Yamana Gold Inc (AUY) Q3 2021 Earnings Call Transcript

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Yamana Gold Inc (NYSE:AUY)
Q3 2021 Earnings Call
Oct 29, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you all for joining us this morning.

Before I turn the call over, I need to advise that certain statements made during this call today may contain forward-looking information and actual results could differ from the conclusions or projections in that forward-looking information, which include but are not limited to, statements with respect to the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, future metal prices and the cost and timing of the development of new projects.

For a complete discussion of the risks, uncertainties and factors, which may lead to actual financial results and performance being different from the estimates contained in the forward-looking statements, please refer to Yamana’s press release issued yesterday announcing third quarter 2021 results, as well as the management’s discussion and analysis for the same period, and other regulatory filings in Canada and the United States.

I would like to remind everyone that this conference call is being recorded and will be available for replay today at 12:00 PM Eastern Time. Replay information and the presentation slides accompanying this conference call and webcast are available on Yamana’s website at yamana.com.

I will now turn the call over to Mr. Daniel Racine, President and CEO.

Daniel Racine — President and Chief Executive Officer

Thank you, operator. Thank you all for joining us and welcome to our third quarter 2021 conference call and webcast.

Presenting with me today is Jason LeBlanc, our Chief Financial Officer; Yohann Bouchard, our Chief Operating Officer; Gerardo Fernandez, Senior VP, Corporate Development; and Henry Marsden, Senior VP, Exploration, who will be available to answer questions during the Q&A portion of the call.

I will start, as always with health and safety. Our total recordable injury rate was 0.68 for the first nine months of 2021. The health and safety of our employees always come first and is something we have always trying to improve. Since the beginning of the pandemic, we have taken quick action to limit the impact of COVID-19 on our operations and the communities in which we operate. We put in place [Technical Issues] across the company to minimize the spread of COVID-19. We are happy to report that we expect over 90% of our employees to be fully vaccinated before the end of the fourth quarter. During the third quarter, we completed human rights risk assessment at all of our site in line with the Voluntary Principles on Security and Human Rights. We also approved a responsibility policy covering all aspects of health and safety and sustainable development. This is available to review on our website.

Earlier this year, we introduced our climate strategy, in Q3, we performed workshops with each operations were established roadmaps for each operation that described project cost and schedule. These actions will help ensure that is along our — it’s long-range GHG reduction efforts are supported by practical and operationally focused short, medium and long-term action to achieve the targets.

Moving onto our third quarter results. Jason will review our quarter in more detail, but I want to spend a moment to recognize the strong performance of our mines delivered. Canadian Malartic, Jacobina and El Pinon, all had standout quarters, and Cerro Moro, also produced excellent results. In total, from our four — five operating mines, we achieved the second highest quarterly gold production ever in Q3 with record-breaking gold production expected in Q4. As previously guided, we mentioned production was weighted at 53% for the second half of the year, with the fourth quarter being the strongest quarter.

We did better than planned in the first half of the year, so don’t be surprised if we do the same in the second half. We are in a very, very good position — strong position to achieve our or exceed our production guidance of 1 million GEO ounces. I will also mention that September was the lowest cost month of the quarter, and we expect this trend to continue to Q4, where we expect to deliver meaningfully lower costs.

Before talking about the Odyssey project, let me congratulate our exploration team at the Canadian Malartic general partnership. They have been awarded discovery of the year by the Quebec Mineral Exploration Association for East Gouldie. What’s an important discovery for the underground mine, assuring multi-decades of production, we are very proud of them at Yamana. At Odyssey, development of the underground ramp continued to perform well. The headframe’s slipform pour started in September and 93 meter was completed October 19 in 21 days. Structural steel installation expected to start in November and being completed during Q4.

Infill drilling from underground is defining the Odyssey internal zone, which are not currently included in the life of mine plan, but have potential to add underground production within the next five years. Exploration continues to deliver exciting results at Odyssey and something we will continue to provide updates on.

Turning now to Jacobina and our exploration project — expansion project, which continues to exceed our expectations. The mine has delivered significant progress on the Phase 2 expansion. A new daily throughput of over 8,800 tonnes per day was achieved in September during a trial test, to test the plant capacity. But the potential we see for Jacobina extend well beyond Phase 2. As we have mentioned in the past, we will advance work toward our Phase 3 expansion, but the true potential lies even beyond this.

Jacobina is located in a mining jurisdiction with huge potential. It shares similar geology to the gold district in West and South Africa that owes massive gold deposit. We are seeing the potential for the Jacobina Bell to become an entire gold mining district, which we own 100%. The Jacobina mine has produced over 2 million ounces and has over 8 million more ounces in mineral inventory, and this is all within a small portion of our land package, which is over 150 kilometer. In the future, Jacobina could very well be a complex of mines, producing at a scale of over 400,000 ounces, and continuing to be one of the lowest cost mines in the Americas.

At our Wasamac project, permitting and engineering are continuing to advance. And as you may have seen from our press release during the quarter, exploration is already beginning to deliver some exciting results, especially at the Wildcat target. The Wildcat zone is located 300 meters south of the Wasa Shear.

Initial step-out drilling has expanded the down deep continuity of the known historic zones that are now included in the current mineral reserve or mineral resources, highlighting the potential for zone with higher grade to increase future production and extend mine life. Our plan infill and exploration drilling has the potential to generate additional mining mineral reserves that will sustain a 200,000 ounces production level for an extended period, and support a strategic mine life of more than 15 years.

I also want to take a moment to speak about MARA, another high-quality asset in our portfolio with huge potential. The project is one of the world’s lowest capital intensity copper projects, and we are working to advance it. In the quarter, work progressed on the engineering design, drilling at site and furthering studies and permitting.

We are at a very important moment for this asset, and there are multiple paths forward, all of which deliver value for our shareholders. And that value is huge, as you can see on this slide, at $4 per pound copper and 1,700 per ounces. Mara has an NPV of over $4 billion, and we own 56.25% of that. We will evaluate all possible avenues to deliver the most value to our controlling interest. The opportunity we have to deliver value from this project, that is not currently captured in our share price, is truly exciting.

And I will now pass the call over to Jason, who can go over our quarterly results in more detail.

Jason LeBlanc — Senior Vice President, Finance and Chief Financial Officer

Thank you, Daniel, and good morning, everyone. I’ll now provide a brief overview of our third quarter results, as Daniel mentioned.

We recorded net earnings of $27 million or $0.03 per share, and on an adjusted basis, $69.7 million or $0.07 per share, with the main adjusting item relating to our early note redemption premium. We also saw strong cash flows in the third quarter, with a step change increase quarter-over-quarter, which I’ll come back to in more detail in a moment. But this profile of a strong third quarter is what we had expected at the start of the year.

If you recall, at the beginning of the year, we guided that production would be weighted at 47% to the first half and 53% in the back half of the year, and that the fourth quarter would be our strongest. Our results through nine months attractive profile, and we expect Q4 production to exceed 270,000 GEO, which positions us to achieve our annual guidance of $1 million GEO production for the year.

On costs, recall in the second quarter, we had indicated that we were seeing some inflationary pressures from certain consumables, with an impact of approximately $20 per ounce above our planning assumptions at the start of the year. This is still our expectation. But with our planned ramp-up in sequential quarterly production, our unit costs have been decreasing since earlier this year. We really started seeing some of that better cost performance later in Q3.

In September, we had meaningfully lower costs at several mines, and to give some gauge of that on a consolidated basis, ASIC for September was about 10% lower than our average…