YAMANA GOLD INC. (TSX:YRI; NYSE:AUY) (“Yamana” or the “Company”)
today announced it has completed the sale of its wholly-owned
Chapada mine to Lundin Mining Corporation (TSX:LUN) (“Lundin”) for
total consideration of over $1.0 billion.
Yamana has received the initial upfront cash
consideration of $800 million on closing. In addition to the
initial cash payment, consideration also includes a $100 million
cash payment contingent on the development of a pyrite roaster at
Chapada by Lundin, a two per cent net smelter return (“NSR”)
royalty on the Suruca gold project in the Chapada complex, and a
right to receive up to $125 million in additional cash
consideration (“the Gold Price Instrument”) based on the price of
gold over the five-year period from the date of closing as
follows:
- $10 million per year for each year over the next five years
where the gold price averages over $1,350 per ounce, up to a
maximum cash payment of $50 million.
- An additional $10 million per year for each year over the next
five years where the gold price averages over $1,400 per ounce, up
to a maximum cash payment of $50 million.
- An additional $5 million per year for each year over the next
five years where the gold price averages over $1,450 per ounce, up
to a maximum cash payment of $25 million.
(All amounts are expressed in United States
Dollars unless otherwise indicated.)
While the Company recognized significant cash
consideration from the sale, representing fair value, there is also
considerable optionality from the non-cash components, a very
substantial portion of which relates to gold and gold price, the
result of which is that the Company preserves leverage to gold that
it would otherwise have produced at Chapada without incurring
operational risk.
The Gold Price Instrument is structured as a
separate right that increases in value when the price of gold
rises. The Gold Price Instrument entitles the Company to be paid
according to its terms, summarized above. While Yamana will hold
the Gold Price Instrument so that it is paid under its terms to the
maximum amount, the Company has not overlooked the considerable
value that the Gold Price Instrument carries and could be monetized
at any time. In fact, the rise in gold prices since the sale of
Chapada was announced has already considerably increased the value
of the instrument. The Company approximates that the increase in
value is comparable to additional cash flows that would be
generated from gold production at Chapada over the next several
years were gold prices to remain at these increased levels. This
increased value is generated up front and preserves optionality to
gold and gold price increases as if the Company were producing gold
without operational risk.
The two per cent NSR on gold production from the
Suruca gold project is a conventional NSR on all gold production
from the Suruca oxide deposit and the considerably larger sulphide
deposit below the oxides. The oxide deposit has already undergone a
feasibility study which supports additional production of
45,000-50,000 ounces of gold per year for a modest capital cost.
The sulphide deposit already carries more than one million ounces
and is open along strike. Suruca would be developed as a near
surface open pit with heap leach processing for the oxides and
carbon in leach (“CIL”) for the sulphides. The Company recognizes
considerable value in the NSR and the optionality in gold without
operational risk, not unlike the model adopted by royalty and
streaming companies.
Concurrently with the closing, the Company is
using $385 million to repay outstanding indebtedness under the
revolving credit facility, the balance outstanding on June 30th and
on close of the transaction. The remaining $415 million in upfront
cash consideration is being used by the Company to offer to prepay
its senior notes issued in March 2012 and June 2013 on a pro rata
basis (“Prepay Offers”). These Prepay Offers have been
distributed simultaneously with the closing of the Chapada sale.
The Prepay Offers indicated that in the event cash consideration
remains available, the balance will be used to prepay indebtedness
under the Company’s senior notes issued in June 2014 and December
2017.
“When we announced the sale of Chapada, we said
that we would use the proceeds to immediately pay down debt,” said
Jason LeBlanc, Chief Financial Officer of Yamana. “With the sale
now closed, we are doing exactly what we said we were going to
do.”
LeBlanc added that, “With our improved financial
flexibility and a more favourable gold price environment, we are
well positioned to benefit from the contingent payments that are
part of the Chapada sale, advance organic growth opportunities like
the Jacobina phased expansion, increase cash flow, and further
reduce debt.”
The reduction in net debt immediately lowers
Yamana’s Net Debt/EBITDA leverage ratio, a measure of financial
strength, to 1.5x. The Company continues to target Net
Debt/EBITDA of 1.0x by the end of 2021.
Beyond the leverage improvements, the Company
will significantly reduce the annual carrying cost of interest on
debt by approximately $40 million, freeing up cash for other uses
or to further improve its net debt position. As part of the debt
Prepay Offers, the Company expects to pay a premium to reference or
trading levels of its notes. The annual reduction of interest
savings and, further, the present value of interest savings will be
a multiple of the total premium offered in the prepayment
transaction. Importantly, the resultant cash flow margin increases
from interest savings improves the Company’s resiliency and
flexibility.
The overall financial flexibility afforded by
the Chapada sale sets the stage for a number of positive catalysts,
including the previously announced phased expansion of Jacobina,
which is advanced and ahead of schedule, the evaluation of the
Odyssey and East Malartic deposits, and the advancement of the Agua
Rica project.
CONTINUING EFFORTS RELATING TO
EFFECTIVENESS WITH CHANGE IN SIZE OF BOARD
The Company will pursue these and other
value-enhancing initiatives as a leaner, nimbler organization as
per recently announced reductions in corporate functions leading to
reductions in corporate overhead costs. The streamlined
organizational structure will facilitate improved communication and
information sharing between sites and head office and reflects the
smaller asset portfolio resulting from the sale of Chapada.
Consistent with these changes, and to better reflect a new size
and scale, the Company also announced today a reduction in the size
of its Board of Directors the result of which is that the Board
will now be reduced to nine with eight independent directors. This
is part of a broader strategy intended to ensure the Company has
the proper skills and diversity as well as effectiveness in
management and director oversight.
In order to facilitate this strategy, two of the directors of
the Company, Messrs Nigel Lees and Robert Gallagher, have agreed to
step down from the Board. While Mr. Lees has been a long-serving
member of the Board, he had reached retirement age and chose to
make way for a new generation of directors. As for Mr. Gallagher,
he has been instrumental in the recent efforts of the Company to
pursue operational excellence, which have now been fulfilled.
Both Messrs Lees and Gallagher felt the oversight of the Company
was now well in hand and volunteered to step down from the Board to
facilitate the strategy that smaller and more streamlined is
better. For a transition period of time, Mr. Gallagher has
indicated that he will continue to be available to the Company for
any advice or support it may need. The Company would like to extend
its deep gratitude and appreciation to Messrs Lees and Gallagher
for their significant contribution to Yamana.
Yamana continues to maintain significant diversity on its Board
with independent directors in many disciplines from exploration to
project development to mining, finance, sustainability, and
corporate governance. In addition, as a result of these immediate
changes, the Company now maintains an unparalleled gender diversity
mix with 50 per cent female directors among its independent
directors.
About Yamana
Yamana is a Canadian-based gold, silver and copper producer with
a significant portfolio comprised of operating mines, development
stage projects, and exploration and mineral properties throughout
the Americas, mainly in Canada, Brazil, Chile and Argentina.
Yamana plans to continue to build on this base through expansion
and optimization initiatives at existing operating mines,
development of new mines, the advancement of its exploration
properties and, at times, by targeting other consolidation
opportunities with a primary focus in the Americas.
FOR FURTHER INFORMATION, PLEASE CONTACT:Investor Relations and
Corporate Communications416-815-02201-888-809-0925Email:
investor@yamana.com
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS: This news release contains or
incorporates by reference “forward-looking statements” and
“forward-looking information” under applicable Canadian securities
legislation within the meaning of the United States Private
Securities Litigation Reform Act of 1995. Forward-looking
information includes, but is not limited to information with
respect to the Company's strategy, plans or future financial or
operating performance and the anticipated use of the cash
consideration from the sale of the Chapada mine. Forward-looking
statements are characterized by words such as "plan," "expect",
"budget", "target", "project", "intend", "believe", "anticipate",
"estimate" and other similar words, or statements that certain
events or conditions "may" or "will" occur. Forward-looking
statements are based on the opinions, assumptions and estimates of
management considered reasonable at the date the statements are
made, and are inherently subject to a variety of risks and
uncertainties and other known and unknown factors that could cause
actual events or results to differ materially from those projected
in the forward-looking statements. These factors include the
Company's expectations in connection with the expected use of
proceeds discussed herein, as well as those risk factors discussed
or referred to herein and in the Company's Annual Information Form
filed with the securities regulatory authorities in all provinces
of Canada and available at www.sedar.com, and the
Company's Annual Report on Form 40-F filed with the United
States Securities and Exchange Commission. Although the Company has
attempted to identify important factors that could cause actual
actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors
that cause actions, events or results not to be anticipated,
estimated or intended. There can be no assurance that
forward-looking statements will prove to be accurate, as actual
results and future events could differ materially from those
anticipated in such statements. The Company undertakes no
obligation to update forward-looking statements if circumstances or
management's estimates, assumptions or opinions should change,
except as required by applicable law. The reader is cautioned not
to place undue reliance on forward-looking statements. The
forward-looking information contained herein is presented for the
purpose of assisting investors in understanding the Company's
expected plans and objectives in connection with the Sale
Transaction and may not be appropriate for other purposes.
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