Toronto Aug 1, 2015 (Thomson StreetEvents) -- Edited Transcript of Yamana Gold Inc earnings conference call or presentation Friday, July 31, 2015 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Peter Marrone Yamana Gold Inc. - Chairman & CEO * Darcy Marud Yamana Gold Inc. - EVP of Enterprise Strategy * Daniel Racine Yamana Gold Inc. - SVP of Northern Operations * Gerardo Fernandez Yamana Gold Inc. - SVP of Southern Operations * William Wulftange Yamana Gold Inc. - SVP of Exploration * Chuck Main Yamana Gold Inc. - CFO ================================================================================ Conference Call Participants ================================================================================ * Phil Russo Raymond James - Analyst * Patrick Chidley HSBC - Analyst * David Haughton BMO Capital Markets - Analyst * Don MacLean Paradigm Capital - Analyst * Tanya Jakusconek Scotiabank - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you all for joining us this morning for Yamana Gold's conference call. 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 and 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 2015 results as well as their Management's discussion and analysis for the same period and other regulatory filings in Canada and the United States. I would now like to remind everyone that this conference call is being recorded and will be available for replay today at 12 PM Eastern time. Replay information, and the presentation slides accompanying this conference call and webcast, are available on Yamana's website on www.Yamana.com. I will now turn the call over Mr. Peter Marrone, Chairman and CEO. Please go ahead. -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [2] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you. As always, I am here with our Management Team -- our senior most Management Team. Chuck is here, our Chief Financial Officer; Darcy, who is our Executive Vice President of Enterprise Strategy; Daniel, Senior Vice President of Northern Operations; Gerardo, SVP of Southern Operations; and of course, William Wulftange, who is our SVP of Managing Exploration. Ladies and gentlemen, I thought I would begin this morning by a look at our value chain. We undertook a reflective and deliberate change in our approach to our business in light of some of the challenges that we faced at several development stage projects last year. We are now one year past that point and our business model is much improved. Now we have gotten feedback that we should better describe our strategy and the value proposition, so I thought I would begin this morning with that value chain from strategy through the planning and execution. So this is how we see the value chain. To get the value creation we must execute well on our plans. That implies that we should be developing high-quality plans, to get to which we must have a solid, and clearly defined strategy that is also well articulated and understood by all of our stakeholders. So, in part, we want to better articulate that strategy, that plan and that ability to execute, so that we can demonstrate our confidence in our business plan and the strong reasons for that confidence. There are four parts to our strategy. We first focus on our core assets. We define core assets as those that provide the best opportunities for quality production and low costs for the generation of sustainable cash flow with opportunities to increase that cash flow. They also provide our best opportunities for exploration successes, operational efficiencies and improvements. There are seven producing mines in our core assets and they include our cornerstone mines of Chapada, Canadian Malartic and El Penon. The corollary to the identification of core assets is that we should, and we are treating, and we will continue to treat our assets as a portfolio. And taking that into account, we will take advantage of opportunities to more efficiently manage non-core assets and overtime monetize all or some portion. We have assets with considerable value that do not fit our definition of core assets and in part, this may be because of size and scale disparities of one mine to another, higher costs or lesser returns or sometimes, because it's just better to find creative ways to realize alternative means for value surfacing. They are quality assets, although they do not fit into our strategy of treating assets as a portfolio and concentrating on the core, as I just described. Our strategy includes improving our balance sheet through capital and operating cost reductions where appropriate and making overhead more efficient. That component of our strategy includes reducing our debt by improving our performance mostly through increased cash flow and EBITDA. It includes taking other initiatives, some of which we have been taking, have already been taking and some, such as monetizing the non-core portions of our portfolio, are pending. Finally, we are committed to growth opportunities but that is in a methodological way after full evaluation of what are our best prospects, respecting our objectives of focusing on core assets, and ensuring a solid balance sheet. To implement that strategy we developed a plan. Quality plans need time to develop although we have done so. The initial component of our plan was to improve the quality of operational management, eliminate redundancies and streamline our organizational and management structure. That plan included evaluating our asset quality to determine our core assets and see what opportunities for improvement could be developed. We set out to improve our models in life of mine plans along with production and cost targeting, relying on that higher quality management particularly on the technical side, and streamlining the management structure. Now as I said, this takes times and now, one year in, we're at that point. And finally, our plan included a review of where we could drive operational efficiencies after all of that. And Chuck, in his portion of this presentation will provide some additional comments in some of the current initiatives in that regard. Throughout we been executing against that plan and we knew we needed time to execute efficiently. So, one year in, I would like to provide a brief scorecard of how we've executed to date and what we will do going forward. On our core assets, those assets are Chapada, El Penon, Canadian Malartic, Gualcamayo, Mercedes, Minera Florida and Jacobina. We will add to that Cerro Moro once it is in production. In that portfolio of core assets, we have Chapada, Canadian Malartic and El Penon as cornerstones. These are the highest quality assets in any portfolio and in any company. These mines and projects represent quality production at comparatively low-cost with significant optimization and exploration opportunities. In that year, we have added to our management more depth, breadth and experience. We promoted Gerardo to one of our senior most operations role as head as South American Operations. We promoted Darcy to the pivotal role to better integrate the mining disciplines of Exploration, Operations and Development. And we promoted Butch Wulftange to replace Darcy as head of Exploration. We have demonstrated our bench strengths. And in that year, we also hired Daniel Racine into of our other senior most operational roles as head of North American Operations. We've brought on Barry Murphy to manage our development plans and most recently, Ross Gallinger, to manage Sustainability, Health and Safety. They have impressive experience and add to our bench strength. We have streamlined our management structure and in the process reduced our overhead costs with further improvements to come. We have improved our exploration efforts, life of mine plans and production forecasting. We created the Brio Gold division, took on a dedicated management for that division and improved the quality of those assets and prepared for our ongoing public event. We have demonstrated that the producing mines in Brio perform and we have advanced Brio's exploration and development prospects. Brio Gold was formed as one of our divisions to manage several mines and a project that are not core assets although they are still high-quality. Our first course was to manage the assets more efficiently. We have done that without distracting management from its primary objective of focusing on the Company's core assets. We have done that and then improve their performance, and we are demonstrating that. Now we're at the point of evaluating the various going public alternatives. Our strategy is to realize initial cash value while maintaining an economic interest for future value. We are on track for that final phase as we evaluate the various going public alternatives still in Q3. That is not changed. We have reduced our debt, we have reduced our overhead costs, we have continued to demonstrate robust cash flow and thereby improved our balance sheet and continue to do so. So for Q2 at H1 one of this year, we have increased production over last year to approximately 299,000 ounces of gold in the quarter and 604,000 ounces of gold for the half-year. In my view, the latter number clearly carries more weight since this is a long-term business, this is a long game, and the best number to date. The best number we will provide you is the number at end of year. We have meaningfully improved CaLar and Jacobina. We have significantly improved Chapada. We have maintained and expect the quality production at Canadian Malartic, El Penon, Gualcamayo and Minera Florida. We have faced delays on our plans for Jacobina and Mercedes in Q2 which was temporary and all of which is now behind us having implemented plans to drive higher production going forward. This is not reflected in our Q2 production although we have implemented the fixed dilution at Mercedes and now entered the high-grade zones at Jacobina. Jacobina and Chapada were always expected to improve in the second half of the year and in Q4 in particular. For Jacobina, our challenge was always the speed at which we could develop into high-grade areas. And while delayed, we are in those areas now and as we reported last night, our exploration shows extensions and additional structures of these high-grade areas supporting larger ore bodies, more high-grade ounces, higher grade than our reserve great. We compare Q2 grade of 1.89 grams per ton with July grade of 2.6 grams per ton. For Chapada, our production performance comes from mining efficiency at the new Corpo Sul pit, process improvements with the in-pit crusher that began operations only in Q2 and higher grades. We now have even better prospects at Sucupira, discovered only last year which is deeper and much higher grade area, is advanced. For Gualcamayo, production is at a steady state although improving grades as the proportion of ore from underground increases. For Canadian Malartic, intake the second half of the year and improvements in production, it will be a mix of grade, recoveries and processing. We are today, seven months into the year and one month into Q3. Everything forecasted is occurring with higher production in July over the average of all of Q2, all of Q1 and the first half of the year. We are on target for production and tracking full-year gold production guidance. With an expected production increase of approximately 15% in the second half of the year over the first half of the year with the biggest production improvements expected from Jacobina and Mercedes, along with Gualcamayo and Canadian Malartic and Chapada for the reasons given and the large increase in Q4 which is consistent for us for many, many years. As an example, in 2014, Q4 gold production was 25% higher than it was in Q1 of last year in terms of the legacy mines, not including Canadian Malartic that was acquired only in mid-year. We have demonstrated low costs from our core assets of $763 per gold ounce in Q2 as compared to $896 per gold ounce for our total portfolio which positions us for our cost guidance of all in of $830 per gold ounce. Now we noted that several of those who carry reports on the Company commented this morning if our cost guidance is increased? No, our cost guidance assumed a copper credit. Copper prices below that assumption although copper production is higher and if we maintain that steady state of increased copper production from Chapada, that will balance out the copper price and we will be within our guidance. We have shown significant decrease in overhead costs of approximately $20 million on an annualized basis with further decreases expected. We have advanced several more in a deliberate steady state prudent manner. We will have completed almost all of the detailed engineering before formal construction begins late this year with pre-development work showing very high-grade continuity and high margins. We have a modest plan for significant low-cost production. We have significant exploration successes and continue to advance our development stage projects in Canada and at our Gualcamayo mine. We plan to deliver preliminary economic assessments for Upper Beaver in Canada and the Deep Carbonates project at Gualcamayo in Q4. We've demonstrated our ability to generate cash flow and improve our cash flow to revenue despite a lower metal price environment. We generated $0.16 of cash flow per share in Q2 beating estimates with lower metal prices than last year. We've reduced our debt from end of last year and will continue to do so. We have reduced our debt by approximately $130 million from end of year and we expect our net debt to remain flat or improved by end this year, remaining flat at lower metal prices and decreasing at current or higher metal prices. And we expect our net debt to further decrease as we execute on our plans to monetize non-core assets still planned in Q3. We have modest debt obligations with an amount outstanding on our revolving credit facility of $260 million due in five years. That is mid-2020. But we will reduce it to $0 much sooner than that. And we have only $118 million of scheduled repayments in the next two years. We have and expect to have sufficient cash and cash flow generation to meet all of these obligations and increase our cash balances. Now as to our value drivers we see them as these. We'll continue to deliver on guidance. We will demonstrate the quality production and prudent growth. We are effecting actual and plan to debt reductions. We are demonstrating increasing cash flow in EBITDA with optimizations, production increases and cost improvements mostly from our primary portfolio and vary significantly from a cornerstone assets. With that, ladies and gentlemen, perhaps if I can pass to Darcy for a continuation of this presentation. -------------------------------------------------------------------------------- Darcy Marud, Yamana Gold Inc. - EVP of Enterprise Strategy [3] -------------------------------------------------------------------------------- Thank you, Peter. Good morning, everyone. As Peter said, one of the cornerstones of our corporate strategy is cost reduction and revenue increases across the board. And as part of enterprise strategy, what we're looking at currently is various strategic management initiatives to realize additional cost savings at operations, G&A and also within our development stage projects. In hand with that we're looking at additional revenue increases and we see that going through our technical services team where we're advancing the Cerro Moro project, including completion of the detailed engineering, before a formal construction commencement later this year. We're also looking at completing by the end of the year a PEA for a Deep Carbonates product at Gualcamayo. If you'll recall there is approximately 2.5 million ounces of higher grade resource this sits below the current operation at Gualcamayo that is going to be included within that PEA. We are also looking at operational efficiencies at Chapada that could further add additional revenue and those include increased throughput, increased recoveries and additional expirations successes like those highlighted at Sucupira. In long-term revenue increases and generation, we're looking at the integration of our new SVP of Environment Health and Safety organization and we will do a rigorous assessment of our practices at Operations, renew practices that we currently have in place to become an industry leader in health safety for our employees that will lead to better productivity and ultimate revenue at all of our operations and projects. Before passing the presentation over to Daniel Racine and Gerardo to talk specific about the projects and our assets, I would like to give an overview of our operations for the quarter in the first half of the year. Gold production in the second quarter was a total 298,818 ounces. For first half production of 603,692 ounces. Silver production was 2.4 million ounces and during the first six months of the year, totaled 4.9 million ounces. Copper production from Chapada was 33.6 million pounds. During the first half of the year we have already produced 60.5 million pounds of copper. On the cost front, cash cost per ounce during the second half for gold were $603 per ounce and $6.59 for silver. Co-product cash cost during the first half of -- or during the second quarter of the year were $701 per ounce and a $8.29 for silver. And our all-in sustaining costs per ounce during the second quarter of the year were $896 per ounce of gold, $10.72 for silver and during the second half of the year $895 per ounce and $10.58 per ounce of silver. Our co-product cash cost per pound of copper principally from Chapada or -- sorry -- all from Chapada, was $1.39 during the second quarter of the year and during the second half of the year, it totaled $1.57 per pound. With that, I'd like to pass the presentation over to Daniel Racine to review our Northern Operations. -------------------------------------------------------------------------------- Daniel Racine, Yamana Gold Inc. - SVP of Northern Operations [4] -------------------------------------------------------------------------------- Thank you, Darcy. Good morning, everyone. Canadian Malartic achieved its fourth consecutive quarterly production record. Production in the quarter was higher at the lower cost than the first quarter due to the higher grade partially offset by lower throughput and recoveries. An unplanned maintenance shutdown related to the converter explained a lower than expected throughput in the first half of the year. Throughput for the second half of 2015 and through 2016 is now planned at an average of 53,000 tons per day. However, production expectations are unchanged. At Mercedes, production in the second quarter was below target. Lower production was driven by excessive mining dilution that leads to lower produced process grade, lower recoveries and [higher] costs. Results are expected to improve significantly beginning in the third quarter with further increase in the fourth quarter. Improved design, engineering and blasting are all expected to contribute to improved dilution controls. In addition, production is expected to benefit as mining transitions into the higher grade areas of Lagunas and Barrancas. I will now turn the call over to Gerardo. -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [5] -------------------------------------------------------------------------------- Thank you, Daniel. Good morning. At Chapada, the strong year continues as the gold mine corporate production increase compared to the first quarter by 35% and 25% respectively. The production increases were due to higher gold and corporate grades mostly from the continuation of ore from Corpo Sul as well as higher recoveries for both gold and copper. Cash costs were also down significantly compared to the first quarter with gold and copper cash cost declining at approximately 29% and 23% respectively. The in-pit crusher is now commissioned and expected to result in a stable throughput at higher levels due to more efficient ore material going forward. Also efforts of the mine operations continue to advance. In the quarter, improvements to the flotation (inaudible) resulted in better than expected recoveries offsetting the impact of throughput due to high increase and processing of harder ore. At Jacobina while production was higher at lower costs in the first half compared to the first half of 2014 and we saw a 15% quarter over quarter production increase, productions in the first six months of 2015 was below target due to lower than planned head grade at approximately 1.9 grams per ton. Grades increased significantly in late June and continued at higher levels in July at an average of approximately 2.6 grams per ton. We expect this trend of improved grade to continue going forward with an average of 2.4 grams per ton for the remaining of the year as developing work now has reached higher grade areas all control procedures continue to improve. Our expectation is that increase grades will result in further improved production and costs through 2015 with production in the second half meeting or exceeding targets while exceeding production of the sales. At El Penon, the planned mining of ore from areas with more variable grades on the fringes of the veins resulted in lower gold production compared to the first half of 2014. Cash costs were also higher related to the increasing ore development of these areas. However, production in the second quarter of first half 2015 was in line with target despite heavy rains in northern Chile occurred late in March. With step production and cost to improve in the second half of the year, mostly driven by an expected strong fourth-quarter, production increases and cost decreases in the fourth quarter are expected due to plan production continuation from higher grade areas in both the North and South mine as well as optimization and cost reductions in each started earlier in the year. At Minera Florida, we delivered a strong second quarter which followed a strong first quarter both in line with targets. Higher gold and silver production compared to second quarter of 2014 was due to increased throughput and recoveries, partially offset by lower grades as we mine in lower grade areas of per the mine sequence. We're well-positioned to meet or exceed for our target at Minera Florida. At Gualcamayo, production in the first half was consistent with target although production in the second quarter was below target. During the quarter, we encountered a localized ore zone with increased clay levels and slower bleaching times which impacted the recoveries during the periods. This is a one-off event. We expect production to increase sequentially in the third and fourth quarter due to improved recoveries as materials stuck on the leach pad more recently and going forward, we expect that to perform normally. Also, the expansion of the ADR plan remains on track for completion during the third quarter and is expected to further increase the performance of the site beginning in late in 2015. Second quarter results for the producing mines in the Brio Gold portfolio continue to demonstrate the ongoing progress of operations and the value of these assets. At Pilar, production was higher than the first quarter at 9% lower costs due to increased grades and recoveries. During the quarter, production averaged approximately 7,000 ounces per month or 10% above the 6,300 ounces per month baseline that was established in the first quarter. At Fazenda Brasileiro, production increased 16% over the first quarter and costs continue to decrease. Improved production and lower cost was a result of higher throughput high-grade. At C1 Santa Luz, the metallurgical test work continue to coordinate and identified options to verify the process flow sheet continues. The ongoing progress within the Brio Gold portfolio continues to support ongoing public events. I will turn the call over now over to Butch. -------------------------------------------------------------------------------- William Wulftange, Yamana Gold Inc. - SVP of Exploration [6] -------------------------------------------------------------------------------- Thank you, Gerardo and good morning, everyone. In the second quarter, we advanced our 2015 exploration program as we continued to focus on finding high-quality ounces. At Chapada, we continue to advance the Sucupira deposit discovered last year. Exploration as defined as 1.5 kilometers northeast to southwest trending zone of high-grade copper and gold mineralization with lower grade halo that is now interpreted to be the southwest extension of mineralization exploited in the Canavieras Norte pit. This deposit remains open to the southwest and to depth. Sucupira will be evaluated as both a bulk tonnage open pit mine and possibly an underground exploitable high-grade deposit that will provide long-term optionality to the Chapada life of mine plan. At Jacobina, exploration is focused on executing an infill program at Moro do Vento, Canavieras Norte and Canavieras Sur and began a program to test for deep extensions of a high-grade main reef in the aforementioned mines. Composites of assay results to date include very mineable widths at or above reserve grade as listed in the Brazil exploration update press release on Thursday. The results are being integrated in support of improving the geologic model and mining predictability and development of these higher grade zones which is planned to begin in the third quarter of this year. At Fazenda Brasileiro, a new discovery named E388 has been made with widths and grades above current mine averages. The discovery is located at a relatively shallow depth adjacent to the current mine haulage ramps. It is worth noting that the results so far are similar in grade and thickness to those that we saw in the early years of the mine. I ask you to please refer to Brio's press release of July 16, 2015, for additional detail. In the quarter, we also advanced our exploration efforts at some of our other operations. Some highlights include at El Penon, infill drilling of their recently discovered Ventura vein continues to support the economic potential of this target. And at Minera Florida, positive results to date include identification of three new structures at the Manda target within the Mina Este mine complex that appear to have economic mineral intercepts. In the second half of the year, exploration will advance at our recently acquired Monument Bay property in Canada as well. The program will explore the high-grade potential at the west end of the deposit during this fall season. I will now turn the call over to Chuck Main. -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [7] -------------------------------------------------------------------------------- Thank you, Butch. Good morning to everyone. In the second quarter, we continued to deliver financial performance as our portfolio is on track to achieve annual production guidance. Revenues in the second quarter were approximately $455 million, up approximately $11 million from the second quarter of last year. Higher revenues were the result of higher sales partially offset by 8% lower gold prices and 18% lower silver prices. Mine operating earnings before depreciation was $182 million and after depreciation was $58 million representing a 46% improvement from the first quarter. Our adjusted loss for the quarter was approximately $8 million or $0.01 per share. This is a $0.03 per share improvement from the first quarter. We continue with our aim of generating sustainable and increasing cash flow. In the second quarter we generated approximately $149 million or $0.16 per share in operating cash flow. Despite the lower metal prices, this represents a 56% increase over operating cash flow generated in the first quarter of this year. When we look at our cost structure we're seeing continued stability and low levels as we focus on delivering on production expectations. Our all-in sustaining costs on a byproduct basis for gold were in line with the lower cost structure we established last year and the level seen in the first quarter. When we look at our core operations, we are able to deliver each ounce at an all-in sustaining cost of $763 per ounce. For silver, our all-in sustaining cash cost on a byproduct basis, declined approximately 9% compared to last year to $10.72 per ounce. Our cash costs in the quarter were impacted by lower grades at some lines and lower byproduct credits due to the decrease in copper prices offset by cost reductions, favorable exchange rate and higher copper production. We expect cost levels to improve in the second half as production increases and we implement operational efficiencies and other improvements at our cornerstone assets. In addition, we will continue to pursue opportunities to further reduce our G&A and other expenses. As I mentioned earlier, we were able to increase the per share level of cash flow we generated in the quarter compared to the first quarter. Another way to look at it this is to consider how much cash flow we generate per dollar of revenue. On this metric, we improved significantly over the first quarter. In the second quarter, we generated $0.33 for every dollar of revenue representing a 57% increase. As the metal prices have declined, there's been a need for us to increase the margin we generate on that lower revenue. As production increases over the second half, we will continue to focus cash flow and cash flow generation. We maintained a stable balance sheet in the second quarter. At the end of the quarter, our cash balance was $119 million which is flat compared to Q1 and available credit was approximately $740 million. Our net debt at the end of the quarter stood at approximately $1.7 billion. Depreciation depletion in the quarter increased compared to last year to approximately $124 million. Increased DD&A represents the addition of Canadian Malartic and the inclusion of commercial ounces from Pilar which completed commissioning in the third quarter of last year. Corporate G&A was approximately $32 million in the quarter representing a 13% decrease from the second quarter of last year. This translates to approximately $20 million in savings on an annualized basis and we continue with efforts to further reduce our G&A levels. Our expiration expense for the quarter was $4 million. Total capital spend in the quarter was $102 million which represents a 46% decline from the previous year. The continued stability of our balance sheet reflects the achievements to date on our cost containment initiatives. I would like to take time now to focus on our balance sheet and more specifically, our debt and debt repayment obligations. We've implemented a strategic plan to pay down the balance on our revolver credit facility to $0. In the first half of 2015, we have decreased the balance owing on our revolver by approximately $150 million. Overall, we are flat on net debts in the second quarter but we are on track to continue advancing our strategic plan for repaying the revolver balance. As Peter mentioned, we expect net debt to remain flat over the second half of the year. I would like to run to the change in our net debt position in a bit more detail. At the end of 2014, we had approximately $2.1 billion of debt which included debt assumed from the acquisition of Canadian Malartic that is neither corporate nor guaranteed by Humana. We had approximately $191 million in cash giving us a net debt at the end of last year of $1.9 billion. In the first six months of 2015, as I mentioned, we paid down approximately $150 million of the balance owing on the revolver and addition, we reduced the debt assumed on our acquisition of Canadian Malartic by approximately $50 million. I would like to highlight that the year to date change in our cash position is largely a result of normalizing our working capital position since the beginning of the year with a first quarter reduction of accounts payable of $93 million. And that despite the weak metal price environments in the second quarter, we are able to hold our debt levels flat. This means at the end of the quarter, our net debt position was approximately $1.7 billion, an improvement over $125 million. To better understand our debt position and the strength of our balance sheet, it's important to look at our debt repayment schedule and specifically, the modest repayments over the short-term. Over the next two years, we have $118 million in principal repayments due. We expect this very manageable amount be funded to our cash flow generation. And that we note that we do not have any significant debt repayments due before 2020. You have heard us mention our EBITDA enhancement initiative and I would like to provide some more color on our plans and what it will mean for our business. We have undertaken a thorough review of our business to ensure we are aligned with the new economic environment and the prevailing metal prices. Our plan has laid the foundation for a stronger and more agile organization that is more effective. We are looking forward and are focusing our resources on the most strategic opportunities. Those opportunities to provide the best potential for value creation. We are doing this by focusing on margin improvements to efficiency, innovation and cost reductions. This includes improvements to our operating and technical teams, dilution controls, headcount reductions, improvements to recovery rates to enhancement to our milling plants and procurement savings through the improvement with terms with our contractors. We are streamlining and redesigning our processes to make a more effective organization. This includes eliminating redundant and non-value added activities across all operations and back office functions. We are cutting the waste out of the system and processes ensuring we're able to achieve our objective for more efficient using the minimum amount of resources. We are right sizing the organization to better reflect our portfolio and this includes downsizing, relocating regional offices and reviewing our organizational structure at every level. We are planning a going public event for Brio Gold which is an opportunity for monetization, an example of our focus on cornerstone assets and looking at creative way to unlock value from non-core assets. Our EBITDA enhancement initiatives are geared towards freeing up additional funds to fuel our future growth and making us a leaner organization that is eliminated potential barriers to accomplishing our targets and goals. On that note, I would like to turn to what to expect in the second half of the year. We've established a strong second half that is characteristic of our portfolio. In past years, first half production has been in line with where we are tracking in terms of 2015 full-year guidance. We expect second half production to increase approximately 15% over the first half and we expect the largest jump in the fourth quarter. This has us well-positioned to achieve full-year production guidance. To reiterate, we expect to produce 1.3 million ounces of gold, 9.6 million ounces of silver and 120 million pounds of copper in 2015. All-in sustaining forecasts, our forecast at $830 per ounce of gold, $10.50 per ounce of silver on a byproduct basis. In order to achieve target of cost we are focusing on operational improvements with a particular objective of increasing average grade of our process. We're expecting some improvements relating to the foreign exchange. We noted that today's spot prices compared to the average in the second quarter for Argentina has devalued 3%, the REI 9%, CAD by 6%, Chilean peso 9% and Mexico by 6%. So we are continuing to see improvements relating to exchange rates. Reduction in the first half is tracking well to guidance and with the plan increases over the second half, we expect to deliver on expectations as the focus remains on operational execution. I'll now turn the call back to Peter. -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [8] -------------------------------------------------------------------------------- Ladies and gentlemen, that is our presentation for this morning for the quarter and for the first half of the year. And with that, perhaps if we can open up the call to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. (Operator Instructions) Our first question is from Phil Russo from Raymond James. Please go ahead. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [2] -------------------------------------------------------------------------------- Yes, thanks. Good morning, Peter and the team. Thanks for taking my questions. Just quickly here on Mercedes, if someone could expand a bit on the measures here to tackle the dilution? Are you changing mining method there? Is it the vein narrower than what you were modeling, or is that unanticipated? -------------------------------------------------------------------------------- Daniel Racine, Yamana Gold Inc. - SVP of Northern Operations [3] -------------------------------------------------------------------------------- Yes, you're absolutely right. As we were getting on the mining sequence on the second quarter we were getting on the edge of some of the zones and they were narrower. So we are changing the mining methods, the drilling pattern and then we're already seeing in this quarter improvement in dilution ore grade. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [4] -------------------------------------------------------------------------------- What's the mining method now that you're changing to? -------------------------------------------------------------------------------- Daniel Racine, Yamana Gold Inc. - SVP of Northern Operations [5] -------------------------------------------------------------------------------- It's the same mining method, but we change the diameters of the drill holes and then we change the pattern of drilling. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [6] -------------------------------------------------------------------------------- In Jacobina then, I understand developments in delay in some high-grade areas here, but what about beyond that getting into 2016? I know getting the development ahead of the mining was a challenge in the past here. How are you feeling looking beyond simply just through the remaining part of this year? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [7] -------------------------------------------------------------------------------- We're optimistic on the performance and looking forward with Jacobina. There's a change in the approach. We are advancing the developments and doing delineation drilling. With that information, we're able to better define ore mining and preserve the grade. However, source (inaudible) and drilling and conformation drilling are showing that have high grades in the Canavieras veins that are really more complicated in terms of geometry. With information ahead of time, ahead of mining, we've been able to improve over the size, be more selective and also control dilution in operation to bring the grade to the plant. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [8] -------------------------------------------------------------------------------- Is 2016 development largely done right now, or you still got some measures ahead? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [9] -------------------------------------------------------------------------------- For next year, we're still working on development. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [10] -------------------------------------------------------------------------------- Okay. Maybe just lastly on the financials. Peter, I appreciate the comments at the start of the call here. The net debt projections of flat for the remainder of the year, is that using your budgetary pricing? -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [11] -------------------------------------------------------------------------------- As I mentioned, we expect the debt not to increase. At lower metal prices, we expect the debt to decrease at or above the current metal prices. It's always difficult to predict. Gold price is up now. It was down earlier. It's difficult to predict where gold prices are what would be those inflection points. But I'm comfortable saying to you that if we keep gold price where it was last night when we formulated this view, so not the up $8 that it seems to be now, but where it was last night, and if we keep the other metal prices were they are, then our debt would likely still decrease by the end of the year. If metal prices go up, then our debt would decrease further. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [12] -------------------------------------------------------------------------------- Okay. You talk about it being flat for the remainder of the year, so slightly down. Does it put extra pressure here, especially with this $100 million due next year? I'm not sure if there's plans to refinance that or not, but if the targeting revolver to $0 plus this $100 million, does it put extra pressure on getting a favorable Brio outcome here? What are your comments around that? -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [13] -------------------------------------------------------------------------------- No, there's no pressure on Brio. The pressure on Brio in my view, Phil, was last year. You have to show that assets perform and that you have got competent management to make them perform. With Pilar's performance, and as Gerardo said, with 7,000 ounces plus per month that mine is beginning to perform and it's costs are improving. And there are significant prospects for further improvement with areas like Maria Lazarus and Tres Buracos which is better oriented ore body at or above the current grade. So we think that Pilar will continue to perform and continue to demonstrate that performance into the balance of 2015 and into 2016. Fazenda Brasileiro is performing. Q2 is better than Q1 on production and on cost and there is an entirely new discovery that in our view and in Brio's management's view has the potential to reposition that mine. C1 Santa Luz is the last leg of that stool. And C1 Santa Luz's flow sheet has been determined and the final metallurgical tests are now being -- the I's are being dotted and the T's are being crossed. Once that has occurred and Brio management, along with our oversight, is able to demonstrate that there's quality to those assets, then -- I think the question you're asking is, is there pressure to sell them on an expedited basis and to get the -- in other words, to risk a low price in order to fast-track a sale. And I would say the answer to that is no, there's no pressure. The pressure was to make sure that these assets perform. That these assets can generate cash flow, they can demonstrate an improvement to production to costs. And as that has been unfolding as we anticipated that it would, then I think the pressure is off in terms of the ability to surface significant value from those assets. And as you have noted, we haven't said that a going public event is an initial public offering, a reverse takeover, it is the panoply, the shopping list of all possibilities that includes a merger with other companies, it includes an outright sale to a public company, our preference. Our preference would be to take cash, but our preference would also be to take some additional value that will provide further surfacing of value, a share position, a royalty. These are all the things that we're contemplating and I think implicit in that and why I can answer your question that the pressure is off, is that the pressure is off. Because there is a significant amount of support for these assets and encouragement for any of these going public events as a result of the improvement in the assets. -------------------------------------------------------------------------------- Phil Russo, Raymond James - Analyst [14] -------------------------------------------------------------------------------- Okay. Thanks, Peter. Thanks, for answering the question. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Thank you. The following question is from Patrick Chidley from HSBC. Please go ahead. -------------------------------------------------------------------------------- Patrick Chidley, HSBC - Analyst [16] -------------------------------------------------------------------------------- Hi, good morning everybody. Just a question going back to Sucupira. I wonder if you could just outline, you say that it's at about 200 meters depth and there's a low-grade halo around it. I'm just wondering, does that low-grade halo come to surface? And what grades would be in that? And therefore, is it something that could be open bit mined and what strip ratio would you imagine for it? -------------------------------------------------------------------------------- William Wulftange, Yamana Gold Inc. - SVP of Exploration [17] -------------------------------------------------------------------------------- Patrick, this is Butch Wulftange. The Sucupira deposit is considered an extension of the Cava Norte pit. So it's actually being mined in that pit right now. The defined body that we have currently extends beneath the pit, about 400 meters till you get to the current drilling and then we have another 1.1 kilometers of defined drilling of that mineralization. Initially, we had the discovery hole of over 172 meters of width of that deposit. And if you look at the -- in the press release from last night, can see some other hole intercepts which we have. 80 meters at 0.44 grams per ton, and 0.5% copper with a higher grade core 31 meters of 0.8 grams per ton gold and nearly 0.7% copper. So the essential dip of that mineralization, the strike is to the southwest, the dip is probably somewhere around 10 to 15 degrees so it gets deeper as it goes to the southwest. I think what's great about this deposit is the optionality that you do have a high-grade core that could be mined from an access from the Chapada pit quite simply. You can mine high-grade core if you want or take some of the lower grade halo. So it provides optionality. Is it going to be a big open pit? That has yet to be determined. But you know, that will be part of the mining -- what the engineers at Chapada will be looking at is, what's the best way to extract this? -------------------------------------------------------------------------------- Patrick Chidley, HSBC - Analyst [18] -------------------------------------------------------------------------------- Thanks, Butch. How much more drilling? How much more work needs to be done before you'd be in a position to determine that? Is the end of the year sort of thing or is it end of next year or something? -------------------------------------------------------------------------------- William Wulftange, Yamana Gold Inc. - SVP of Exploration [19] -------------------------------------------------------------------------------- I would say end of next year as far as getting it up into an indicated category. We've started off with 150 to 200 meter stepout drilling, and so there's still a significant amount of drilling to do. We have full budget support from corporate office here and so it something that we are quite excited about and has optionality to Chapada. Like I said, it's still open to depth to the southwest. -------------------------------------------------------------------------------- Patrick Chidley, HSBC - Analyst [20] -------------------------------------------------------------------------------- Okay. Any initial resource plan for the end of the year? Inferred or something? -------------------------------------------------------------------------------- William Wulftange, Yamana Gold Inc. - SVP of Exploration [21] -------------------------------------------------------------------------------- Yes, we will have an inferred resource planned at various cut off grades. It looks quite good. -------------------------------------------------------------------------------- Patrick Chidley, HSBC - Analyst [22] -------------------------------------------------------------------------------- Thanks. Okay. Just a second followup question then, just on hedging. Maybe Chuck, if you could review the hedging positions you have in current foreign currency? And what these look like in terms of the policy going forward? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [23] -------------------------------------------------------------------------------- Very good. The Mexican peso hedge expired at the end of June, so we won't have any further hedge positions going forward into Q3. So then, at the end of June, we had 259 million reals hedged at a rate of 2.28 for the second half of the year. So then again, that whole program expires at the end of the year and we will have no negative impact on the reals hedge starting in 2016. -------------------------------------------------------------------------------- Patrick Chidley, HSBC - Analyst [24] -------------------------------------------------------------------------------- Okay. And could you just say roughly how much of your costs were impacted in Q2 by those hedges of those sorts of rates? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [25] -------------------------------------------------------------------------------- Yes, on a consolidated basis in absence of the hedge, our consolidated average would've been $13 less. -------------------------------------------------------------------------------- Patrick Chidley, HSBC - Analyst [26] -------------------------------------------------------------------------------- So it's $13 -- -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [27] -------------------------------------------------------------------------------- Consolidated average. -------------------------------------------------------------------------------- Patrick Chidley, HSBC - Analyst [28] -------------------------------------------------------------------------------- Okay, you mean 13 million? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [29] -------------------------------------------------------------------------------- No, $13 per ounce. I'm doing it on a per ounce basis. -------------------------------------------------------------------------------- Patrick Chidley, HSBC - Analyst [30] -------------------------------------------------------------------------------- Okay. Thanks very much. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Thank you. The following question is from David Haughton from CIBC. Please go ahead. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [32] -------------------------------------------------------------------------------- Yes, good morning Peter and team. Thank you for the update. And firstly, Peter, thank you for the fairly clear picture that you provided for the strategy and plans in the first few pages of your slide deck. I appreciate that. I've got some questions looking at the operations that are going to be the drivers for improvement in the second half. Just going back to Jacobina, I know that Phil got some pretty interesting insight there in the previous questions. But it's been a long time coming at Jacobina to get up to the kind of grades that you're now starting to encounter. And just wondering if that is really a function of the developments that you put in place, or whether it's access to the high-grade ore body such as Canavieras or what's the story might be? And what sort of sustained production level could you achieve at the 2.4 plus grams going forward? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [33] -------------------------------------------------------------------------------- Hello, David. This is Gerardo Fernandez. I think it's a combination of many factors. One is, having to development to the right areas, but also have (inaudible) due to completed to mine those higher-grade areas that do exist and deliver that grade to plan. And that's been the change of the approach during this year. So we've been completing and advancing that delineation since the end of last year and into this year. It occurs more discipline and a different approach for the operation. And that's being improved both on the geological modeling part but also on the geological controls during in the mining including the ablution control at drilling and blasting practices. And then loading and hauling up the ore and management of the stockpile to feed the plant. So we scaled down with throughputs, as you probably know, after the plant so we can catch up with the development in the mine and that's part of what we said in the guidance with approach. Approaches to preserve grade, not to drive tonnage to the plant. In terms of guidance for the future, I think we're going to be around 100,000 ounces for this year. A little bit probably on the low end of the guidance range. And going forward, we are optimistic that we're going to be improving that to a target 120,000 to 130,000 ounces. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [34] -------------------------------------------------------------------------------- Okay. So over the last year or so, the mill has been processing 4,000 tons a day. Really to get to get to that 120,000 expectation in 2016 and higher again in 2017, you have really got to be lifting that throughput well above the 4,000 tons a day and also have an improvement in the grade. You're pretty happy with what you're seeing so far? July is -- you gave the data there, pretty good grade. Are you happy with the way things are progressing? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [35] -------------------------------------------------------------------------------- Yes, I'm happy and optimistic with the ways things are progressing. Going forward, there's lots to do even by grade, the increases into the future for Jacobina. As I said before, we're holding up that upside on throughput to have extra capacities in the plant, but until we have certainty that the grade control is firmed and everything has been improved, we will focus on great increases in the next year. I'm very optimistic of what we're doing in Jacobina. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [36] -------------------------------------------------------------------------------- Okay. Going to Gualcamayo, clearly some issues there with a clay zone. Had you encountered that before? And is it just this unique part of the pit or have you encountered it from time to time but not to the extent that you got last quarter? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [37] -------------------------------------------------------------------------------- Good question. We have not encountered an area like this before. This was in fact below the Curado de Diablo, the big geological feature that goes across the open pit. So we didn't have information from upper benches on this feature. So it one-off. Since the end of last year, we started that campaign to delineate the bottom of the pit on a phase 3 and get information on all grades. There's also metallurgy. So we have now the information for the rest of the year and then -- the rest of the phase 3 and we have a confirmation that we don't have another feature like that will behave like this ore that went into the plant in May. So it's a one-off and we're confident that we're not going to have an event like this during the year. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [38] -------------------------------------------------------------------------------- Okay. And the last -- project our last question on this looking at El Penon. Great issues there. You referred to being at the edge of the veins. Is that just a coincidence of sequencing? Of course you've got a number of different stopes that you'd be working on and will you change that sequence going forward so you don't end up in such a position going forward? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [39] -------------------------------------------------------------------------------- It's in part that, but our plan high consideration for Q2 to be the weakest quarter of the year. Actually, Q2 was going to be in the bottom end of the high-grade zone, the bonanza and the north end of bonanza as well. So we were forecasting to have a more erratic or variable grade performance from that scope. And some of those areas are 200 grams per ton, so with a small volume change or grade in the small volume we have, a big impact. So the plan on the life of mine as bonanza as you know is going to be repeated into next year. We're transitioning to other higher areas in the south mine. So we have accelerated the development into those areas so we can compensate any variations that we may encounter on the edges or fringes of the high-grade bench. -------------------------------------------------------------------------------- David Haughton, BMO Capital Markets - Analyst [40] -------------------------------------------------------------------------------- Okay. Thank you very much for that. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- Thank you. The following question is from Don McLean from Paradigm Capital. Please go ahead. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [42] -------------------------------------------------------------------------------- Good morning. And Patrick touched on this with his questions about the hedging, the four ex. But just maybe a more holistic view from Chuck about your cost profile. I was looking at -- if you do a production-weighted average of your exchange rate changes, you've had about a 16% benefit year-over-year. But the costs have gone up actually. So one gets a sense there's a pent-up cost benefit coming and I'm sure part of that was explained with the hedge situation. Maybe Chuck, can you give us a little more flavor of about what we might be expecting in terms of that exchange rate benefit and the fuel savings, et cetera, as we look through the next year or so? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [43] -------------------------------------------------------------------------------- Yes, I think that we have been achieving and receiving the foreign exchange benefit. I think that has been masked partially due to the impact of the grade points that we've talked about. So going forward, we believe we've got the grade aspects under control and they're going to improve in the fourth quarter. So what that does is then that allows the four ex benefit to come through rather than being masked as a consequence of the grade impact. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [44] -------------------------------------------------------------------------------- Great, so that should sort of double up on the cost benefit? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [45] -------------------------------------------------------------------------------- Yes. But it won't hidden. And then we -- with the Mexican, as I said before, the Mexican hedges are gone, so they will be no longer an impact and we reals these hedges in at the end of December, so they'll no longer be an impact either. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [46] -------------------------------------------------------------------------------- The situation that you are seeing in terms of not seeing the full impact of the exchange rate changes is across the board. I think when I did a calculation this morning, the group is only seeing about a 4% reduction in costs so far year-over-year. Are some of these costs sticky or is it just we're not seeing as much exchange rate benefit flow through into the cost profile and the fuel cost savings that one might ordinarily have expected? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [47] -------------------------------------------------------------------------------- I think that the fuel is a more complicated question. I think we received a good size benefit in the first quarter on the fuel, but when you look at Q2 compared to Q1, there's not much of an improvement in the fuel, the diesel prices compared to Q1. But we will continue to see these foreign exchange benefits. They are there and in our case, they've been muted by the impact of the dilution, which we have a firm plan to deal with going forward in the second half, and then we'll see the full impact of the benefit of the lower exchange rates. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [48] -------------------------------------------------------------------------------- Okay. Maybe just another generic type question for you Peter. Clearly the focus is sticking to the knitting and working on the existing operations. But there are acquisition opportunities out there. How would you view those as opposed to say the opportunity for developing your own existing projects in Argentina in particular? -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [49] -------------------------------------------------------------------------------- Really good question, and the simple answer is we're not looking at any acquisition opportunities. We think that we properly positioned the Company last year with the acquisition last year and with the opportunities that that acquisition along with what we already had in the legacy company provide us. There's a good balance in terms of jurisdiction. There's a good balance in terms of very high-quality projects. Clearly Cerro Moro being at the top of that list because of its very high grade, very modest footprint and significant number of ounces for gold and for silver at high-margin. So we're going to continue to focus on our internal organic opportunities, Don. And perhaps if I can say to you that if we look at our share price over the course of this last year, I think that the best way to reclaim all of that reduction in share price is to demonstrate that what we acquired last year and the repositioning of all the things that we discussed today, our strategy, our plan, execution on that plan will allow us to recapture 100% of diminution in share price. That is our obligation, that is our intention and I think the best way to achieve that is to continue to focus, stick to the knitting and continue to focus on our organic blends. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [50] -------------------------------------------------------------------------------- Very good. Okay. Thank you. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- Thank you. (Operator Instructions) The following question is from Tanya Jakusconek from Scotiabank. Please go ahead. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [52] -------------------------------------------------------------------------------- Yes, good morning, everybody. I have two questions. One is on financials and one is a technical question. So maybe for Chuck and Peter, if you take on the financial one. I wanted to ask about the debt again, and I know Peter, you reviewed all of these based on last night's pricing. So if we look at last night's pricing, we look at the $260 million still on the credit facility, we look at the $100 million payment that is due next year. When do you actually think you can pay off your credit facility and still keep that $100 million to $150 million in minimum cash balance on the balance sheet? -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [53] -------------------------------------------------------------------------------- Tanya, let me begin to answer your question and I'll pass it to Chuck with any further observations that he has. I perhaps can ask you a question to answer your question, which is, do we assume that some of these monetizations of non-core occur? My view is that it is not only Brio, it is Agua Rica. There are many creative things that can be done with an asset like that. It is many other projects that we have on the shelf that extend in Canada from everything from Hammond Reef all the way down to the tip of South America dealing with assets like La Pepa and Geronimo. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [54] -------------------------------------------------------------------------------- Let's assume worse case that it doesn't happen. So just on a worst case scenario. -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [55] -------------------------------------------------------------------------------- On a worst case scenario, I can pass it to Chuck to determine how much of that revolving credit facility would expect to be paid into 2016. But it would not be certainly not be as significant and we would not, by the end of 2016, have repaid 100% of that revolving credit facility. I would estimate that we would probably pay something in the order of $50 million to $75 million on that revolving credit facility on the assumption of the metal prices last night. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [56] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [57] -------------------------------------------------------------------------------- And that includes of course, Tanya, the improvements to production by the end of this year and as it extends into 2016. That also assumes that if you make the assumption that we've not sold Brio, then that assumes that we are getting production from Pilar, Fazenda Brasileiro and C1 Santa Luz and we're getting the full benefit of the currency improvements that are occurring between the US dollar and the Brazilian reals. And these assets, because 85% of their cost structure is locally denominated, perhaps even a bit more than 85%, then we would expect to get a very significant windfall on the cost structures with that multiplier between the number of ounces and that cost structure. We've not calculated what the impact of that would be to the minutia to the outstanding credit that the Company has, because we've made the assumption that this is non-core and the actions that we intend to take as we've described. But if we go on your assumption, then I would anticipate about $50 million and that might increase as a result of C1, Pilar and Fazenda Brasileiro continuing to perform and likely outperform because of the improvements in production and because of the improvements to their costs. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [58] -------------------------------------------------------------------------------- And so that would mean in that rate we would pay that off over the five years and that $50 million to $75 million? -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [59] -------------------------------------------------------------------------------- At those metal prices, if that was sustainable throughout that period, the answer is, yes. And we've already budgeted them in terms of what do with the outstanding bonds that come due and we've already budgeted the ability to be able to repay that. The variable is, how much of the revolver would be repaid? And that's that variable between how much is generated through internal cash flows based on metal prices and how much is generated through the sale of assets. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [60] -------------------------------------------------------------------------------- Okay. And then where does the dividend stand in all of this? -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [61] -------------------------------------------------------------------------------- Tanya, I know that some of our peers have taken the step of producing their dividend over the course of the last several days. We did that late last year. Perhaps we were wrong to have done it late last year. Perhaps we're prescient because an anticipation of risk to metal prices. So dividend review is done on a quarterly basis by our Board of Directors. We go through a lot of discussion on the dividend, the sustainability of the dividend, we look at yield, we look at yield to cash flow, to share price, we look at sustainability of cash flow, potential for increase in cash flow. Where I currently stand at the present time is what we did yesterday, which is we declared a dividend and we think that that's a sustainable level of dividend that this Company can afford to pay in light of current metal prices and in light of what we anticipated late last year of the decline in metal prices, which we have seen. But also, on the flip side of that, increases in production that are forthcoming and the improvement to the cost structure as a result of inputs coming down. So on balance, my conclusion is that we think it is at the dividend at the current level is sustainable. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [62] -------------------------------------------------------------------------------- So at an $1,100 gold price then, keeping the the current dividend, bearing selling of any assets and/or other based on your budgets for your mines, $50 million to $75 million per annum reduction in the credit facility plus paying the dividend and keeping a minimum $100 million to $150 million in cash? -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [63] -------------------------------------------------------------------------------- That's correct. And as I said, that $50 million isn't until late next year. Not this year. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [64] -------------------------------------------------------------------------------- Okay. And nothing has changed on the three covenants that Chuck or their definitions on the credit facility? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [65] -------------------------------------------------------------------------------- No, the definitions are the same and we still have a lot of headroom under all of them. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [66] -------------------------------------------------------------------------------- And that will be the same? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [67] -------------------------------------------------------------------------------- That level's the same. -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [68] -------------------------------------------------------------------------------- Tanya, if it's any comfort to you and to others, we actually extended our revolving credit facility from four years to five years and we improved the payment grid. The payment grid that we're paying now is actually less than it was before. So certainly someone with credit experience is taking the position that we are a really really good credit. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [69] -------------------------------------------------------------------------------- Okay. Thank you. Maybe just on my technical question. It's got to go back to Jacobina. Now that we are in this higher grade and I know we talked about this 100,000 ounce production this year and then with the higher grade, we're up to that 120,000 to 130,000. How many months of development do we have ahead of production and how many stokes do we have now and what do we need to sustain that higher amount? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [70] -------------------------------------------------------------------------------- Good question, Tanya. This is Gerardo. We were declaring in the MD&A, we experienced a delay to pick up the development rate this year. We started with a new contractor, we changed the contract one and we changed the approach to read the higher-grade areas. So in front of us we have about four months of production now. The target as a definition going forward is to be between six months to a year. As we went past the development and continue going forward, that will improve. The finance target that we have for every mine in underground mine is to have one year developed reserves. But we're there at Jacobina. We think we can achieve that by the end of the year. One other factor there is that at the same time that we are advancing the development, we are doing the delineation drilling so that has to be combined and planned so we have the information. And that is affecting a little bit also the performance of development, but we are sure that's the way to go. Advance development, delineation drilling and then mining. We are not in a rush to get to the areas of mining without the information, the additional information coming from the delineation drilling. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [71] -------------------------------------------------------------------------------- And how many stokes do we have today that we are drawing this production from, and where do we need to get stope-wise for the 120,000 to 130,000? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [72] -------------------------------------------------------------------------------- Yet, as a principal we are operating for four mines and each mine has a different composition of particular stokes, between four and six for each. But that changes with the sequence. But 40 independent mines with accesses that are independent so we have the flexibility going forward. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [73] -------------------------------------------------------------------------------- Okay. And is there enough ventilation? -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [74] -------------------------------------------------------------------------------- Yes, good question. Over the last year, in the second half of last year, we improved our services for the mine only ventilation but also at power distribution, water and drainage. And that has sustained now for the advance or increase in development rights in the second quarter and then in the second half of the year. -------------------------------------------------------------------------------- Tanya Jakusconek, Scotiabank - Analyst [75] -------------------------------------------------------------------------------- Okay. Good. Thank you. -------------------------------------------------------------------------------- Gerardo Fernandez, Yamana Gold Inc. - SVP of Southern Operations [76] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [77] -------------------------------------------------------------------------------- Thank you. There are no further questions registered at this time. I would like to return the meeting to Mr. Marrone. -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [78] -------------------------------------------------------------------------------- As is our practice at the end of this meeting, there are many questions, exceptional questions, asked and there are perhaps some pickups on some of the questions and clarifications. First of all, the question that has been asked by several people about Jacobina, I think these are important things. Early last year we were two weeks ahead on development work and now we're at four months to six months and we plan to be further down that path by the end of the year. That goes to the point that I've been making about making sure that we are planning more effectively and executing on those plans. Secondly, we have already, as part of those plans, we've risk-adjusted Jacobina because of its history. So when Gerardo refers to 120,000 to 130,000 ounces, we are taking -- we're not taking into account full plants and we're not taking into account full grade. If we did take it to account full grade and full plant, then that number increases vary dramatically and again, a mathematical calculation takes it to 150,000 ounces. So, our position is very clear. Part of planning and then executing on that plan, is to take a slow and steady state and to risk-adjust where there has been some historical challenge. We are dealing with all those historical challenges, but that's an important way to evaluate the philosophy that we have in the Company. Another question that was asked was about the Gualcamayo and the clay zones and one of the questions that has been asked separately then is about recoveries. Recoveries will normalize of we said in our MD&A and as Gerardo touched in his presentation. So they will normalize to historical levels. It happens to be that it goes through months and quarters where it is lower and then it normalizes over a longer period of time as the leaching percolates. Chuck, you had an observation you wanted to make for some this? -------------------------------------------------------------------------------- Chuck Main, Yamana Gold Inc. - CFO [79] -------------------------------------------------------------------------------- Yes, I just wanted to -- Patrick had asked about the hedging and I should have just mentioned the copper hedge. So as of June 30, we still have 37 million pounds of copper hedged at $3. That's a continuation of the hedge we had on for the year, which basically provided us an incremental $5 million in cash in the second quarter and $12 million for the first half. So that carries on for the second half of the year. -------------------------------------------------------------------------------- Peter Marrone, Yamana Gold Inc. - Chairman & CEO [80] -------------------------------------------------------------------------------- So we hedged 60% of our copper production at Chapada $3 per pound. This is before the declining copper price and we felt that there was a risk to copper price and we took advantage of that. One of the other questions and Chuck that was asked was about the currency hedging and presently, we have no intention of hedging our currencies. If one assumes that the US dollar continues to be strong particularly as it relates to emerging market currencies, and currencies where there is a heavy dependence on commodities, that would include the Canadian currency, then we think that there is upside for the further devaluation of these currencies. We have been right throughout the year and we think that the prudent course for us is not a hedge anymore of our currencies at the present time. And if one assumes that there is risk to go price, then one should also assume that there is opportunity for improvement to the currencies, to the four ex, that means that we should not be hedging those currencies. That's the approach we intend to take throughout this year and into next year. So with that, ladies and gentlemen, thank you very much for your participation on the call and we will look forward to meeting with you again throughout the course of the quarter and then on our quarterly conference call for Q3. -------------------------------------------------------------------------------- Operator [81] -------------------------------------------------------------------------------- Thank you. That concludes today's conference call. Please disconnect your lines at this time and we thank you for your participation.
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