2020 Production Outlook of Yamana Gold
Yamana herein provides its updated 2020 production outlook & says; the Company has revised total gold, silver and gold equivalent ounce (“GEO”) production expectations for 2020 as a result of the impact of COVID-19. Gold has had an exceptionally strong performance as a hedge against risk and the current negative interest rate yield environment, in relation to silver price, which has significantly increased the GEO ratios observed in the market, vis-à-vis initial guidance.
Consequently, this increase in GEO ratio, which results in silver production being accounted for as less ounces in gold equivalent terms, has an impact to GEO guidance that is disproportionate to the impact experienced in gold and silver production because of COVID-19. The remainder of the change is attributable to the impact of COVID-19, in relation to the temporary suspension of operations, ramp up and resulting changes to the mine plans for the remainder of the year.
The expected production shortfall from original guidance to revised guidance is approximately 8%, excluding the aforementioned GEO impact. The revised production guidance at Cerro Moro and Canadian Malartic in relation to initial guidance coincides with the number of weeks that those operations have been either in suspension of operations or gradual resumption of operations, as compared to the number of weeks in the year of normal operations.
The Company does not currently anticipate any changes to guidance for 2021 or 2022. The Company notes that despite the revised production expectations for 2020, gross margins are expected to benefit from the stronger than budgeted gold prices and the positive impact of foreign exchange on the cost structure of the Company, partly offset by lower silver prices.
Actual production for the year ended December 31, 2019 includes comparative operations, which comprise those mines in the Company's portfolio as of December 31, 2019. The Company notes that it guides on GEO production and costs based on a particular assumption of gold and silver prices.
The Company looks at production within a range of +/- 3%, and the guidance values noted below reflect the mid-point of this production range for the 2020 period. While the Company normally provides a smaller guidance range, the Company has increased the range this year given the uncertainties presented by COVID-19.
The Company previously guided that 46% of production would occur in the first half of the year, which it expected to be approximately evenly split between the first and second quarters based on the GEO ratio forecast in its original production guidance. Production in the first quarter achieved this target.
Due to the impact of COVID-19, the Company now expects the resumption of normal operations in the second half of the year, with the new production percentage in the second half to be 55% of total annual production.
The following table presents mine-by-mine production results for 2019, original guidance and revised expectations for 2020.
At Jacobina, guidance is being increased to 168,000 ounces of gold from 162,000 ounces due to strong operational results. The operation met the Phase 1 optimization objective of stabilizing plant throughput at 6,500 tonnes per day ("tpd") in the first quarter, which is a full quarter ahead of schedule.
The Company has completed the Phase 2 pre-feasibility study, which would increase throughput to between 7,500 and 8,500 tpd. Preliminary results point to a total capital cost of $57.0 million, of which $35.0 million is related to the processing plant, $14.0 million for underground mining and $8.0 million for infrastructure.
If implemented, it is expected that the Phase 2 expansion would ramp up annual gold production to 230,000 ounces and reduce operating costs with a positive impact on cash flow at Jacobina. The additional production from Phase 2 is not included in guidance. A more complete disclosure on the project and PFS will follow in May, along with the publishing of a 43 - 101 report.
At El Peñón, the change in guidance is entirely attributable to the change in the GEO ratio, as gold and silver production guidance has not changed. The increase in production guidance at Jacobina offsets this impact.
Four factors impact production and guidance for the mines that were put into temporary suspension of operations.
The following graphs depict a reconciliation of the change in guided production at Cerro Moro and Canadian Malartic, the two operations so impacted, which have since begun the gradual resumption towards full mining activities.
These factors are as follows, 1: GEO Ratio - A change in the GEO ratio from that initially guided. Due to the relative over-performance of gold price to silver price, silver production is accounted for as fewer ounces in gold equivalent terms. This reconciling item does not in itself change gold or silver production. Without the COVID-19 impact detailed below, previous gold and silver production would remain unaffected.
2: Temporary Suspension - The impact of nil or reduced production from the temporary suspension of operations during the period from March to April. 3: Ramp-up - The impact of reduced production during the second quarter, in relation to the progressive return of employees and remobilization during the planned ramp-up period at operations that were temporarily suspended, as well as the impact of certain social distancing guidelines.
4: Change in Mine Plan - The impact of mine sequencing changes due to delays associated with COVID-19, which pushed some of the originally guided production for this year, mostly planned for the fourth quarter, into later periods. 5: The following reconciles the current production guidance to production guidance provided earlier this year for Cerro Moro.
