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Yamana Gold reports 4Q20 and full year results

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Global Mining Review,

Yamana Gold Inc. has reported its financial and operational results for 4Q20 and FY20, providing 3-year mine-by-mine guidance, and updating mineral reserve and mineral resource estimates as at 31 December 2020.

The company has also announced a positive construction decision for the Odyssey underground project at the Canadian Malartic mine following the impressive results of the technical study, which outlines robust economics, a significant increase in mineral resources, and a mine life extension to at least 2039.

Further, as a continuation of Yamana’s climate change actions, the company has also announced that it has formally adopted a climate strategy, approved by the Board of Directors, to demonstrate the company’s commitment to the transition to a low-carbon future. The strategy is underpinned by adoption of two targets: a 2°°C science-based target (SBT) and an aspirational net-zero 2050 target.

4Q20 and FY20 highlights

Financial results

  • 4Q20 net earnings were US$103 million or US$0.11 per share basic and diluted compared to net earnings of US$14.6 million or US$0.02 per share basic and diluted a year earlier.
  • Adjusted net earnings were US$107.7 million or US$0.11 per share basic and diluted.
  • 4Q20 cash flows from operating activities were US$181.5 million and net free cash flow was US$118.9 million, exceeding the averages of the preceding three quarters by 25% and 6%, respectively.
  • 4Q20 cash flows from operating activities before net change in working capital were US$207.4 million, and free cash flow before dividends and debt repayments was US$61.7 million.
  • Net debt decreased by an additional US$53.4 million in 4Q20 as a result of increased cash balances largely due the significant increase in free cash flow.
  • For FY20, net debt fell by US$323.4 million to US$565.7 million. The company has achieved its financial management objective of a leverage ratio of net debt to EBITDA of below 1 x when assuming a bottom-of-cycle gold price of US$1350/oz, underscoring the company's significant financial flexibility.
  • As expected and planned, capital expenditures during 4Q20 were higher than 3Q20 as the result of timing delays caused by COVID-19, and interest was paid, as interest payments are customarily made in 2Q20 and 4Q20. Further, a working capital outflow occurred due to the timing delays of collection of recoverable indirect tax credits, payments associated with prepaid expenditures and advances, and an inventory buildup due to production exceeding sales that will normalise in 2021.
  • During 4Q20, the company announced a further 50% increase to its annual dividend to US$0.105 per share, driven by strong free cash flow generation.

4Q20 operational results

  • 4Q20 gold equivalent ounce (GEO) production was 255 361 GEO including gold and silver production of 221 659 oz and 2.59 million oz, respectively. The strong gold production followed standout performances from Jacobina and Minera Florida, and silver production was underpinned by an exceptionally strong performance from El Peñón.
  • Full year GEO production of 901 155 GEO, including 779,810 oz of gold and 10.37 million oz of silver, exceeded original guidance for the year of 890 000 GEO, and was within the plus or minus 3% variance range of the company's revised guidance. GEO production for the year at Jacobina, El Peñón, Canadian Malartic, and Minera Florida were all well above plan. The entire difference was attributable to further changes to COVID-19 restrictions imposed in Argentina near the end of the year which impacted production at Cerro Moro.

Costs offset by margin generated from Barnat pre-commercial production

  • Cash costs for the quarter and full year were US$675 and US$701 per GEO, respectively, and all-in sustaining costs (AISC) for 4Q20 and FY20 were US$1076 and US$1080 per GEO(1), respectively.
  • Full year cash costs and AISC were modestly higher than previously forecast, mostly impacted by lower production at Cerro Moro resulting from the reimposition of national safety measures in Argentina in December. The company had also anticipated that more production from Barnat at Canadian Malartic would be classified as commercial production, and as costs for such production were expected to be lower than the company's average, overall costs would have been positively impacted. With more pre-commercial production from Barnat, costs were not positively impacted, but the margin generated from Barnat’s pre-commercial production was treated as a reduction to expansionary capital. This significant cash flow benefit resulted in the reduction of expansionary capital for the year by a further US$14 million compared with plan. The net results of the modestly higher costs and lower expansionary capital was neutral, and consequently had little impact to overall generation of cash flows for the year.

Increased gold mineral reserves and mineral resources

  • Replaced mineral reserve depletion on a consolidated basis at operating mines.
  • Significant increase in mineral resources:
    • Notable increase in East Gouldie at Canadian Malartic of 1.84 mil-lion oz (at 50%) of inferred mineral resources.
    • Further, through the acquisition of the Wasamac project the company has been able to increase its mineral inventory at a very advantageous purchase price.
    • Lastly, inventory from the MARA project, which has generally been shown outside of the company's subtotals has been added to inventory in the current year, given its advanced stage in the development process and the completion of the integration of the Agua Rica project and Minera Alumbrera plant and infrastructure.

MARA Project integration

  • On 17 December 2020, the company completed the integration of the Agua Rica project with the Minera Alumbrera plant and infrastructure. Going forward, the integrated project will be known as the MARA project.
  • Under the agreement, Yamana, as the sole owner of Agua Rica, and the partners of Alumbrera have created a new joint venture (JV) pursuant to which Yamana holds a controlling ownership interest in the MARA Project at 56.25%. Glencore holds a 25% interest and Newmont holds an 18.75% interest. Yamana will be the operator of the JV and will continue to lead the engagement with local, provincial, and national stakeholders, and completion of the feasibility study and environmental impact assessment for the project.
  • The integration creates significant synergies by combining existing substantive infrastructure that was formerly used to process ore from the Alumbrera mine during its mine life, including processing facilities; a fully permitted tailings storage facility; pipeline; logistical installations; ancillary buildings, and other infrastructure, with the future opencast Agua Rica mine.

Acquisition of Wasamac Property and Camflo Property and Mill (acquisition of Monarch Gold)

  • During the quarter, the company announced the acquisition of the Wasamac property and the Camflo property and mill through the acquisition of all of the outstanding shares of Monarch Gold not owned by Yamana. The company completed the acquisition on 21 January 2021.
  • The Wasamac project, which has existing proven and probable mineral reserves of 1.8 million oz of gold at 2.56 g/t and excellent potential for future exploration success, further solidifies the company’s long-term growth profile with a top-tier gold project in Quebec’s Abitibi region, where the company has deep operational and technical experience and expertise.

Climate change actions

As a continuation of Yamana’s climate change actions, the company has formally adopted a climate strategy, approved by the Board of Directors, to demonstrate the company’s commitment to the transition to a low-carbon future. The strategy is underpinned by adoption of two targets: a 2°C SBT and an aspirational net-zero 2050 target. The targets are supported by foundational work to be performed in 2021 to establish a multi-disciplinary Climate Working Group, determine its emissions baseline, develop the greenhouse gas (GHG) abatement pathways required to achieve the 2°C SBT and establish preliminary, operations-specific roadmaps that describe abatement projects, estimated costs and schedules. These actions will help ensure that our long-range GHG reduction efforts are supported by practical and operationally focused short, medium and long-term actions to achieve the targets.

The Odyssey Projet

Canadian Malartic has been a prolific mining operation for decades. Since 2011, it has been an opencast mine, but it has also been a successful underground operation in previous iterations. One of the strategic rationales behind Yamana's decision to jointly acquire Canadian Malartic from Osisko Mining in 2014 was the potential to significantly extend mine life by transitioning the operation to a future underground mine. Initial underground exploration drilling generated promising results, with the discovery of the East Gouldie zone in 2018 confirming the strong potential for a multi-hundred thousand ounce annual production operation with a decades-long mine life. As of year-end 2020, underground mineral resources have grown to approximately 14.4 million oz of gold (100% basis) in just 6 years, including an increase of 4 million oz from year-end 2019.

The Odyssey project hosts three main underground-mineralised zones, which are East Gouldie, East Malartic, and Odyssey, the latter of which is sub-divided into the Odyssey North, Odyssey South and Odyssey Internal zones. For the purpose of the technical study, mineable stope shapes were generated using a gold price of US$1250/oz, consistent with the price used for estimating Canadian Malartic opencast mineral reserves. Mineral resources at East Malartic below 600 m from surface are not currently included in the technical study.

The shallow mineralised zones located above 600 m below surface will be mined using a ramp from surface. The deeper mineralised zones below 600 m from surface will be mined with a production shaft.

In December 2020, ramp development was started on the Odyssey project in order to facilitate underground conversion drilling in 2021 and provide access to the Odyssey and East Malartic deposits. At year-end 2020, the ramp had progressed 102 m, and an additional 2850 m of development is planned in 2021, of which 1500 m is in the ramp.

The conceptual mine design in the technical study includes a 1.8-km deep production-services shaft equipped with a Blair hoist for production, a single drum hoist for services, and an auxiliary cage. The hoisting capacity is expected to be approximately 20 000 tpd. The project will also benefit from the existing infrastructure on site such as the tailing storage facilities, the process plant, and the maintenance facilities.

The preliminary mining concept is based on a sublevel open stoping mining method with paste backfill. Longitudinal retreat and transverse primary-secondary mining methods will also be used dependent on mineralisation geometry and stope design criteria.

The Odyssey project is expected to be one of the most modernised electric underground mines. All major mobile production equipment (such as trucks, scoop trams, jumbos, bolters, and longhole drill rigs will be electric powered), greatly reducing carbon footprint. On the two main levels with loading pockets, trucks and hammers would be remotely operated 24/7 from a surface control room, greatly increasing equipment utilisation.

Production via the ramp is expected to begin at Odyssey South in late 2023, increasing to up to 3500 tpd in 2024. Collaring of the shaft and installation of the headframe is expected to commence in 2Q21, with shaft sinking activities expected to begin in late 2022. The shaft will have an estimated depth of 1800 m and the first loading station should be commissioned in 2027 with modest production from East Gouldie. The East Malartic shallow area and Odyssey North zones are scheduled to enter production in 2029 and 2030, respectively.

The project is expected to mine 19 000 tpd from the underground from four different mining zones:

  • East Gouldie – 12 500 tpd.
    • Stope production starts in 2027.
    • 3-year ramp up (2027 – 2029).
    • Full stope production in 2030 to 2038.
  • Odyssey North – 3500 tpd.
    • Stope production starts in 2030.
    • Full stope production in 2031 – 2038.
  • Odyssey South and East Malartic – 3500 and 3200 tpd, respectively.
    • Odyssey South stope production starts in 2023.
    • Odyssey South full stope production in 2024 to 2027 (3500 tpd).
    • East Malartic stope production starts in 2028.
    • East Malartic full stope production in 2030 to 2039 (3200 tpd).

Run-of–mine ore from the opencast will start to decrease in 2023, as the ore production from the underground starts at a rate of 3000 tpd. The underground should reach full production of about 19 000 tpd by 2031.

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