OREANDA-NEWS. YAMANA GOLD INC. is herein reporting its financial and operational results for the second quarter 2016, including total gold production of 313,086 ounces, revenue of $466.5 million, net earnings of $32.9 million or $0.03 per share, and adjusted earnings of $5.4 million or $0.01 per share. Additional highlights are provided below.

In addition, the Company is herein providing an exploration update for its 50% owned Odyssey deposit, which is located east of the main open pit at Canadian Malartic. The exploration program at Odyssey continues to return positive results and an Inferred Mineral Resource for the Odyssey North zone is expected by year end 2016. The Company expects to provide an exploration update with further details in the coming weeks on several of its properties, in particular, Chapada, Jacobina, Gualcamayo and C1 Santa Luz.

OPERATIONAL HIGHLIGHTS

  • Total gold production of 313,086 ounces at by-product cash costs and all-in sustaining costs ("AISC") per ounce of $664 and $964, respectively.
  • Silver production of approximately 1.8 million ounces at co-product cash costs and AISC per ounce of $8.50 and $12.31, respectively.
  • Copper production of 23.2 million pounds at co-product cash costs and AISC per pound of $1.80 and $2.43, respectively.

FINANCIAL HIGHLIGHTS

  • Revenue of $466.5 million, an increase of $11.5 million compared to the second quarter of 2015 due to increased gold sales, partly offset by lower silver and copper production and significantly lower realized copper price.
  • Net earnings of $32.9 million or $0.03 per share, an increase of $39.9 million or $0.04 per share compared to the second quarter of 2015.
  • Adjusted earnings of $5.4 million or $0.01 per share, an increase of $13.7 million or $0.02 per share compared to the second quarter of 2015.
  • Mine operating earnings of $63.7 million, an increase of $7.5 million compared to the second quarter of 2015.
  • Cash flows from operating activities after net change in working capital of $202.0 million, an increase of $78.6 million compared to the second quarter of 2015.
  • Cash flows from operating activities before net change in working capital of $202.0 million, an increase of $52.7 million compared to the second quarter of 2015.
  • Net free cash flow of $37.4 million, an increase of $15.2 million compared to the second quarter of 2015.
  • General and administrative expenses of $23.6 million, a decrease of $6.2 million compared to the second quarter of 2015.
OUTLOOK AND STRATEGY

Since its inception, the Company has taken a portfolio approach to managing its business in which every mine and asset in its portfolio is evaluated based on production, costs, potential and planned returns. In general, the Company looks at a balance among variables including size and scale, cost, location and opportunity for development and improvement. In addition, the Company evaluates the amount of management time required by a given asset compared to its inherent value, potential and opportunities associated with the asset.

The Company continues to focus on operational execution, namely tracking or exceeding operational guidance, as it advances efforts to create further value within its portfolio including the ramp up of RDM towards expected steady-state production in early 2017, and development of C1 Santa Luz towards production in 2018 and Cerro Moro earlier that year. The Company is targeting continuous production growth, and will continue to evaluate opportunities for optimizations and other operational improvements across its portfolio to further increase its production profile. The Company will pursue these and other organic production growth opportunities, the latter including Canadian Malartic developments such as Odyssey, the Monument Bay project, Kirkland Lake opportunities and the Deep Carbonates project at Gualcamayo. Additionally, the Company will pursue internal initiatives to surface value from dormant assets including Agua Rica, Jeronimo, La Pepa, Suyai and Don Sixto, all of which have well-defined delineated mineral reserves and/or mineral resources.

Second quarter operational performance was in line with expectations for all mines except for Chapada. At Chapada, several factors impacted production including a mechanical failure with its in-pit gyratory crusher and weather related issues which made access to higher grade ores more difficult. Mine management believed throughout the quarter that the operation would be able to compensate for the disabled in-pit crusher while it was under repair by mining higher grade, softer ores. These softer ores could be processed directly at the plant, bypassing the in-pit crusher which creates more efficient management for harder and lower grade ores. However, those higher grade, softer ores required significantly more development work, the access to which was meaningfully delayed because of restrictions created by the adverse weather. Exacerbating the issue, the in-pit crusher was idled further, as operational management developed and initiated a plan to repair and improve reliability, with the intent of avoiding similar issues in the future. The in-pit crusher is now operating as expected. In order to further optimize the in-pit crusher's performance, management is planning to replace the mantle and concave during the next planned maintenance shutdown, scheduled during the fourth quarter.

As a result of the production shortfall in the second quarter, production at Chapada is now expected to be 110 million pounds of copper and 106,000 ounces of gold in 2016. While the size and scale of Chapada implies that now at full operation, more production is possible, the Company believes the foregoing is a reasonable baseline level of production for 2016. Production expectations for Chapada remain unchanged for 2017 and 2018.

On a consolidated basis, the Company continues to be well positioned to deliver on gold and silver production guidance for the full year, based on current assumptions, as other mines have exceeded and continue to exceed expectations. Additionally, second half production for all metals, as customary, is expected to be higher than first half production.

Cash costs were impacted by the anomalous events at Chapada during the quarter and by foreign exchange rates. Given the strengthening of local currencies, primarily the Brazilian Real, Canadian Dollar and Chilean Peso, as compared to the Company's budgeted assumptions in early 2016, cash costs have increased in the second quarter compared to the first quarter. Some of the cost increases in the second quarter were foreseeable although the local currency strengthened more than anticipated which increased costs more than expected. The impact from Reais denominated expenditures is partially mitigated as a hedge against the variability of the United States Dollar was executed during the quarter. The Company entered into zero-cost collar contracts totaling 510.0 million Reais with average call and put strike prices of 3.40 and 4.13 respectively.

The Company's cost structure has been impacted by certain local currencies strengthening against budgeted assumptions. The Company also notes that both spot and analyst consensus foreign exchange rates for the remainder of the year are stronger than the Company's budgeted assumptions, noted below. Based on actual year-to-date results, the current business plan that includes the revised expectations for Chapada, and using a range of current spot and analyst consensus foreign exchange rates for the remainder of the year, revised cost guidance is as follows: