtaining necessary permits and production inputs, and positive and sustainable cash flows.
Production is initially planned at 120,000 GEO per year, although the company is evaluating the potential to increase throughput to 1,800 tonnes per day through modest plant modifications and optimizations. With increased plant capacity, along with the additional ore from Barrancas, and as accelerated underground development work advances during 2012, the company expects production to increase to over 130,000 GEO in 2013.
To date, there have been over 11,000 metres of underground development completed, including the start of development of the Barrancas zone with the higher-grade Lagunas Norte vein, one of the newest discoveries at the mine. Development of the vein structure in the Barrancas zone was not included in the original mine plan and represents a significant opportunity to increase production.
A total of 24 holes covering over five kilometres were completed in the fourth quarter of 2011. Drilling was focused on the area between the Diluvio and Lupita deposits, and as infill on the outcropping Rey de Oro deposit located to the east of Diluvio. The Rey de Oro zone has now been delineated along a strike length of 350 metres, a dip length of 130 metres (starting at the surface), and a width of between 20 and 70 metres.
Alumbrera, Argentina
The company's interest in the Alumbrera mine is accounted for as an equity investment. The company recorded earnings from its 12.5-per-cent interest in the Alumbrera mine of $1-million and $39-million for the three-month period and year ended Dec. 31, 2011, respectively, compared with $19-million and $49-million reported for the respective periods of 2010. Lower earnings for the year ended Dec. 31, 2011, were due to lower production and higher operating costs. Both production and unit costs were impacted by lower grades for gold and copper. Additionally, earnings for the quarter were impacted by unfavourable concentrate pricing adjustments resulting from the downward trend of the copper price from the third quarter to the year-end. The company received cash distributions of $44-million during the three months and $71-million for the year ended Dec. 31, 2011, compared with $24-million and $61-million for the comparative periods in 2010, respectively.
Attributable production from Alumbrera was 7,746 ounces of gold and 6.2 million pounds of copper for the quarter. This compares with attributable production of 14,061 ounces of gold and 9.3 million pounds of copper for the fourth quarter of 2010. Lower gold and copper production was mainly due to lower head grades from the ore mined and stockpile, and lower recoveries, partially offset by higher tonnage throughput.
Construction and development projects
The following summary highlights key updates from the construction and development projects at the company.
Ernesto/Pau-a-Pique, Brazil
Construction progress is on schedule with commissioning and start-up of production expected by the end of 2012 and commercial production by mid-2013. As of Dec. 31, 2011, physical advancement continued and was approximately 75-per-cent complete. During the fourth quarter, mine development, civil works and electromechanical works continued as expected and detailed engineering was completed. Annual production is expected to be approximately 100,000 gold ounces with average annual production during the first two full years expected to be approximately 120,000 gold ounces.
C1 Santa Luz, Brazil
Construction progress is on schedule with commissioning and start-up of production expected by the end of 2012 and commercial production by mid-2013. As of Dec. 31, 2011, physical advancement of the project was approximately 60-per-cent complete. During the fourth quarter, earthworks were completed, and civil works and erection works continued as planned. Annual production is expected to be approximately 100,000 gold ounces with average annual production during the first two full years to exceed 130,000 gold ounces.
Pilar, Brazil
Construction progress is on schedule with commissioning and start-up of production expected by mid-2013 with commercial production expected by the end of 2013. As of Dec. 31, 2011, detailed engineering and earthworks were approximately 85-per-cent complete, advancing physical progress to approximately 25 per cent. Annual production from the mine is estimated to be 120,000 ounces of gold. The project is being built with 30-per-cent additional capacity to that contemplated in the feasibility study in anticipation of significant mineral resource growth. Development of Caiamar, a high-grade satellite deposit located 38 kilometres west of Pilar, is expected to contribute to production and utilization of this excess capacity at Pilar, thereby increasing production to a minimum of 140,000 gold ounces per year once in full production, as early as 2014.
Mineral resource development and work on a feasibility study continued at Caiamar throughout the year. The ore from this deposit can be processed at Pilar with the higher grades offsetting the additional transportation costs.
Suyai, Argentina
Development of various studies relating to Suyai will be launched during 2012. The studies are expected to lead to the evaluation of Suyai as a high-grade, low-cost underground mine with off-site processing, tailings and waste facilities. The company has been invited to present this new concept for Suyai to local officials and community leaders.
Jeronimo, Chile
Following the delivery of the first mineral reserve estimate at Jeronimo in early 2011, a prefeasibility study of Jeronimo was completed by the end of the year.
The prefeasibility study estimated that cash costs will be approximately $600 per gold ounce and that preproduction capital will be approximately $310-million. The initial results indicated increased production and recovery levels reaching approximately 85 per cent under a base-case scenario when using a combined flotation and pressure oxidation process. Additional studies were undertaken, which have since been completed, that form the basis of the feasibility study now being completed. The studies were designed to provide greater certainty through extensively testing metallurgical results, opportunities for improving recoveries beyond 85 per cent and scaling the plant to requirements through pilot testing. These results and advanced engineering work will be detailed within the feasibility study expected before mid-2012. With the increase in certainty from pilot testing and metallurgy, a 17-per-cent increase in gold mineral reserves, potential byproduct credits, and other optimizations, the company expects a positive impact on the economics of the project.
The company anticipates making a construction decision in 2012 and is advancing the construction of Jeronimo whether or not it consolidates its 57-per-cent stake in the project. Jeronimo's annual gold production is expected to be approximately 150,000 ounces per year, with production in the early years of approximately 190,000 ounces.
Exploration
The company's 2011 exploration program focused on increasing mineral reserves and mineral resources within its near-mine and regional brownfield exploration programs, as well as continuing to explore greenfield targets elsewhere in the Americas. As of the end of 2011, a total of 16 projects have been explored with comprehensive drill programs and a total of approximately 422,000 metres of drilling was completed. The company is largely focused on developing its future based on its exploration successes and organic growth.
Yamana expects to spend approximately $125-million on exploration in 2012, continuing to build on its successful record of replacing and increasing mineral reserves and mineral resources. The exploration program will focus on increasing the company's mineral reserves and mineral resources, accelerating the development of new discoveries such as Jordino and Maria Lazarus at Pilar, the extension of Pampa Augusta Victoria and definition of a new discovery at El Penon, the expansion of high-grade mineral resources at Jacobina, and the development of several greenfield projects.
Outlook and strategy
The company is focused on operational predictability and reliability with a concentrated effort in increasing cash flows, containing costs and expanding margins to maximize shareholder value. The company continues on a steady path of organic growth through expanding current, near-term and in-development production plans, developing new projects, and advancing its exploration properties.
Production in 2012 is expected to be in the range of 1.2 million to 1.3 million gold equivalent ounces. This will represent an increase from 2011 production of 13 per cent, most of which will come from Mercedes as its production ramps up, as well as the Minera Florida expansion which will add to production starting in March, 2012. C1 Santa Luz and Ernesto/Pau-a-Pique are also expected to start production by the end of 2012.
Production in 2013 is expected to increase by 43 per cent from 2011 levels to a range of 1.5 million to 1.7 million GEO, most of which will come from a full year of production from C1 Santa Luz and Ernesto/Pau-a-Pique, and the start-up of Pilar and the Gualcamayo expansion.
By 2014, production is targeted to be at a sustainable level of approximately 1.75 million GEO. This includes production from the existing mines and development projects for which construction decisions have been made.
Current exploration and early development projects will potentially add to this production level and will be included once construction decisions have been made. These projects include Jeronimo, Agua Rica and Suyai.
Cash costs for 2012 are forecasted to be below $250 per GEO. Cash costs are calculated after base metal byproduct credits.
Development capital to be spent in 2012, including $65-million carried forward from 2011 and excluding capitalized exploration, is expected to be $665-million. This includes amounts for new projects for which capital was not committed in 2011. Development capital will decline into 2013 and the following years as the company's development projects are completed.
For 2012, sustaining capital is expected to be $340-million across all operations and is expected to decline after current sustaining development projects are completed in 2014.
The company is also contemplating certain initiatives that will result in improved recoveries, reduced costs and/or mine-life extension at various operations. These projects are currently being evaluated with final decisions still pending. The most significant impact projects are at El Penon, Chapada and Pilar.
In addition to $1.1-billion of available cash and undrawn credit available at the end of 2011, the expected robust cash flows from operations under the current and intermediate-term pricing conditions for gold will enable the company to fully finance its growth, reward shareholders through dividends and accelerate capital spending to enhance the company's production growth profile.
Further details of the 2011 fourth quarter results can be found in the company's unaudited management's discussion and analysis and unaudited consolidated financial statements posted on the company's website.
Fourth quarter conference call
The company has scheduled its fourth quarter conference call for 11 a.m. (ET) on Thursday, Feb. 23, 2012. You can acccess the call by dialling 1-800-952-6845 (toll-free from North America) or 416-695-6616 (Toronto and international). The conference call will also be webcast at the company's website.
The company will make a replay of the conference call available. To access the replay dial 1-800-408-3053 (toll-free from North America) or 905-694-9451 (Toronto and international) and enter the passcode 7125300.
The conference call replay will be available from 2 p.m. (ET) on Feb. 23, 2012, until 11:59 p.m. (ET) on March 8, 2012.
For further information on the conference call or audio webcast, please contact the investor relations department or visit the company's website.
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