An anonymous director reports
YAMANA GOLD ANNOUNCES THIRD QUARTER 2015 RESULTS
Yamana Gold Inc. has released its financial and operating results for the third quarter of 2015, with some highlights provided as follows.
(All amounts are expressed in U.S. dollars unless otherwise indicated.)
-
Total gold production of 325,897 ounces, representing a 9-per-cent increase in
gold production from continuing operations compared with the second
quarter of 2015, including 281,915 ounces of gold from core assets(1):
-
Total gold production of 929,128 ounces in the first nine months of
2015;
- Notable increases in gold production at core assets compared with the
second quarter of 2015 include:
- 32 per cent at Jacobina, 17 per cent at Gualcamayo, 12 per cent at Canadian Malartic, 10 per cent at
Minera Florida 6 per cent at Chapada and 4 per cent at Mercedes;
-
Cash costs(2) of $594 per ounce of gold, including the following notable
decreases compared with the second quarter of 2015:
- 27 per cent at Jacobina, 15 per cent at Mercedes and 11 per cent at Canadian Malartic;
-
All-in sustaining costs (AISC)(2)(3) of $841 per ounce of gold:
- $748 per ounce of gold at core assets;
-
Production of 2.2 million ounces of silver at AISC(2)(3) of $11.32 per
ounce:
- Silver production of 7.1 million ounces in the first nine months of
2015;
- 34 million pounds of copper production at cash costs(2) of $1.41 per
pound:
- Copper production of 94.4 million pounds in the first nine months of
2015;
- Adjusted cash flows from continuing operations before changes in non-cash working capital(2)(4) of $133.9-million or 14 cents per share;
-
Cash flows from continuing operations after changes in non-cash working
capital(4) of $77.6-million or eight cents per share;
-
General and administrative expense of $28.5-million, representing an 11-per-cent
decrease compared with the second quarter of 2015;
- Adjusted loss from continuing operations(2) of $20.2-million or two cents
per share;
- Net loss from continuing operations of $115-million or 12 cents per
basic share.
Notes:
- Core assets include Chapada, El Penon, Canadian Malartic, Gualcamayo,
Mercedes, Minera Florida and Jacobina;
- Refers to a non-GAAP (generally accepted accounting principles) measure;
- Includes cash costs, sustaining capital, corporate general and
administrative expense, and exploration expense;
- Cash flows from operating activities.
Given the advancement of the Brio Gold Inc. monetization plan, the accompanying table has been provided to give a preview of the company's cost profile for its core mines, Brio Gold and continuing operations, all other inputs remaining equal. Additionally, the table shows that in the absence of the foreign exchange hedges that will be extinguished by year-end, the company's cash costs, AISC and cash costs on a co-product basis would have come in at lower levels.
Cash cost per AISC per Gold co-product
ounce ounce cash cost per
Core mines(1) ounce
Costs including hedge impact $570 $748 $652
Impact of hedge(4) $(40) $(40) $(18)
Costs including hedge impact $530 $708 $634
Brio Gold(2)
Costs excluding hedge impact $658 $866 $658
Impact of hedge(4) - - -
Costs excluding hedge impact $658 $866 $658
Continuing operations(3)
Costs excluding hedge impact $594 $841 $653
Impact of hedge(4) $(35) $(35) $(16)
Costs excluding hedge impact $559 $806 $637
1. Based on gold production of 281,915 ounces from the company's core mines.
2. Based on gold production of 38,430 ounces from Brio Gold. Brio Gold costs exclude
the effect of copper byproduct credits, as those are attributable to Chapada,
which is part of the company's core mines.
3. Based on gold production of 325,897 ounces from the company's continuing
operations.
4. Based on realized foreign exchange hedges settled during the third quarter of
2015.
KEY STATISTICS
(in millions of U.S. dollars, except per-share amounts)
Three months Nine months
ended Sept. 30, ended Sept. 30,
2015 2014 2015 2014
Revenue $ 448.9 $ 494.4 $ 1,361.9 $ 1,292.2
Cost of sales excluding
depletion, depreciation and
amortization (266.0) (275.0) (818.2) (727.2)
Depletion, depreciation and
amortization (133.2) (135.2) (395.4) (366.9)
General and administrative
expenses (28.5) (24.9) (89.9) (93.0)
Exploration and evaluation
expenses (6.6) (5.2) (16.1) (14.1)
Equity (losses)/earnings from
associate (Alumbrera) (6.3) (12.1) (17.2) (10.7)
Mine operating earnings 49.7 84.2 148.3 198.1
Net (loss)/earnings from
continuing operations (115.0) (879.6) (257.2) (895.4)
Net (loss)/earnings from
continuing operations per share (0.12) (1.00) (0.28) (1.12)
Adjusted (loss)/earnings from
continuing operations (20.2) (1.3) (65.9) 58.4
Adjusted (loss)/earnings from
continuing operations per share (0.02) 0.00 (0.07) 0.07
Cash flow generated from
continuing operations after
changes in non-cash working
capital 77.6 156.6 203.1 330.2
Per share 0.08 0.20 0.22 0.41
Adjusted cash flow from
operations before changes in
non-cash working capital 133.9 180.7 379.3 463.4
Per share 0.14 0.23 0.41 0.58
Average realized gold price per
ounce 1,122 1,276 1,176 1,286
Average realized silver price
per ounce 14.88 19.27 15.99 19.79
Average realized copper price
per pound 2.85 3.14 2.88 3.16
PRODUCTION SUMMARY -- FINANCIAL AND OPERATING SUMMARY
Three months Nine months
ended Sept. 30, ended Sept. 30,
2015 2014 2015 2014
Gold produced 325,897 332,344 929,590 845,079
Gold sold 317,859 281,681 906,208 721,928
Silver produced (millions of
ounces) 2.20 2.95 7.05 7.49
Silver sold (millions of ounces) 2.25 2.69 7.02 7.11
Copper produced -- Chapada
(millions of pounds) 34.0 38.0 94.4 98.5
Copper sold -- Chapada (millions
of pounds) 29.1 35.7 87.4 89.7
Three months Nine months
ended Sept. 30, ended Sept. 30,
2015 2014 2015 2014
Gold
Cash costs per ounce $594 $528 $616 $518
Co-product cash costs per ounce $653 $695 $683 $676
All-in sustaining costs per
ounce $841 $867 $876 $875
All-in sustaining costs per
ounce, co-product basis $856 $971 $899 $981
Silver
Cash costs per ounce $7.37 $4.80 $7.01 $5.93
Co-product cash costs per ounce $8.46 $6.84 $8.14 $7.64
All-in sustaining costs per
ounce $11.32 $8.80 $10.81 $10.86
All-in sustaining costs per
ounce, co-product basis $11.67 $9.99 $11.32 $11.87
Cash costs per pound of copper --
Chapada $1.41 $1.59 $1.52 $1.71
PRODUCTION BREAKDOWN
Three months Nine months
ended Sept. 30, ended Sept. 30,
2015 2014 2015 2014
Gold ounces
Chapada 32,029 28,847 84,561 78,177
El Penon 51,983 70,111 167,914 205,506
Canadian Malartic 76,603 64,761 212,937 76,639
Gualcamayo 44,076 43,060 127,811 134,404
Mercedes 20,155 28,459 63,731 74,847
Minera Florida 28,989 22,402 83,400 72,123
Jacobina 28,080 21,112 67,988 54,741
Alumbrera 5,552 7,520 15,969 25,946
Brio Gold 38,430 40,327 104,819 106,193
Continuing operations 325,897 326,599 929,130 828,576
Ernesto Pau-a-Pique 0 5,745 460 16,503
Total 325,897 332,344 929,590 845,079
Silver ounces
Chapada 69,067 83,769 203,987 223,645
El Penon 1,914,356 2,349,577 6,108,532 6,188,184
Mercedes 88,456 103,642 280,827 290,741
Minera Florida 124,865 409,676 458,354 790,915
Total 2,196,744 2,946,664 7,051,700 7,493,485
Financial results for the three months ended Sept. 30, 2015
Net loss from continuing operations attributable to Yamana equity holders for the three months ended Sept. 30, 2015, was $115-million or 12 cents per share basic, compared with a net loss from continuing operations attributable to Yamana equity holders of $879.6-million or $1 per share basic and diluted for the three months ended Sept. 30, 2014. Net loss was affected by a higher income tax expense and an equity loss from Alumbrera (12.5-per-cent interest). The income tax expense for the quarter reflects the effect of the non-cash tax relating to unrealized foreign exchange gains of $132.7-million, as during the period, the Brazilian real, Argentine peso and Mexican peso devalued significantly against the U.S. dollar.
The effects of these foreign exchange movements on taxes are non-cash and, as such, are excluded from adjusted earnings.
The adjusted loss from continuing operations was $20.2-million or two cents per share basic for the three months ended Sept. 30, 2015, compared with an adjusted loss of $1.3-million or nil per share for the same period of 2014. Mine operating earnings for the three months ended Sept. 30, 2015, were $49.7-million, compared with $84.2-million for the same period of 2014. Adjusted loss and mine operating earnings for the period were primarily affected by lower realized metal prices than in the same quarter of 2014 by approximately 12 per cent for gold, 23 per cent for silver and 9 per cent for copper, partially offset by higher sales volume for gold. Revenue for the three months ended Sept. 30, 2015, was lower by $45.5-million compared with the same period last year, largely due to lower metal prices.
Cash flows from operating activities from continuing operations for the three months ended Sept. 30, 2015, after and before changes in non-cash working capital, were $77.6-million and $127.6-million, respectively. The company generated 30 cents of adjusted operating cash flows before changes in non-cash working capital for every dollar of revenue generated during the period, notwithstanding lower metal prices in 2015. This compares with 34 cents for the same period of 2014. It was lower, which was predominantly related to the lower metal prices during the period.
Revenue for the three months ended Sept. 30, 2015, was $448.9-million, lower compared with $494.4-million for the same period of 2014, as increases in gold and copper sales volumes were more than offset by a decline in metal prices. Revenue for the third quarter of 2015 was generated from the sale of 317,859 ounces of gold, 2.2 million ounces of silver and 29.1 million pounds of copper, excluding attributable sales from Alumbrera, which is accounted for as an equity investment. This compares with sales, excluding Alumbrera, of 281,681 ounces of gold, 2.7 million ounces of silver and 35.7 million pounds of copper for the three months ended Sept. 30, 2014.
The average realized price of gold for the quarter was $1,122 per ounce, compared with $1,276 per ounce for the same quarter in 2014, or 12 per cent lower, and the average realized silver price was $14.88 per ounce, compared with $19.27 per ounce for the same quarter in 2014, or 23 per cent lower. The average realized price of copper was $2.85 per pound, compared with the $3.14 per pound for the same quarter in 2014, or 9 per cent lower.
Cost of sales excluding depletion, depreciation and amortization for the three months ended Sept. 30, 2015, was $266-million, compared with $275-million for the same period in 2014. Cost of sales excluding depletion, depreciation and amortization for the third quarter was lower than that of the same period in 2014, despite higher sales volume for gold, reflecting cost-reduction initiatives implemented by company and the effect of the depreciation of foreign currency rates from the strengthening of the U.S. dollar against the Brazilian real, the Argentine peso, the Mexican peso and the Canadian dollar.
Depletion, depreciation and amortization (DDA) expense for the three months ended Sept. 30, 2015, was $133.2-million, in line with the $135.2-million amount for the same period of 2014.
General and administrative (G&A), exploration and evaluation, other, and net finance income was $41.1-million for the three months ended Sept. 30, 2015, compared with $65.6-million for the same period in 2014, representing a decrease of 37 per cent, a breakdown of which is as follows:
- G&A expenses were $28.5-million, compared with $24.9-million for the same
period in 2014. Higher G&A than in the comparative period of 2014
resulted mainly from adjustments on stock-based compensation and other
recoveries for which there is no current-period comparative. The company
has continued to implement cost-saving initiatives, resulting in a
decrease of 11 per cent in G&A from that of the second quarter of 2015.
- Exploration and evaluation expenses were $6.6-million, compared with $5.2-million for the same period of 2014, mainly from additional exploration
and evaluation on new properties acquired.
- Other expenses were $7.4-million, compared with $39.3-million for the same
period of 2014, or 81 per cent lower. Other expenses in the comparative period
included provisions, demobilization and reorganization costs relating to
C1 Santa Luz with no current-period comparative.
- Net finance income was $1.4-million, compared with net finance income of
$3.8-million for the same period of 2014, predominantly from higher
foreign exchange gains, partly offset by a loss on derivatives compared
with a gain in the same period of 2014. Additionally, included in net
finance income are proceeds of $12.4-million following the close-out of
forward copper derivative contracts during the period. The realized
contracts associated with the copper price protection program for the
period and the close-out of the fourth quarter contracts during the
period generated total cash proceeds of $24.8-million. Of the total
proceeds, $12.4-million was related to third quarter production and was
included in revenue and the remainder in net finance income.
Equity loss from Alumbrera was $6.3-million for the three months ended Sept. 30, 2015, compared with an equity loss of $12.1-million for the three months ended Sept. 30, 2014. The equity loss was a result of lower metal prices and planned reduced production from Alumbrera as the mine is near the end of its life. No cash dividends were received during the three months ended Sept. 30, 2015, from the company's equity investment in Alumbrera, compared with $12.4-million of the same period of 2014.
Operating results for the three months ended Sept. 30, 2015
Gold production for the third quarter was in line with the comparative period in 2014 and lower for silver. Production at most mines was generally in line with or above targets, except for El Penon and Mercedes. The company continues to expect to be in line with overall annual gold production guidance. For the third quarter, El Penon's production continued to be affected by lower grades from the more erratic areas in the periphery of higher-grade orebodies encountered during the second quarter, while at Mercedes, operational improvements, including measures to improve dilution control, began to take effect toward the end of the quarter, as evidenced by higher production at lower cash costs relative to the second quarter of 2015. Production at these mines will continue to improve for the remainder of the year.
Gold
Third quarter gold production from continuing operations of 325,897 ounces was in line with the 326,599 ounces of gold in the third quarter of 2014. Production from core assets for the quarter was 281,915 ounces of gold and compares with 278,750 ounces of gold in the third quarter of 2014, representing a 1-per-cent increase. The most notable production increases from the third quarter of 2014 were a 33-per-cent increase at Jacobina, a 29-per-cent increase at Minera Florida, an 11-per-cent increase at Chapada and an 18-per-cent increase at Canadian Malartic. Production increases from the second quarter of 2015 included a 32-per-cent increase at Jacobina, a 17-per-cent increase at Gualcamayo, a 12-per-cent increase at Canadian Malartic (which also achieved a fifth consecutive quarterly record), a 10-per-cent increase at Minera Florida, a 6-per-cent increase at Chapada and a 9-per-cent increase at Brio Gold. The company is well positioned for higher production for the remainder of 2015, with the largest effect at mines that contribute most significantly to the operating cash flow generation of the company.
Cash costs for the third quarter were $594 per ounce of gold, compared with $528 per ounce of gold in the same quarter of 2014. Cash costs were affected by a 9-per-cent decline in the realized price of copper and lower sales volume, resulting in lower byproduct credits for the quarter. On a co-product basis, cash costs for the third quarter were $653 per ounce of gold, or 6 per cent lower, compared with the $695 per ounce of gold in the third quarter of 2014. Relative to the second quarter of 2015, cash costs on a co-product basis were 7 per cent lower, reflecting the effect of higher production. Late in the quarter, further improvements in co-product cash costs occurred due to further weakening of the currencies in the countries in which the company operates. The company expects this trend to continue into the fourth quarter.
All-in sustaining costs (AISC) were $841 per ounce of gold, compared with $867 per ounce of gold for the third quarter of 2014 and $896 per ounce of gold for the second quarter of 2015. On a co-product basis, AISC was $856 per ounce of gold for the third quarter, compared with $971 per ounce of gold for the third quarter of 2014 and $949 per ounce of gold for the second quarter of 2015. AISC from core assets was $790 per ounce of gold on a co-product basis or 15 per cent and 10 per cent lower than the third quarter of 2014 and the second quarter of 2015, respectively.
Lower cash costs over all reflect the implementation of several mine-specific cost-reduction initiatives implemented during the period and the depreciation of foreign currencies against the U.S. dollar, partly offset by planned lower grades at some mines.
Silver
Third quarter silver production was 2.2 million ounces, compared with 2.9 million ounces of silver in the third quarter of 2014, as the mine plan in certain locations called for mining from areas with lower silver grades and was also affected by lower grades from the more erratic areas in the periphery of higher-grade orebodies at El Penon. Cash costs for the third quarter of 2015 were $7.37 per ounce of silver, affected by lower production and lower byproduct copper credits when compared with $4.80 per ounce of silver in the third quarter of 2014. Cash costs on a co-product basis for the third quarter were $8.46 per ounce of silver, compared with $6.84 per ounce of silver in the third quarter of 2014.
Copper
Total copper production for the three months ended Sept. 30, 2015, was 38 million pounds, compared with 43.5 million pounds for the same period of 2014. Copper production for the three months ended Sept. 30, 2015, was 34 million pounds from the Chapada mine, compared with 38 million pounds for the same period of 2014. Lower copper production compared with the third quarter of 2014 was due to planned lower copper feed grades and lower throughput. Cash costs per pound of copper on a co-product basis were $1.41 per pound from the Chapada mine, compared with $1.59 per pound of copper in the third quarter of 2014.
Construction and development
Cerro Moro, Argentina
The company previously announced the formal decision to proceed with the construction of Cerro Moro and provided updated project parameters with the announcement of year-end 2014 results. During the third quarter, detailed engineering continued for the 1,000-tonne-per-day processing plant and mine. Notable advancements in the quarter included improvements to the access road, the conclusion of the locked-cycle metallurgical tests, the placement of orders on various long-lead time items, such as the tailings thickeners, and the continuation of the first stage of the construction camp.
The company remains committed to advancing the project in a prudent manner and decided to derisk project ramp-up by advancing the underground mining ahead of the original schedule. Project capital expenditures are expected to be approximately $25-million for 2015, comprising costs related to detailed engineering and predevelopment. The expenditures for 2016 are expected to be $56-million. Including these expenditures, the company expects its expansionary capital to not exceed the levels observed in 2015. The development timetable has been adjusted to accommodate the aforementioned works and now reflects a capital schedule that maximizes cash preservation in 2016. Simultaneously, this allows for a more thorough evaluation of the economic factors in Argentina, including the effect of the currency in relation to the outcome of the presidential ballot in the November, 2015, election. Furthermore, this approach allows for further exploration drilling to take place to increase the size of the Cerro Moro mineral resources, in addition to improving the current mineral resource categorization. Production is expected to commence in the first quarter of 2018.
The Cerro Moro project contains a number of high-grade epithermal gold and silver deposits, some of which will be mined via open-pit mining and some via underground mining. The feasibility study is based on annual production in the first three years of 135,000 ounces of gold and 6.7 million ounces of silver, with annual production averaging approximately 102,000 ounces of gold and five million ounces of silver over an initial eight-year mine life at a throughput of 1,000 tonnes per day. The concentrator will consist of a standard crushing, grinding and flotation circuit with a countercurrent decantation and a Merrill Crowe circuit included.
The company believes that the Cerro Moro project offers significant opportunities for the conversion of mineral resources into mineral reserves and for further discoveries on the property. This will serve to significantly improve the returns and value from this high grade project.
Exploration
The company continues to consider exploration to be a key to unlocking and creating further value for shareholders at existing operations. The 2015 exploration program focuses on finding higher-quality ounces, being those ounces with the greatest potential to most quickly generate cash flow, and on infill drilling to do the work necessary to upgrade the existing inferred mineral resources. In the third quarter of 2015, the company spent approximately $27-million on exploration.
The following summary highlights the areas of focus for the 2015 exploration program and provides key updates from the third quarter of 2015.
Monument Bay, Canada
In June, 2015, as part of the Mega Precious Metals Inc. acquisition, the company acquired the Monument Bay property, which is located in Manitoba, approximately 570 kilometres northeast of Winnipeg, and consists of 136 contiguous claims totalling 338,000 square kilometres. The Twin Lakes deposit contains the majority of the gold and tungsten mineralization found on the property to date. The deposit occurs within the Archean North Caribou terrane along and adjacent to the Stull-Wunnumin structural break. The large mineral resource base provides opportunities for future mineral resource growth through the potential expansion of the existing measured and indicated mineral resource base of 2.2 million ounces of gold in 46.9 million tonnes at an average grade of 1.43 grams per tonne.
Core drilling was reinitiated in September, with a total of approximately 1,000 metres of core (NQ) completed in five holes. The new holes were all focused on expanding or infilling zones of near-surface high-grade mineralization. Each hole encountered strong evidence of gold/tungsten mineralization, with all assays pending. Additionally, approximately 2,100 metres of core were re-evaluated in the old core assay program and over 1,000 samples were collected for assay.
Chapada, Brazil
The 2015 exploration program at Chapada is focused on further testing of the Sucupira and Santa Cruz targets that were discovered in 2014, and on mineral resource infill drilling of select areas at Corpo Sul. The company expects to complete 10,000 metres of exploration drilling and 12,000 metres of infill drilling over the course of 2015.
During the third quarter, Sucupira was defined as a 1.8-kilometre extension of the Cava Norte orebody, and remains open to the southwest and to depth. The Sucupira mineral body comprises a high-grade gold and copper cigar-shaped core surrounded by a broad, low-grade halo. Exploration and limited infill drilling at Sucupira advanced in the third quarter, with the focus on the delineation of new mineral resources along strike, testing the mineral body to the northeast and beginning a closer-spaced drill pattern that will help to define mineral resources.
The infill drilling program at Cava Norte continued in the third quarter and completed 21 holes with the aim of upgrading mineral resources.
El Penon, Chile
The 2015 exploration program at El Penon is focused on exploring near-mine targets, including the recently discovered Ventura vein, and on infill and limited definition drilling at the El Penon, Fortuna and Pampa Augusta Victoria mine complexes. The company expects to complete 30,000 metres of local and 36,000 metres of district exploration drilling, along with 117,000 metres of combined underground and surface infill drilling, over the course of 2015. The drill program metres have increased due to extra funds made available during the quarter.
During the third quarter, infill drilling at the Ventura vein advanced, with results continuing to support the economic potential of the target and the objective of upgrading the mineral resource. The El Penon district exploration program continued in the quarter, with drilling completed at the Laguna and Chiquilla Chica targets and results now being evaluated for economic potential.
Gualcamayo, Argentina
The 2015 exploration program at Gualcamayo is focused on discovering and extending near-surface oxide mineral zones to both the east and west of current QDD Lower West (QDDLW) underground operation limits, and on infill and expansion of the carbonate deposits that form the Southwest and parts of the Santiago mineral deposits in the Rodado target area. The company expects to complete a total of 17,000 metres of drilling over the course of 2015.
During the third quarter, underground-based mineral resource expansion drilling continued, with the objective of finding additional oxide ore at the east and west extensions of QDDLW. Significant oxide intercepts have been reported from QDDLW, and samples have been sent to the laboratory for analysis and metallurgical testing. In the Las Vacas area, the geophysical campaign was completed during the third quarter, and drilling of identified anomalies began late in the quarter.
Mercedes, Mexico
The 2015 exploration program at Mercedes is focused on mineral resource infill and extension drilling, completing limited ore definition drilling, and testing near-mine and regional targets developed in prior exploration campaigns. The company expects to complete approximately 39,000 metres of combined surface and underground drilling, an increase of 16,000 metres over than the program outlined in the second quarter.
During the third quarter, infill drilling advanced at Mercedes, and results continue to support the reserve model, with the most significant results returned from Casa Blanca.
Minera Florida, Chile
The 2015 exploration program at Minera Florida is focused on: (i) infill drilling to replace mineral resources that were previously upgraded to mineral reserves; (ii) testing new areas with the aim of discovering a new high-potential target; and (iii) delineation drilling to further improve the reliability of life-of-mine mineral reserves. The company expects to complete 10,000 metres of infill drilling, 5,000 metres of exploration drilling and 2,000 metres of delineation drilling over the course of 2015.
During the third quarter, the underground infill program continued, with Manda, Lisset, Lorena, Falla Hallazgo, Florencia, Mina Este and Polvorin returning positive results. The positive assay results at most infill targets continue to support the objective of upgrading mineral resources and mineral reserve replacement.
Jacobina, Brazil
The 2015 exploration program at Jacobina is focused on extensive infill drilling, with the aim of improving geologic knowledge and mineral continuity in support of mineral resource conversion and mineral reserve delineation.
During the third quarter, infill drilling continued at the Canavieras North and South, Morro do Vento, and Joao Belo mines, with results continuing to support the higher grades in the mineral resource and mineral reserve models. Infilling drilling during the quarter returned above-average grades and widths at all targets. Development activities to access the Canavieiras orebodies supported by the infill programs began in the third quarter.
Cerro Moro, Argentina
The 2015 exploration program at Cerro Moro is focused on detailed mapping, outcrop and soil sampling, and targeted core drilling with the aim of discovering a new high-grade structure within the current property boundaries. The company expects to complete 10,500 metres of drilling over the course of 2015.
During the quarter, exploration drilling continued to test the Gabriela Northwest, Michelle and Guillermina targets. Exploration drilling has intercepted broad intervals of continuous low-grade gold and silver, and follow-up drilling is planned to test for the potential of higher-grade veins within the structures. Results from condemnation drilling completed in June at the Escondida Central Dump area returned no anomalous values that could identify potential exploration targets.
Canadian Malartic Corp., Canada
As 50-50 partners in Canadian Malartic Corp., Yamana and Agnico jointly explore the Kirkland Lake, Hammond Reef, Pandora and Wood-Pandora properties. The 2015 exploration programs include the following:
- Pandora -- continued the drill testing of near-surface and underground
targets while concurrently constructing an exploration tunnel from the
Lapa mine 101 level to the west for approximately one kilometre (101-W)
to facilitate additional subsurface drill testing;
- Kirkland Lake -- focused drill testing of the Upper Canada, AK and other
surface targets;
- Upper Beaver -- an internal preliminary economic assessment on the
deposit;
- Canadian Malartic mine -- limited drilling of the South Odyssey mineral
body.
At Pandora, underground development on the 101-W exploration drift from the adjacent Lapa mine commenced in February, 2015, and an approximate total of 691 metres of development was completed by the end of the third quarter of 2015. For the full year, an approximate total of 940 metres of development is planned. In mid-June, 2015, underground drilling resumed from the 101-W exploration drift, and approximately half of the proposed 2015 program (approximately 7,000 metres) was completed by the end of the third quarter. The focus of the current exploration program is to test for extensions to the Branch zone and C zone on the Pandora property.
During the third quarter, drilling at Kirkland Lake continued to add value, as assays returned both high-grade and broad low-grade results. A review of an internal preliminary economic assessment for Upper Beaver continued during the quarter and is expected to be completed by the end of the year. Compilation and limited exploration drilling are continuing on the district landholdings.
At the end of the third quarter of 2015, 28 holes (24,537 metres) of drilling had been completed on the Odyssey zones. Drilling and data compilation will continue in the fourth quarter.
Brio Gold
The 2015 exploration program for Brio Gold is focused at Pilar on infill drilling in support of operations, limited mineral resource expansion drilling and delineation drilling at Maria Lazarus, and at Fazenda Brasileiro on replacing the mineral resource base. Brio Gold expects to complete 40,000 metres of drilling at Pilar and Maria Lazarus over the course of 2015, an increase of 14,500 metres over than the program outlined in the second quarter. The increase is due to an internal reallocation of funds at the operation and the effect of the depreciation of the Brazilian real. At Fazenda Brasileiro, 36,000 metres of exploration drilling and 44,000 metres of infill drilling are expected over the course of 2015.
During the third quarter, infill drilling at Pilar continued to return positive results, including narrow intervals at minable grades, and the discovery of ore shoots in an area previously identified as internal waste will be tested further for possible mineral resource classification. At Maria Lazarus, delineation and exploration drilling continued during the quarter.
During the third quarter, drilling advanced at E388 East, the new discovery at Fazenda Brasileiro that is at a relatively shallow depth (350 metres) and near existing primary infrastructure. Exploration drilling continues to return results at E388 East that are similar in thickness and grade to those seen in the early years of the mine, and support the potential for mineral resource expansion. Infill drilling during the third quarter at Fazenda Brasileiro intercepted intervals of above-average thickness and grades that support the potential to extend the eastern portion of the mineralized zone.
Outlook and strategy
The company strives to maximize production with the lowest level of capital and operating costs, with the objective of generating sustainable and increasing cash flow.
In 2015, the company expects to deliver gold production in line with previous guidance. Annual copper production is expected to exceed guidance of 120 million pounds, while silver production is expected to come in under guidance of 9.6 million ounces, driven mostly by lower-than-expected silver grades at the El Penon mine. Consistent with prior years, the company expects higher gold production in the second half of the year compared with the first half of the year, which was evidenced by the increase in production at most mines during the third quarter. Consolidated fourth quarter production levels are also expected to exceed third quarter production levels. The expected increases will come from increases in production improvements at Mercedes, El Penon, Gualcamayo and Chapada.
With respect to costs, company-wide cash costs and AISC for the third quarter and the first nine months of the year, as well as projections for the second half of 2015, clearly demonstrate the positive trend in costs over the first nine months of the year.
Consolidated costs for the company's seven core mines for the same periods demonstrate an even more favourable trend.
Consistent with expected gold production increases, cash costs are expected to be lower in the second half of the year compared with the first half of the year, with a further decrease expected in the fourth quarter from that of the third quarter.
For Brio Gold, estimated cash costs for 2015 are forecast to be approximately $710 per ounce of gold and AISC approximately $905 per ounce of gold. However, on a go-forward basis, costs are expected to be lower, as evidenced by third quarter results showing cash costs and AISC at $658 and $866 per ounce of gold, respectively.
In the absence of the foreign exchange hedges that will be extinguished by year end, the company's cash costs on a co-product basis, cash costs and AISC would have improved.
The expiry of the hedges in the fourth quarter will fuel lower cash costs starting in January, 2016, for gold and will coincide with an improving production profile and cost structure at certain mining operations. For Brazilian operations, the average exchange rate for the quarter and the first nine months of 2015 was 3.54 and 3.17 reais per U.S. dollar, respectively. This compares with an after-hedge realized rate of 3.13 and 2.90 reais per U.S. dollar, which had an unfavourable effect on cash costs. Should the exchange rate remain at the level of 3.95 reais per U.S. dollar observed at the end of the quarter, the company will continue to benefit from a lower costing structure, partially offset by the remaining hedges in place for the fourth quarter. Starting in 2016, the company will begin to fully benefit from the expected weaker foreign currency.
For the second half of 2015, projected cash costs and AISC are generally in line with the levels guided for full-year cash costs of $545 per ounce of gold and AISC of between $800 and $830 per ounce of gold. Cash costs and AISC for 2015 are affected by lower-than-expected copper byproduct credits during the second half of the year. Byproduct credits for the purposes of cost guidance used a $3-per-pound assumption. However, realized copper prices for the quarter were $2.85 per pound, and for the nine months averaged at $2.88 per pound. Forecast copper prices are expected to be lower in the fourth quarter. The lower cash costs and AISC costs associated with the company's core operation vis-a-vis its consolidated operations provide insight over the positive effect on cash costs expected subsequent to the pending monetization of Brio Gold.
In terms of other non-production related targets, results in the first nine months of the year support the company's ability to meet or report below previous guidance, as follows:
- Sustaining capital to come in under $265-million (which represents
approximately $176 per ounce of gold and $2.75 per ounce of silver);
- Expansionary capital spending expected to be at the low end of the $90-million
to $140-million range previously provided;
- Exploration spending to come in under $98-million;
- Depreciation, depletion and amortization to come in under $570-million
(which represents approximately $395 per ounce of gold and $6 per ounce
of silver);
- G&A expense is expected to be approximately $120-million in 2015,
with potential for further reductions beginning in 2016, resulting from
additional savings related to the streamlining of management, the
downsizing and relocation of Brazilian and other South American
offices, and the disposition of Brio Gold.
Over all, the company expects improved operating results for the remainder of 2015 and production growth into the next several years. As previously announced, the company made a construction decision for the Cerro Moro project in early 2015. Cerro Moro is a high-quality project that has the potential to add significantly to the company's production growth at a low cost. The company remains committed to advancing the project in a prudent manner and decided to derisk project ramp-up by advancing the underground mining ahead of the original schedule. Project capital expenditures are expected to be approximately $25-million for 2015, comprising costs related to detailed engineering and predevelopment. The expenditures for 2016 are expected to be $56-million. Including these expenditures, the company expects its expansionary capital to not exceed the levels observed in 2015. The development timetable has been adjusted to accommodate the aforementioned works and now reflects a capital schedule that maximizes cash preservation in 2016. Simultaneously, this allows for a more thorough evaluation of the economic factors in Argentina, including the effect of the currency in relation to the outcome of the presidential ballot in the November, 2015, election. Furthermore, this approach allows for further exploration drilling to take place to increase the size of the Cerro Moro mineral resources, in addition to improving the current mineral resource categorization. Production is expected to commence in the first quarter of 2018.
Several other developing projects that are not as advanced as Cerro Moro are advancing through technical and economical evaluation. One of these projects is Upper Beaver, in relation to which the company is completing an internal preliminary economic assessment that is expected to be completed by the end of the year. The Deep Carbonates project at Gualcamayo is also similar. The company undertook the initial technical and financial analysis, which is complete and supports a viable project with recoverable gold currently estimated at more than 1.1 million ounces. The company's continuing work is considering a number of mining method alternatives to further improve the capital spend profile and derisk the project. The results to date and the continuing work are expected to support a decision in 2016 to advance the project to the prefeasibility stage.
Importantly, the company is first and foremost focused on its core assets, which include its cornerstone operations of Chapada, Canadian Malartic and El Penon, and opportunities that have the best prospects for exploration successes, optimization and cash flow generation. The corollary is that the company is also committed to rationalizing its portfolio, which includes monetizing non-core assets. Consistent with this strategy, the company continues to pursue its planned monetization of Brio Gold and is currently advancing on a number of strategic alternatives. These alternatives include an initial public offering, a reverse takeover, a joint venture with private equity firms, a disposition to, or merger with, other companies, and other financing and liquidity options. The company has an emphasis on transactions that could be completed on an accelerated timeline and may allow Brio Gold to continue to operate as a private company in the short term. Additionally, the company continues to advance its efforts at realizing value from other non-producing assets, including Agua Rica.
While the company is focused on operations and deriving significant and increasing cash flow and earnings before interest, taxes depreciation and amortization (EBITDA) from its operations, a strategic objective has been to also focus on monetization initiatives, which serve as catalysts to reducing debt and increasing cash balances. As part of this strategy, the company has committed to reducing the outstanding balance on its revolving credit facility to zero and holding sufficient funds for some or all of the scheduled debt repayments in 2016 and 2017. The company's monetization initiatives are on track to achieve this strategic objective before the end of 2015. The first of the initiatives, the metal purchasing arrangements, has already been completed, resulting in a sizable cash inflow. With the completion of these catalysts, the company will be well positioned to focus entirely on operations, having secured a stronger balance sheet, and maximizing cash flow and EBITDA as noted above.
Third quarter 2015 conference call information:
Conference call information for Friday, Oct. 30, 2015, at 9 a.m. ET:
Toll-free (North America): 1-800-355-4959
Toronto local and international: 416-340-8527
Webcast: Company website
Conference call replay:
Toll-free (North America): 1-800-408-3053
Toronto local and international: 905-694-9451
Replay passcode: 3274452
The conference call replay will be available from 12 p.m. ET on Oct. 30, 2015, until 11:59 p.m. ET on Nov. 12, 2015.
For further information on the conference call or webcast, please contact the investor relations department or visit Yamana's website.
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