Yamana Gold Reports Strong Fourth Quarter and Full Year 2019 Results; Free Cash Flow and Cash Balances Rise Sharply Enabling Further Significant Debt

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Overig advies 14/02/2020 06:49
Toronto, Feb. 13, 2020 (GLOBE NEWSWIRE) -- YAMANA GOLD INC. (TSX:YRI; NYSE:AUY) (“Yamana” or “the Company”) is herein reporting its financial and operational results for the fourth quarter and full year 2019, and mineral reserve and mineral resource estimates as at December 31, 2019.

Jacobina Gold Mineral Reserves (000's of ounces)
Canadian Malartic Gold Mineral Reserves (50%) (000's of ounces)
El Penon Gold Mineral Reserves (000's of ounces)
El Penon Silver Mineral Reserves (000's of ounces)
Cerro Moro Gold Mineral Reserves (000's of ounces)
Cerro Moro Silver Mineral Reserves (000's of ounces)
Minera Florida Gold Mineral Reserves (000's of ounces)


Exceeded Production Guidance
•Fourth quarter gold and silver production was 221,595 ounces and 2.97 million ounces, respectively, in line with plan. Gold equivalent ounce ("GEO")(1) production comprised 256,288 GEO(1).
•Exceeded gold production guidance for the year with annual production of 900,339 ounces.
•Exceeded silver production guidance for the year with annual production of 10.6 million ounces.
•GEO(1) production of 1.02 million exceeded guidance, notwithstanding a higher GEO ratio(1) than that assumed when 2019 guidance was set.

Costs in Line
•Total Yamana(2) cash costs(5) for the quarter and full year were $656 and $667 per GEO(1), respectively, in line with prior year comparative costs, as were Total Yamana(2) all-in sustaining costs ("AISC")(5) for the quarter and full year of $1,012 and $978 per GEO(1), respectively.

Financial Results - Strong Cash Flow Growth
•Fourth quarter net earnings attributable to Yamana equity holders were $14.6 million or $0.02 per share basic and diluted compared to a net loss of $61.4 million or $0.06 per share basic and diluted a year earlier.
•Fourth quarter adjusted net earnings(5) in the latest quarter were $26.7 million or $0.03 per share basic and diluted compared to $26.2 million or $0.03 per share basic and diluted a year earlier.
•Full year cash flows from operating activities were $521.8 million; cash flows from operating activities before net change in working capital(5) were $590.5 million; net free cash flow was $358.4 million.
•Fourth quarter cash flows from operating activities were $201.7 million; cash flows from operating activities before net change in working capital were $176.6 million; and net free cash flow(5) was $136.5 million.
•Cash flows exceeded the average of the three preceding quarters as follows: ?Cash flows from operating activities exceeded the average by 91%.
.Cash flows from operating activities before net change in working capital(5) exceeded the average by 29%.
.Net free cash flow(5) exceeded the average by 87%.

(All amounts are expressed in United States Dollars unless otherwise indicated.)
(See end notes above cautionary note.)

Three months ended December 31
(In millions of United States Dollars) 2019
Net Free Cash Flow (5) $ 136.5 $ 106.0
Free Cash Flow before Dividends and Debt Repayments (5) $ 73.4 $ 9.5
Decrease (Increase) in Net Debt (5) $ 59.8 $ (2.4 )

Significantly Reduced Debt
•Net debt(5) decreased by an additional $59.8 million in the fourth quarter as a result of increased cash balances largely due the significant increase in free cash flow.
•Total debt decreased by $710.8 million during 2019 while net debt(5) fell by $771.1 million due to increased cash balances resulting from significantly higher free cash flow. As of December 31, 2019, net debt(5) was $889.1 million.

Increased Dividend
•Increased annual dividend by 25% to $0.05 per share, effective in the first quarter of 2020. The increase follows a 100% increase to the annual dividend in the third quarter of 2019 to $0.04 per share from $0.02.

Increased Mineral Resources
•Mineral reserves replaced depletion on a consolidated basis, excluding assets disposed of in 2019, more than replacing 2019 mineral depletion.
•Inferred mineral resources increased by 27%(4) from year-end 2018 while measured and indicated mineral resources were relatively unchanged.
•Jacobina increased gold mineral reserves by 19% over and above 2019 depletion based on updated models from the Morro do Vento, João Belo, Canavieiras Central, and Serra do Córrego mines.
•El Peñón mineral reserves increased by 15% for gold and 21% for silver in 2019 over and above depletion due to positive infill drilling and mine design optimization.

Maiden Resource for East Gouldie Discovery
•The Company is disclosing a maiden mineral resource estimate for East Gouldie, a new mineralized zone at the Canadian Malartic mine that contributed significantly to inferred mineral resources of the mine at year end(4).
•On a 50% basis, the zone added 12.8 million tonnes of inferred resources at 3.34 grams per tonne ("g/t") for a total of approximately 1.37 million ounces of gold.
•The zone continues to be open in all directions.

Evaluating Scenarios to Optimize Canadian Malartic Underground
•The Partnership is evaluating scenarios to optimize the project, which includes discussions with royalty holders and other stakeholders to enhance the economics of the project.
•Given the Company's robust pipeline of development projects, the Company does not currently anticipate approving the project for development unless these discussions are successful and the project economics are improved.

Daniel Racine, President and Chief Executive Officer, commented: “Our fourth quarter capped off an exceptional year for Yamana. We significantly strengthened our balance sheet by lowering debt and increasing free cash flow. Our operations executed extremely well, with Jacobina posting record fourth quarter and full year production and El Peñón enjoying its strongest quarter since we rightsized the operation three years ago. Minera Florida also performed well, particularly in the month of December, something we believe is a sign of things to come. We are carrying this momentum into 2020 using our improved financial flexibility to further reduce debt, advance our organic growth projects and exploration program, and continue to increase shareholder returns.”

Free Cash Flow, Cash Balance, and Liquidity Rise Sharply

The Company’s primary objective is to maximize free cash flow, and 2019 was a particularly strong year in this regard. Full year cash flow from operating activities increased 29% to $521.8 million while net free cash flow(5) rose 63% to $358.4 million from $219.8 million.

The growth in free cash flow contributed to a sharp rise in Yamana’s cash balance, which increased to $158.8 million at the end of the fourth quarter compared to $98.5 million a year earlier. As of December 31, 2019, Yamana had available credit of $750.0 million which, when combined with the Company’s cash balance, brings total available liquidity to $908.8 million, up from $803.5 million a year earlier.

Free Cash Flow Growth Enabled Further Significant Net Debt Reduction

The Company nearly halved its net debt(5) in 2019, significantly strengthening its balance sheet and financial flexibility. The debt reduction primarily reflects the retirement of $800.0 million of debt announced in August 2019 and, importantly, growth in free cash flow has allowed the Company to use its rising cash balance to continue to meaningfully lower debt. During the fourth quarter, the Company's net debt(5) further decreased by $59.8 million as a result of increased cash flows from operations. As of December 31, 2019, Yamana's net debt(5) was $889.1 million, down 46% from $1,660.2 billion a year earlier.

Increased Annual Dividend Cumulatively by 150%

Effective in the first quarter of 2020, the Company will have increased its annual dividend cumulatively by 150% to $0.05 per share from $0.02 per share in the third quarter. The Company has adopted a policy of treating dividends on a per ounce basis and established a program pursuant to which it would create a reserve fund to protect the dividend for a minimum of three years. Given the significant increase in free cash flow, which Yamana believes is sustainable, the Company is targeting the payment of a dividend between the current rate of approximately $50 per GEO(1) and $100 per GEO(1). The Company will continue to maintain a balance between the payment of sustainable dividends, reinvestment in the business, and further improvements to its balance sheet.

Costs in Line with Previous Guidance and Adjustments

Total Yamana(2) cash costs(5) for the quarter and full year of $656 and $667 per GEO(1), respectively, were in line with previous guidance and adjustments, as were Total Yamana(2) AISC(5) for the quarter and full year of $1,012 and $978 per GEO(1), respectively. Strong production and cost performance were observed, particularly at El Peñón and Jacobina in the fourth quarter.

Costs were in line with expectations notwithstanding a higher GEO(1) ratio relative to initial guidance, the removal of production from Chapada in the second half of the year, which increased costs by $30 per GEO(1), and a decision to spend more on exploration to further advance the robust drilling results being obtained across the Company's operations. The additional spend did not impact margins, which improved due to the rise in metal prices.

The decision to concentrate sustaining capital spending in the second half of the year further impacted AISC(5) in the fourth quarter. In particular, additional capital development at Jacobina and El Peñón in the second half supported high quarterly rates of mining and production in 2019, and is expected to improve access and flexibility in mining operations during 2020.

Jason LeBlanc, Chief Financial Officer, commented: “Our free cash flow and cash balances have grown to a point where we are now able to meaningfully reduce debt, as we did during the fourth quarter, while supporting a substantially higher dividend and continuing to grow the business. We are confident that this is sustainable and, as our free cash profile continues to improve, that we will be an in even better position to generate growth and increase returns.”

Summary of Certain Non-Cash and Other Items Included in Net Earnings

(In millions of United States Dollars, except per share amounts, totals may not add due to rounding) Three Months Ended December 31 Twelve Months Ended December 31,
2018 2019 2018
Non-cash unrealized foreign exchange losses $ 0.6 $ 3.2 $ 29.0 $ 9.5
Share-based payments/mark-to-market of deferred share units 3.2 (0.5 ) 15.0 5.3
Mark-to-market losses (gains) on derivative contracts, investments and other assets (0.9 ) (1.7 ) 0.1 0.4
Gain on sale of subsidiaries and other assets — (2.7 ) (273.1 ) (73.7 )
Gain on sale of Gold Price Instrument — — (11.5 ) —
Share of one-off provision recorded against deferred income tax assets of associate — — 13.0 —
Net impairment of mining and non-operational mineral properties — (13.0 ) — 250.0
Impairment of goodwill — 45.0 — 45.0
Financing costs paid on early note redemption — — 35.0 14.7
Other provisions, write-downs and adjustments 7.5 18.9 42.0 57.9
Non-cash tax on unrealized foreign exchange losses (3.9 ) (43.2 ) 17.9 151.9
Income tax effect of adjustments (0.2 ) (6.3 ) (0.5 ) (5.0 )
One-time tax adjustments 5.8 87.9 26.9 (59.4 )
Total adjustments (i) $ 12.1 $ 87.6 $ (106.1 ) $ 396.5
Total adjustments - increase (decrease) to earnings per share attributable to Yamana equity holders $ 0.01 $ 0.09 $ (0.11 ) $ 0.42
i.For the three months ended December 31, 2019, net earnings attributable to Yamana equity holders would be adjusted by an increase of $12.1 million (2018 - increase of $87.6 million). For the twelve months ended December 31, 2019, net earnings attributable to Yamana equity holders would be adjusted by a decrease of $106.1 million (2018 - increase of $396.5 million).


Jacobina, Brazil

During the year, the Company announced significant increases to mineral reserves at Jacobina of 8.6% versus year-end 2018. The operation also reported an all-time high for full-year production of 159,499 ounces of gold, which was also well above guidance of 152,000 ounces.

With continued improvements to the sustainable cost structure and development productivity at the mine, Jacobina was able to incorporate ore previously categorized as mineral resources in the mineral reserve category. The conclusion to include lower grade supplemental ore, encountered as a halo to the core mineral reserves, had the impact of slightly decreasing total mineral reserve grade but significantly increasing economical mineral reserve ounces. This supplemental ore halo has been effectively and profitably mined over the past few quarters.

The updated mineral reserves of Jacobina comprise:
•29.17 million tonnes at a grade of 2.40 g/t in the core zone, for a total of 2.25 million ounces
•5.01 million tonnes at a grade of 1.53 g/t in the supplemental halo zone, for a total of 246 thousand ounces
•For a total mineral reserve of 34.18 million tonnes at a grade of 2.27 g/t, for a total of 2.49 million ounces

The Company’s mine plan prioritizes the mining of the core mineral reserves with a grade of 2.40 g/t, and defers the majority of the mining and processing of the supplemental halo mineral reserves until late in the mine life. The observed increase in mineral reserves and mineral reserves grade during the mid-year and year-end update supports annual gold production above 170,000 ounces, which was previously guided as the target after the completion in mid-2020 of Phase 1, a modest plant optimization with a sustainable level of 6,500 tonnes per day ("tpd").

The increase also further supports the potential for Phase 2, where production is expected to increase to between 200,000 and 225,000 ounces per year, with a likely scenario for plant throughput in the range of 7,500 tpd to 8,500 tpd, while maintaining gold recoveries of between 96%-97%.

A pre-feasibility study (“PFS”) to identify optimum mining and processing expansion scenarios, evaluate project economics, and determine a project development schedule, including the timing for permit applications, is expected to be completed in the first quarter of 2020. Investment for Phase 2 is expected to occur mostly in 2021 and 2022 with the objective of being at the higher throughput level at the beginning of 2023. No expansionary capital will be committed to the plant expansion until the PFS is completed. The Company’s hurdle requirement for expenditure on the Phase 2 expansion is an after-tax internal rate of return exceeding 15%. The decision to proceed with the investment will be driven by the expansion of the plant throughput, thus bringing forward cash flows, but also an extension of mine life from continued exploration success and improvements to Jacobina’s average mineral reserve grade, which would support the investment decision.

Agua Rica, Argentina

During the year, the Company announced an integration agreement with Glencore International AG and Newmont Corporation (collectively the “Parties”), pursuant to which the Agua Rica project would be developed and operated using the existing infrastructure and facilities of Minera Alumbrera Limited (“Alumbrera”) in the Catamarca Province of Argentina. The Company would own 56% of the integrated project. The Parties established a Technical Committee to direct the advancement of the Integrated Project.

The integration is expected to significantly de-risk the development of Agua Rica due to the ability to rely on the current Alumbrera plant and infrastructure. The Integrated Project is also expected to generate significant synergies by bringing together the extensive mineral reserves of Agua Rica with the existing infrastructure of Alumbrera to create a unique, high-quality, low-risk brownfield project with an optimized environmental footprint that is expected to bring significant value to shareholders, local communities and stakeholders.

On July 19, 2019, the Company announced positive PFS results that underscored Agua Rica as a long-life, low-cost project with robust economics and opportunities to realize further value, including the opportunity to convert economic-grade inferred mineral resources and expanding throughput scenarios to increase metal production and returns, among other opportunities.

The PFS highlights include a long mine life of 28 years, annual production for the first 10 full years increased to 533 million pounds of copper equivalent(i) production, cash costs(5) decreased to $1.29 per pound, AISC(5) decreased to $1.52 per pound for the first ten years of production, net present value increased to $1.935 billion and an increased internal rate of return of 19.7%(ii). Furthermore, proven and probable copper mineral reserves increased by 21% from year-end 2018 to 11.8 billion pounds and gold mineral reserves increased by 13% to 7.4 million ounces.

The Company believes Agua Rica represents one of the lowest capital intensity copper development projects in the world, with capital intensity measured based on the amount of copper produced and the amount of copper in the ground.
i.Copper equivalent metal includes copper with gold, molybdenum, and silver converted to copper-equivalent metal based on the following metal price assumptions: $6,614 per tonne of copper ($3 per pound), $1,250 per ounce for gold, $24,250 per tonne for molybdenum, and $18.00 per ounce for silver.
ii.Assuming metal prices of $3.00 per pound of copper, $1,300 per ounce of gold price, $18.00 per ounce of silver, $11.00 per pound of molybdenum and using an 8% discount rate.

Expansion opportunities at Canadian Malartic, Canada

Exploration programs are ongoing to evaluate several deposits and prospective exploration areas to the east of the Canadian Malartic open pit, including the new mineralized zone discovery of East Gouldie, as well as the Odyssey, East Malartic, Sladen, Sheehan and Rand zones. These discoveries have the potential to provide new, mostly underground sources of mineralization for the Canadian Malartic mill, replacing a portion of the lower grade open pit ores, and thereby increasing production and extending mine life. Access for additional underground drilling and possible mining would be by ramp extending from the Odyssey zone. The permit allowing for the development of an underground ramp was received in December 2018.

Drilling at East Gouldie has yielded a number of positive intercepts and results indicate that the East Gouldie, East Malartic and Sladen zones are converging at depth, increasing the level of confidence in the economic potential of overall mineral resources below 1,000 meters.

East Gouldie contributed to the meaningful increase in inferred mineral resource figures for East Malartic at year-end 2019. This increase comes after only one year of exploration, since the initial discovery hole in November 2018. The East Gouldie zone remains open and exploration continues to investigate probable extensions of the known mineral envelope.

See further details in the Company's September 9, 2019, press release: "Yamana Gold Provides Exploration Update on the Canadian Malartic Mine; Announces Discovery of East Gouldie Zone" available on SEDAR.

Sale of Chapada, Brazil and Related Consideration

On July 5, 2019, the Company completed the sale of the Chapada mine. The Company received total consideration of $865.5 million, including initial upfront cash consideration of $800.0 million on closing. In addition, consideration includes a $100 million cash payment contingent on the development of a pyrite roaster at Chapada and a 2% net smelter return (“NSR”) royalty on the Suruca gold project in the Chapada complex.

With regards to the Suruca NSR, the Company is considering a possible monetization of the royalty, which would allow the significant gain on realization on the sale of Chapada to have further upside potential and add to the already monetized $865.5 million in cash obtained on sale.


The 2019 exploration program focused on finding higher quality ounces, improving mine grade, infill drilling to replace production by upgrading existing mineral resources, and exploring the Yamana property portfolio as well as several joint venture opportunities.

The Company continues its exploration programs at existing operations. The Company increased its exploration spending in 2019 with a goal of further building mineral reserves and mineral resources at key operations as well as building a pipeline of exploration opportunities to ensure future growth. Exploration plans are focused on extending mine life at Cerro Moro, El Peñón and Minera Florida, while increasing grade, mineral resources and mine life at Jacobina and Canadian Malartic to allow increases in production at low costs. Over the course of the year, exploration spending at Jacobina was allocated to support the planned expansion and the program added new mineral reserves at a grade of 3.0 g/t or better.

Henry Marsden, Senior Vice President of Exploration, commented: “All five of our mines issued positive exploration updates in the second half of 2019. I would like to highlight El Peñón, our most mature mine, which increased gold and silver mineral reserves well beyond depletion for the third consecutive year. Given this ability to consistently grow mineral reserves beyond depletion, the mine life of this, our most resilient operation, is expected to be considerably longer than suggested by its mineral reserves inventory at any given point in time.”

Generative Exploration Program

The Company believes that it is important to invest prudently and responsibly today to lay the foundation for the Yamana mines of tomorrow. To that end, a generative exploration program is in progress to advance several highly prospective opportunities in the Company's existing portfolio. The key objectives of the program are as follows:
•Target the Company’s most advanced exploration projects while retaining the flexibility to prioritize other projects in the portfolio as and when merited by drill results.
•Advance one or more projects to an inferred mineral resource of at least 1.5 million ounces of gold within the next three years.
•On a long-term basis, advance at least one project to a mineral inventory that is large enough to support a mine with annual gold production of approximately 150,000 ounces for at least eight years.
•Advance both gold-only and copper-gold projects and, in the latter case, consider joint venture agreements aimed at increasing mineral resource and advancing the project to development while Yamana maintains an economic interest in the project.

The Company is budgeting $14 million in 2020, the first year of what will initially be a three-year program. The Company expects most of the remaining budget for the program to be derived from monetizations of non-cash producing assets that are currently in progress, creating an optimum balance between investing in new projects and maximizing free cash flow. The generative exploration program targets advanced and advancing exploration projects in Yamana's existing portfolio, particularly Canada and Brazil. These projects include:

Lavra Velha
Lavra Velha is a near surface advanced exploration project located in the Lavra Velha district in Brazil’s Bahia state. There are significant drill targets on the 55,000-hectare property, and Lavra Velha is highly prospective to meet the Company’s long-term objectives, as it is near to surface, open pittable, and as a possible heap leach operation, it can more easily be put into production with low capital costs.

Monument Bay
Yamana is actively exploring its 31,000-hectare Monument Bay project, which is located in northeast Manitoba. The project covers the Twin Lakes shear zone, a strongly developed regional structure that hosts gold mineralization along a three-kilometre strike length. Drilling on the core Twin Lakes shear zone will continue and exploration has recently expanded to other targets within the existing exploration permit, using reverse circulation drilling to collect basal till and top-of-bedrock samples.

Jacobina Norte
The Jacobina Norte project, located in Brazil’s Bahia state just a few kilometres away from the Jacobina mine, is one of Yamana’s most promising advancing exploration projects. The 78,000-hectare property covers over 150 kilometres of strike extent of the Serra do Corrego Formation, which hosts paleoplacer gold mineralization at the Jacobina mine. Surface exploration along strike has defined mineralization at Jacobina Norte along a 15-kilometre trend with significant gold grades.

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AND Outlook

The following table presents the Company's total gold, silver and gold equivalent ounces ("GEO")(3) production expectations in 2020, 2021 and 2022.

(000's of ounces) 2019 Actual (1) 2020 Guidance 2021 Guidance 2022 Guidance
Total Gold Production (3) 848 857 873 885
Total Silver Production 10,640 11,500 11,000 10,000
Total GEO Production (2)(3) 972 990 1,000 1,000
1.Excluding any attribution from Yamana’s interest in Chapada (sold in 2019).
2.GEO includes gold plus silver with silver converted to a gold equivalent at a ratio of 86.02 for 2019 and a forecast ratio of 86.10 for 2020, 2021 and 2022.
3.Included in fourth quarter and full year 2019 production figures are 3,137 gold ounces of pre-commercial production, related to the Company's 50% interest in the Canadian Malartic mine's Barnat deposit.

The guidance values noted above reflect the production mid-point within a normal range of +/- 2% for the 2020-2021 period. As guidance becomes less predictable three years out, in 2022, a greater allowance of +/- 3% is provided.

The Company expects that the completion of the Phase 1 optimization of Jacobina, development successes at several of its mines, along with continued exploration success at Cerro Moro will be the main catalysts for its production levels in 2022.

The production profile for 2020 to 2022 shows sequential growth in gold production every year. Several growth opportunities are available, and in the near and medium-term the Company plans to remain focused on optimizing its existing portfolio of five operating mines while also advancing studies for various expansion projects and longer-term development assets.

The Company expects to continue its established trend of delivering approximately 54% of production in the second half of the year compared to the first half, along with quarterly sequential increases in production.

The following table presents per unit cost guidance for 2020:
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