Yamana Gold Inc. (AUY) on Q2 2021 Results - Earnings Call Transcript
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 second 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. Daniel Racine: Thank you, operator. Thank you all for joining us, and welcome to our Second Quarter 2021 Conference Call and Webcast. Presenting with me today is Jason LeBlanc, our Chief Financial Officer; Yohann Bouchard, Chief Operating Officer; and Henry Marsden; Senior VP, Exploration will be available to answer questions. I will start as always with health and safety. Our total recordable injury rate was 0.58 for the first six months of 2021. Earlier this year, we introduced our climate action strategy, continue to advance the strategy during the quarter with work ongoing to determine baselines and gathered data to develop abatement scenarios. The strategy is one pillar of our approach to ESG. Health and safety, environmental management, governance and community engagement are all deeply rooted within our organization. We’re proud to have been named one of Canada’s Best 50 Canadian Corporate Citizen by Corporate Knights. Yamana ranked 31st overall and was the top ranked Canadian mining company. The best 50 ranking are based on a series of criterias, including eight environmental metrics, five social metrics, six governance metrics, and three economic factors. To learn more about our ESG performance, I invite you to look at our latest Material Issue Report and Global Reporting Initiative Report. Both are available on our website. Turning now to our Q2 operational highlights. We had a strong production with 217,402 ounces of gold lead by standout performance at Jacobina, Canadian Malartic, El Peñón, and Minera Florida. Jacobina and Canadian Malartic, I’m pleased to note both reached all time quarterly high. Cerro Moro production increased compared to the second quarter of last year. Both as we indicated previously, we’re expecting the mine to see much stronger results in the second half of this year. Produce 1.63 million ounces of silver during the quarter. GEO production was 241,341 ounces. Quarterly cash costs were $720 for GEO and all-in sustaining cost were $1,081 for GEO, in line with plan. Our strong cash flow generation and increase cash balances continue to position us well for return cash to shareholders in the form of higher dividends. Jason LeBlanc: Thank you, Daniel, and good morning, everyone. Turning now to our financial performance, adjusted net earnings for the second quarter were $70.7 million or $0.07 per share, combined cash and cash equivalents at quarter end totaled $702 million, an increase of approximately 8% over December 31 year end. This includes about $223 million that has been made available for the MARA project. Cash balances along with further liquidity and cash flows are more than sufficient to fully manage the company’s business and capital allocation objectives, which includes further returns of capital to shareholders. We continue to generate robust cash flows. The cash flows from operating activities increasing to $153.5 million in Q2 versus $129.4 million in the same period last year. Cash flows from operating activities before net change in working capital were $167.8 million and free cash flow before dividend and debt repayments increased 34% year-over-year to $51.2 million. We expect cash flow to improve in the second half of the year with Q4 expected to deliver the strongest performance in line with the production and costs. Daniel Racine: Thank you, Jason. Before we begin the Q&A, I want to talk a little bit more about Wasamac and our growing presents in Quebec. I want to highlight the points raised by our Executive Chairman, Peter Marrone in his most recent blog. If you haven’t read it yet, the blog, I encourage you to do so. It’s published roughly once a month, as Peter share his perspective on a wide range of topics really assisted the gold mining sector. His message in the blog can be summed up in five words, focus on big pictures. Our long-term production profile in Quebec, including Wasamac and Odyssey is 450,000 to 500,000 ounces per year between 2028 and 2035. While that’s a strong profile in its own rate, we believe it’s just a starting point that the mineral resources and exploration for profile at Wasamac and Odyssey will generate significant production and mining life upside. That’s where we’re forecasting a 15 year strategic mine life for Wasamac. And why we believe, Odyssey will be in production far from beyond 2039. We know that production like this call for an element of trust on your part and trust and benefit of the doubts are in short supply in our industry for actual good reason as a result of event in the last cycle. However, there have been many changes in our industry and in our company in particular, along with many successes. We believe we merit the benefit of the doubt that our long-term track record of converting resources to reserve at El Peñón and Jacobina and our success at Canadian Malartic had good reason for your faith and confidence. Without diminishing the success of our other mines, Odyssey is a game changer at a mine that has been the significant win for us on cash flows. Operator: Thank you. And the first question is from Anita Soni from CIBC World Markets. Please go ahead. Your line is now open. Anita Soni: Good morning guys. Thanks for taking my call. My question is with regards to the indications that you’ve given for inflation going forward. Can you give us a little bit more color on some of the offsets that you’re seeing? I think you mentioned that you are seeing some inflationary pressures that you’ve got some operational – sorry, operational synergies that can offset that in areas where you might not have the operational synergy that we might see some of cost escalation? Thanks. Daniel Racine: Thanks, Anita. I’ll start and I’ll let Jason to give more detail. But talking about inflation, big part of our cost is manpower. And then we have negotiated two contracts this year successfully within our budgets. So we have not seen really inflation in that part. There’s been some inflation pressure in the first half, but like we mentioned, we were able with some synergy, some good operational excellence again, to limit the impact. And then we were right in line. So maybe Jason, you can give some detail of what we see coming and now we plan to mitigate these cost pressure. Jason LeBlanc: Yes. Sure, Daniel and good morning, Anita. Daniel mentioned, we’re seeing inflation those headline items like everybody else out there. They’re trickling down to consumption level of grinding media and the light explosives, et cetera. And those are all up year-over-year up a little bit more than our plan. But we indicated it is – not significant with the guidance range that we provided previously. It’s combinated in there with a little bit stronger foreign exchange, I’d probably pet that at $15, $20 of negative impact compared to where we were at the start of the year. And obviously, we’re working to try to offset that with all of our procurement efforts and we feel pretty good about that. And then also operational excellence, I think has been big part of our success over the last number of years. And that program is just that much more mature and advanced. So we feel that we’re in pretty good position to offset some of these impacts. And we do think they are cyclical in nature. They are all these direct inputs are up quite a bit from recent cycle loads. So they’ve come off from highs earlier this year. So they do seem to be moderating, but there is definitely an element of uncertainty here and we have to do our best to manage it. Anita Soni: Okay. And then the second question is just on Jacobina. I think you guys mentioned that you’d be pulling lower grades for the second half of the year, as the mill is now outpacing the mine. As you go forward and that was temporary and it’s going to reverse – it’s going to be your set up into 2022, but how do we think about grades in Jacobina 2022 and 2023? I think previously, you were kind of targeting towards 2.3 gram per ton material to achieve those production targets. Is that still your target? Daniel Racine: Yes, Anita. Coming from the underground mine itself, that’s the grade you can expect. But you can understand that’s our Phase 1 was 6,500 tons per day. We budget a bit higher than that at 6,800, but you saw our number. We’re actually hitting 7,200 and 7,500. So the mine is not ready to produce that amount of a ton, but we have stockpile that at bit lower grade. So this is why the grade is will be a bit lower. So we’re going to process more ton, a bit lower grade. And then in total, that will be a higher production at the end of the day. I think we have to take the advantage that we can with that supplemental and incremental ore into the mill. And that’s what we do. We were making a lot of money, even with 2.1 grams per ton at Jacobina that’s widen. And then eventually, when are we going to catch up to do production – the underground production to what the mill is able to do within the grade will come back to that 2.3 to 2.4. Anita Soni: Okay. So yes, I guess I was just asking, when do you think you get back to that 2.3 or 2.4, and then secondly as you mentioned, you were making a lot of money at 2.1. So then what kind of – is there any kind of I guess processing cost reduction with the higher throughputs that I should be thinking about in the model while you’re still purchasing 2.1? Daniel Racine: Yohann, why don’t you answer that question? Yohann Bouchard: Yes, Daniel, thank you. We’re going to see for sure, I mean, we’re doing step by step implement to the processing council, for sure, with what we have in mind by increasing to 8,500 ton per day, without having going to ball mill. We can understand that’s where we’re going to be a much more efficient. So yes, for sure, actually 1,500 would that new, I would say approach, I would say – I would expect to see some cost decrease with processing. Daniel Racine: Regarding grade, Anita, that’s when Phase 2 was planned. So around it, the second half of 2023, you should see grade going back even maybe next year we should be able to see grade covering 2.3 to 2.4. Anita Soni: Okay. Fair enough. Thank you. And then last, lastly, on Cerro Moro. As we look at the – just taking a look at the production year-to-date overall. Is it fair to say that it might undershoot the original sort of guidance range for that specific asset where other assets that are performing like Minera Florida and El Peñón versus your budgets might make up the difference? Daniel Racine: Sure. The other four mines will do better. But we’re still targeting to achieve our guidance for Cerro Moro. So second assets at Cerro Moro is planned to be a very good for us, we going to see there’s always a risk. We’re still aiming to achieve our guidance at Cerro Moro. Anita Soni: All right. So that was on a throughput reverting back to normal throughputs after that sort of a health and safety shutdown that you guys had. And then secondly, on I guess, a really good grades, right? Daniel Racine: Yes, exactly. Anita Soni: Okay. Thank you very much. That’s it for my questions. Operator: Thank you. The next question is from Fahad Tariq from Credit Suisse. Please go ahead. Your line is now open. Fahad Tariq: Hi, good morning. Thanks for taking my question. Just on the dividend, I noticed there was some commentary around just maybe a different methodology or a slightly different perspective based on minimal cash that’s needed. Can you just touch on kind of if thinking around how the dividend is increased? If that has changed given there’s obviously some capital commitments that are coming up over the next few years with Wasamac and Malartic? You add that up, it could be almost $1 billion of CapEx over the next few years. Maybe just any changes to the way you’re thinking about the dividend? Thanks. Daniel Racine: Good morning, Fahad. Yes. We mentioned in the past that we might look up on no formula to – for dividend, but we’ve decided not to do that. We look at our – like you mentioned, we look at our future capital, our future cash flow generations, and then what we can afford as a dividend. And then when we look at what’s coming at Malartic, at Wasamac. You saw that Jacobina is lot less now, that we can afford to increase our dividend to $0.12 per share. And then we’re going to continue to look at it in the future. And then we want that like we mentioned many times that dividend to be sustainable. So if we were able to increase it from $0.105 to $0.12 per share, because we believe our profile in the next many years we can afford to be at that level. Fahad Tariq: Okay. That’s clear. So if gold price to stay above $1,350 an ounce, it’s fair to assume that this dividend would be consistent? Daniel Racine: It will be consistent at $1,350. Absolutely. Fahad Tariq: Okay, great. All right, that’s it for me. Thanks so much. Operator: Thank you. The next question is from Josh Wolfson from RBC Capital Markets. Please go ahead. Your line is now open. Josh Wolfson: Thanks for taking my questions. Focusing on Cerro Moro, is there any things that you – is there any details you can provide in order for us to sort of connect the dots as to what’s required to see improvements in the second half of year? Historically, in last year, obviously COVID being a bigger impact, getting the development rates seems to be a challenge, what’s maybe giving you more comfort on the outlook now in terms of expected improvements? Daniel Racine: Good morning, Josh, thank you. I’ll let Yohann answer, but I’ll say, development is, the rates are improving. They’re going a lot better now. So maybe Yohann can give color of why we’re very confident that the second half will be quite a good half Cerro Moro. Yohann Bouchard: Yes, for sure. Good morning, Josh. So, as Daniel said, I mean, we did progress really well to catch back on our development. So with that we’ll turn a lot of flexibility with mining, just to give you an example, when we start July we were only – we had only to do 70 meters development to meet all the requirements for the next six weeks. So we’re getting in better position. We have higher reconciliation, I would say better reconciliation between what we mine versus what we see at the mill within some progress as well, with controlling dilution and what’s already in our vein. So all that together, I think that the operation now reach a point where we see, I would say at Q3 and Q4 we will reach the target that we wanted. So again, it’s going to be a progressing approach quarter-over-quarter at Cerro Moro. So for sure, and I will not hide, it’s going to be challenging to meet our budget and guidance on that one. But the plan that we have in front of us is showing a good trend if we succeed to maintain at high level of development. Josh Wolfson: Okay. And for the heap leach study, what was the grade of the material that was used for the column test? Yohann Bouchard: It’s about 1 gram per ton. Josh Wolfson: 1 gram. And when you’re thinking about this 5 million ton target I guess initial resource is that the comparable grade and we should think about for this opportunity. Yohann Bouchard: Yes. I think it’s one. Yes. Yes, that’s correct. Josh Wolfson: Okay, great. Yohann Bouchard: For sure, I mean, we’re going to see – we’re going to tell folks to meet these as well. I mean, we won’t dilute full if we don’t have to. But that can be grade as well, but I would say, 1 gram per ton is minimal heap leach grade for sure. Josh Wolfson: Okay. Thank you very much. Operator: Thank you. The next question is from Mike Parkin from National Bank. Please go ahead. Your line is now open. Mike Parkin: Thanks for taking my questions. With Odyssey, is there have been good plan developed in terms of what will ultimately be involved with the Canadian Malartic mill in terms of what it will be scaled down to right now? You’ve got the big say feeding into the three on the lines, if I remember it correctly. I’ve know there’s been some preliminary talk a bit, potentially you’re moving the sag, is the idea that it kind of runs couples of ball mill lines and kind of keep a third one as a spare, or what’s the thoughts there? Daniel Racine: Good morning, Mike. Yohann, maybe you can put some color on it. But we know exactly what needs to be done to achieve. But again, Mike, you were what six, seven years away to be in full production underground at that Odyssey. So things might change. And we – our partner announcing and we said the same thing. And you knew a new discover at Malartics during the second quarter. So if we find more areas to have to be mine, then throughput might increase in the future at Malartic. But for now we know exactly what is needed to achieve 20,000 ton per day. So maybe Yohann, under mill what needs to be done? Yohann Bouchard: Yes. I will not go into detail, Mike for the question. But what’s unique to – what we need to understand here is we cannot batch the ore, because the processing time, because we need to keep all a piece at the plant running all the time, to accommodate of the mining sequence. So as you said, we need to – I would say right side of the processing spends about 20,000 ton per day. And the idea here is going to be – to do it efficiently. So we’re going to park some of the grinding units. Some of – many equipment going to be parked, but that’s when one of the remove in case of something up that is coming. So we’re going to have – we’re going to be remain with that flexibilities. So from the current, let’s say from the current costs, processing costs by processing less tons, we believe that the processing costs will increase by about, I would say top of my head, $1.50 U.S. per ton more for processing going at 20,000 ton per day. Mike Parkin: Okay. That’s perfect. Another question, the Jacobina kind of revisit on the Phase 2, simply just kind of looking at it in terms of where the bottlenecks are in unlocking the potential by addressing those rather than going ahead with a bigger capital spent. Can you just give us a couple of ideas where the bigger bottlenecks are within the mill? And how you’re working to address those? Yohann Bouchard: Yes, for sure. I mean, in Jacobina we had a really good surprise of team working, they did a really good job to do those bottlenecking project and it just great surprise. It brings us to just reconsider, what we have for Phase 2 extension. So I would say on the short-term, Mike, they’re going to work on the like what all be the water pumping system and slurry pumping system. And we also want to do some modification to our tailing line. So even if we put in some, we still have to do some modification there to release the system. So in parallel, I mean, what we see there is we have – we’re using a power draw of about 92%. And the sweet spot for mining is about 95% to 97%. So we’re going to take power draw at our running units. I would say we also under utilize the crushing circuits, primary circuit uses about 38% and the secondary crusher circuit uses about 50%. So we see some opportunities there by optimizing usage. And I would say maybe decreased, I think our number three of these are under crushing. So that will help. And I would say the second one is – I would say the third point is going to be to optimize grinding size and also screening and bottleneck performance to for sure unload the running units and be able to push more tons to the mill. Mike Parkin: Do you expect any loss in recovery, or have you already kind of done some studies on that where you’re not seeing material? Yohann Bouchard: Yes, it’s a good question. I mean, maybe you saw that in our release that we run two tests in Q2 and we went up – we pulled them up to 8,600 tons per day, and we average really high tonnage over a short period of time. So for sure we saw a decrease of recovery during that time, but that’s was with 10.1%, I would say. And I’m generously saying that. So I mean, by the way on Jacobina, for sure, now we’re looking at like PD, we actually have designed 160 micron. I mean, between 160 and 100 micron doesn’t make a big difference. We believe that we can pull it out further and we don’t see at the inflection point. So that means by being cutting a little bit by processing, I would say, cost of material for sure we’re going to cut on power requirement as well. So, as I said, the system team that come up like in Q3 and we’re very excited and we still try to understand what’s going to be I would say the positive impact on cost going forward and really to find where it’s going to be a sweet spot for processing rates. Mike Parkin: Okay. That’s good. And then last question with respect to the NCIB, how should we kind of think about the execution of that? Are you going to be strategic or looking to kind of just be a regular participant in the market with it and buying kind of a fairly steady pace of shares through the next 12 months? Daniel Racine: We’re going to be strategic Mike, we don’t intend to buy small amount of shares. When are we going to decide to do it, if we do it, it’s going to be on a strategy point of view. Mike Parkin: Okay. That’s it for me guys. Thanks so much. Daniel Racine: Thank you, Mike. Operator: Thank you. The next question is from Ralph Profiti from Eight Capital. Please go ahead. Your line is now open. Ralph Profiti: Good morning. Thank you, Daniel, for the question. There’s quite a comprehensive tailing strategy being built around Jacobina. And I’m just wondering, is substitution of the surface tailings to the highest degree possible the goal here where you’re taking more sort of an ESG perspective? Or are you coming away with more of a strategic mine life at the increased processing rate of 10,000 tons per day when you’re managing the surface tailings capacity? Daniel Racine: Good morning, Ralph. Good question. There’s a lot of strategy behind that 10,000 ton per day at Jacobina, where we have to think about tailing. We mentioned already that we’re going to go with an hydraulic backfield system to start, we’re probably going to switch eventually, or have both also what base fill system to put more of the tailing underground. And even now we’re studying a dry stack drilling on surface to have to use less, that’s based on surface. And all of that, it’s included in our strategy. We would like to use as much as possible and the maximum extra injectable attaining. And that’s what we’ve been successful. At 6,500 tons per day, we had the 13 years – 16 years obtaining in mine life, we will increase to 8,500 and we will have the same because we’ve got to implement a backfill system. So the next step going to a higher tonnage is to use the same strategy, what we can do to maintain our attaining mine life, still increasing the underground mine life, but putting more training. So you’re absolutely right, that’s part of a strategy to put as much or more tailings underground, or reduce our footprint on surface with training. Doing already quite good, but we see opportunities in the future and that’s going to be part – one of the big part of the Phase 3 expansion. Ralph Profiti: Okay. Yes. Thank you. And my second question is coming back to some of these wage inflation pressures. You talked about the two contracts secured. Would it be safe to say that those are in that sort of plus 2% to 5% range that we’re seeing in the industry benchmark and specifically when does the Cerro Moro wage negotiation come due? Daniel Racine: We did El Peñón and Jacobina this year, Cerro Moro I don’t remember. Maybe Yohann you know. Yohann Bouchard: Daniel, I don’t recall. Sorry. Daniel Racine: Yes, I’ll get back to you, but I don’t think it’s this year. Jason LeBlanc: 2023. Daniel Racine: 2023, okay. So it’s more two years away. Ralph Profiti: Okay. Thank you. That’s great. Daniel Racine: Thank you, Ralph. Operator: Thank you. The next question is from Tanya Jakusconek from Scotiabank. Please go ahead. Your line is now open. Tanya Jakusconek: Hi. Great. Good morning, everybody. Just wanted to come back on the share buybacks. I know you commented on it being strategic. I’m just trying to understand how you view your dividend versus your share buybacks? Dividend is about $115 million, your share buybacks, should you do all of it that’s over $200 million, it’s probably double your dividend. I’m just wondering how you’re balancing that. Do you have a target in mind that share buyback would be similar to your dividend? Just trying to understand the strategy? Jason LeBlanc: Yes. First, Tanya, it’s got to start with the overall capital allocation. So we still have that balance across all of those priorities. That’s the first kind of point of reference. And as Daniel said, with the $0.12 that’s effectively fixed in our mind. It’s sustainable. We’ve made sure it’s sustainable through the cycle and now it’s going to be the first priority. And then once we look at those other capital allocation opportunities, then we can look at the NCIB. So straight to first, and then you there’ll be a component going to the NCIB. Tanya Jakusconek: Okay. So there isn’t a target within the component. It’s whatever you – so there isn’t a target basically? Jason LeBlanc: Well, we can’t look at just the dividend, in and of itself. We’ve got to look at all the capital allocation. I think we’ve got the transparency on capital now. It’s very well laid out with the two projects in Odyssey and Wasamac. Now it’s spread out manageable and every year, and we will still continue to chip away at the balance sheet too. So we’re going to be balanced across everything like we have been for the last several years. Daniel Racine: We mentioned many times Tanya that we have like three buckets. So our capital allocation, the dividends and reducing the debt and then that is reaching a level now that we are very comfortable, it will continue to improve. So that’s one point when there’s enough cash, then we might decide to do the NCIB. It’s all included in our strategy. We look at all the time the three – these three buckets, and then if there’s money available at one point, we might do the share buyback. But it will all depend on what’s happened – there’s so many other factors like oil price that we don’t control. Tanya Jakusconek: Okay. Fair enough. Thank you. And maybe just coming back to the inflation, I know I need to ask this. I just wanted to come back, you talked about some efficiencies offsetting this inflation and Jason, thank you for the currencies of $15 to $20 was due to stressing of the currency. Just for ourselves, are you seeing the inflation when you look at all of these numbers going forward in that 3% to 5% range that you’re looking to offset. I’m just trying to see if that is similar with your peers in that sense. Jason LeBlanc: Yes. So maybe just to clarify the $15 to $20 would be both FX and inflationary pressures baked together. I kind of gave you a one-stop there. So that’s the two of them. And it’s coming through on a component of items. We highlighted a few in our disclosure. But we’re seeing the results of our procurement efforts showing lower costs on other stuff. So I think that that’s part of it as well, to the extent we are seeing higher costs, like the straightforward stuff, like grinding media, where we’re actually seeing lower costs than cyanide by example because of consolidation work that we’re doing. So it’s a bit of both, but the net is a little bit more in inflation for sure. So we’ve got a focus on more of those bundling and consolidation opportunities to try to take the edge off it. And then, back to our pure operational excellence. So that’s more of a productivity avoidance type approach there. So we’re coming at it from all angles. Tanya Jakusconek: Okay. So it seems as though you’re probably then on the lower end of that sort of range in terms of what you are seeing inflationary wise? Jason LeBlanc: Yes, for sure. The 3% to 5%, I think that fits squarely within the labor component that Daniel mentioned very much within our planning and then, on a line item basis, we may see higher than 3% to 5%. But when you look at the aggregate of all of our work, it’s going to come out more to that 3% to 5% range. Tanya Jakusconek: That’s good. Great. Thank you so much for the insights. Daniel Racine: Thank you, Tanya. Operator: Thank you. There are no further questions registered at this time. I’ll turn the meeting back over to Mr. Racine. Daniel Racine: Well, thank you operator. Thank you everyone for joining us. We look forward to updating you on our third quarter call in October. Please take care, stay safe and enjoy the rest of the summer. Thank you. Bye-Bye. Operator: Thank you. The conference is now ended. Please disconnect your lines at this time. And we thank you for your participation.AUY Ratings Summary
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Yamana Gold Reports Q4 EPS Beat, Provides Outlook
Yamana Gold (NYSE:AUY) reported its Q4 results, with EPS coming in at $0.11, beating the consensus estimate of $0.09. Quarterly revenue of $503.8 million came in below the consensus estimate of $513.09 million. The company’s shares are up around 20% since the start of the month.
The company provided its 2022, 2023, and 2024 production outlook, reiterating the 2022 production estimate of not less than 1,000,000 gold equivalent ounces (GEO), and increasing its production guidance for 2023 from 1,000,000 GEO to 1,030,000 GEO. The Company expects production to increase to 1,060,000 GEO in 2024.
