YAMANA GOLD INC. (TSX:YRI; NYSE:AUY) (“Yamana” or “the Company”) is
herein reporting its financial and operational results for the
second quarter 2019. Second quarter results include strong gold and
silver production highlighted by a second straight quarter of
record production at Jacobina. Additional highlights include:
- A 7% year-on-year increase in
GEO(1) (2) production to 257,556, including 232,863 ounces of gold
and 2.17 million ounces of silver.
- In-line cost guidance, including
all-in sustaining costs (“AISC”)(3) of $941 per GEO and cash
costs(3) of $670 per GEO.
- Net earnings attributable to Yamana
equity holders of $14.1 million or $0.01 per share basic and
diluted. Adjusted net earnings(3) were $19.8 million or $0.02 per
share basic and diluted.
- Cash flow from operating activities
of $147.6 million and cash flows from operating activities before
net change in working capital(3) of $156.0 million.
- Increase in free cash flow as
follows:
|
Three months ended June 30 |
(In millions of United
States Dollars) |
2019 |
2018 |
|
Net Free Cash Flow(3) |
$ |
122.9 |
|
$ |
48.0 |
|
Free Cash Flow before
Dividends and Debt Repayments(3) |
$ |
51.2 |
|
$ |
(41.7 |
) |
Decrease (Increase) in Net Debt(3) |
$ |
13.1 |
|
$ |
(38.6 |
) |
The Company continues to anticipate a strong
second half and remains on track to meet its 2019
guidance.
“This was one of the more important and exciting
quarters in Yamana’s history,” said Daniel Racine, President and
Chief Executive Officer of Yamana. “We have embarked on a new era,
significantly improving our balance sheet and financial
flexibility, which will allow us to pursue our organic growth
opportunities at a time when the metal price cycle appears to be
turning.”
Cash flows from operating activities of $147.6
million and cash flows from operating activities before change in
net working capital(3) of $156.0 million in the latest quarter
include amortization of deferred revenue of $24.9 million related
to deliveries under the Company’s copper advanced sales program.
Deliveries under the program began in the third quarter of 2018 and
concluded at the end of the current reporting period. If not for
the timing difference of cash proceeds attributable to this
transaction, cash flows from operating activities before net change
in working capital would have been higher by these amounts during
the quarters as follows:
(All amounts are expressed in United States
Dollars unless otherwise indicated.)
(1) GEO includes gold plus silver with
silver converted to a gold equivalent at a ratio of 87.98:1 for the
second quarter. The GEO ratio is calculated based on average market
prices.(2) Yamana mines include Canadian Malartic, Jacobina,
Cerro Moro, El Peñón, Minera Florida, and Chapada.(3) The
Company has included certain non-GAAP performance measures in this
press release. Detailed reconciliations for the cash flow metrics
can be found at the end of this press release. The $13.1
million reduction in net debt for the period includes cash and cash
equivalents classified as held for sale of $3.8 million.
(In millions of United States Dollars, unless otherwise noted) |
Three Months Ended |
|
Impact due to copper
advanced sales program |
March 31,2018 |
June 30,2018 |
September30, 2018 |
December31, 2018 |
March 31,2019 |
June 30,2019 |
Cumulativeimpact |
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(1) |
$ |
206.4 |
|
$ |
157.5 |
|
$ |
86.6 |
|
$ |
115.8 |
|
$ |
103.2 |
|
$ |
156.0 |
|
$ |
— |
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(2) |
$ |
81.4 |
|
$ |
157.5 |
|
$ |
128.3 |
|
$ |
149.1 |
|
$ |
128.3 |
|
$ |
180.9 |
|
$ |
— |
(1) 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/Q22019 and in Section 10 of the Company’s second
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.
The Company's Total Recordable Injury Frequency
Rate in the second quarter was 0.6(i), a 40% decrease compared to
second quarter of 2018. Yamana was included in the Jantzi Social
Index for the 10th consecutive year in 2019. The Index consists of
50 Canadian companies that pass a broad screening of Environmental,
Social, and Governance ("ESG") criteria. During the quarter, Yamana
published its annual sustainability Material Issues Report, which
outlines the Company's health, safety, environment, and community
performance in 2018 compared to previous years. The Company also
published the Global Reporting Initiative ("GRI") Index, which is
available on the Company's website: www.yamana.com.
(i) Calculated on 200,000 hours worked and
includes employees and contractors.
During the quarter, the Company arranged for the
sale of Cerro Moro silver concentrate inventory containing
approximately 17,000 ounces of gold and 815,000 ounces of silver,
which is included in second quarter revenue. Inventory and
throughput silver grade at Cerro Moro has been normalized and
furnace usage has returned to designed levels.
The Company has significantly improved its
financial flexibility, allowing it to fund organic growth and value
creating opportunities, such as the phased expansion of Jacobina
and the Agua Rica project, using cash flow from operations. The
Company has also taken steps to improve its balance sheet,
allocating all upfront cash consideration from the Chapada sale
towards retiring outstanding debt.
In addition, the Company has aligned its general
and administrative (“G&A”) costs to its remaining portfolio of
assets, simplifying its organizational structure, and further
strengthening its balance sheet and financial flexibility. Yamana
expects 2019 G&A expenses on a cash basis to be lowered to
$68.0 million compared with previous guidance of $75.0 million,
implying a run rate of approximately $60.0 million per year on an
ongoing basis. Further reductions are anticipated through
optimizations and cost reduction initiatives.
The balance sheet as of June 30, 2019, included
cash and cash equivalents of $90.2 million and available credit of
$615.0 million, for total liquidity of $705.2 million. Subsequent
to quarter end, the amount of $385 million, representing the
outstanding amount under the Company’s revolving credit facility,
was repaid in full, the result of which is that cash and cash
equivalents increased to $505.2.million and available
credit increased to $1.0 billion.
Summary of Certain Non-Cash and Other
Items Included in Net Earnings
(In
millions of United States Dollars, except per share amounts, totals
may not add due to rounding, unaudited) |
Three Months Ended June 30 |
2019 |
|
2018 |
|
Non-cash unrealized
foreign exchange losses (gains) |
1.2 |
|
(4.3 |
) |
Share-based payments/mark-to-market of deferred share
units |
(0.8 |
) |
3.7 |
|
Mark-to-market (gains) losses on derivative contracts |
(7.0 |
) |
0.1 |
|
Net mark-to-market losses on investments and other assets |
0.1 |
|
5.1 |
|
Revision in estimates and liabilities including
contingencies |
5.8 |
|
8.4 |
|
Gain on sale of subsidiaries and other assets |
— |
|
(32.0 |
) |
Reorganization costs |
1.9 |
|
2.7 |
|
Other provisions, write-downs and adjustments |
(3.9 |
) |
0.6 |
|
Non-cash tax on unrealized foreign exchange (gains) losses |
(35.1 |
) |
111.7 |
|
Income tax effect of adjustments |
0.9 |
|
(2.0 |
) |
One-time tax adjustments |
42.6 |
|
(60.1 |
) |
Total
adjustments - increase to earnings attributable to Yamana equity
holders |
$ |
5.7 |
|
$ |
33.9 |
|
Total adjustments - increase to earnings per share
attributable to Yamana equity holders |
$ |
0.01 |
|
$ |
0.04 |
|
Note: For the three months ended June 30, 2019,
net earnings attributable to Yamana equity holders would be
adjusted by an increase of $5.7 million (2018 – increase of $33.9
million).
STRATEGIC DEVELOPMENTS
Chapada, Brazil
Subsequent to the quarter end, the Company
completed the sale of the Chapada mine for total consideration of
over $1.0 billion. The Company received the initial upfront cash
consideration of $800 million on closing, and additional
consideration includes a $100 million cash payment contingent on
the development of a pyrite roaster at Chapada, a 2% net smelter
return (“NSR”) royalty on the Suruca gold project in the Chapada
complex, and the 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.
The Gold Price Instrument, which is a
monetizable asset, is structured as a separate right that increases
in value when the price of gold rises. While Yamana is currently
holding 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. 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 but without operational
risk.
Debt Reduction
Concurrently with the closing of the Chapada
sale, the Company used $385 million to repay the entire June 30,
2019, outstanding balance under the revolving credit facility. 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. The $462.4 million of
Public Notes tendered under this offer is well in excess of the
$415 million available to the Public Note Holders and well
positions the Company toward achieving its goal of meaningfully
retiring outstanding 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.
Phased Expansion at Jacobina,
Brazil
During the quarter, the Company increased 2019
guidance for Jacobina to 152,000 ounces from 145,000 ounces,
representing an approximate 5% increase. The Company also provided
an update on Jacobina's phased plan to increase production to at
least 200,000 ounces and up to 225,000 ounces per year by 2023. The
increase in guidance for the current year is attributable to the
previously announced Phase 1 expansion. Phase 1 is expected to
increase gold production to approximately 170,000 ounces per year
by 2021 at the current mineral reserves grade, a 21% increase
compared to original 2019 production guidance of 145,000 ounces per
year. The joint results of Phase 1 and Phase 2 would result in the
larger increase expected by 2023.
Agua Rica, Argentina
Agua Rica is a large-scale copper, gold, silver,
and molybdenum deposit located in the Catamarca Province,
Argentina. The Company continues to advance its alternatives for
the development of Agua Rica and pursuant to the previously
announced integration agreement between Yamana, Glencore
International AG and Newmont Goldcorp Inc. (collectively the
"Parties"), the project would be developed and operated using the
existing infrastructure and facilities of Minera Alumbrera Limited
(“Alumbrera”) in Catamarca (the "Integrated Project").
The Parties established a technical committee to
direct the advancement of the Integrated Project. The committee
oversaw the recently completed Pre-Feasibility Study ("PFS"). The
results of the PFS, announced July 19, 2019, underscore Agua Rica
as a long life, low-cost project with robust economics and
opportunities to realize further value, including converting
economic-grade inferred mineral resources and expanding throughput
scenarios to increase metal production and returns, among other
opportunities. The Integrated Project generates significant
synergies by bringing together the extensive mineral resource of
Agua Rica with the existing infrastructure of Alumbrera to create a
unique, high quality and low risk brownfield project with an
optimized environmental footprint that will bring significant value
to shareholders, local communities, and other stakeholders.
Highlights of the PFS include:
- Proven and probable copper mineral
reserves increased from year-end 2018 by 21% to 11.8 billion pounds
and gold mineral reserves increased by 12% to 7.4 million
ounces.
- Initial long mine life of 28
years.
- Annual production for the first 10
full years increased to 533 million pounds of copper
equivalent production.(i)
- Cash costs decreased to $1.29 per
pound and AISC decreased to $1.52 per pound for the first 10 years
of production.
- Net present value (“NPV”) increased
to $1.935 billion and an increased internal rate of return (“IRR”)
of 19.7%.(ii)
A review of strategic and value-creating
alternatives will begin as soon as practicable and may be commenced
this year and continue through the period that a full feasibility
study is advanced. Any additional upside opportunities for the
project that will be considered as part of the feasibility study
will also be taken into account as part of this review. The project
already represents exceptional value across many fronts, which is
expected to improve with the upside opportunities.
(i) Copper equivalent metal includes
copper with gold, molybdenum, and silver converted to
copper-equivalent metal based on the following metal price
assumptions: $6,614 per tonne of copper, $1,250 per ounce for gold,
$24,250 per tonne for molybdenum, and $18.00 per ounce for
silver.(ii) Assuming metal prices of $3.00 per pound of
copper, $1,300 per ounce of gold price, $18.00 per ounce of silver,
$11.00 per pound of molybdenum and using an 8% discount rate.
Expansion opportunities at Canadian Malartic,
Canada
Exploration programs are ongoing to evaluate
several deposits and prospective exploration areas to the east of
the Canadian Malartic open pit, including the Odyssey, East
Malartic, Sladen, Sheehan, Rand, and other newly discovered zones.
These opportunities have the potential to provide new sources of
ore for the Canadian Malartic mill. These are mostly underground
zones, the ore from which would initially displace a portion of the
lower grade open pit ores thereby increasing production and
extending mine life. Access for additional, underground drilling
and possible mining would be by ramp extending from the Odyssey
zone. The permit allowing for the development of an underground
ramp was received in December 2018. Further evaluation through
additional underground drilling would be followed by updates to
resource delineation and engineering initially involving Odyssey
and East Malartic, although the areas of mineralization and
potential extend beyond these areas. An internal study
to evaluate the potential development and production from
mining of these underground zones as well as synergies with the
open pit operation is in progress and well advanced.
In addition, the Canadian Malartic Extension
Project is continuing according to plan with contributions from
Barnat expected to begin in late 2019, with a ramp-up throughout
2020, and meaningful contribution in 2021. On a 50% 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, and includes
overburden stripping and rock excavation.
Other
The Company has a number of compelling
value-creation opportunities in its pipeline, including the Rand
Malartic property, which lies adjacent to the east side of the
Canadian Malartic property, the Suyai project in Argentina, and the
Monument Bay project in northern Manitoba. In addition, the Company
continues to pursue development and strategic initiatives for the
56.7% held Agua De La Falda joint venture with Codelco in northern
Chile.
EXPLORATION
The Company’s 2019 exploration program is
focused on finding higher quality ounces, improving mine grade,
infill drilling to replace production by upgrading existing mineral
resources, and exploring the Yamana property portfolio as well as
several joint venture opportunities.
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 for the
remainder of the year by up to $10 million, 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 are focused 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.
KEY STATISTICS
Key operating and financial statistics for the
second quarter 2019 are outlined in the following tables.
Financial Summary
|
Three Months Ended June 30 |
|
(In millions of United States
Dollars, except for per share and per unit amounts, unaudited) |
2019 |
|
2018 |
|
Revenue |
$ |
463.5 |
|
$ |
435.7 |
|
Cost of sales excluding
depletion, depreciation and amortization |
(244.1 |
) |
(238.3 |
) |
Depletion, depreciation and
amortization |
(122.4 |
) |
(93.9 |
) |
Total cost of sales |
$ |
(366.5 |
) |
$ |
(332.2 |
) |
Mine operating earnings |
97.0 |
|
103.5 |
|
General and administrative
expenses |
(16.8 |
) |
(23.9 |
) |
Exploration and evaluation
expenses |
(2.7 |
) |
(3.2 |
) |
Net earnings |
14.1 |
|
12.4 |
|
Net earnings attributable to
Yamana equity holders |
14.1 |
|
18.0 |
|
Net earnings per share - basic
and diluted (1) |
0.01 |
|
0.02 |
|
Cash flow generated from
operations after changes in non-cash working capital |
147.6 |
|
102.4 |
|
Cash flow from operations
before changes in non-cash working capital |
156.0 |
|
157.5 |
|
Revenue per ounce of gold |
1,325 |
|
1,299 |
|
Revenue per ounce of
silver |
15.00 |
|
16.61 |
|
Revenue per pound of
copper |
2.43 |
|
2.82 |
|
Average realized gold price
per ounce |
$ |
1,307 |
|
$ |
1,304 |
|
Average realized silver
price per ounce |
$ |
15.03 |
|
$ |
16.53 |
|
Average
realized copper price per pound |
$ |
2.88 |
|
$ |
3.09 |
|
(1) For the three months ended June 30, 2019, the weighted
average numbers of shares outstanding was 950,292,177 (basic) and
951,059,912 (diluted).
Production, Financial and Operating Summary
Costs |
Three Months Ended June 30 |
(In United States
Dollars) |
2019 |
2018 |
Per GEO sold |
|
|
Total cost of sales |
$ |
1,076 |
|
$ |
1,009 |
Cash Costs |
$ |
670 |
|
$ |
655 |
AISC |
$ |
941 |
|
$ |
928 |
Per Copper Pound sold |
|
|
Total cost of sales |
$ |
1.65 |
|
$ |
1.64 |
Cash Costs |
$ |
1.78 |
|
$ |
1.60 |
AISC |
$ |
2.23 |
|
$ |
2.11 |
|
Three Months Ended June 30 |
Gold Ounces |
2019 |
2018 |
Canadian Malartic (50%) |
84,311 |
91,863 |
Jacobina |
38,951 |
37,730 |
Cerro Moro |
29,643 |
9,644 |
El Peñón |
34,646 |
37,800 |
Minera Florida |
16,293 |
16,717 |
Chapada |
29,019 |
30,329 |
TOTAL |
232,863 |
224,083 |
|
Three Months Ended June 30 |
Silver Ounces |
2019 |
2018 |
Cerro Moro |
1,328,251 |
384,629 |
El Peñón |
843,585 |
925,450 |
TOTAL |
2,171,836 |
1,310,079 |
|
Three Months Ended June 30 |
Copper Pounds (millions) |
2019 |
2018 |
Chapada |
31.2 |
31.1 |
For a full discussion of Yamana’s operational
and financial results, please refer to the Company’s second 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 Friday, July 26, 2019, at 9:00 a.m. ET.
Second Quarter 2019 Conference Call |
|
|
Toll Free (North America): |
1-800-273-9672 |
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 July 26, 2019, until 11:59 p.m. ET on August
16, 2019.
Qualified Persons
Scientific and technical information contained
in this news release has been reviewed and approved by Sébastien
Bernier (P. Geo and Senior Director, Geology and Mineral
Resources). Sébastien Bernier is an employee of Yamana Gold Inc.
and a "Qualified Person" as defined by Canadian Securities
Administrators' National Instrument 43-101 - Standards of
Disclosure for Mineral Projects.
About Yamana
Yamana is a Canadian-based precious metals
producer with significant gold and silver production, 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
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. The Company is
listed on the Toronto Stock Exchange (trading symbol "YRI") and the
New York Stock Exchange (trading symbol "AUY").
FOR FURTHER INFORMATION, PLEASE CONTACT:Investor
Relations and Corporate Communications
416-815-02201-888-809-0925Email: 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 and 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, results of feasibility studies, repayment of
debt or updates regarding mineral reserves and mineral resources.
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 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 United States 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
dispositions, 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, 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;
- Cash Costs per pound of copper sold;
- All-in Sustaining Costs per GEO sold;
- 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 June 3o, 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. These costs are then divided
by GEO sold. 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.
- Cash Costs of copper - Attributable copper sales costs, 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.
- 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 at June 30, 2019 and December 31, 2018 is provided in
Section 10: of the MD&A for the three months ended June 30,
2019, which has been filed on SEDAR.
NET FREE CASH FLOW AND FREE CASH FLOW
The Company uses the financial measure "Net Free
Cash Flow" and "Free Cash Flow", which are non-GAAP financial
measures, to supplement information in its Consolidated Financial
Statements. Net Free Cash Flow and Free Cash Flow do not have any
standardized meaning prescribed under IFRS, and therefore 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 or to meet dividends and debt
repayments. The presentation of Net Free Cash Flow and Free Cash
Flow are 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. Free Cash Flow further deducts
remaining capital expenditures and payments for lease obligations.
A reconciliation of Net Free Cash Flow is provided in Section 10:
of the MD&A for the three months ended June 30, 2019 and
comparable period of 2018 which has been filed on SEDAR.
Net Free Cash Flow
Reconciliation |
Three months ended June 30 |
(In millions of United States
Dollars) |
2019 |
|
2018 |
|
Cash flows from operating activities before income taxes paid and
net change in working capital |
$ |
165.2 |
|
|
$ |
158.1 |
|
Income taxes paid |
(9.2 |
) |
(0.6 |
) |
Cash flows from operating
activities before net change in working capital |
$ |
156.0 |
|
|
$ |
157.5 |
|
Net change in working
capital |
(8.4 |
) |
(55.1 |
) |
Cash flows from operating
activities |
$ |
147.6 |
|
|
$ |
102.4 |
|
Adjustments to operating cash
flows: |
|
|
Unearned revenue recognized on copper prepay, streaming
arrangements and other net of advance payments received |
$ |
32.8 |
|
|
$ |
11.7 |
|
Payments made to Brazilian tax authorities |
- |
|
- |
|
Non-discretionary items related
to the current period: |
|
|
Sustaining capital expenditures |
(43.7 |
) |
(43.7 |
) |
Interest and other finance expenses paid |
(13.8 |
) |
(22.4 |
) |
Net free cash flow |
$ |
122.9 |
|
|
$ |
48.0 |
|
Free Cash Flow before Dividends and Debt Repayment
Reconciliation |
Three months ended June 30 |
(In millions of United States
Dollars) |
2019 |
|
2018 |
|
Cash flows from operations |
$ |
147.6 |
|
|
$ |
102.4 |
|
Cash flows used in capital expenditures |
(86.2 |
) |
(104.0 |
) |
Cash flows used in other investing activities |
(25.7 |
) |
(31.3 |
) |
Interest and other finance expenses paid |
(13.8 |
) |
(22.4 |
) |
Lease liabilities and other financing payments |
(3.4 |
) |
0.5 |
|
Effect of foreign exchange of non-USD denominated cash |
(0.1 |
) |
1.3 |
|
Payments or inflows not reflective of current period
operations: |
|
|
Unearned revenue recognized on copper prepay, streaming
arrangements and other net of advance payments received |
32.8 |
|
11.7 |
|
Free Cash Flow Available for
Dividends and Debt Repayments |
$ |
51.2 |
|
|
$ |
(41.7 |
) |
|
|
|
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 June 30, 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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