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Edited Transcript of YRI.TO earnings conference call or presentation 2-May-19 12:30pm GMT

Q1 2019 Yamana Gold Inc Earnings Call

Toronto May 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Yamana Gold Inc earnings conference call or presentation Thursday, May 2, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Racine

Yamana Gold Inc. - President & CEO

* Jason LeBlanc

Yamana Gold Inc. - Senior VP of Finance & CFO

* Yohann Bouchard

Yamana Gold Inc. - SVP of Operations

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Conference Call Participants

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* Anita Soni

CIBC Capital Markets, Research Division - Analyst

* Don MacLean

Paradigm Capital Inc., Research Division - Senior Analyst of Gold

* Joshua Mark Wolfson

Desjardins Securities Inc., Research Division - Analyst

* Mark Llanes

Crédit Suisse AG, Research Division - Analyst

* Michael Parkin

National Bank Financial, Inc., Research Division - Mining Analyst

* Ralph M. Profiti

Eight Capital, Research Division - Research Analyst

* Tanya M. Jakusconek

Scotiabank Global Banking and Markets, Research Division - Analyst

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Presentation

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Operator [1]

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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 the amount of estimated future productions; cost of productions; capital expenditures; future metal prices; and the cost of timing of 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 press release issued yesterday announcing first quarter 2019 results as well as the management 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 p.m. Eastern time. Replay information and the presentation slides accompanying this conference call and webcast are available on Yamana website at yamana.com.

I will now like to turn the meeting over to Mr. Daniel Racine, President and CEO. Please go ahead.

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Daniel Racine, Yamana Gold Inc. - President & CEO [2]

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Thank you all for tuning in, and welcome to our first quarter conference call. With me on the call today is Jason LeBlanc, our CFO. All members of our management are with us in the room and will be available for the Q&A portion of the call.

We had a strong first quarter both operationally and from a sustainability standpoint. Our total recordable injury frequency rate declined to 0.6 during the quarter from 0.7 during the first quarter of 2018. We did not have any lost time injury at any of our operation in the latest quarter. While we are pleased with executing on our "One Team, One Goal: Zero" vision, we also recognize the importance of being prepared. To that end, we had an emergency response exercise at Jacobina during the quarter to test the preparedness of the mine, the community and supporting authorities for serious incident. The exercise went well and while we hope we never had to implement our emergency protocols, we will continue to hold such exercise to ensure we are ready for any scenarios.

Our first quarter production of 272,000 GEO ounces exceeded expectation while all-in sustaining cost of $930 per gold equivalent ounces were in line with expectation. Year-on-year production rose 29%, led by record production at Jacobina and a 6% increase at Minera Florida. We had also benefited from new contribution from Cerro Moro.

Our 2019 mine-by-mine outlook for production and cost is unchanged. During the quarter, we announced the integration agreement for Agua Rica, which represents a significant step towards the optimization of this compelling project. We took another important step when we announced the sale of Chapada to Lundin Mining for more than $1 billion. The agreement includes $800 million of upfront cash consideration plus up to $125 million based on gold price, some of which is immediately monetizable. It also include $100 million in cash contingent on the development of a pyrite roaster by Lundin, and 2% net smelter return royalty on gold production from Suruca that is also monetizable. The strategic benefit of the transaction are many, not least of which is significantly improved financial flexibility. The upfront cash payment will be allocated towards debt reduction.

With repayment of our outstanding revolver, the first priority, followed by repayment of near- and medium-term debt. The sale will also facilitate a doubling of our annual dividend to $0.04 per share, and we anticipate additional increase from cash flow. The sale will also allow us to redirect cash flow that would have been allocated to Chapada towards value-enhancing opportunities at Jacobina, Malartic, Cerro Moro and Agua Rica. These are organic opportunities to grow higher margin production by more than 150,000 GEO ounces per year. We expect development cost for this production to be lower than the Chapada phased expansion plan. And again, because it's an important point, we will fund this development with cash flow from operation. I'll talk more about these opportunities in a moment. Following quarter end, we arranged for the sale of approximately 27,000 GEO ounces in precipitate inventory in Cerro Moro for about $34.5 million. A second sale is expected in June valued at more than $10 million. Jason will talk more about this sale later in this call.

Operating results for the quarter were solid, both with respect to production and cost. On a non-adjusted basis, our net loss was $4.1 million or $0 per share. On an adjusted basis, we earned $0.02 per share. Cash flow from operation before net change in working capital adjustment was $103.2 million. This exclude deferred revenue from our copper advanced sale program totaling $25.1 million. Copper production during the quarter was 28.1 million pounds. On a by-product basis, taking copper as a by-product credit, our GEO, cash cost and all-in sustaining costs were $526 and $665 (sic) [$865], respectively.

Turning to our production result, the benefit from Cerro Moro is clear with over 2 million ounces of silver and 38,500 ounces of gold during Q1.

Looking at the 270,000 ounces, gold equivalent ounces products totaled -- 236,000 ounces in the quarter was gold and silver production came at 3.02 million ounces. Both are significant increase for the year earlier period and both are tracking well to guidance.

Speaking quickly to unit cost for the company. We are within the guidance range for the year on all metrics.

Turning to the operation production of -- at Malartic, production of 83,670 GEO ounces at Malartic met the expectation. Grade were in line with plan, and recoveries were similar to the first quarter of 2018. The Barnat Extension Project is advancing on plan with contribution expected later this year or more meaningful contribution to come in 2020 and 2021. Our exploration program are evaluating deposit east of the mine existing open pit, including the Odyssey, East Malartic, Sladen and Sheehan zone. We're evaluating underground scenarios for Odyssey and East Malartic zone with studies showing potential to increase production by 75,000 ounces per year.

Additional drilling from underground access points, resource delineation and engineering will be required to advance East Malartic and Odyssey towards development decisions. The permit allowing the development of an underground ramp at Odyssey project was received in December 2018.

At Chapada, production was in line with expectation with 21,520 ounces of gold and 21.8 million pounds of copper. Several initiatives helped mitigate the effects of rainy season, contributing to a 37% year-over-year increase in ore mined.

During the quarter, the mine focused on waste movement in preparation for a pushback schedule in the second quarter of 2019. Cost control initiatives, coupled with the decline in the Brazilian reals versus the U.S. dollar, helped drive lower year-on-year costs. We expect the sale of Chapada to close early in the third quarter of 2019.

As mentioned, Jacobina continues to deliver exceptional production. High grade and processing rate contributed to a record quarter of 38,617 ounces. Cost benefited from higher gold equivalents sales optimization initiatives and the depreciation of the reals. During the quarter, we completed 2,600 meters of drilling with a focus on defining new inferred mineral resources at grade higher than the life-of-mine model in the Morro do Vento and Canavieiras sectors. To date, drill result are promising with several holes at significantly higher than reserve grade. We are evaluating a 2-phase approach to expand production at Jacobina beyond 150,000 ounces per year.

Phase 1 considers a plant optimization to sustain processing capacity at 6,500 tonnes per day, which would increase production to 165,000 to 175,000 ounce per year. This phase require very modest capital and is expected to be implemented by mid-2020. Phase 2 consider a plan expansion to between 8,000 and 8,500 tonnes per day to achieve production of more than 225,000 ounces per year.

Cerro Moro produced 63,000 gold equivalent ounces in the quarter with 38,471 ounces of gold and 2.02 million ounce of silver. The operation is on track to meet 2,000 production guidance. As was the case last year, elevated mill feed grade continues to create capacity constraints at the mine furnaces, resulting in precious metals precipitate. Subsequent to the quarter end, we arranged for the sale of some of this inventory, which Jason will talk about more in a moment.

We believe there are more reserves to be added at Cerro Moro. And then we've launched an aggressive drill program this year to find them. 8,200 meters of exploration drilling was completed in Q1. An increase in reserves would unlock opportunities to expand the mine's processing plant and support construction of a power line, which would lower operating costs.

At El Peñón, production of 46,000 GEO ounces in Q1 exceeded expectation. Grade of 3.56 gram per tonne were in line with expectation. Underground mine development activities, that took place in Q1, are expected to increase access to higher grade gold and silver in the second half of this year.

We completed nearly 21,000 meters of drilling in the first quarter with the focus on converting inferred mineral resources to measured and indicated category.

At Minera Florida, production of 19,654 ounces of gold benefited from higher grade from the PVS and Pataguas zone, partly offset by lower mill throughput. Cost metrics improved by more than 10% year-on-year due to higher sales, cost control initiatives and a decline in the Chilean pesos.

The updated mine -- life-of-mine plan, which emphasizes higher tonnage and ramp-up of production is expected to begin in the second quarter. 12,500 meters of drilling was completed in the first quarter. The focus on drilling was to convert inferred mineral resources to measured and indicated mineral resources at 9 veins within the core mine.

Before I turn it over to Jason to discuss the financial, I want to add a final point about Agua Rica. The recent signing of the integration agreement for the development and operation of Agua Rica was a significant step forward for the project to unlock value. Leveraging the existing infrastructure and facilities at the Alumbrera mine will advance Agua Rica's economics and reduce the project's complexity and environment footprint. I said at the start of my remark that this is a compelling project. Let me give you some sense of just our company.

Preliminary studies shows the potential for a mine life in excess of 25 years at average annual production of 520 million pounds of copper equivalent metals for the first 10 years of an estimated 25 years of mine life. A prefeasibility study is imminent and a feasibility study is expected to be completed in 2020.

Agua Rica represent a significant monetization opportunity, and we look forward to updating you as it develops.

I'll now hand it over to Jason to talk about our financials.

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [3]

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Thank you, Daniel, and good morning, everyone. We delivered $407 million in revenue in the first quarter compared to $455 million in the same quarter last year. Revenue was impacted by lower gold and copper prices partly offset by higher year-on-year silver sales. Despite the decline in revenue, gross margin increased by $10 million over the last year underpinned by operational results and cost improvements. Net earnings attributable to Yamana equity holders was $0.00 per share. This includes certain noncash and other items that may not be reflective of current and ongoing operations. Notable among these items was $20.2 million noncash tax on unrealized foreign exchange losses related to the weakening of our operating currencies versus the U.S. dollar. Excluding these items, among others, adjusted earnings in the quarter would have been $0.02 per share. Cash flow before net change in working capital was $103.2 million during Q1.

As Daniel mentioned though, this excludes deferred revenue from our copper-advanced sales program. When adjusted for the program, cash flows from operating activities before a net change in working capital would have been $128.3 million, up from $84.1 million for the prior year quarter. As a reminder, we will have our last delivery under the copper-advanced sales program in Q2, which is about $25 million. As anticipated, Q1 had a large working capital outflow with a seasonal nature of our operations and accrual cycle. But in Q1, we also had the impact of further precipitate inventory buildup and non-reversal from Cerro Moro. Furthermore, with weaker local currencies, we had a noncash impact from FX of about $10 million that went through working capital in the quarter.

I'll speak to it shortly, but we'll see a big reversal of the precipitate inventory in Q2. These items also impacted our net debt and net free cash flow compared to year-end. With increase in cash flow and a reversal of these impacts beginning in the second quarter, we expect near-term improvements in cash flow and net free cash flow.

Our Q1 operating cash flow is definitely not a representative run rate for the year. G&A expenses during the quarter were $21.5 million, down from $26.5 million a year ago. We're also implementing a plan for further G&A savings that will begin later in the year after closing of the Chapada transaction. The precipitate inventory buildup at Cerro Moro resulted from above planned silver grades and a positive grade reconciliation. This created capacity constraints at the mine's furnace since start up. As Daniel highlighted earlier, we have arranged for the sale of approximately 27,000 gold equivalent ounces in Cerro Moro precipitate inventory, which will be reflected in gross revenue and cash flow of approximately $34.5 million in the second quarter.

We expect to make an additional sale of precipitate in June of approximately $10 million, following which we expect inventory levels to be maintained. We've ordered an additional furnace to better manage any further capacity constraints, and we're currently assessing whether it will be installed or whether the flexibility of selling gold and silver in precipitate form is a better solution to manage inventory.

The sale of Chapada will allow us to significantly improve our balance sheet with the proceeds of the transaction, we will be reducing our gross debt levels by repaying our revolver and shorter tenure fixed-term debt. Upon closing of the transaction, which is expected in the third quarter, our net debt-to-EBITDA ratio will decline to 1.5x. But looking ahead, we expect our net debt-to-EBITDA ratio to decrease to 1 turn by the end of 2021. Our stronger balance sheet, but more precisely the greater financial stability it affords, is the key catalyst for what's next for Yamana. This includes the pursuit of near-term value-enhancing organic growth projects, greater commitments to our exploration efforts and opportunities to improve shareholder returns.

With that, I'll now turn the call back to Daniel.

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Daniel Racine, Yamana Gold Inc. - President & CEO [4]

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Thank you, Jason. To conclude, I will highlight several key points. Post-Chapada, we will be left with a portfolio of high-quality precious metal asset with a number of compelling opportunities for growth. The sale allows us to significantly and immediately improve our balance sheet. This in turn will allow us to make a meaningful return of cash flow -- of cash to our shareholders through our dividend increase while also providing us with financial flexibility to pursue our organic growth opportunities using cash flow from operation.

Finally, I would like to remind everyone that we have our AGM this morning at 11:00 am. And with that, I will be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Ralph Profiti from Eight Capital.

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Ralph M. Profiti, Eight Capital, Research Division - Research Analyst [2]

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I'd like to ask two questions. Firstly, Daniel, on the expansion at Jacobina because you've talked about higher reserve grades and higher mining grades coming. Should we be thinking about Phase I though as more of improvements around things like dilution around the pillars, mining methods? I'm just trying to get a sense of splitting the 2 phases, what actually is going on particularly in Phase 1 to get us those extra ounces?

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Daniel Racine, Yamana Gold Inc. - President & CEO [3]

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Yes. We have our time to hear you, Ralph. But I got it was on Jacobina. For Phase 1, it's basically putting the mill at 6,500 tonnes per day with the actual reserve grade. So there's no change in grade. It's minimal capital. It's just some optimization, screening and stuff like that. So it's fairly easy to achieve. Phase 2 is basically -- 25% is some mill tweaking and then about the rest is increasing our underground capacity to reach 7,500 or 8,000 and then at the end 8,500 tonnes per day. So it's very easy. The mine is already achieving most of the tonnage. And then Phase 1 will be completed by this time next year.

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Ralph M. Profiti, Eight Capital, Research Division - Research Analyst [4]

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Okay. Yes. Jason, around the precipitate sales, have you locked at those prices already? Does it happen through derivative contracts? How does the pricing mechanism for receiving those revenues work?

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [5]

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No. There's no locking of the prices. So we mentioned in May there. So we will be exposed to gold prices like our normal course of sales would be. When it -- it's very similar to what we would do on our concentrate on the actual sale where we would lock in the prices at the point-of-sale. So I expect those to be a couple of weeks out.

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Operator [6]

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The next question is from Tanya Jakusconek from Scotiabank.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [7]

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Maybe this first one for Jason. Can you just talk to us about what the net contribution to revenue would be from the precipitate because there's other factors in there, and I think there's tax implication and -- or royalties or -- and then obviously a cost for treating the precipitate. But...

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [8]

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Sure. Yes. No. Tanya, I would assume it's very similar to what we would do with our doré sales. So that would be in the range of probably a little under 2% of gross proceeds would be a reasonable cost to apply for payable metals, treatment refining charges, logistics, et cetera. So really from our perspective, no different than a doré sale. A little bit more intensive to manage but from a cost perspective, it's very efficient.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [9]

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All right. So if we take out that, assuming 98% is coming to you, that would be in that ball-park?

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [10]

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That's good. Yes.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [11]

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Okay. Perfect. And then when do you expect that working capital to change or to obviously get that -- those monies back through the year? When are you expecting that reversal?

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [12]

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It would be pretty evenly balanced throughout the year, Tanya, not to be too precise about it. Obviously, Q2, we're going to have a big windfall from that precipitate that I mentioned, then we would expect normal course on that. [Beyond] that, it would be the normal kind of sequence on the other working capital-type items.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [13]

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Okay. So if we were to take the precipitate out of the Q2 and then evenly distribute whatever is remaining for Q3, Q4, that would be a good enough assumption?

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [14]

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Yes. That would be fair. The other thing I'm going to highlight now, while we're on the point of working capital, is on the Chapada sale is -- it's part of these -- on an asset sale like that, we will have a working capital transfer, I guess, with that sale to the purchase and sale agreement provides for a commitment to move the $33 million of working capital basis that purchased sale agreement to Chapada. So that would be part of a working capital movement outside of what I just mentioned for the year.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [15]

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Okay. And that would be in Q3?

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [16]

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That would be in Q3, yes.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [17]

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Okay. Perfect. And then maybe one for Daniel, just on the Jacobina, again and it's to do with Phase 2. I'm just wondering, I know that you've mentioned that you're permitted to 7,500 tonnes a day. And you said, of the $100 million capital, I think 25% would be in the mill tweaking, the rest would be in the underground. What has to be done on the tailing side?

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Daniel Racine, Yamana Gold Inc. - President & CEO [18]

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On the tailing side, we're okay for now. We have to think about the future. And part of the study is to look at either dry stack tailing or paste fill. As you know, we're mining in Jacobina for now for many years there's many open stope there and it will make sense to probably switch to a paste fill. But we are -- the guys are studying right now, we have to do some test on the material we have from the tailing to see what's the best options. But eventually, we'll switch to a very different type of tailing that we have right now.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [19]

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And then if you were to go to that 7,500 or 8,500, I mean what tailings capacity do we have right now?

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Daniel Racine, Yamana Gold Inc. - President & CEO [20]

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We have to check that, Tanya. I don't know by heart. But it's quite long. I think that right now if we would continue at the actual rate, we have over 10 years.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [21]

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At your current rate?

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Daniel Racine, Yamana Gold Inc. - President & CEO [22]

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At the current rate. So at 6,500 tonnes per day, let's say. We're okay for 10 years.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [23]

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Okay. So I can do the math there.

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Daniel Racine, Yamana Gold Inc. - President & CEO [24]

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So maybe around 8 years with its increased capacity. But that's also saying that we continue the same type of tailing, and then we won't. If we go dry stack, it takes a lot of -- a lot less place and if we put -- if we go with paste, then we put about 40% to 50% back underground.

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Operator [25]

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The next question is from Josh Wolfson from Desjardins Securities.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [26]

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Looking at the 2021 guidance and adjusting out Chapada, it looks like there's about 75,000 gold equivalent ounces that would represent an increase from 2019 numbers. I think the company's already provided details for half of that representing upside from Malartic and Jacobina. Otherwise, I would've expected maybe net declines from El Peñón and Cerro Moro. So is it safe to assume the other half, 35,000, 40,000 ounces of growth is really strictly driven by Minera Florida at this point?

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Daniel Racine, Yamana Gold Inc. - President & CEO [27]

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No. No. The 150,000 is right now around -- is 75,000 from Jacobina and the other 75,000 ounces is a combination of Canadian Malartic and Florida. So there's no decrease at Cerro Moro. There will be a slight increase at Florida. And then when we go ahead with the Odyssey and East Malartic -- at Malartic, it's 75,000 ounces Yamana-only, so on a 50% basis. That explains the 150,000. So the 150,000 is a combination of 75,000 at Jacobina plus Canadian Malartic and Florida for the other 75,000 ounces.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [28]

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Okay. So specifically for 2021 now where I guess Malartic guidance has already been issued for 350,000 ounces. So plus [20] over 2019. And then Jacobina, I guess the company's already provided indications of upside of [15]. Specifically for 2021, it looks like there is still growth from Minera Florida, El Peñón and Cerro Moro imply about 35,000 to 40,000 ounces, which looks like it could only be driven from Minera Florida. Is that reasonable?

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Daniel Racine, Yamana Gold Inc. - President & CEO [29]

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No. It's a mix on all our operations, Josh. It's not only Florida. Florida is part of it, but we see growth at other operation too. Jacobina, we're conservative in our numbers. So we see more coming from Jacobina than what we're seeing. And at Jacobina, we're assuming the actual grade, but as we mentioned many times in the last quarter and this quarter again, the grade we're drilling is above 3 grams and then we see our resources and reserve going up again this year. So if we would assume the actual grade we see right now at the mill and in the future, that explain the difference just by itself. And then maybe to be clear on Jacobina, we don't have to go 8,500 tonnes per day if we assume that the grade we're aiming right now that's what we're going to have in the future. At 7,500 tonnes per day, we're already achieving that 225,000 ounces per day without increasing or permit anything. So there's many options at Jacobina by either grade or throughput.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [30]

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Okay. And for the capital spending for Jacobina for the second phase, that $100 million, when would the timing of that spending occur? And I guess when will the company make the decision to start that spending program?

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Daniel Racine, Yamana Gold Inc. - President & CEO [31]

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The spending won't happen before 2021 and 2022. And it will probably be in 2 phases. The first one will be to bring from 6,500 to 7,500 tonnes per day. And then, in 2022, to 7,500 to 8500. So the most of the capital will be in the second part of the answer. So in 2022.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [32]

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Okay. That's helpful. Yes, if there could be additional disclosure for the 2021 corporate production guidance, that'd be helpful. I guess there is a lot of changes at Jacobina year by year.

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Daniel Racine, Yamana Gold Inc. - President & CEO [33]

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Yes.

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Operator [34]

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The next question is from Mark Llanes from Crédit Suisse.

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Mark Llanes, Crédit Suisse AG, Research Division - Analyst [35]

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Most of my questions have already been asked. But just to recall the debt maturity schedule, I believe it was 2022, '23, '24 and '27, are there any discussions at the moment to be able to retire those earlier?

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [36]

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Mark, what we've said is obviously -- the first priority is revolver and then beyond that, we'll look at -- preference will go to the near-term maturities, but that's a plan that's being developed and will be executed upon -- concurrent with the closing of Chapada. So...

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Mark Llanes, Crédit Suisse AG, Research Division - Analyst [37]

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Okay. And then the second question on Cerro Moro. On the silver grades, I know that you are mining about -- I mean processing above plan on the silver grade. Can you give me additional color on the silver grade profile for the rest of the year?

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Daniel Racine, Yamana Gold Inc. - President & CEO [38]

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Well, you are right so far since we started to mine at Cerro Moro, we have better grade than expected. But for the rest of the year, it should go to typical reserve grade. So around 650 grams per tonne. And we were more in the 800 to 900 since the beginning of the production.

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Operator [39]

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The next question is from Mike Parkin from National Bank Financial.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [40]

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I got most of the detail I was looking for. I was just wondering with the Jacobina expansion, should we look for any unit cost improvements on a per tonnage basis with Phase 1? Or would it really be potentially more of a Phase 2 change on that -- on those kind of metrics?

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Daniel Racine, Yamana Gold Inc. - President & CEO [41]

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A small impact on Phase 1, Mike. Mostly on Phase 2, there will be a huge impact. If the impact will -- on Phase 1 will be more on the cost per ounces than the cost per tonne because with all same tonnage -- almost same tonnage we'll produce more ounces per day. The biggest impact will come from Phase 2.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [42]

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Okay. Any kind of sense of magnitude?

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Daniel Racine, Yamana Gold Inc. - President & CEO [43]

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That's difficult right now to say. We're still doing the study but when -- we'll come back later this year to show the numbers.

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Operator [44]

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The next question is from Don MacLean from Paradigm Capital.

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Don MacLean, Paradigm Capital Inc., Research Division - Senior Analyst of Gold [45]

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Daniel, it's been a while since we've chatted. For some of us who're sort of just coming back to look at the name in more detail again, with this helpful reduction in the debt coming ahead, it'd be very helpful to get a list of the organic growth projects that you were referring to but in a priority sequence. And I don't know whether you can enlighten us a bit more on what the capital and the contribution would be. But just maybe prioritize them at the very least for us?

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Daniel Racine, Yamana Gold Inc. - President & CEO [46]

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That's pretty clear from us, Don. Number one is Jacobina by far because it's giving us the better, the best result on all our projects. Then sure, Canadian Malartic is a good project to us, probably second. Then we have some improvement at the Florida and other mines we have too. Agua Rica is very important for the company because of the financial aspect of it. So that's basically the list. But #1 is for sure Jacobina and #2, Malartic.

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Don MacLean, Paradigm Capital Inc., Research Division - Senior Analyst of Gold [47]

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And the Jacobina would include both phases you're referring, Phase 1 is kind of a no-brainer.

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Daniel Racine, Yamana Gold Inc. - President & CEO [48]

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Phase 1 is very simple and then basically almost no capital. So it's an easy one to decide.

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Don MacLean, Paradigm Capital Inc., Research Division - Senior Analyst of Gold [49]

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And would Phase 2 sort of stack up again at the top of the priority list?

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Daniel Racine, Yamana Gold Inc. - President & CEO [50]

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Yes.

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Operator [51]

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The next question is from Anita Soni from CIBC.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [52]

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There's an open pit at the Cerro Moro, are you fully underground right now?

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Daniel Racine, Yamana Gold Inc. - President & CEO [53]

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We didn't hear you, Anita.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [54]

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Sorry. At Cerro Moro, in terms of the underground proportion of the ore feed, how much is that now?

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Yohann Bouchard, Yamana Gold Inc. - SVP of Operations [55]

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Yohann here speaking. We still have 2 years about of mining with the open pit at Cerro Moro. So we -- at this moment, about 25% is coming from underground and remaining from open pit. And we're planning to start the new mining zone, underground mining zone in May.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [56]

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Sorry, in May? Okay. And then secondly, on Canadian Malartic, what do you think is the time line for Odyssey and East Malartic to start up? And secondly, the resource base that you have in inferred category, is that embedded in the Canadian Malartic inferred resources that you have in your reserve resource statement?

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Daniel Racine, Yamana Gold Inc. - President & CEO [57]

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For the first part of your question, like we mentioned a few times, we're doing the study right now that should be completed by late this year, early next year. Then we'll come with our partner and then announce exactly what we're planning to do. Development of it, if we say we give a go, we'll start next year. And it should be completed by end of 2021 to have the first ore coming to the mill.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [58]

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All right. And then secondly, the depreciation rates at Cerro Moro, is that -- was that booked on a production basis? Or was that booked on sales basis? So given that you sold less than you produced, would you expect that to go higher next year -- I'm sorry, next quarter when... Yes.

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [59]

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Sales basis, but it shouldn't change that much on a per ounce basis, Anita. It's about $500.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [60]

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So it's $500 per ounce or $500 differential?

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Jason LeBlanc, Yamana Gold Inc. - Senior VP of Finance & CFO [61]

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Yes. $500 per ounce.

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Operator [62]

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Thank you. There are no further questions registered at this time. I would like to turn back the meeting over to Mr. Racine.

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Daniel Racine, Yamana Gold Inc. - President & CEO [63]

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Yes, thanks, everyone, to joining our call. I have no further comments. Thank you, and have a good day.

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Operator [64]

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Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.