Operator Series: Yamana focusing on Argentina for LatAm growth

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Thursday, November 2, 2017

Yamana Gold is a Canadian intermediate gold producer with production, development stage and exploration properties throughout Latin America, including Brazil, Chile, Argentina and Mexico, as well as Canada. 

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Founded in 2003 and headquartered in Toronto, Yamana operates six mines in the Americas.

In the third quarter, Yamana has increased gold, silver and copper production guidance for the year following strong output at some of its mines.

The company is now expecting consolidated gold production of 960,000oz, compared with previous guidance of 920,000oz, the company said in a results statement.

Silver production is now projected at 5.0Moz of silver, up from 4.74Moz, and copper production is expected at 125Mlbs (56,700t), compared to earlier guidance of 120Mlbs.

"We are tracking very well to the expectations in our guidance, and as you can anticipate, guidance is always risk adjusted to what is in a budget, and budget is always a little bit more," CEO Peter Marrone said at the Denver Gold Forum in September. 

OUTPUT

Yamana's third quarter production, including attributable output from Brio Gold in Brazil, totaled 300,368oz gold compared with 305,580oz in 3Q16. Silver production fell to 1.43Moz from 1.59Moz.

The average realized gold price in the quarter was US$1,278/oz, down from US$1,337/oz a year earlier, while that of silver dropped to US$16.60/oz from US$19.53/oz.

Attributable all-in sustaining co-product costs were US$905/oz gold and US$13.70/oz silver compared with US$965/oz and US$13.79/oz.

LATAM PROJECTS

Yamana's future endeavors in Latin America lie in two projects in Argentina: Cerro Moro, a gold-silver development project located in Santa Cruz province, and Agua Rica, a large copper mine in Catamarca.

Cerro Moro, Yamana said in its latest quarterly results, is on schedule and budget as construction works advance toward completion by the end of the year, with production start-up expected early 2018.

The mine is expected to produce 80,000oz at all-in sustaining costs less than US$600/oz gold. The company said earlier it plans to spend a total of US$233mn at Cerro Moro this year and next.

Agua Rica continues to be evaluated following initial studies related to a small scale underground sub-level caving operation that contemplates a fully standalone operation, the company said. 

According to Yamana, it has retained two financial advisers on strategic alternatives that consider both open pit and underground options, maybe signaling an asset divestiture. 

CASH FLOW AND DEBT REDUCTION

Toronto-based Yamana previously announced plans to cut net debt by US$300mn over two years ending 2017.

Last year, Yamana sold its Mercedes mine in Mexico to two Canadian companies for US$122.5mn in cash, shares, and share warrants, and said it would use the proceeds of the sale, along with US$33.5mn raised through the sale of share purchase warrants to Sandstorm Gold, to reduce net debt.

Although the company hasn't announced the sale of any other assets, this year Yamana reported stronger cash flow in the third quarter, something that could help in achieving its debt-reduction target.

Yamana said in its Q3 results release that revenue for the quarter was US$493mn, up from US$464mn a year earlier. 

"Cash flows from operating activities was US$150mn and cash flows from operating activities before income taxes paid and net change in working capital was US$171.5mn. The net change in working capital was positive US$14.0mn, net change in working capital excluding [standalone gold producer] Brio Gold was approximately positive US$19.0mn. Net free cash flow was US$117mn."

GROWTH OUTLOOK

Credit Suisse, in a research report following Yamana's Q3 results, rated the gold producer as neutral as the company is working to turn around its operational performance, free cash flow generation and balance sheet.

"Positively, Yamana now offers a growth outlook and has above average gold price leverage," the report said.

"Furthermore, the company has been taking steps to reduce its balance sheet leverage through asset sales, it has good growth off its 2017 base and we have a positive gold price view and Yamana has above average leverage due to its balance sheet and higher cash flow implied cost structure."

SOURCE: Yamana Gold