YAMANA GOLD INC. (TSX:YRI) (NYSE:AUY) (LSE:AUY) reports its financial and operational results for the third quarter of 2020. The Company posted strong quarterly production and impressive financial performance with increased earnings, EBITDA, cash flow and free cash flow(3) and continuing increases in cash balances.
THIRD QUARTER HIGHLIGHTS
Strong Adjusted Net Earnings(1) and Cash Flows, Further Reduction in Net Debt(3)
|Three months ended September 30|
|(In millions of United States Dollars)||2020||2019|
|Net Free Cash Flow(2)||$||185.5||$||89.5|
|Free Cash Flow before Dividends and Debt Repayments(2)||$||156.8||$||37.7|
|Decrease in Net Debt(3)||$||(148.9||)||$||(810.3||)|
(All amounts are expressed in United States Dollars unless otherwise indicated)
(See end notes on page 13)
Subsequent Events: Announced Dividend Increase; Completed London Listing; Repaid Credit Facility
Strong quarterly production results
Standout Performances at Jacobina, El Peñón, Minera Florida and Canadian Malartic; Cerro Moro Mine and Plant Operating at Full Capacity; Positive Exploration Results Delivered Across Operations
Canadian Malartic’s standout production performance exceeded plan for the third quarter of 2020 due to higher mill throughput and feed grade. The transition to and ramp-up of the Barnat deposit, along with record throughput which resulted in the feed of ore that would have otherwise been stockpiled, caused some feed grade variation and impacted recoveries. Despite such impact, recovery for the quarter was in line with the metallurgical model. The successful ramp-up of the deposit resulted in Barnat declaring commercial production on September 30, 2020. During the quarter, Barnat produced 13,305 ounces of pre-commercial production gold on a 50% basis and meaningful contributions are expected to begin in the fourth quarter. On a 50% basis, a total of $7.2 million of expansionary capital expenditures was spent during the third quarter on the Barnat Extension Project. The remaining extension work in 2020 is focused on overburden stripping and topographic excavation continuing according to plan.
The main focus of exploration during the third quarter was to provide support for an aggressive infill drill program at East Gouldie, where twelve diamond drill rigs completed 38,000 metres. For more information on exploration at Canadian Malartic during the quarter, please see the ‘Canadian Malartic Underground’ section on page 8 and press release issued October 28, 2020, titled ‘Yamana Gold Provides An Update On Exploration Activities At Canadian Malartic’.
Jacobina once again exceeded its production plan and prior year results with gold production of 44,080 ounces for the third quarter of 2020. Recovery rates and grade for the third quarter were both in line with plan, and were higher than the comparative quarter. Higher production resulted from increased throughput compared to plan, with mill processing achieving a higher than planned steady-state 6,800 tonnes per day.
Approximately 5,225 metres of drilling were completed in the quarter at Jacobina, including 200 metres of infill drilling to convert inferred mineral resources to indicated mineral resources, and 5,025 metres of exploratory drilling dedicated to defining new inferred mineral resources. Drilling activity focused on the new inferred resources program was completed at Canavieiras Sul and Canavieiras Central connector zone and at João Belo Sul, bringing the year-to-date total drilled to 8,111 metres. Exploration drilling carried out at Canavieiras Sul and Central during the quarter continued to return positive results from Maneira reef, extending mineralization 60 metres southward from the last intersection at Canavieiras Central and 150 metres north from Canavieiras Sul, confirming new potential mineral resource along a 300-metre strike length linking the two areas. In addition, drilling returned positive results from the MU, LVL and LU reefs in the sector, extending good grade mineralization over 150 metres from the current Canavieiras Sul model. The exploration drift linking Canavieiras Sul with Canavieiras Central is now operational and provides access to further drilling setups.
The Cerro Moro mine and processing plant were operating at full capacity as of September 30, 2020, after a longer ramp-up of operations following a temporary suspension due to inter-provincial travel restrictions related to COVID-19 which impacted availability of workers travelling from out of province. Cerro Moro’s plant has now returned to its optimized 1,000-1,150 tpd throughput, which is expected to be maintained going forward.
Silver dominated the quarter for Cerro Moro resulting from strong, silver feed grades and recoveries. The transition to underground ore at higher grades than the open pit ore continued in the quarter and will continue in the fourth quarter, with most of the ore to plant from the Escondida Far West, Zoe, Escondida Central and Escondida West underground mines. With grade and production anticipated to increase substantially, costs are also expected to decrease, thereby bringing Cerro Moro’s cost more in line with the Company’s average. With linear development improvements, mine flexibility will also increase and create operational efficiencies.
Exploration drilling in the quarter targeted the Escondida-Zoe structural corridor, with both infill drilling and testing new exploration targets based on new interpretations of the plunge of the mineralized envelope, as well as a number of targets in the core mine and district, including Michelle North, Bella Vista, Angostina, Lucia and the newly discovered Roger zone at Naty. Drilling down plunge at Zoe intersected visually positive results and initial encouraging results at Michelle and Roger indicate potential for additional resources in these sectors. Roger is a recently identified northwest striking splay of the Naty vein with two new positive drill intercepts. Ongoing drilling will test the geometry and strike length of the structure for possible resource addition.
In a further significant exploration achievement, surface work has identified a new target, the Selene vein, in the north with promising surface samples traced for over 11,000 metres on surface. The Selene vein has a significantly longer strike length than any other target identified on the property to date and is more typical of some other veins in the Deseado Massif low sulphidation vein district. Sections of the vein have reported surface assays with between 1.0 g/t and 15.0 g/t of gold from selected grab and chip samples, providing drill ready targets expected to be drilled in the fourth quarter. The exploration drilling program will be expanded during the fourth quarter as infill drilling is completed and a fifth drill rig has since been added.
The metallurgical PQ ore drill program was completed at Michele, Michele Ext, Carlita and Tres Lomas and samples have been sent to Bureau Vertias for column leach tests as part of an ongoing evaluation of near-surface oxide and low-sulfide material potentially suitable for low cost open pit extraction and processing.
El Peñón had a strong third quarter, with strong gold production and silver production greatly exceeding plan, primarily due to processing higher grade silver ore. Higher gold grades are anticipated in the fourth quarter due to increased underground production and lower stockpile reclaim, as well as mining from higher gold grade sectors. Silver grade and production were higher than plan due to processing ore from the Al Este sector in the underground mine, which is a high grade silver area, however this higher silver grade was temporary as a result of mining sequence and is expected to normalize in the fourth quarter.
Exploration drilling of approximately 24,965 metres in 74 drill holes was completed during the third quarter, testing 17 sectors. Positive results from Colorada Sur, Pampa Campamento, and El Valle indicate good potential in these areas, which remain open for discovery of additional resources. Drill highlights from these target areas include: drill hole SNX0973, 14.3 g/t of gold and 502 g/t of silver over a horizontal width of 1.0 metres at Colorada Sur; and hole UIP0009, 24.0 g/t of gold and 234.0 g/t of silver over a horizontal width of 2.80 metres at Pampa Campamento. For detailed drill results, please see the press release issued September 8, 2020, available on the Company’s website at http://www.yamana.com. The Colorada Sur discovery, which is the southern extension of the highly productive La Colorada Vein system, one of the principal veins complexes at El Peñón, is expected to be significant. The recently defined mineralization remains open at depth, between ore shoots and towards the south.
District exploration continues to build on previous exploration targets with over 3,000 soil and rock samples collected and approximately 2,843 metres of scout drilling in 11 holes completed. Most drilling results are pending, with encouraging initial results including geochemical anomalies grading up to 80.0 g/t of silver and 0.9 g/t of gold in individual core samples. Surface sampling continues to generate new gold and pathfinder soil and rock anomalies, providing good drill targets for follow-up this year and in 2021.
Minera Florida had a strong third quarter, with production increasing 30% quarter over quarter. Positive results were primarily due to higher feed grade and increased tonnes processed, largely as a result of continuing improvements in productivity with contributions from the Pataguas and Don Leopoldo mining zones. Recent optimizations made to the processing plant have demonstrated improvements to the recovery rate. Further studies suggest that with additional improvements to the leaching circuit, expected recovery rates could increase and reach up to 94%. Additionally, processing rates continue to benefit from mill optimization initiatives.
Exploration activities continued to ramp up significantly in the third quarter with 14,952 metres of total drilling in 83 drill holes completed, representing approximately 78% of planned full-year infill and new resource drilling. Approximately 7,507 metres of infill drilling was completed at eight targets, including Pedro Valencia, Fantasma, Juan Pablo, Maqui, Polvorín, Tribuna, Don Leopoldo and Patagua Norte, dedicated to converting inferred mineral resources to measured and indicated mineral resources. High-grade new intercepts were encountered at the intersection of the Patagua and Don Leopoldo veins and at the Polvorín vein. Exploration drilling included approximately 7,445 metres, completed in 37 drill holes testing eight targets, including Satélite PVS, Fantasma, Juan Pablo, Maqui, Polvorín, Tribuna, Don Leopoldo and Patagua Norte, dedicated to the discovery of new deposits or definition of new inferred mineral resources. Good results were returned from the La Flor and Polvorín Oeste veins, developing new targets at depth and to the north and south of the known zone, at Patagua, opening up a 250-metre corridor (Queseria block) east of the extent of development, and at the Don Leopoldo Sur vein.
Summary of Certain Non-Cash and Other Items Included in Net Earnings
Net earnings for the three months ended September 30, 2020, were $55.6 million or $0.06 per share basic and diluted. Earnings were negatively impacted by $37.3 million of items that management believes may not be reflective of current and ongoing operations and which may be used to adjust or reconcile input models in consensus estimates. Significant and unusual adjusting items in the quarter include:
|(In millions of United States Dollars, except per share amounts, totals may not add due to rounding, unaudited)||Three months ended September 30|
|Non-cash unrealized foreign exchange losses||$||4.2||$||17.1|
|Share-based payments/mark-to-market of deferred share units||5.1||9.0|
|Mark-to-market (gains) losses on derivative contracts, investments and other assets and liabilities||(1.5||)||1.6|
|Gain on sale of subsidiaries and other assets||(1.8||)||(284.6||)|
|Share of one-off provision recorded against deferred income tax assets of associate||—||13.0|
|Financing costs paid on early note redemption||—||35.0|
|Temporary suspension and standby costs||2.9||—|
|Other incremental COVID-19 costs||5.7||—|
|Other provisions, write-downs and adjustments (i)||6.1||28.8|
|Non-cash tax on unrealized foreign exchange gains||8.7||36.7|
|Income tax effect of adjustments||(4.9||)||(0.8||)|
|One-time tax adjustments||12.8||(7.6||)|
|Total adjustments – increase (decrease) to earnings||$||37.3||$||(151.8||)|
|Total adjustments – increase (decrease) to earnings per share||$||0.04||$||(0.16||)|
(i) This balance includes, among other things, revisions in estimates and write-downs & provisions, or reversals of provisions, for items such as tax credits and legal contingencies.
Covid-19 Related Costs
The Company incurred $8.6 million in COVID-19 related costs during the quarter including $2.9 million in temporary suspension and standby costs. The Company anticipates that suspension and standby costs will be minimized prospectively for the balance of the year as the mines return to full production levels anticipated at the beginning of the year. Further, the Company is assessing if any incremental COVID-19 costs are expected to become normal-course in a COVID-19 world. However, those costs are expected to be at levels lower than those experienced this quarter. The Company also anticipates that some of these increases may be offset by efficiencies gained during the period.
STRATEGIC DEVELOPMENTS, CONSTRUCTION DEVELOPMENTS AND ADVANCED STAGE PROJECTS
Agua Rica Feasibility Study Advancement and Integration Agreement
The Company continued to advance the integration of Agua Rica with Minera Alumbrera Limited pursuant to the 2019 integration agreement entered into by the Company, Glencore International AG and Newmont Corporation, whereby the Agua Rica project would be developed and operated using the existing infrastructure and facilities of Alumbrera. The integration gives the Company 56.25% ownership in the joint Agua Rica and Alumbrera project, which carries significantly less development risk, as certain infrastructure would not need to be constructed.
The integration is expected to be completed in the fourth quarter, after which, the Integrated Project would be managed as a combined operation. In addition to the considerable infrastructure, tailings system and processing plant available, there is also significant cash in the treasury at Alumbrera.
The Parties established a technical committee which is now advancing a full Feasibility Study of the Integrated Project, with updated mineral reserve, production and project cost estimates. The results of the Feasibility Study are expected during 2021.
The Jacobina Optimization Project
The Phase 1 optimization project, whose objective was to stabilize throughput at a sustainable 6,500 tpd, was completed in June of 2020. The project has exceeded expectations, with an average plant throughput of approximately 6,800 tpd achieved in both the second and third quarters. The Company has identified opportunities to further optimize the results and recoveries achieved in Phase 1 with a modest investment. Consequently, works commenced in the third quarter for the expansion of the gravity concentration circuit, with commissioning scheduled for mid-2021 and with an objective to optimize gold recovery at the higher throughput rate.
In addition to the incremental optimization of Phase 1, the Company is studying the increase in throughput to 8,500 tpd, referred to as the Phase 2 optimization. If implemented, the Phase 2 expansion is expected to increase annual gold production to approximately 230,000 ounces per year, reduce costs, and generate significantly more cash flow and attractive returns. The Company is currently working on the Phase 2 feasibility study, scheduled for completion in mid-2021.
Separately, Jacobina is studying the installation of a backfill plant to allow up to 2,000 tpd of tailings to be deposited in underground voids. Preliminary results indicate that the project has the potential to improve the way in which the Company manages the environment and environmental impact, extend the life of the existing tailings storage facility, and improve mining recovery, resulting in an increased conversion of mineral resources to mineral reserves. The Company is advancing the backfill project to a feasibility study, to be completed in early 2021.
Canadian Malartic (50% interest)
The Company continues to advance studies related to the underground project at Canadian Malartic, and the main focus of exploration during the third quarter was to provide support for an aggressive infill drill program at East Gouldie, where twelve diamond drill rigs completed 38,000 metres, designed to expand the mineral resource envelope with a 150 metre drill spacing. These twelve drill rigs are employed to define and expand underground mineral resources, with a target to complete 112,000 metres of definition drilling by year end. The drilling has established 44 new pierce points in a mineralized body 1,400 metres long and that extends from 700 metres below surface to 1,900 metres below surface. The pierce points include multiple stacked intercepts in two closely spaced parallel zones, East Gouldie North and South. A thirteenth drill rig is completing a vertical geotechnical drill hole in the area of a proposed shaft to access the mineralized zone. The Company and its partner have started the construction of surface infrastructure and an exploration ramp into Odyssey and East Malartic, with the purpose of eventually mining their respective upper zones and providing further exploration access to allow drilling in tighter spacing to continue studies to a greater detail. The new ramp will also provide the ability to carry out bulk sampling of up to 40,000 tonnes of ore. With governmental approval already in hand, construction of surface infrastructure and the portal in preparation for development of the ramp started in August of 2020, with a budget of C$6.0 million for 2020 on a 50% basis. The objective is to commence development of the ramp in the fourth quarter, which is anticipated to take approximately two years to complete. Exploration on the consolidated land package during the quarter resulted in an expansion of a mineralized zone in the East Amphi mine area, with some positive step out drilling on the Nessie zone, including the discovery of a deep zone subparallel to Nessie. Shallow drilling on the northern part of the Rand property has also indicated a new mineralized area located in sedimentary rocks north of the Piche Group. This area will see further exploration in the fourth quarter.
Equinox Shares Partial Disposal
During the third quarter, the Company sold 1,200,000 Equinox shares for proceeds of approximately C$20.5 million. Yamana now holds 6,000,000 Equinox shares, representing approximately 2.5% of the issued and outstanding shares, on a non-diluted basis.
GENERATIVE EXPLORATION PROGRAM AND STRATEGY
Exploration on the most prospective properties is a key to unlocking and creating value for shareholders. The Company has built significant land positions including projects that are at different stages of advancement in prospective mineral districts in all countries where it has producing assets, and it is pursuing advancing this portfolio through exploration projects in these countries. This effort allows for the rapid advancement of the highest value projects, while at the same time moving the most promising early-stage properties up the exploration pipeline. The following are key elements and objectives of the generative exploration program:
The generative exploration program is first focusing on the most advanced projects in Yamana’s portfolio while continuing drilling activity at a number of the Company’s highly prospective earlier stage projects. These project stages are categorized and defined as follows:
The Company is confident that its exploration pipeline includes projects that can meet its shorter-term objective of at least one project achieving 1.5 million ounces of gold in the inferred mineral resource category within three years as well as its longer-term objective of building at least one gold mineral resource that can support a mine with annual production of approximately 150,000 ounces per year for at least eight years.
The Company is focusing its exploration activities in part on the large land positions held within the Company, including projects that are at different stages of advancement in prospective mineral districts in all countries where it has producing assets and can leverage its technical and operational expertise, and it is pursuing advancing this portfolio through exploration projects in these countries. This effort will allow for the rapid advancement of the highest value projects, while at the same time moving the most promising early-stage properties up the exploration pipeline.
As a complement to the advancement of the internal exploration opportunities, the Company will consider the acquisition of earlier stage development assets or companies that align with Yamana’s objectives for capital allocation and financial results, jurisdiction, geology and operational expertise. Such opportunities would meet minimum requirements to achieve mineral reserve and mineral resource inventories of at least 1.5 million ounces supporting a mine life of at least eight years at a 150,000 ounce per year production rate. Furthermore, preference would be given to geological and operational characteristics where the Company has an identified expertise and excellent opportunities for value enhancement.
Such opportunities would also extend an existing regional presence or lead to that longer-term objective. Although the Company has an established portfolio of early-to-later-stage organic growth projects, the Company also considers it prudent to consider opportunities to extend regional presences in quality jurisdictions that offer geological and operational synergies and similarities to its current portfolio of assets.
During the third quarter, exploration drilling and related field activities ramped up gradually in most jurisdictions, as COVID-19 restrictions decreased. The following is an update of select projects in the Company’s generative exploration program. A full generative exploration update will follow in the fourth quarter.
Monument Bay, Canada
Exploration at Monument Bay during the third quarter continued to advance the evaluation and definition of high-grade ore shoots at depth at the Twin Lakes resources as part of an assessment considering the project as an underground mine. Although startup of the 2020 summer field activity at Monument Bay was impacted by COVID-19 travel restrictions, the drilling program testing the depth extension of high-grade shoots at Twin Lakes is ongoing with one drill hole completed, and although assays are pending, there are visually positive results. A second hole is in progress. A total of 641 metres were drilled in the quarter and results are expected in November.
The Domain project is located near Oxford Lake in northeast Manitoba, comprising a 20,000-hectare property that is 100%-controlled by the Company. Interpretation of regional airborne magnetics together with government geological survey till geochemistry support a highly prospective environment for folded iron formation hosted gold.
The Company recently signed an exploration agreement with the Bunibonibee Cree Nation (“BCN”) that provides a framework for a cooperative, mutually respectful agreement supporting the advancement of exploration within the Traditional Territory of the BCN while providing employment and business opportunities to the BCN. Planning is underway to guide the consultation process for an initial field program in the fourth quarter and an aggressive exploration effort in 2021.
Lavra Velha, Brazil
Lavra Velha is a near surface advanced Tier 1 exploration project located in the Lavra Velha district in Brazil’s Bahia state. In the third quarter, the near surface mineral resource expansion and exploration program continued at Lavra Velha. Drilling in 2020 to the end of the quarter focused on Lavra Velha South and Southwest zones located immediately south of the established resource with positive drill results in both areas. Both mineral resource and exploratory drilling will continue in the fourth quarter.
Jacobina Norte, Brazil
The Jacobina Norte project, located in Brazil’s Bahia state just nine kilometres north of the Jacobina mine, is one of Yamana’s most promising, wholly-owned advancing exploration projects. Surface work in 2020 has defined a 4.3 kilometre trend at Barrocão Velho, a high priority target with surface workings and exposures of mineralized reefs with very limited drilling tests. Exploratory drilling on this target was initiated late in the third quarter and will continue to year end on this high priority area. Further surface exploration is underway and is expected to generate further drill targets along the 70 kilometre extent of the northern trend.
The Borborema project is a 25,000-hectare land package in the Borborema district in Brazil’s Pernambuco state. Drilling in the third quarter has extended the core massive sulphide zone to the east with 800 metres of strike now defined by drilling and surface exposure. Exploration will expand on the known intercepts and drill test other copper-gold soil anomalies to better define the size and nature of the asset.
Key financial and operating statistics for the third quarter 2020 are outlined in the following tables.
|Three Months Ended September 30|
|(In millions of United States Dollars, except for per share and per unit amounts, unaudited)||2020||2019|
|Cost of sales excluding depletion, depreciation and amortization||(166.6||)||(163.4||)|
|Depletion, depreciation and amortization||(106.9||)||(112.6||)|
|Total cost of sales||(273.5||)||(276.0||)|
|Temporary suspension, standby and other incremental COVID-19 costs||(8.6||)||—|
|Mine operating earnings||157.3||81.8|
|General and administrative expenses||(21.4||)||(21.8||)|
|Exploration and evaluation expenses||(3.6||)||(1.8||)|
|Net earnings per share – basic and diluted (i)||0.06||0.21|
|Cash flow generated from operations after changes in non-cash working capital||215.0||157.4|
|Cash flow from operations before changes in non-cash working capital||199.0||152.4|
|Cash flows (used in) from investing activities||(47.7||)||731.9|
|Cash flows used in financing activities||(17.8||)||(884.5||)|
|Revenue per ounce of gold||$||1,910||$||1,481|
|Revenue per ounce of silver||$||24.58||$||17.73|
|Average realized gold price per ounce||$||1,910||$||1,473|
|Average realized silver price per ounce||$||24.58||$||17.10|
(i) For the three months ended September 30, 2020, the weighted average numbers of shares outstanding was 952,479,062 (basic) and 954,525,799 (diluted).
|Costs||Three Months Ended September 30|
|(In United States Dollars)||2020||2019|
|Per GEO(4) sold|
|Total cost of sales||$||1,186||$||1,148|
|Three Months Ended September 30|
|Gold Ounces Produced||2020||2019|
|Canadian Malartic (50%)||76,398||81,572|
|Three Months Ended September 30|
|Silver Ounces Produced||2020||2019|
For a full discussion of Yamana’s operational and financial results, please refer to the Company’s third quarter 2020 Management’s Discussion and Analysis, which is available on the Company’s website at www.yamana.com, and on SEDAR at www.sedar.com.
Scientific and technical information contained in this news release has been reviewed and approved by Sébastien Bernier (P. Geo and Senior Director, Geology and Mineral Resources). Sébastien Bernier is an employee of Yamana Gold Inc. and a “Qualified Person” as defined by Canadian Securities Administrators’ National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
Yamana is a Canadian-based precious metals producer with significant gold and silver production, development stage properties, exploration properties, and land positions throughout the Americas, including Canada, Brazil, Chile and Argentina. Yamana plans to continue to build on this base through expansion and optimization initiatives at existing operating mines, development of new mines, the advancement of its exploration properties and, at times, by targeting other consolidation opportunities with a primary focus in the Americas.
Cameco (TSX: CCO) (NYSE: CCJ) reported its consolidated financial... READ MORE
ValOre Metals Corp. (TSX‐V: VO) (OTC: KVLQF) (Frankfurt: KEQ0) ... READ MORE
Golden Tag Resources Ltd. (TSX-V: GOG) (OTCQB: GTAGF) has success... READ MORE
Atico Mining Corporation (TSX-V: ATY) (OTC: ATCMF) is pleased to ... READ MORE
Falco Resources Ltd. (TSX-V:FPC) is pleased to announce that it h... READ MORE