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Yamana Gold announces 3Q20 preliminary operating results

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Global Mining Review,

Yamana Gold has announced preliminary 3Q20 results, with gold production of 201 772 oz and silver production of 3.04 million oz. Total gold equivalent production (GEO) was 240 466 oz.

Jacobina, El Peñón, Minera Florida, and Canadian Malartic all enjoyed successful quarters. With overall production, and production at most of the company’s mines, currently tracking ahead of plan, and in some cases well ahead of plan, the company increases its 2020 production guidance from the previous guidance of 890 000 GEO to 915 000 GEO, representing an increase of 3%. Gold production and silver production guidance have increased from previous guidance by approximately 1% and 6%, respectively.

The company continued to generate strong cash flows in the quarter which strengthened its cash balances and balance sheet. Cash balances at quarter end increased by a further US$145 million from US$325 million at the end of 2Q20 to approximately US$470 million.

The strong results position the xompany well for an even stronger fourth quarter and continued production growth over the next several years. Furthermore, the company has low capital commitments over the near-to-medium term, which together with Yamana’s rising production profile, cash flows, and cash balances, provide significant financial flexibility to pursue all of its capital allocation objectives, including further dividend increases.

As a result, the company is pleased to announce that it is raising its annual dividend by a further 50% to US$0.105 per share, effective for 4Q20. At the new rate, the dividend will be 425% higher than the dividend level just 18 months ago. Furthermore, as the company has established a policy of representing the dividend on a per GEO basis, with the objective of maintaining the dividend at between US$50 – US$100/GEO, this increase positions the dividend at the high end of the range at US$100/oz.

Dividend increase highlights

  • The company is increasing its annual dividend by a further 50% to US$0.105 per share, effective for 4Q20.
  • On a per GEO basis, the dividend is at the top of the company’s target range of US$50 – US$100/GEO, with US$100/GEO now the new dividend floor.
  • At the new rate, the dividend will be 425% higher than the dividend level just 18 months ago.
  • Based on Yamana’s share price at yesterday’s close, the company’s dividend yield at the new rate would be 1.9%, which on an absolute and risk-adjusted basis is amongst the highest of its North American peers. The Company endeavours to balance cash returns with overall returns and notes that while its dividend yield to share price has improved significantly relative to peers, its significant increase in share price since last year has the effect of reducing cash return yields although at the expense of significant overall returns which include share price. Since the start of 2019, overall returns for the company’s shares are 143% as of 7 October 2020 close.
  • Consistent with its dividend policy and sustainability objectives, the company has sufficient cash reserves on hand to support payment of the dividend at the increased level for three years. The cash reserve fund provides the company with the flexibility to pay the dividend at the new floor for an extended period even in a bottom of cycle gold price environment.
  • The company will no longer provide a range for its dividends on a per GEO basis although, as a policy, it has now set a floor for its dividend and any increases above the new floor will be based entirely on cash flows and cash generation capacity of the company. The company notes that as its cash flows and cash balances increase, its dividend will rise correspondingly as a percentage of cash flows and commensurate with increasing cash balances from cash flows and sources that supplement cash flows. The company will continue to reflect its dividend both on a per share basis and on a per ounce basis.
  • Yamana endeavours to create an optimal balance between the amount of the dividend that it pays and the sustainability of that dividend.
  • The company recognises that it could pay a substantially higher dividend by immediately utilising its cash reserves, but believes that at the new dividend floor and with its cash reserve fund it has the proper balance between the amount payable and dividend sustainability for now. Moreover, the company is confident that its cash flows and other cash generation efforts will support further dividend increases in due course.
  • The company will continue to engage regularly with investors to ensure it is maintaining an optimal balance between the amount payable and dividend sustainability.

Operational highlights

  • Jacobina continued its strong operational performance, with gold production of 44 080 oz, well above plan. The results reflect higher feed grade and strong throughput rates, which averaged 6800 tpd during the quarter. Phase 1 optimisation work has begun with the objective of improving processing rates and efficiencies.
  • El Peñón delivered another strong quarter, with gold production of 39 322 oz and silver production of 1.36 million oz. Production for both metals was above plan primarily due to the processing of higher grade ore, with silver production significantly overperforming due to mine sequencing in a high-grade area.
  • At Canadian Malartic, gold production of 76 398 oz was above plan due to increased throughput. The daily throughput rate underscores the consistency created by the newly installed advanced process control system as well as improvements in rock fragmentation that are decreasing the load on the grinding unit. In addition, softer rock is being processed thereby requiring less grinding power and consequently contributing to an increase in grinding capacity. During the quarter, throughput was significantly higher than the comparative prior year quarter despite the operation incurring two planned mill shutdowns for maintenance purposes. Excluding these shutdowns, throughput exceeded 60,000 tpd. Work on the exploration ramp into the Odyssey and East Malartic zones is progressing on schedule.
  • At Minera Florida, gold production of 23 153 o` was in line with plan, while quarterly development rates were the highest in 2 years, improving flexibility with a positive impact on throughput.
  • Cerro Moro produced 18 818 oz of gold and 1.68 million oz of silver during the quarter compared to 8175 oz and 730 571 oz, respectively, in the previous quarter. The operation is back to the standard throughput expectation of 1000 tpd, with productivity trending higher. Increasing production from the Zoe underground higher-grade mine in 4Q20 is expected to position Cerro Moro for its highest gold production quarter of the year.
  • 4Q20 is expected to be the strongest quarter in line with historical trends.

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