YAMANA GOLD INC. (TSX:YRI; NYSE:AUY) (“Yamana” or “the Company”) is
herein reporting its financial and operational results for the
first quarter 2019.
The Company exceeded total gold-equivalent
ounces ("GEO")(1) production expectations, and achieved this at GEO
costs in line with expectations. For 2019, the Company’s
mine-by-mine outlook for production and costs is unchanged.
GEO production for the first quarter was 271,987
reflecting strong performance across the Company’s operations,
including year-on-year production increases of 12% at Jacobina, 6%
at Minera Florida and continued strong contributions from Cerro
Moro. Total gold production was 235,958 ounces and total silver
production was 3.02 million ounces. The Company also produced 28.1
million pounds of copper.
First quarter all-in sustaining costs (“AISC”)
on a by-product basis(2) were $865 per GEO, cash costs on a
by-product basis(2) were $526 per GEO, and total cost of sales were
$1,098 per GEO.
Net loss from operations attributable to Yamana
equity holders was $4.1 million or $0.00 per share basic and
diluted. This includes certain non-cash and other items that may
not be reflective of current and ongoing operations reducing the
Company's earnings by $28.1 million or $0.03 per share. Adjusted
earnings(2), excluding certain items (see below), were $24.0
million or $0.02 per share.
Cash flows from operating activities for the
first quarter were $12.4 million and cash flows from operating
activities before net change in working capital were $103.2
million. These amounts include amortization of deferred revenue of
$25.1 million related to deliveries under the Company’s copper
advanced sales program during the quarter. The program began in the
third quarter of 2018 and will continue through the second quarter
of 2019. If not for the timing difference of cash proceeds
attributable to this transaction, the Company’s cash flows from
operating activities before net change in working capital would
have been higher by those amounts during the quarters as
follows:
(All amounts are expressed in United States Dollars unless
otherwise indicated.)
1. Gold equivalent ounces
include gold plus silver converted to a gold equivalent at a ratio
of 83.76:1 for the current period and 76.92:1 for the comparative
period.2. Refers to a non-GAAP financial measure or an
additional line item or subtotal in financial statements as
described at the end of this press release. Reconciliations
for all non-GAAP financial measures are available at
www.yamana.com/Q12019 and in Section 10 of the Company’s first
quarter 2019 Management’s Discussion & Analysis, which has been
filed on SEDAR.
(In millions of United States Dollars, unless otherwise noted) |
For the Three Months Ended |
|
Illustration of impact
due to copper advanced sales program |
March 31,2018 |
June 30, 2018 |
September 30, 2018 |
December 31,2018 |
March 31,2019 |
June 30, 2019(4) |
Cumulative impact |
Copper pounds to be delivered per contract (millions) |
|
|
|
13.2 |
|
10.7 |
|
8.2 |
|
8.2 |
|
40.3 |
Cash flows from
operating activities before net change in working capital(3) |
$ |
206.4 |
|
$ |
157.5 |
$ |
86.6 |
$ |
115.8 |
$ |
103.2 |
$ |
— |
$ |
— |
Impact due to copper
advanced sales program |
|
(125.0 |
) |
|
— |
|
41.7 |
|
33.3 |
|
25.1 |
|
24.9 |
|
— |
Cash
flows from operating activities before net change in working
capital, normalized for the copper advanced sales
program(3) |
$ |
81.4 |
|
$ |
157.5 |
$ |
128.3 |
$ |
149.1 |
$ |
128.3 |
$ |
— |
$ |
— |
3. Refers to a non-GAAP financial measure or an
additional line item or subtotal in financial statements. Please
see the discussion included at the end of this press release under
the heading “Non-GAAP Financial Measures and Additional Line Items
and Subtotals in Financial Statements”. Reconciliations for all
non-GAAP financial measures are available at
www.yamana.com/Q12019 and in Section 10 of the Company’s first
quarter 2019 Management’s Discussion & Analysis, which has been
filed on SEDAR. Adjusted operating cash flows are adjusted for
payments not reflective of current period operations and advance
payments received pursuant to metal purchase agreements.4. For
illustration purposes only; the Company intends to provide
information each subsequent period reflecting the impact due to the
copper advanced sales program over its term.
Subsequent to the quarter end, the Company
arranged for the sale of approximately 27,000 GEO in Cerro Moro
precipitate inventory, which will be reflected in gross revenue and
operating cash flow in the second quarter of approximately $34.5
million. The Company expects a further sale of precipitate in June
2019 with a value in excess of $10 million, following which the
precipitate inventory at Cerro Moro is expected to return to normal
levels.
The Company's strong financial position is
expected to improve further over the year with the continuation of
robust operating results, the sale of unrefined gold and silver
carried over from both 2018 and the first quarter of 2019 and the
expected receipt of $800 million in cash from the recently
announced sale of Chapada. As anticipated, cyclical first quarter
payments are reflected in the negative movement in working capital
from December 31, 2018, which include the payment of year-end
related accruals and timing of regular trades payables, precipitate
inventory build-up at Cerro Moro and other mines and indirect tax
credit build-up at certain operations. These items also impacted
debt and Net Free Cash Flow(2) compared to December 31, 2018, as
anticipated in the Company's plans. With the reversal of these
impacts beginning in the second quarter of 2019, the Company is
expected to be positioned to deliver near-term improvements in cash
flow and Net Free Cash Flow(2) consistent with its annual plan.
The balance sheet as of March 31, 2019, included
cash and cash equivalents of $110.4 million and available credit of
$585.0 million, for total liquidity of $695.4 million. Net Debt as
of March 31, 2019 was $1.77 billion.
Summary of Certain Non-Cash and Other Items Included in
Net Earnings
(In millions of United States Dollars, per share amounts may not
add due to rounding, unaudited) |
Three Months Ended March 31st |
|
|
2019 |
|
|
2018 |
|
Non-cash unrealized foreign exchange losses |
|
10.0 |
|
|
3.3 |
|
Share-based
payments/mark-to-market of deferred share units |
|
3.6 |
|
|
0.8 |
|
Mark-to-market losses
(gains) on derivative contracts |
|
7.0 |
|
|
(10.1 |
) |
Net mark-to-market
(gains) losses on investments and other assets |
|
(0.5 |
) |
|
1.0 |
|
Revision in estimates
and liabilities including contingencies |
|
(1.2 |
) |
|
5.2 |
|
Gain on sale of
subsidiaries |
|
— |
|
|
(39.0 |
) |
Impairment of mining
and non-operational mineral properties |
|
— |
|
|
181.0 |
|
Financing costs paid on
early note redemption |
|
— |
|
|
14.7 |
|
Reorganization
costs |
|
0.1 |
|
|
2.4 |
|
Other provisions,
write-downs and adjustments |
|
3.2 |
|
|
7.8 |
|
Non-cash tax on
unrealized foreign exchange losses |
|
20.2 |
|
|
4.8 |
|
Income tax effect of
adjustments and other one-time tax adjustments |
|
(14.3 |
) |
|
5.3 |
|
Total adjustments
- increase to earnings attributable to Yamana equity
holders |
$ |
28.1 |
|
$ |
177.2 |
|
Total adjustments - increase to earnings per share
attributable to Yamana equity holders |
$ |
0.03 |
|
$ |
0.19 |
|
Note: For the three months ended March 31, 2019,
net earnings from continuing operations, attributable to Yamana
equity holders, would be adjusted by an increase of $28.1 million
(2018 – increase of $177.2 million).
Strategic Developments
Agua Rica, Argentina
On March 7, 2019, the Company signed an
integration agreement with Glencore International AG and Newmont
Goldcorp (collectively the “Parties”) pursuant to which the Agua
Rica project would be developed and operated using the existing
infrastructure and facilities of Minera Alumbrera Limited in the
Catamarca Province of Argentina. The agreement represents a
significant step forward towards the optimization and
development of Agua Rica. The Alumbrera infrastructure,
including the existing infrastructure for concentrate logistics
located in northern Argentina between the mine site and the port,
presents a unique opportunity to enhance project economics while
also reducing both the project complexity and environmental
footprint.
The Parties have established a technical
committee to direct the review and evaluation of the integrated
project. It is expected that a pre-feasibility study for the
integrated project will be completed in mid-2019 and that a full
feasibility study with updated mineral reserve, production and
project cost estimates will be completed by mid-2020. This
will provide the framework for the submission of a new
Environmental Impact Assessment (“EIA”) to the authorities of the
Catamarca Province and for the continued engagement with local
stakeholders and communities. The Company is evaluating beginning
the EIA process in 2019, given the level of significant detail in
the pre-feasibility study.
Chapada, Brazil
Subsequent to the quarter end, the Company
announced a definitive agreement to sell the wholly-owned Chapada
mine to Lundin Mining Corporation for total consideration of over
$1.0 billion (the "Sale Transaction"), which reflects Chapada's
full value including the anticipated plant expansion.
The Sale Transaction will enhance the Company’s
position as a dominant intermediate precious metals company with a
high quality asset portfolio, a robust balance sheet and cash flow
profile, and peer-leading jurisdictional focus. The Company will
have a greater concentration of precious metals while still
maintaining significant copper exposure through Agua Rica. Upon
closing of the sale, a significant and immediate improvement to
overall financial flexibility is expected to allow for the pursuit
of near-term value maximizing opportunities that are currently in
the Company's portfolio and also to increase shareholder returns,
initially by way of a 100% increase in the annual dividend. In
summary, beyond this enhanced industry position, the financial
benefits of the sale, on closing, are expected to be as
follows:
- Improved Financial Flexibility –
The sale is expected to provide a significant improvement to the
Company’s financial flexibility going forward as follows:
- The lower debt levels will result in interest savings in excess
of $35 million per annum over the tenure of the debt.
- Chapada's five-year plan to maintain GEO guidance levels
included total sustaining and expansionary expenditures of $458
million and $240 million, respectively, which will now not be
incurred by the Company. While Chapada maintains a long life
based on mineral inventory, it is expected that sustaining and
expansionary expenditures would significantly reduce free cash
flows during the period that coincides with reduced production,
particularly for gold, resulting in less operating cash flow than
in previous periods.
- The Company’s Net Free Cash Flow(2) that would have been
required for Chapada’s sustaining and expansionary capital
expenditures can now be applied for the maximization of value
enhancing opportunities at the Company’s other operations,
including further production at Jacobina and Canadian Malartic and
improvements to costs at Cerro Moro, which derive significantly
better returns, as well as expected costs lower than the previous
Phase 2 and Phase 3 expansion plans for Chapada. Consistent with
the Company’s strategy, these opportunities are to be funded
organically by cash flows from operations with the expected capital
requirements to be covered by Net Free Cash Flow(2).
- Immediate Leverage Reduction – The
up-front cash consideration of $800 million provides for
significant deleveraging benefits highlighted by a decline in
current Net Debt leverage ratio to 1.5x from the year-end 2018
value of 2.5x with an opportunity for further reductions based on
the contingent payments. The Company is prioritizing the
repayment of the outstanding revolving credit facility and then the
repayment of near and medium-term fixed term debt maturities.
- Increased Shareholder Returns,
Dividend Increased – The improved balance sheet and interest
savings will enable the Company, as approved by the Board of
Directors and conditional on closing of the Sale Transaction, to
double its annual dividend to $0.04 per share. This improves
returns to shareholders while allowing the Company flexibility for
further future capital returns.
The Sale Transaction is subject to customary
regulatory and third party approvals and other customary closing
conditions and is expected to close in the third quarter of
2019.
Expansion opportunities at Jacobina,
Brazil
- At Jacobina, the Company has developed a two-phase plan to
increase production beyond 150,000 GEO per year, as follows:
- The first phase considers
production increases to between 165,000 to 170,000 ounces per year
through a mill optimization to 6,500 tonnes per calendar day
(“tpd”) from the current operating rate of 5,800 tpd. This compares
to prior year production of roughly 145,000 ounces representing
approximately 20,000-25,000 additional ounces of production.
This phase requires very modest capital and is expected to be
implemented by mid-2020.
- The second phase considers a larger
increase in the plant capacity to between 8,000 and 8,500 tpd,
which would significantly increase production, estimated to exceed
225,000 ounces per year, with current preliminary estimates of
total capital expenditures of $100 million over the expected
implementation period up to 2022.
Expansion opportunities at Canadian
Malartic, Canada
- At Canadian Malartic, studies show the potential for production
increases of approximately 75,000 GEO per year (based on Yamana's
50% interest) with project costs and economics currently under
evaluation.
- Opportunities at Odyssey, East Malartic, Sladen and Sheehan
zones have the potential to provide new sources of ore for the
Canadian Malartic mill. The extraction is expected to be by way of
underground mining methods with ore fed to the existing Malartic
mill, displacing a portion of the lower grade open pit ores. The
permit allowing for the development of an underground ramp at the
Odyssey project was received in December 2018.
These opportunities, including those for other
mines, are expected at total costs lower than the previous
expansion plans for Chapada. Consistent with the Company’s
strategy, these opportunities are to be funded organically by cash
flows from operations with the expected capital requirements to be
covered by Net Free Cash Flow(2).
Rand Malartic Acquisition: Increased
Canadian Malartic Land Package
On March 26, 2019, the Canadian Malartic General
Partnership acquired the Rand Malartic property adjacent to the
east side of the Canadian Malartic property. The Rand Malartic
property covers 262 hectares and extends 1.7 kilometres eastward
along the Cadillac - Larder Lake break within the Piché Group,
immediately east of the Odyssey project.
The Rand Malartic property has the same
favourable geological features as the Odyssey project, with several
porphyry intrusions in the southernmost portion of Piché Group
volcanic rocks. The #39 and #67 zones are porphyry-hosted with
similar mineralogy and alteration to Odyssey; the former appears to
be geologically continuous with the Odyssey South Zone. In
addition, the geological environment is similar to the historical
Malartic Gold Fields mine located 3 kilometres to the east on the
adjoining Midway property.
A budget of $1.9 million (on a 100% interest
basis) has been allocated for the 2019 exploration program at Rand
Malartic including an initial 10,000 metres of drilling to test the
eastern extension of the Odyssey project and its possible
continuity onto the Rand Malartic property. The near-surface
potential will also be investigated. Exploration drilling in the
first quarter has focused on defining several internal zones in the
Odyssey deposit and expanding Odyssey towards the property boundary
with Rand Malartic.
CONSTRUCTION, DEVELOPMENT AND
EXPLORATION
Canadian Malartic (50% interest),
Canada
The Canadian Malartic Extension Project is
continuing according to plan with contributions from Barnat
expected to begin in 2019 with more meaningful contributions in
2020. On a 50% ownership interest basis, expansionary capital
expenditures are expected to be $37 million, of which $34 million
is earmarked for the extension project in 2019. Work continues to
focus on the highway 117 road deviation, which is expected to be
completed by the end of 2019, overburden stripping and rock
excavation.
Suyai, Argentina
The Company previously completed several studies
that evaluated two options for ore processing, both of which
provide favourable project economics. The first considered the
construction of a CIL processing facility for the on-site
production of gold and silver in the form of doré. The second
considered the construction of a processing facility for on-site
production of gold and silver contained in a high-grade
concentrate, which would be shipped abroad for subsequent precious
metal recovery. Both approaches considered an identical underground
configuration with average annual production expected to be in
excess of 200,000 ounces of gold and 300,000 ounces of silver. The
Company believes both scenarios address past concerns regarding
open pit mining, and the development scenario that includes
production of an on-site concentrate addresses many of the past
concerns regarding the use of cyanide, and would potentially meet
provincial regulations currently in place in Chubut. The Company
will work with local stakeholders to obtain and sustain its social
license should the project progress to a more advanced stage.
The Company continues to pursue development
plans and other strategic alternatives for the project. Given the
extensive amount of work performed to date, the existing scoping
study could rapidly progress to a feasibility study, allowing for
the project to be developed in a short time frame. The Suyai
project is a development-ready project with significant financial
and social benefits to the local community, along with the broader
provincial and national communities. As and when the provincial
moratorium on mining lapses and the Company has completed
favourable engagement with the local community, the Company would
expedite its development plans for the project.
Monument Bay, Canada
The Monument Bay deposits are hosted in the
Stull Lake Greenstone Belt comprised of three volcanic assemblages
ranging in age from 2.85 to 2.71 billion years. Gold and
tungsten mineralization occurs along the steeply north dipping Twin
Lakes Shear Zone and the AZ Sheer Zone.
In 2019, the focus of exploration is to define
drill targets through a thorough re-evaluation of the geology and
mineralized zones. Drilling of 5,000 metres is planned as a follow
up to the ongoing re-log and geological studies.
Other
The Company continues to pursue development and
strategic initiatives for the 56.7% held Agua De La Falda joint
venture with Codelco, located in northern Chile. The
historical Jeronimo Feasibility Study focused on maximizing
production from the sulfide deposits. The Company completed
the study of a low capital start-up project based on the remaining
oxide inventory with positive results and is evaluating exploration
plans on the highly prospective claims surrounding the mine.
Re-logging of historical holes and exploratory drilling supported
the potential to extend the oxide mineralization as well as
potential for copper/gold deposits within the joint venture claims.
Agua De La Falda has processing capacity and infrastructure already
installed.
Exploration
Continuation of the exploration programs started
early in 2019 with the objective of advancing important exploration
discoveries at the Company's existing operations. In the near term,
the Company plans to increase its exploration spending during the
year, further building mineral reserves and mineral resources at
key operations as well as building a pipeline of exploration
opportunities to ensure future growth. Exploration plans will focus
on extending mine life at Cerro Moro, El Peñón and Minera Florida
while increasing grade, mineral resources and mine life at Jacobina
and Canadian Malartic, to allow increases in production at low
costs. In particular at Jacobina, over the course of the year,
exploration spend will be allocated to support the planned
expansion and the program targets new mineral reserves at a grade
of 3.0 g/t or better.
HEALTH, SAFETY, ENVIRONMENT AND
CORPORATE RESPONSIBILITY
The Company's Total Recordable Injury Frequency
Rate was 0.6 for the first quarter of 2019.
- All Yamana operations completed the
first month of 2019 with zero Lost Time Injuries. This is an
improvement from previous years, as the first quarter has
historically seen higher average rates of Health and Safety
injuries compared with the remainder of the year.
- In conjunction with the local
communities and authorities, Jacobina led an emergency response
exercise in February.
- The simulation helps test the
preparedness of the mine, the community and supporting authorities
for serious incidents that could affect the community, such as
tailings emergencies.
KEY STATISTICS
Key operating and financial statistics for the
first quarter 2019 are outlined in the following tables.
Financial Summary
|
Three Months Ended March 31st |
(In millions of United
States Dollars except for shares and per share amounts,
unaudited) |
2019 |
|
2018 |
|
Revenue |
407.1 |
|
454.7 |
|
Cost of sales excluding
depletion, depreciation and amortization |
(205.8 |
) |
(264.2 |
) |
Depletion, depreciation
and amortization ("DDA") |
(117.7 |
) |
(104.1 |
) |
Total cost of
sales |
(323.5 |
) |
(368.3 |
) |
Mine operating
earnings/(loss) |
83.6 |
|
(16.6 |
) |
General and
administrative expenses |
(21.5 |
) |
(26.2 |
) |
Exploration and
evaluation expenses |
(2.5 |
) |
(3.8 |
) |
Net loss |
(4.1 |
) |
(167.6 |
) |
Net loss attributable
to Yamana Gold equity holders |
(4.1 |
) |
(160.1 |
) |
Net loss per share
attributable to Yamana Gold equity holders - basic and
diluted(1) |
— |
|
(0.17 |
) |
Cash flow generated
from operations after changes in non-cash working capital |
12.4 |
|
122.4 |
|
Cash flow from
operations before changes in non-cash working capital |
103.2 |
|
206.4 |
|
Revenue per ounce of
gold |
1,292 |
|
1,322 |
|
Revenue per ounce of
silver |
15.52 |
|
16.50 |
|
Revenue per pound of
copper |
3.07 |
|
2.61 |
|
Average realized gold
price per ounce |
1,301 |
|
1,328 |
|
Average realized
silver price per ounce |
15.52 |
|
16.93 |
|
Average
realized copper price per pound |
2.91 |
|
3.13 |
|
- For the three months ended March 31, 2019, the weighted average
numbers of shares outstanding, basic and diluted, was
949,918,000.
Production, Financial and Operating Summary
Costs |
Three Months Ended March 31st |
(In United States
Dollars) |
2019 |
2018 |
Per GEO sold |
|
|
Total cost of sales |
$ |
1,098 |
$ |
1,049 |
Cash Costs |
$ |
666 |
$ |
703 |
AISC |
$ |
930 |
$ |
990 |
By-product Cash
Costs |
$ |
526 |
$ |
501 |
By-product AISC |
$ |
865 |
$ |
840 |
Per Copper pound
sold |
|
|
|
|
Total cost of
sales |
$ |
1.79 |
$ |
1.79 |
Cash Costs |
$ |
1.65 |
$ |
1.72 |
AISC |
$ |
2.35 |
$ |
2.08 |
|
Three Months Ended March 31st |
Gold Ounces |
2019 |
2018 |
Canadian Malartic (50%) |
83,670 |
83,403 |
Chapada |
21,520 |
22,753 |
Jacobina |
38,617 |
34,525 |
Cerro Moro |
38,471 |
— |
El Peñón |
34,025 |
40,391 |
Minera Florida |
19,654 |
18,483 |
TOTAL |
235,958 |
199,555 |
|
Three Months Ended March 31st |
Silver Ounces |
2019 |
2018 |
Cerro Moro |
2,021,489 |
— |
El Peñón |
994,809 |
899,261 |
TOTAL |
3,016,298 |
899,261 |
|
Three Months Ended March 31st |
Copper Pounds
(million) |
2019 |
2018 |
Chapada |
28.1 |
30.4 |
For a full discussion of Yamana’s operational
and financial results, please refer to the Company’s first quarter
2019 Management’s Discussion & Analysis and Financial
Statements, which have been filed on SEDAR and are also available
on the Company’s website.
The Company will host a conference call and
webcast on Thursday, May 2, 2019, at 8:30 a.m. ET.
First Quarter 2019 Conference
Call |
|
|
|
Toll Free (North America): |
|
1-866-273-9672 |
Toronto Local and International: |
|
416-340-2216 |
Webcast: |
|
www.yamana.com |
|
|
|
Conference Call Replay |
|
Toll Free (North America): |
|
1-800-408-3053 |
Toronto Local and International: |
|
905-694-9451 |
Passcode: |
|
6784586 |
The conference call replay will be available
from 12:00 p.m. ET on May 2, 2019, until 11:59 p.m. ET on May 23,
2019.
Qualified Persons
Scientific and technical information contained
in this news release has been reviewed and approved by Sébastien
Bernier (Senior Director, Geology and Mineral Resources).
Sébastien Bernier is an employee of Yamana and a "Qualified Person"
as defined by Canadian Securities Administrators' National
Instrument 43-101 - Standards of Disclosure for Mineral Projects.
Data verification related to certain scientific and technical
information disclosed in this news release in connection with
Yamana’s material properties can be found in the Company’s Annual
Information Form dated March 28, 2019, available under the
Company’s profile on SEDAR at www.sedar.com and on the
Company’s website.
About YamanaYamana is a
Canadian-based gold producer with significant gold production, gold
development stage properties, exploration properties, and land
positions throughout the Americas including Canada, Brazil, Chile
and Argentina. Yamana plans to continue to build on this base
through existing operating mine expansions, throughput increases,
development of new mines, the advancement of its exploration
properties and, at times, by targeting other gold consolidation
opportunities with a primary focus in the Americas.
FOR FURTHER INFORMATION PLEASE CONTACT:Steve
ParsonsSenior Vice President, Investor Relations and Corporate
Communications 416-815-02201-888-809-0925 Email:
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, the outcome of the legal
matters involving the damages assessments and any related
enforcement proceedings. 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 sale of Cerro Moro
precipitate inventory, the outcome of various planned technical
studies, production and exploration, development and expansion
plans at the Company's projects discussed herein being met, the
impact of proposed optimizations at the Company's projects, changes
in national and local government legislation, taxation, controls or
regulations and/or change in the administration of laws, policies
and practices, and the impact of general business and economic
conditions, global liquidity and credit availability on the timing
of cash flows and the values of assets and liabilities based on
projected future conditions, fluctuating metal prices (such as
gold, copper, silver and zinc), currency exchange rates (such as
the Brazilian Real, the Chilean Peso and the Argentine Peso versus
the US Dollar), the impact of inflation, possible variations in ore
grade or recovery rates, changes in the Company’s hedging program,
changes in accounting policies, changes in mineral resources and
mineral reserves, risks related to asset disposition, risks related
to metal purchase agreements, risks related to acquisitions,
changes in project parameters as plans continue to be refined,
changes in project development, construction, production and
commissioning time frames, unanticipated costs and expenses, higher
prices for fuel, steel, power, labour and other consumables
contributing to higher costs and general risks of the mining
industry, failure of plant, equipment or processes to operate as
anticipated, unexpected changes in mine life, final pricing for
concentrate sales, unanticipated results of future studies,
seasonality and unanticipated weather changes, costs and timing of
the development of new deposits, success of exploration activities,
permitting timelines, government regulation and the risk of
government expropriation or nationalization of mining operations,
risks related to relying on local advisors and consultants in
foreign jurisdictions, environmental risks, unanticipated
reclamation expenses, risks relating to joint venture operations,
title disputes or claims, limitations on insurance coverage, timing
and possible outcome of pending and outstanding litigation and
labour disputes, risks related to enforcing legal rights in foreign
jurisdictions, the Company's expectations in connection with the
satisfaction of all closing conditions of the sale of Chapada, the
completion of the sale of Chapada, the expected use of proceeds
discussed herein the improvement of the Company's financial
flexibility, leverage reduction and increased shareholder returns
and delivering value creation over the long term, 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
financial and operational performance and results as at and for the
periods ended on the dates presented in the Company’s plans and
objectives and may not be appropriate for other purposes.
CAUTIONARY NOTE TO UNITED STATES INVESTORS
CONCERNING ESTIMATES OF MEASURED, INDICATED AND INFERRED MINERAL
RESOURCESThis news release has been prepared in accordance with the
requirements of the securities laws in effect in Canada, which
differ in certain material respects from the disclosure
requirements of United States securities laws contained in Industry
Guide 7. The terms “mineral reserve”, “proven mineral
reserve” and “probable mineral reserve” are Canadian mining terms
as defined in accordance with Canadian National Instrument 43-101
Standards of Disclosure for Mineral Projects (“NI 43-101”) and the
Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”)
- CIM Definition Standards on Mineral Resources and Mineral
Reserves, adopted by the CIM Council, as amended. These
definitions differ from the definitions in the disclosure
requirements promulgated by the Securities and Exchange Commission
(the “Commission”) contained in Industry Guide 7. Under
Industry Guide 7 standards, a “final” or “bankable” feasibility
study is required to report mineral reserves, the three-year
historical average price is used in any mineral reserve or cash
flow analysis to designate mineral reserves and the primary
environmental analysis or report must be filed with the appropriate
governmental authority.
In addition, the terms “mineral resource”,
“measured mineral resource”, “indicated mineral resource” and
“inferred mineral resource” are defined in and required to be
disclosed by NI 43-101. However, these terms are not defined
terms under Industry Guide 7. Investors are cautioned not to
assume that any part or all of the mineral deposits in these
categories will ever be converted into mineral reserves.
“Inferred mineral resources” have a great amount of uncertainty as
to their existence, and great uncertainty as to their economic and
legal feasibility. It cannot be assumed that all or any part
of an inferred mineral resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral
resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. Investors are cautioned not to
assume that all or any part of an inferred mineral resource exists
or is economically or legally mineable. Disclosure of
“contained ounces” in a mineral resource is permitted disclosure
under Canadian regulations. In contrast, issuers reporting
pursuant to Industry Guide 7 report mineralization that does not
constitute “mineral reserves” by Commission standards as in place
tonnage and grade without reference to unit measures.
Accordingly, information contained in this news
release may not be comparable to similar information made public by
U.S. companies reporting pursuant to Industry Guide 7.
NON-GAAP FINANCIAL MEASURES AND ADDITIONAL LINE ITEMS AND
SUBTOTALS IN FINANCIAL STATEMENTS
The Company has included certain non-GAAP
performance measures to supplement its Condensed Consolidated
Interim Financial Statements, which are presented in accordance
with IFRS, including the following:
- Cash Costs per GEO sold and by-product basis;
- Cash Costs per pound of copper sold;
- All-in Sustaining Costs per GEO sold and by-product basis;
- All-in Sustaining Costs per pound of copper sold;
- Net Debt;
- Net Free Cash Flow;
- Average Realized Price per ounce of gold/silver sold; and
- Average Realized Price per pound of copper sold.
- Adjusted Earnings
The Company believes that these measures,
together with measures determined in accordance with IFRS, provide
investors with an improved ability to evaluate the underlying
performance of the Company. Non-GAAP financial measures do
not have any standardized meaning prescribed under IFRS, and
therefore they may not be comparable to similar measures employed
by other companies. The data is intended to provide
additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with IFRS. Management's determination of the components of
non-GAAP and additional measures are evaluated on a periodic basis
influenced by new items and transactions, a review of investor uses
and new regulations as applicable. Any changes to the
measures are duly noted and retrospectively applied as
applicable.
For definitions and descriptions of the non-GAAP
measures, other than those noted and reconciled below and
additional subtotals in financial statements, refer to Section 10:
Non-GAAP Financial Measures and Additional Line Items or Subtotals
in Financial Statements of the Company's MD&A for the three
months ended March 31, 2019.
GEO PRODUCTION AND SALES
Production and sales of silver are treated as a
gold equivalent in determining a combined precious metal production
or sales unit, commonly referred to as gold equivalent ounces
("GEO"). Specifically, guidance GEO produced are calculated
by converting silver production to its gold equivalent using
relative gold/silver metal prices at an assumed ratio and adding
the converted silver production expressed in gold ounces to the
ounces of gold production. Actual GEO production and sales
calculations are based on an average realized gold to silver price
ratio for the relevant period.
CASH COSTS AND ALL-IN SUSTAINING COSTS
The Company discloses “Cash Costs” because it
understands that certain investors use this information to
determine the Company’s ability to generate earnings and cash flows
for use in investing and other activities. The Company
believes that conventional measures of performance prepared in
accordance with IFRS do not fully illustrate the ability of its
operating mines to generate cash flows. The measures, as
determined under IFRS, are not necessarily indicative of operating
profit or cash flows from operating activities.
The measure of Cash Costs and All-in Sustaining
Costs (AISC), along with revenue from sales, is considered to be a
key indicator of a company’s ability to generate operating earnings
and cash flows from its mining operations. This data is furnished
to provide additional information and is a non-GAAP financial
measure. The terms Cash Costs per GEO sold, Cash Costs per pound of
copper sold, AISC per GEO sold and AISC per pound of copper sold do
not have any standardized meaning prescribed under IFRS, and
therefore they may not be comparable to similar measures employed
by other companies. Non-GAAP financial measures should not be
considered in isolation as a substitute for measures of performance
prepared in accordance with IFRS and are not necessarily indicative
of operating costs, operating profit or cash flows presented under
IFRS.
Cash Costs include mine site operating costs
such as mining, processing, administration, production taxes and
royalties which are not based on sales or taxable income
calculations, but are exclusive of amortization, reclamation,
capital, development and exploration costs. The Company
believes that such measure provides useful information about its
underlying Cash Costs of operations. Cash Costs are computed
on a weighted average basis as follows:
- Cash Costs per GEO sold - The total costs used as the numerator
of the unitary calculation represent Cost of Sales excluding DDA,
net of treatment and refining charges. The attributable cost is
calculated net of by-products by applying copper and zinc net
revenues, which are incidental to the production of precious
metals, as a credit to GEO sold, thereby allowing the Company’s
management and stakeholders to assess net costs of precious metal
sales. These costs are then divided by GEO sold.
- Cash Costs of copper - shown on a per pound basis. In the case
of Chapada, costs directly attributable to GEO and copper will be
allocated on that attributable basis. Non-attributable costs will
be allocated based on the relative value of revenues for each
metal, which will be determined annually at the beginning of each
year. Costs attributable to copper sales are divided by commercial
copper pounds sold.
AISC figures are calculated in accordance with a
standard developed by the World Gold Council (“WGC”) (a
non-regulatory, market development organization for the gold
industry). Adoption of the standard is voluntary and the cost
measures presented herein may not be comparable to other similarly
titled measures of other companies.
AISC per sold seeks to represent total
sustaining expenditures of producing and selling GEO from current
operations. The total costs used as the numerator of the
unitary calculation represent Cash Costs (defined above) and
includes cost components of mine sustaining capital expenditures
including stripping and underground mine development, corporate and
mine-site general and administrative expense, sustaining mine-site
exploration and evaluation expensed and capitalized and accretion
and amortization of reclamation and remediation. AISC do not
include capital expenditures attributable to projects or mine
expansions, exploration and evaluation costs attributable to growth
projects, income tax payments, borrowing costs and dividend
payments. Consequently, this measure is not representative of all
of the Company's cash expenditures. In addition, the calculation of
AISC does not include depletion, depreciation and amortization
expense as it does not reflect the impact of expenditures incurred
in prior periods.
- AISC per GEO sold - reflect
allocations of the aforementioned cost components on the basis that
is consistent with the nature of each of the cost component to the
GEO production and sales activities but net of by-product revenue
credits from sales of copper and zinc.
- AISC per pound of copper - reflect
allocations of the aforementioned cost components on the basis that
is consistent with the nature of each of the cost component to GEO
or copper production activities.
NET DEBT
The Company uses the financial measure "Net
Debt", which is a non-GAAP financial measure, to supplement
information in its Consolidated Financial Statements. The Company
believes that in addition to conventional measures prepared in
accordance with IFRS, the Company and certain investors and
analysts use this information to evaluate the Company’s
performance. The non-GAAP financial measure of net debt does not
have any standardized meaning prescribed under IFRS, and therefore
it may not be comparable to similar measures employed by other
companies. The data is intended to provide additional information
and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with IFRS.
Net Debt is calculated as the sum of the current
and non-current portions of long-term debt net of the cash and cash
equivalent balance as at the balance sheet date. A reconciliation
of Net Debt is provided in Section 10: of the MD&A for the
three months ended March 31, 2019 and comparable period of 2018
which has been filed on SEDAR.
NET FREE CASH FLOW
The Company uses the financial measure "Net Free
Cash Flow", which is a non-GAAP financial measure, to supplement
information in its Consolidated Financial Statements. Net Free Cash
Flow does not have any standardized meaning prescribed under IFRS,
and therefore it may not be comparable to similar measures employed
by other companies. The Company believes that in addition to
conventional measures prepared in accordance with IFRS, the Company
and certain investors and analysts use this information to evaluate
the Company’s performance with respect to its operating cash flow
capacity to meet non-discretionary outflows of cash. The
presentation of Net Free Cash Flow is not meant to be a substitute
for the cash flow information presented in accordance with IFRS,
but rather should be evaluated in conjunction with such IFRS
measures. Net Free Cash Flow is calculated as cash flows from
operating activities of continuing operations adjusted for advance
payments received pursuant to metal purchase agreements,
non-discretionary expenditures from sustaining capital expenditures
and interest and financing expenses paid related to the current
period. A reconciliation of Net Free Cash Flow is provided in
Section 10: of the MD&A for the three months ended March 31,
2019 and comparable period of 2018 which has been filed on
SEDAR.
AVERAGE REALIZED METAL PRICES
The Company uses the financial measures "average
realized gold price", "average realized silver price" and "average
realized copper price", which are non-GAAP financial measures, to
supplement in its Consolidated Financial Statements. Average
realized price does not have any standardized meaning prescribed
under IFRS, and therefore they may not be comparable to similar
measures employed by other companies. The Company believes that in
addition to conventional measures prepared in accordance with IFRS,
the Company and certain investors and analysts use this information
to evaluate the Company’s performance vis-à-vis average market
prices of metals for the period. The presentation of average
realized metal prices is not meant to be a substitute for the
revenue information presented in accordance with IFRS, but rather
should be evaluated in conjunction with such IFRS measure.
Average realized metal price represents the sale
price of the underlying metal before deducting sales taxes,
treatment and refining charges, and other quotational and pricing
adjustments. Average realized prices are calculated as the revenue
related to each of the metals sold, i.e. gold, silver and copper,
divided by the quantity of the respective units of metals sold,
i.e. gold ounce, silver ounce and copper pound. Reconciliations of
average realized metal prices to revenue are provided in Section
10: of the MD&A for the three months ended March 31, 2019 and
comparable period of 2018 which has been filed on SEDAR.
ADJUSTED EARNINGS OR LOSS AND ADJUSTED EARNINGS
OR LOSS PER SHARE FROM CONTINUING OPERATIONS
The Company uses the financial measures
“Adjusted Earnings or Loss” and “Adjusted Earnings or Loss per
share” to supplement information in its Consolidated Annual
Financial Statements. The Company believes that in addition to
conventional measures prepared in accordance with IFRS, the Company
and certain investors and analysts use this information to evaluate
the Company’s performance. The presentation of adjusted measures
are not meant to be a substitute for Net Earnings or Loss or Net
Earnings or Loss per share presented in accordance with IFRS, but
rather should be evaluated in conjunction with such IFRS measures.
Adjusted Earnings or Loss and Adjusted Earnings or Loss per share
are calculated as net earnings excluding non-recurring items, items
not related to or having a disproportionate effect on results for a
particular periods and/or not directly related to the core mining
business such as (a) share-based payments and other compensation,
(b) unrealized foreign exchange (gains) losses related to
revaluation of deferred income tax asset and liability on
non-monetary items, (c) unrealized foreign exchange (gains) losses
related to other items, (d) unrealized (gains) losses on
derivatives, (e) impairment losses and reversals on mineral
interests and other assets, (f) deferred income tax expense
(recovery) on the translation of foreign currency inter-corporate
debt, (g) mark-to-market (gains)/ losses on available-for-sale
securities and other assets, (h) one-time tax adjustments to
historical deferred income tax balances relating to changes in
enacted tax rates, (i) reorganization costs, (j) non-recurring
provisions, (k) (gains) losses on sale of assets, (l) any other
non-recurring adjustments and the tax impact of any of these
adjustments calculated at the statutory effective rate for the same
jurisdiction as the adjustment. Non-recurring adjustments from
unusual events or circumstances are reviewed from time to time
based on materiality and the nature of the event or circumstance.
Earnings adjustments for the comparative period reflect both
continuing and discontinued operations.
The terms “Adjusted Earnings or Loss” and
“Adjusted Earnings or Loss per share” do not have a standardized
meaning prescribed by IFRS, and therefore the Company’s definitions
are unlikely to be comparable to similar measures presented by
other companies. Management uses these measures for internal
valuation of the core mining performance for the period and to
assist with planning and forecasting of future operations.
Management believes that the presentation of Adjusted Earnings or
Loss and Adjusted Earnings or Loss per share provide useful
information to investors because they exclude non-recurring items,
items not related to or not indicative of current or future
period's results and/or not directly related to the core mining
business and are a better indication of the Company’s profitability
from operations as evaluated by internal management and the board
of directors. The items excluded from the computation of Adjusted
Earnings or Loss and Adjusted Earnings or Loss per share, which are
otherwise included in the determination of Net Earnings or Loss and
Net Earnings or Loss per share prepared in accordance with IFRS,
are items that the Company does not consider to be meaningful in
evaluating the Company’s past financial performance or the future
prospects and may hinder a comparison of its period-to-period
profitability.
ADDITIONAL LINE ITEMS OR SUBTOTALS IN FINANCIAL
STATEMENTS
The Company uses the following additional line
items and subtotals in the Consolidated Financial Statements as
contemplated in IAS 1: Presentation of Financial Statements:
- Gross margin excluding depletion, depreciation and amortization
— represents the amount of revenue in excess of cost of sales
excluding depletion, depreciation and amortization. This additional
measure represents the cash contribution from the sales of metals
before all other operating expenses and DDA, in the reporting
period.
- Mine operating earnings — represents the amount of revenue in
excess of cost of sales excluding depletion, depreciation and
amortization and depletion, depreciation and amortization.
- Operating earnings — represents the amount of earnings before
net finance income/expense and income tax recovery/expense. This
measure represents the amount of financial contribution, net of all
expenses directly attributable to mining operations and overheads.
Finance income, finance expense and foreign exchange gains/losses
are not classified as expenses directly attributable to mining
operations.
- Cash flows from operating activities before income taxes paid
and net change in working capital — excludes the payments made
during the period related to income taxes and tax related payments
and the movement from period-to-period in working capital items
including trade and other receivables, other assets, inventories,
trade and other payables. Working capital and income taxes can be
volatile due to numerous factors, such as the timing of payment and
receipt. As the Company uses the indirect method prescribed by IFRS
in preparing its statement of cash flows, this additional measure
represents the cash flows generated by the mining business to
complement the GAAP measure of cash flows from operating
activities, which is adjusted for income taxes paid and tax related
payments and the working capital change during the reporting
period.
- Cash flows from operating activities before net change in
working capital — excludes the movement from period-to-period in
working capital items including trade and other receivables, other
assets, inventories, trade and other payables. Working capital can
be volatile due to numerous factors, such as the timing of payment
and receipt. As the Company uses the indirect method prescribed by
IFRS in preparing its statement of cash flows, this additional
measure represents the cash flows generated by the mining business
to complement the GAAP measure of cash flows from operating
activities, which is adjusted for the working capital change during
the reporting period.
- Cash flows from operating activities before net change in
working capital, normalized due to copper advanced sales program —
excludes the impact due to the copper advanced sales program
payments and deliveries that results in timing differences between
the cash payment and delivery.
The Company’s management believes that their
presentation provides useful information to investors because gross
margin excluding depletion, depreciation and amortization excludes
the non-cash operating cost item (i.e. depreciation, depletion and
amortization), cash flows from operating activities before net
change in working capital excludes the movement in working capital
items, mine operating earnings excludes expenses not directly
associated with commercial production and operating earnings
excludes finance and tax related expenses and income/recoveries.
These, in management’s view, provide useful information of the
Company’s cash flows from operating activities and are considered
to be meaningful in evaluating the Company’s past financial
performance or the future prospects.
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