Q1 2022 Yamana Gold Inc Earnings Call
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This conference is being recorded.
It's called feels it always used to see.
All participants please standby the conference is ready to begin.
Thank you all for joining us this morning before I turn the call over I need to advise that certain statements made during this call today may contain forward looking information and actual results could differ from the conclusions or pre.
<unk> and that's why we're taking 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 complete discussion of the risks and 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 press release issued yesterday announcing first quarter 2022 results as.
As well as the management's discussion and analysis for the same period and other regulatory filings in Canada, and the United States.
I would like to remind everyone that this conference call is being recorded and will be available for replay today at 12 P. M Eastern time.
Replay information and the presentation slides accompanying this conference call and webcast are available on Yamana website at Yamana Dotcom I will now turn the call over to Mr. Daniele that ive seen president and CEO .
Thank you operator, thank you all for joining us to do well come to our first quarter 2022 conference call and webcast.
Presenting with me today is Jason Leblanc, our senior Vice President of Finance and Chief Financial Officer.
Your line Bouchard, our senior Vice President and Chief operating Officer.
This senior Vice President of corporate development, and Investor Relations and energy margins than senior Vice President of exploration will also be available to answer questions. During the Q&A portion of the call.
The health and safety of our employees always come first and despite our excellent track record. This is something we are always working on improving.
Our total ball recorder Bowl injury rate was <unk> 25 during the first quarter point 75 during the first quarter.
I would like to thank all of our employees for remaining focused and committed to our safety values were.
We continue to take action across the company to minimize the spread of COVID-19.
Notably we are happy to report that more than 99% of our company's employees and contractor ever.
As ive at least one dose of COVID-19 vaccine and more than 96% I've received two doses.
Submit to the 76% of workers I've received a third dose booster shot.
We also recently opened a dedicated community relation office for that was that macro Jackie and they think get back to continue our dialogue with the community and local stakeholder.
During the quarter, we published our climate action report, which includes information on our climate governance strategy and the steps we are taking to meet our science based one five degree Celsius greenhouse gas at Beckman target.
The document can be found on our website and I encourage all of you to review it.
As a long history of prioritizing the health and safety of its people, but I think the environment and the communities, where we operate and we are committed to continue improving our sustainable and responsible development strategy.
Turning now to our first quarter highlights we continued our track record of operational excellence and produce just under 211000 ounces of gold exceeding our plan for the quarter. The exceptional results were driven by selling model and check will be not notably jacoby.
Chief record monthly gold production in March.
Silver production of nearly $2 2 million ounces also exceeded plan that several model delivering strong results with increased mill feed mill feed from higher grade zones.
Strong gold production that tell opinion in the first quarter was expected to remain stable through the year mine sequencing as a L opinion all of them will drive some silver grade improvements throughout the year with more than 60% of the silver production at the mine expected in the second half of 2022.
Geo production of nearly 239000 ounces was in line with plan, despite a weaker gold to silver ratio, while all in sustaining cost was better than planned we are maintaining our production and cost guidance for 2022.
Why do I won't spend too much time on the all the numbers on this slide I do want to comment on the positive production trend, we expect to see over the remainder of the year.
As I did the previous quarter as expected the first quarter is expected to be the lowest plant production quarter of the year and we expect to see increases in production and generation of cash flows and free cash flow was throughout the remainder of the reminder of the year.
Turning to the Internet individual drivers of our performance Canadian Arctic delivered a strong first quarter in line with plan.
We are also continuing to advance the development of the underground Odyssey project, which remains on budget and schedule shafts.
Shaft sinking is scheduled to begin in the fourth quarter of this year and we are expecting first production from Odyssey South during the first quarter of 2023.
We continue to see huge opportunities I thought at Odyssey into future exploration work delivered from rising result at east Goldie, extending mineralization to the east and that the Odyssey salt and the Odyssey salt internally zones, which demonstrated the potential to have mineral resources are.
It meant to exploration in the Abitibi region is one of the reason we pursued the acquisition of Whatsapp Mack and the comfort property from monarch gold. The comparable property is not part of the Canadian Arctic partnership Landholding can flow has produced approximately one 6 million ounces in the past and initial.
[noise] evaluation has identified porphyry hosted Goldman origination that could be mined by open pit studies are on the way to fully evaluate the potential.
Jack will be not it doesn't extend it an exceptional quarter driven by higher old whore Tor ton mine, which reached a monthly high all time high at end March delivering record record monthly gold production.
Underground mine development work continues to gain access to new mining panels and together with the higher ore on mines provides additional flexibility to the development of stockpiles supporting the higher throughput as expected from the ongoing phase expansion.
These positive trends should continue as the phase two expansion is progressing progressing ahead of the original schedule with 8500 tons per day expected by the middle of 2022.
<unk> continued to benefit from access to additional mining faces, which supported the increase in mill feed coming from higher grade underground ore, which accounts for over 70% of the now stabilized with but.
That's our model we are continuing to advance in parallel with the scalable pad expansion study and the potential EBIT each project and are evaluating options for our turn active source of power, which include a connection to the grid and wind power.
As planned.
Our opinion entered high grade during the quarter and deliver solid growing gold production results. We expect that gold production will remain stable throughout the year, but a strong second half will account for approximately 60% of the silver production due to mine sequencing.
One of the key strategies to increase value withheld opinion on it.
I believe I, just don't know additional mining sectors and increase mining flexibility with exploration success, such as the recent south deep discovery and the other in near mine veins objective opinion on this to utilize the excess plant capacity and increase production.
Lastly, I mean I'd have to look at other Levered production in line with plan and we're happy to have entered into a new long term collective bargaining agreement with our until we use at the mine.
Restaurant, all the efficiency remains an area of focus at Minera, Florida, and we have identified several new opportunities to increase recovery at the processing plant and we continue to work towards the plan Debottlenecking study, which is expected to allow for increased would put in 2025 when it to receive it.
Permit.
Before before I turn it over to Jason I want to quickly recap some of the exciting responsible growth plan, we detail in our recent Investor day.
While our formal 10 year outlook continued to grow to show growth now to 125 million gold equivalent ounces supported by our existing mineral reserves and resources, we have indentified that back to increase production to 1.5 million gold equivalent ounces via project optimization with only modest long.
Term capital requirement.
This responsible growth is fully aligned with our capital allocation strategy, which balances the shareholder return balance sheet and low capital intense growth.
One of the reason we have such exciting growth potential is that we have for personal that anymore generational mines than many peers and disperse proportionate number relative to our size.
We did find generational mines as those that provide meaningful production in cash flow over multiple decades to offset such generous on old mine in our portfolio for example, our Canadian Arctic and check will be not.
Over the longer term, we see a clear path for Canadian about Arctic to produce more than the current baseline production.
Assuming our initial initial our initial plan driven exploration potential and upside plant capacity optionality.
Combined with the phased expansion at Jacobina and the other growth opportunity we outlined during our recent Investor day, there is a significant growth within our existing portfolio.
We will add further insight to our company.
Into our company at our annual General meeting, which convenes later this morning, and with that I will now pass the call over to Jason who can go over our quarterly results in more detail.
Great. Thank you Daniel and good morning, everyone.
Turning to our first quarter financial performance. Our continued operational strength helped revenue reached $441 $9 million up nearly 5% from the same period last year.
Gross margin, excluding D&A rose, 5% to $262 $7 million from $249 9 million in the year earlier period.
Earnings during the quarter were $57 8 million or six cents per share or similar last year.
But on an adjusted basis earnings were <unk> <unk> per share versus seven cents per share last year.
Cash flow from operating activities before net change in working capital came in at $197 $3 million up over 7% from last year.
We always have a first quarter working capital outflow based on normal yearly cycles, but it was a little higher this Q1 from higher stockpiles and but you did build in materials and supplies inventory in response to geopolitical events.
Cash flows from operating activities of $151 $7 million during the quarter compared with $162 million last year.
We also generated free cash flow before dividends and debt repayment of $34 $7 million during the quarter.
And we ended the quarter with cash and equivalents of $516 four.
$4 million, including $218 3 million available for Tomorrow project.
As Daniel already noted, we expect free cash flow to increase quarter over quarter with the strongest free cash flow generation anticipated in the second half of the year and in particular during the fourth quarter, which is expected to result in cash balances.
It'll be increasing throughout the year.
I've noted before that in Q2, we always have our final cash tax installments from the prior year that will be true again, this year with about 40% of our annual cash taxes occurring during Q2.
Many people have been asking how inflation has been impacting our business. When we guided earlier. This year, we had incorporated a modest impact from inflation that we're seeing at our operations at that time.
Since then geopolitical events have caused further price increases in many consumables, although the markets are very volatile.
During Q1, we didn't really see any significant impact on the business other than for diesel.
Included $80 oil and our guidance for the year and for every $10 move in oil price that adds about $5 per G E O to our east cost structure.
But with our footprint up primarily underground mines, we have a more modest exposure to the oil price.
We will continue to monitor global events.
And their impact on potential inflation. Despite recent volatility we have been successful in managing these risks to start the year and be more productive our cost for Q1 came in better than our planning.
A detailed during our Investor day and by Daniel earlier, we have some exciting growth prospects.
That said I want to emphasize that our responsible growth we will adhere to a disciplined capital allocation strategy and that the capital requirements are very manageable in any given year.
While we pursue the amount of 1.5 plan, we expect continued growth in our cash balances of $50 million to $100 million per year during the guidance period.
We're targeting $150 per ounce and sustaining capital to maintain the productive capacity of our minds and ensure mining flexibility.
Net expansionary capital is not expected to exceed $175 million per year on average during the guidance period through 2024.
Further our three year guidance period, only contemplate a modest cost of studies and permitting for the amount of 1.5 plan.
The engineering capital subsequent to the guidance period to achieve the additional 250000 G O per year to reach the amount of 1.5 plan is expected to be between 250 and $300 million and will be supported by our increasing production platform.
With this approach sustaining and expansionary capex is not expected to exceed 50% of operating cash flow during the guidance period based on our 2022 planning.
Strong cash flows and a growing cash balance we also expect to be in a position to increase our sustainable dividends, while continuing to target share buybacks with residual cash after other capital allocation priorities, our balanced approach to capital allocation has positioned yamana to investing in organic growth projects, while at the same time continuing to generate free.
Cash flow, which provides the opportunity to continue enhancing shareholder returns.
With that I will pass the call back over to Daniel.
Thanks, Jayson and with that I will turn it back over to the operator for question.
Over here.
Thank you.
Questions from the telephone lines. If you have a question and you're using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices keypad.
You may cancel your question at any time by pressing star two.
Please press star one at this time, if you have a question there will be a brief pause by the participants for questions. Thank you for your patience.
My first question is from Anita Soni with CIBC World markets. Please go ahead.
Let me Toni your line is now open.
Sorry, I put myself on mute.
Good morning, everyone. Thanks for taking my call I just wanted to ask in terms of the capital spend that you have over the course of the year I think you spent 20.
21% or 18% somewhere in that range and can.
Can you just give us a little bit of color on where you expect John how that could play out over the course of the ARINC well it really like it should pick up in a in Q2 were again more of it.
Another question here.
Yes, Craig it pretty even by quarter now and you know over the balance of the year. So both are sustaining our expansionary capital it'd be pretty pretty flat take our guidance minus what.
Well, we spent in Q1 and divide by three and you should be pretty good.
Yeah and is there any.
The reason why it was a little bit understand is that because of any inflationary COVID-19 related impacts. So is there any kind of risk to them higher capital into next year or delays and anything in any of your projects.
No not really I think you'll always see that we tend to start the year a little bit slow on the capital spend I think that that aligns us well with the lower production in the quarter, but no we where we're ready to do you want to spend our capital after the flexibility it provides.
Okay and then the last question I have again on Capex as I saw actually a couple of questions Martin.
I think the major Capex difference was mill architect and I was just curious.
It was stripping pick up on that like is that like is that the correct level for our capital spend throughout the year or is there you know.
I pick up the stripping over the course of the year.
Talking in sustaining.
Yeah, sustaining both both sustaining and development.
Yeah, I think our share is probably about.
$50 $56 million left around sustaining so again divide by three are pretty good.
Okay, Alright, and then the last question, but in terms of to care and maintenance costs that Oh, I'm, sorry, it's not a good number to use for the remaining quarters of the year. Yes, you can just roll that out that's good.
Okay, Alright, thank you very much.
Yeah.
Thank you.
Our next question is from Tanya <unk> with Scotiabank. Please go ahead.
Great. Good morning, everyone and thank you so much for taking my questions and first of all Jason.
Jason. Thank you so much for providing us the sensitivity to the oil price and I just wanted to check and just feel represent about 8% of your cost structure I am just trying to understand what percentage I'm working with that sensitivity.
Yes.
Look at everything on ASIC cost structure, I mean, you may be a little bit closer on pure opex, but you know when.
We look across a sick it would be a it would be about half that amount I'd say so it's.
There with our power those direct you are too.
Two biggest contributors to consumables. Okay. So then if I would say it is at.
At that time.
$5 it would be closer to half aside I guess looking at it in total cash costs, but that would be correct.
[noise] way of thinking about it.
Betty Yes order of magnitude.
It might be a little a little heavy but.
Okay and just.
Another thing that we've.
We've seen some men.
Wage inflation, so I just wanted to confirm with yourself and Daniel that pretty much all of your labor agreements are in place for 2022, and we don't really have any large ones coming up is that fair to say good morning, Tanya you're absolutely right like we mentioned last year, we signed all of our agreement in 'twenty two so in 'twenty.
So in 2020 until we don't have any cba's to science. So it's just normal discussion on inflation at each of the country, where we addressed our salary, but it's already all planning are in our budget. Okay. Just wanted to check on that and just you also mentioned in your press release.
You are seeing.
Considerable increases in steel I, just wanted to have a little discussion if youre seeing any other inflationary pressures in any of your consumables somewhat finite.
Or any supply chain issues that youre seeing.
And their supply chain and we have not seen any issues and then just like Jayson mentioned.
We have increased a bit our capital spending on the first quarter because of the what's happening.
You know are on the on the AR and the UK.
Ukraine. So we didn't took any chance and then we increase our inventory but on the the cost you know we have two choices in life is to accept these cost increases and they are there and do nothing or do what our team has got to do is look at opportunities to meet tool to mitigate these cost and they've been quite Fisher.
And in the past years and then so far this year in 2022, and then everyone. In this theme is their focus to make sure. We have these increases like all the other company like Ospar suddenly when do we go buy anything we see it but again, we made the choice to look at.
You know ways to mitigate these costs I'm, not saying, we will be able to mitigate 100% of them.
It's been quite good so far and one of the best way to do it is to see all we can increase production from this year, what we've done last year the year before and know when to divide our desire is always helping even if if the top line of course is a bit higher.
And I appreciate that and maybe just on the on the guidance that you provided and reiterated this morning, our 2022.
Should we still be thinking the same way as you gave guidance.
In Q4, which was that every quarter going forward should be evenly distributed on the gold side and then we have more sales in the second half somehow opinion on.
Is that a fair assumption yeah as you know Jack will be not will be in full a phase two production starting in the second half of this year. So you will see an increase in gold.
In Q2 compared to Q1 than Q between Q4 will be more stable, but all the other mines are basically almost equal each each quarter. So that's the beauty of this year most of the mine all of the mines.
This quarter is just check will be nice is increasing its production and realize like I mentioned, several mobile will be stable over the year on the the silver but.
Actual planning our plan shows a higher silver production formal opinion on it a second half okay, perfect and if I can ask one last question. Just finally inflationary pressures, we talked a little bit on the cost side as you looked at Wassa Mac and thank you for mentioning that Canadian market is on budget and on time anything youre seeing on.
Capital y stomach.
They won any pressures or anything youre getting there.
Yeah. Thanks for the question here I just wonder speaking are.
We are reviewing our costs, but so far we don't see any impact on our onto for Cisco was rub 460 million to build that project.
Okay I appreciate that thank you and I'll, let someone else ask questions.
Thank you.
Once again, please press star one at this time, if you have a question.
Our next question is from Fahad Tariq with credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my two questions are first Jason if I could go back to one of your comments on just the sensitivity. So you mentioned I believe that the budget was at $80, a barrel and that $10 a barrel move resulted in $5 per ounce on geo basis higher cost. So if I look at your annual guidance for the year.
$725.
Our per ounce and given that we're at call. It $100 a barrel is it fair to say like adding $10 an ounce rough math makes sense, assuming oil prices stay for the rest of the year.
Yeah, well I gave you 10 bucks so like a 20 dollar spot to spot than you'd be.
$10 per Geo on an asset basis.
On an organic basis, yeah, Okay, Yeah, and I think in total dollars about 10 million Bucks.
Got it okay.
Okay. That's helpful. And then just a second question can you mention or go into some specifics on some of these productivity gains like what are the what are the biggest ones across the portfolio because I mean, frankly speaking at Ya man in a very positive way, it's been an outlier when it comes to containing inflation. Thanks.
Yeah, you know I think that goes through our.
Our robust procurement effort. So it's a lot of work to do tenders all the time, but we're continuing to do those tenders, we're continuing to test.
Different competing products and you know with those come not only cost, but potential productivity savings, but I think most of those two things. We had been carrying you know a decent amount of inventory you know throughout that was the case to start the year and then you know mid said, we we pivoted to to build up.
<unk> on some of these items, we felt were more at risk either from a supply chain or a price perspective. So.
There's items, we've got four to six months of of of inventory sitting there. So that I've taken the edge off any increases that have happened. Since then but it's just a I call. It a mature and robust our procurement and supply chain. That's you know there's a lot of work, but it pays off.
Maybe it's a good question, but maybe I should add to that we mentioned many time over the past years that we have what we call operational excellence team. That's all our tower company, an annuity that each of the operation by anybody you want and and his team. So each mine to have project each year to try.
Two to beat inflation and or cost increase and then it's it's everyone at the mine site it's not.
Our our stuff all needs coming from our employees that are working on the field seeing opportunities for us to improve.
You know the way, we drilled they'll do the way we do things and then we put these teams together they work and they come with project saving achieved of the mine and then the minds are sharing in between themselves. If they find a way to of two Jewish costs or be more efficient they started between themselves.
We're proud to have this and this worked really really well and that that is L. Plus two to maintain our cost or keep our costs low.
As possible.
Okay, great. Thank you very much.
Thanks.
Thank you.
Our next question is from Mike Parkin from National Bank Financial. Please go ahead.
Hi, guys can you hear me okay.
Yes, Mike.
We're hearing about labor tightness.
Canada and Australia.
Wondering if you could make any comments in terms of.
How that how you potentially protected or exposed on the Canadian Malarchuk Odyssey development is it.
A contract where.
You're kind of locked into rates.
Yeah major labor price movement changes would not impact or is there a bit of a risk there to watch.
Well, thanks, Mike very good question.
Canadian Mill Arctic as an employer of choice in the Abitibi, you know, where we're lucky there we have a we had a very long mine life and the open pit and all we're saying decades of operation underground. So and you know Canyon mill Arctic isn't become nice to be a very good employers very paying.
The above average salaries and benefits. So it attracts people. So we we had no issues to hired our staff last year to start no planning the underground.
And starting this month actually with our own employees and so far we have no issues at all to to hire people. It's it's tight but we don't have that might uptick any any problem.
Okay. Thanks, very much good quarter.
Thank you.
There are no further questions maybe just curious at this time I would like to turn the meeting back over to you Mr Machine.
Well. Thank you operator, and thank you all for joining us today at our first quarter conference call and webcast.
Our reminder, we have our annual meeting is off shareholder later this morning, which will begin at 11 a M. We welcome you to join US at the design exchange that 234 base Street in Toronto or you can visit our website at Yamato Dot com for the detail to tune in online we look forward to.
Many of you later today these take care and stay safe Bye for now.
Thank you everyone. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
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