Argentina's export tax has the potential to offset Yamana Gold operations

Wednesday, September 12, 2018

By Yamana Gold.

Yamana Gold is herein providing details on recently executed additions to the Company's foreign exchange hedging program and the potential impacts of the announced imposition of an export tax in Argentina. In aggregate, the company continues to be well positioned to generate a step change in cash flow in 2019.

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Commented Daniel Racine, President and Chief Executive Officer: "We manage our business holistically and recent, significant depreciation in several of the currencies for which we are exposed has provided a strategic entry to lock-in the improving outlook for certain in-country operating costs relative to forecasts. Consistent with our prior practices, we have executed foreign exchange options contracts that we expect to underpin cash flows and increase our confidence in delivering planned improvements to cash flows. This program, coupled with continued strong production momentum at our operations, including at Cerro Moro which is ramping up as planned, positions us well through 2018 and more significantly into 2019.

"While the Company's favourable positioning relative to production and costs bodes well for the near and medium term, Argentina's export tax has the potential to offset a portion of these benefits. Our view is that the announced tax is not effective before being approved by the legislature. To date, no legislation has been introduced in the Federal Congress to make the proposed tax effective and give it constitutional sanction. We are also evaluating the impact of our fiscal stability pacts on the proposed tax as those pacts limit taxes to those set forth in the pacts. Clearly, we understand the objective of fiscal stability in the country and that the proposed tax is directed toward that objective. As such, we are working within established channels to seek a constructive resolution to this matter on many fronts including if and how the tax, if and when enacted as legislation, would apply. In the meantime, we realize that on balance the currency improvements are net positive and we expect to deliver the step change in cash flow that we have signalled."


Over the past number of years, the Company has used options contracts and other arrangements to lock-in beneficial movements in foreign exchange rates and commodity prices at opportune moments. Consistent with this approach, the Company has entered into option contracts relating to a portion of its exposure to Brazilian reais in 2019.

The Company has entered into two sets of zero cost collar contracts as follows:

  • For the period from January to December 2019, with an average call and put strike price of R$3.75 and R$4.74 per US dollar, respectively, totalling R$348 million evenly split by month; and
  • For the period from July to December 2019, with an average call and put strike price of R$3.75 and R$4.87 per US dollar, respectively, totalling R$135 million evenly split by month.

The Company is currently undertaking its annual budget process and is providing the following table for illustrative purposes only. This table presents 2018 assumptions and the current spot foreign exchange rates.

The Company expects the depreciation of various currencies to provide savings on total co-product cash costs per unit of gold, silver and copper of at least $50, $1.00, and $0.25, respectively.

These savings in 2019 are expected to more than offset any cumulative impact through 2020 on the Company's cost associated with Argentina's export tax as it was announced.


On September 4, 2018, the Argentinian Executive Branch issued Executive Order No. 793/2018 establishing an export tax of 12% over all goods exported from Argentina, applicable from September 4, 2018, to December 31, 2020. The tax is capped at AR$ 4 per U.S. dollar for bullions and unrefined gold, and at AR$ 3 per U.S. dollar for unrefined silver and zinc, copper and precious metal ores and their concentrates. This action was part of a larger plan that included other austerity measures and invoking an International Monetary Fund assistance loan.

The Argentine Constitution prohibits the Executive Branch from creating taxes, and establishes that it can only exercise the legislative authority expressly delegated by the Federal Congress. The basis for such delegation must be narrowly defined, including the minimum and maximum tax rates. The Company has been advised that the aforementioned export tax exceeds the limits set forth by the Argentine Constitution for the exercise of legislative authority by the Executive Branch, and that it is, therefore, unconstitutional. To date, the Executive Branch has not indicated when and if legislation will be proposed to the Federal Congress for approval.

The Company's indirect subsidiaries Minas Argentinas S.A. and Estelar Resources Limited S.A. will challenge the constitutionality of Executive Order No. 793/2018 by filing an action for the protection of constitutional rights pursuant to Article 43 of the Argentine Constitution, and an application for an injunction in order for the Argentine government to refrain from collecting this tax.

In addition, the Gualcamayo and Cerro Moro, owned by Minas Argentinas S.A. and Estelar Resources Limited S.A., respectively, are entitled to tax stability pursuant to Argentina's Mining Investments Law No. 24,196. Such tax stability entitles Minas Argentinas S.A. and Estelar Resources Limited S.A. to recover taxes in excess of their overall tax burden at the time of the filing of their feasibility studies, in 2007 for Gualcamayo and 2012 for Cerro Moro.