TORONTO, ONTARIO -- (MARKET WIRE) -- 08/07/07 -- YAMANA GOLD INC. (TSX: YRI)(NYSE: AUY)(LSE: YAU) is pleased to announce its financial and operating results for the quarter ended June 30, 2007.
Second Quarter Highlights from the period of April 1, 2007 to June 30, 2007 include the following:
Operational
- Total production of 115,843 ounces of gold for the quarter and 236,450 ounces on a year to date basis.
- Average cash cost of $(434) per ounce after by-product credits representing an improvement of 313% in cash costs from the first quarter.
- Total concentrate production from Chapada of 50,304 tonnes for the quarter, an increase of 13.2% over the first quarter.
- Recovery improvements and decrease in mining costs per tonne at the Chapada Mine.
- Continued development plan at Jacobina focusing on the Canavieiras mine development with two ramps to accelerate development.
- Pyrite sulphuric acid scoping study at Chapada completed with feasibility study advancing.
- Gualcamayo feasibility study pending with expected production to begin in mid-2008.
Financial
- Record quarterly sales of $183.7 million, an increase of 339% over the comparative quarter ended June 30, 2006 and an increase of 27% over the first quarter ended March 31, 2007.
- Mine operating earnings of $106.7 million for the quarter, an increase of 829% over the comparative quarter and 40% over the first quarter.
- Adjusted earnings for the quarter of $85.2 million before income tax effects and $76.4 million after income tax effects or $0.22 per share.
- Net earnings for the quarter of $52.8 million or $0.15 per share (the primary difference between accounting net earnings and adjusted net earnings is non-cash mark-to-market copper hedge losses).
- Cash flow from operations of $90.9 million before changes in non-cash working capital, representing $0.26 per share.
- Cash balance of $89.0 million as at June 30, 2007. Accounts receivable of $72.1 million as at June 30, 2007 of which $49.7 million is expected to be collected by mid August and will further increase available cash.
- Declared further quarterly dividend of $0.01 per share.
Exploration
- Continued exploration efforts with significant exploration successes.
- At the Gualcamayo project, the Amelia Ines and Magdalena deposits are showing the potential to be much larger and higher grade than originally anticipated.
- Deep drilling program at Sao Francisco underway to investigate the potential resource expansion.
- Resources expected to increase at Jacobina as exploration and development continue.
- Intensive 20,000 metre drilling program in 174 holes ongoing at C1-Santa Luz, with the feasibility study expected by the end of 2007.
- Additional land acquired near C1-Santa Luz expanding the target.
- Continued exploration on the Pillar de Goias Greenstone Belt.
Other
- Subsequent to the quarter end, the Company announced it had signed a definitive business combination agreement with Northern Orion Resources Inc. and concurrently filed a formal offer to acquire all the outstanding shares of Meridian Gold Inc.
- Subsequent to the quarter end, the Company entered into copper forward contracts intended to hedge copper prices. Yamana's strategy relating to copper is to secure a low-cost structure for gold production and increase the Company's leverage to gold.
"During this quarter we realized major financial and operational milestones with revenue, earnings and cash flow that are multiples of prior quarters," said Peter Marrone, chairman and chief executive officer of Yamana Gold Inc. "Our high growth strategy through internal development, acquisitions and exploration is further demonstrating our commitment to providing value. We remain focused on these three legs to deliver further growth in production, profitability and cash flow. We have delivered strong financial results, with our major mine still ramping up production after construction completed and one of our mines not in full operation."
Financial and Operating Summary
Net earnings for the quarter were $52.8 million compared to a loss for the comparative quarter ended June 30, 2006 of $58.3 million, representing an improvement of $111.1 million. Net earnings on a year to date basis were $80.2 million compared to a loss of $64.2 million for the six months ended June 30, 2006, representing an improvement of $144.4 million. The increase in earnings is primarily due to commencement and ramp up of operations at the Chapada Mine since the beginning of this year.
Net earnings for the three and six months ended June 30, 2007 included certain non-cash and non-recurring charges in respect of stock-based compensation, foreign exchange gains or losses, unrealized losses on derivatives, loss on impairment of the Fazenda Nova Mine, non-production costs during business interruption (sill pillar failure costs) and a future income tax expense on foreign currency translation of inter corporate debt.
Adjusted earnings for these non-cash and non-recurring items was $85.2 million before income tax effects and $76.4 million after income tax effects for the quarter ended June 30, 2007 compared to $13.1 million for the comparative quarter.
Basic earnings per share were $0.15 and diluted earnings per share were $0.14 for the three months ended June 30, 2007. For the six months ended June 30, 2007 basic earnings per share were $0.23 and diluted earnings per share were $0.22. This compares to a basic and diluted loss per share of $0.21 and $0.27 for the comparative three and six month periods ended June 30, 2006, respectively.
Earnings per share adjusted for certain non-cash and non-recurring items were $0.22 per share for the quarter. This compares to adjusted earnings per share of $0.05 for the comparative quarter, representing an increase of 340%.
Revenue for the quarter was $183.7 million, an increase of 27% over the preceding quarter and 339% increase over the comparative quarter ended June 30, 2006. Revenue on a year to date basis was $328.8 million, an increase of 458% over the comparative six month period ended June 30, 2006.
Revenue for the quarter included sales of 120,022 ounces of gold and 31.7 million pounds of copper. Revenue for the six months included sales of 242,723 ounces of gold and 55.6 million pounds of copper.
The Company's average net realized gold price during the quarter was $660 per ounce, an increase of 5% from an average net realized price of $628 per ounce during the comparative quarter. This also compares to an average spot price of $668 per ounce for the quarter. On a year to date basis, the Company has realized an average net gold sale price of $653 per ounce, consistent with a spot price of $659 per ounce for the period.
Mine operating earnings were $106.7 million and $183.0 for the three and six month periods ended June 30, 2007, respectively. Mine operating earnings for the six months include earnings from the six mines. Mine operating earnings for the comparative six month period were $16.7 million and included earnings from the Fazenda Brasileiro Mine, the Fazenda Nova Mine and the San Andres Mine and Jacobina Mines as of the date of acquisition.
A total of 115,843 ounces were produced during the quarter. On a year to date basis, the Company produced 236,450 ounces of gold. A total of 83,089 and 158,047 ounces of gold were produced by the Company's mines during the comparative three and six month periods ended June 30, 2006 including pro forma adjustments for pre-acquisition production from existing mines.
Additionally, production for the quarter and on a year to date basis included 31.5 million pounds of copper within 50,304 tonnes of concentrate and 59.0 million pounds of copper within 94,734 tonnes of concentrate, respectively.
Gold production for the balance of the year is expected to exceed 300,000 ounces of gold and up to 350,000 ounces of gold, largely depending on accelerating the production increase at the Jacobina Mine and processing planned higher grade material at the Sao Francisco Mine. Copper production for the balance of the year is expected to exceed 70 million pounds of copper. The Company will assess its production expectations from time to time and as it continues to gain production experience from its mines recently placed into production and will update its production schedule accordingly.
Average cash costs for the quarter were $(434) per ounce compared to $332 per ounce for the comparative quarter ended June 30, 2006 and $(105) per ounce for the previous quarter ended March 31, 2007. Average cash costs for the six months ended June 30, 2007 were $(267) per ounce compared to $325 for the comparative six month period ended June 30, 2006. Cash costs for the three and six month periods for the Fazenda Nova and Jacobina mines are not reflective of ongoing operations as Fazenda Nova operations are being discontinued and Jacobina operations are gradually resuming after the sill pillar failure in the first quarter. Average cash costs for the quarter excluding Fazenda Nova and Jacobina were $(557) per ounce. On a co-product basis cash costs for the quarter were $0.72 per pound of copper and $305 per ounce of gold (excluding Fazenda Nova and Jacobina).
The Company recorded a non-recurring loss from non-production costs during business interruption of $10.4 million as a result of sill pillar failures at its Jacobina Mine during the six months ended June 30, 2007 of which $4.4 million was recognized during the second quarter. The Company has filed an insurance claim with respect to these business interruption losses. Any insurance recovery will be credited to net earnings in the period that the claim is settled with the insurance company.
Inventory as at June 30, 2007 was $62.3 million compared to $61.0 million as at March 31, 2007 and $51.3 million as at December 31, 2006.
Cash as at June 30, 2007 was $89.0 million compared to $69.8 million as at March 31, 2007 and $69.7 million as at December 31, 2006. As at June 30 2007, the Company had accounts receivables in the amount of $72.1 million, compared to $49.5 million as at March 31, 2007 and $6.0 million as at December 31, 2006. This increase is due to concentrate receivables as at the quarter end from Chapada Mine sales and of ordinary course as production increases at the Chapada Mine and concentrate sales increase accordingly.
Working capital as at June 30, 2007 was $120.6 million compared to $97.4 million as at March 31, 2007 and $53.0 million as at December 31, 2006. The increase in working capital is primarily related to the start up of operations at the Chapada Mine.
Cash flow from operations before changes in non-cash working capital items was $90.9 million for the quarter compared to $15.1 million for the comparative quarter ended June 30, 2006. Cash flow from operations before changes in non-cash working capital items was $159.8 million for the six month period ended June 30, 2007 compared to $22.9 million for the comparative six month period ended June 30, 2006. The increase in cash flow from operations is primarily due to start-up of operations at the Chapada Mine.
General and administrative expenses were $10.7 million and $18.9 million for the three and six month periods ended June 30, 2007 compared to $5.3 million and $8.7 million for the comparative three and six month periods ended June 30, 2006. The increase in general and administrative expenses reflects the Company's growth from operations and acquisitions and the growing infrastructure to support its production growth.
The Company recorded unrealized derivative losses of $19.9 million and $28.7 million for the quarter and six months ended June 30, 2007 consisting of mark-to-market gains and losses on commodity contracts, currency contracts and warrants held.
Exploration Success
Yamana continues to actively explore its exploration targets around existing mines and additional regional exploration targets located on four major greenstone belts in South America.
Sao Francisco, Brazil
Yamana has begun its previously announced deep drilling program to investigate the potential resource extension in depth at Sao Francisco gold mine, Mato Grosso, Brazil. When construction began at Sao Francisco in 2006, Yamana indicated that a deep drilling program would begin some time after the start up of operations.
Drilling to date has continued to identify mineralization. Drill hole SF-487 returned two mineralized intervals grading 7.17 g/t Au over 1.5m (true width) and 6.08 g/t Au over 8.9 metres (true width), including 30.1 g/t Au over 1 metre (true width). Results from SF-486 returned 4.82 g/t Au over two metres, within a zone of 1.33 g/t Au over true width of 18 metres, at a depth of 778 metres (514 metres below the final pit bottom). The two deep holes drilled to date extend the mineralization 300 metres deeper than the current resources. Drilling will continue to investigate the deep zone to the east of the deposit.
Measured and indicated resources at Sao Francisco as at December 31, 2006 total 88.1 million tonnes at 0.66 g/t gold, containing 1.87 million ounces of gold (total measured resources of 36.6 million tonnes at 0.73 g/t gold and total indicated resources of 51.5 million tonnes at 0.61 g/t gold). Additional inferred resources total 110.6 million tonnes at 0.40 g/t Au, containing 1.436 million ounces of gold. This represents a significant increase from the original feasibility study predominantly along strike of the open pit mine. Extension drilling along strike continues as well as in-fill drilling to upgrade resources to reserves.
These results continue to demonstrate the potential at Sao Francisco for further open pit mine life and a possible underground deposit.
C1-Santa Luz, Brazil
C1-Santa Luz is located on the Rio Itapicuru Greenstone Belt north of the Fazenda Brasileiro mine. The most recent resource estimate update for the C1 and Antas 1 contiguous deposits, completed in February 2007, is summarised in the following table:
C1/Antas 1 Mineral Resource Estimates
(0.5g/t Au cut-off)
Indicated Inferred
Tonnes Au Ounces Tonnes Au Ounces
Deposit (000s) (g/t) (000s) (000s) (g/t) (000s)
----------------------------------------------------------------
C1 17,859 1.62 927 8,167 1.4 374
Antas 1 1,749 2.02 114 419 2.1 28
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Total 19,608 1.65 1,041 8,586 1.5 402
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(1) The Mineral Resources for the C1/Antas 1 deposits as set out
in the table above have been prepared by Chris Arnold, principal
resource geologist of GRD Minproc Limited, under the direction
of Ross Oliver, manager mining & geology, GRD Minproc Limited.
Year to date, a total of 8,745 metres in 59 diamond drill holes were completed primarily on Antas 3 North, which is an adjacent target to C1 with potential to increase the known resource up to 1,200 metres of strike length. Three holes were initially drilled in Antas 2; a smaller and higher grade drill target located 800 metres southwest of C1. Drill results received so far have confirmed the expansion of the open pitable resource as shown in the table below.
The most significant results from drilling at Antas 3 North and Antas 2 include:
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Hole Area From To Interval Gold Grade
---------------------------------------------------------
(m) (m) (m) g/t Au
---------------------------------------------------------
AT-6 Antas 3 105.9 113.0 7.1 2.38
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135.1 149.0 13.9 1.58
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AT-7 Antas 3 169.9 173.0 3.1 2.65
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AT-8 Antas 3 130.4 136.3 5.9 2.88
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AT-9 Antas 3 148.1 166.1 17.0 1.77
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AT-11 Antas 3 154.0 180.0 26.0 1.32
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AT-41 Antas 3 85.6 103.0 17.4 2.52
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AT-138 Antas 3 32.0 35.6 3.6 1.08
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ANTR202 Antas 2 8.0 30.0 22.0 8.09
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ANTR205 Antas 2 15.0 21.0 6.0 2.98
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ANTR191 Antas 2 0.0 2.0 2.0 1.15
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7.0 16.0 9.0 1.84
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Drill core samples from C1-Santa Luz were analyzed for fire assay at SGS-Geosol, an ISO 9001, 2000 laboratory, in their Jacobina facility, and checked by ACME Laboratory, based in Goiania, Brazil. Accuracy and precision of results is submitted to a systematic quality control protocol, following industry standards.
All of these results are near surface and Yamana believes that the open pit resource is likely significantly larger at grades higher than originally anticipated.
An intensive drilling program of 20,000 metres in 174 holes is currently ongoing at C1-Santa Luz, targeting an open pitable resource expansion to the south. Nine drill rigs are currently on site and Yamana expects to complete the drilling program by early October. Drill targets included in this program are: C1-Antas 1 in-fill, Antas 3 North, Antas 2, Antas 3 South, Mansinha and Mari which are all located within 12 km of the planned mill facilities.
The feasibility study is expected by the end of 2007 with operations beginning in early 2009.
C1-Santa Luz is significant as it further demonstrates Yamana's commitment to organic, internal growth. Originally targeted for drilling in late 2004, C1-Santa Luz was taken to a scoping study which indicated an initial reserve although continued drilling was recommended. The February 2007 resource estimate significantly increased the known resource in the scoping study. Current and planned drilling suggest a larger deposit and at higher grades than contemplated in February.
Gualcamayo, Argentina
The feasibility study for the main Quebrada Del Diablo (QDD) deposit is pending. In addition, a resource update for the Amelia Ines and Magdalena (AIM) satellite deposits at Gualcamayo, located approximately 1.0 and 1.5 km northwest of QDD, is in progress.
Drilling results since the 2004 resource estimate as previously disclosed include the following: Hole QD-400 (4.90 gpt Au over 149.15 m), Hole QD-403 (6.61 gpt Au over 45.22 m), Hole QD-399 (10.00 gpt Au over 21.50 m), Hole QD-389 ( 2.65 gpt Au over 78.67 m) and Hole QD-397 ( 2.58 gpt Au over 63.96 m). The pending resource update will account for this information.
Some of the more recent significant drill core length intercepts include QD-411 (51 metres at 2.25 g/t Au), QD-412 (114 m at 4.73 g/t Au), QD-414 (72 m at 4.4 g/t Au), QD-415 (36m at 1.58 g/t Au), QD-416 (44m at 1.22 g/t Au), QD-427 (71m at 1.99 g/t Au, including 36m at 2.70 g/t Au), QD-435 (17.7m at 3.98 g/t Au), QD-436 (32.4m at 3.23 g/t Au) and QD-439 (28 m at 4.12 g/t Au). The additional higher grade oxides outcrop along the eastern edge of the Amelia Ines deposit are easily accessible with existing road infrastructure and could therefore have a significant impact on the Gulacamayo project's economics in the initial years of production as the average grade is more than 2.5 times that of the main QDD deposit. These results will be included in a new AIM resource estimate used to complete an AIM feasibility study by the end of September 2007.
Yamana's commitment to resource expansion includes further defining and increasing resources at properties or mines that become part of Yamana through acquisition. The Gualcamayo project was acquired only in late 2006 and since then significant efforts have been made at advancing the feasibility study and expanding the size of the deposit.
San Andres, Honduras
Yamana continues to significantly expand the resource base at San Andres. Since acquiring the property, Yamana has increased the measured and indicated resources and the resource base is expected to increase further by the end of 2007 as drilling continues. Further efforts are also underway to upgrade resources to reserves as Yamana intends to develop a mine plan providing for production of 100,000 ounces per year (currently 65,000 ounces) for a ten year period (currently approximately five years).
Pillar de Goias, Brazil
Drilling is in progress on the Pillar de Goias Greenstone Belt in central Brazil to further delineate targets. To date, there are 28 drill holes including 19 historical and 9 recently drilled by Yamana with results pending on two initial targets.
Nicaragua Exploration
Geological mapping and sampling is underway at two main targets in Siuna District, Nicaragua. Cerro Potosi has a known resource and historical drilling results. At Cerro Aeropeurto, located 1.1 kilometres south of Cerro Potosi, a historical RC hole intersected 49 metres at a grade of 2.3 g/t Au including 9 metres at 11 g/t Au, 4.5 metres at 56 g/t Au and 3 metres at 10% Zn. Cerro Potosi and Cerro Aeropeurto are early-stage targets, and may be part of the same structure.
Yamana Exploration in 2007
Yamana will continue its existing and new exploration programs for the remainder of 2007 having allocated a total budget of approximately $32 million focusing primarily at and around Gualcamayo in Argentina, on the Bahia Gold Belt near and north of Jacobina mine, on the Itapicuru Greenstone Belt north of Fazenda Brasiliero mine, on the Pillar de Goias Greenstone Belt and on the Guapore Greenstone Belt south of the Sao Francisco mine. Yamana will continue to provide regular exploration updates throughout the year.
The exploration programs are being supervised by Dr. Evandro Cintra, P. Geo., vice president, exploration of Yamana Gold who is a Qualified Person as defined by National Instrument 43-101. Dr. Cintra has verified the data disclosed and has reviewed and approved the contents of this press release.
A conference call and audio webcast has been scheduled for August 8, 2007 at 11:00 a.m. E.T. to discuss the results.
Conference Call Information:
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Toll Free (North America): 800-591-7539
International: +1 416-915-5761
Participant Audio Webcast: www.yamana.com
Conference Call REPLAY:
-----------------------
Replay Call: 416-640-1917 Passcode 21241412#
Replay Toll Free Call: 877-289-8525 Passcode 21241412#
The conference call replay will be available from 1:20 p.m. E.T. on August 8, 2007 until 11:59 p.m. E.T. on August 15, 2007.
About Yamana
Yamana is a Canadian gold producer with significant gold production, gold development stage properties, exploration properties, and land positions in Brazil, Argentina and Central America. Yamana is producing gold at intermediate company production levels in addition to significant copper production. Company management plans to continue to build on this base through the advancement of its exploration properties and by targeting other gold consolidation opportunities in Brazil, Argentina and elsewhere in the Americas.
IMPORTANT NOTICE: This press release does not constitute an offer to buy or an invitation to sell, any of the securities of Yamana, Northern Orion or Meridian. Such an offer may only be made pursuant to a registration statement and prospectus filed with the U.S. Securities and Exchange Commission and an offer to purchase and circular filed with Canadian securities regulatory authorities. Yamana has filed with the U.S. Securities and Exchange Commission a Registration Statement on Form F-10 as well as a Schedule TO tender offer statement both of which include the offer and take-over bid circular relating to the Meridian offer and is mailing the offer and take-over circular to Meridian shareholders. Investors and security holders are urged to read the Registration Statement, the offer and take-over bid circular and any other relevant documents filed wit the SEC and Canadian securities regulators, regarding the proposed business combination transaction because they contain important information. Investors may obtain a free copy of the offer and take-over bid circular and other documents filed by Yamana with the SEC at the SEC's website at www.sec.gov. The offer and take-over bid circular and other documents may also be obtained for free on Yamana's website at www.yamana.com or by directing a request to Yamana's investor relations department.
Persons who are resident in the United Kingdom should note the following points:
(i) the formal offering and takeover-bid circular to be issued to Meridian shareholders ("Offer and Circular") will not constitute a prospectus for the purposes of the Prospectus Rules ("Prospectus Rules") published by the Financial Services Authority of the United Kingdom (the "FSA"). Accordingly, the Offer and Circular has not been, and will not be, approved by the FSA or by London Stock Exchange plc. No action has been or is intended to be taken by Yamana or by Genuity Capital Markets or Canaccord Capital Corporation, or any of their affiliated entities, that would permit a public offer of Yamana Common Shares to be made in the United Kingdom, which would require an approved prospectus to be made available to the public in the United Kingdom (in accordance with the United Kingdom Financial Services and Markets Act 2000 ("FSMA") and the Prospectus Rules before such an offer was made.
(ii) The Offer will be made to or directed at, and deposits of Meridian shares will be accepted from, only those shareholders in the United Kingdom who are (or who are acting on behalf of), and who are able to establish to the satisfaction of Yamana that they are (or are acting on behalf of): "qualified investors" within the meaning of section 86(7) of FSMA, and who are also persons falling within Article 19(5) or Article 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. UK shareholders receiving the Offer and Circular should consult with their legal advisors to determine whether they are eligible to receive and accept the Offer.
FORWARD-LOOKING STATEMENTS: This news release contains certain "forward-looking statements" within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended and "forward-looking information" under applicable Canadian securities laws. Except for statements of historical fact relating to the company, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as "plan," "expect," "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 and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include possible variations in ore grade or recovery rates, fluctuating metal prices, prices for sulphiric acid and currency exchange rates, changes in project parameters, the possibility of project cost overruns or unanticipated costs and expenses and general risks of the mining industry, failure of plant, equipment or processes to operate as anticipated, unexpected changes in mine life of Chapada, availability of a local market for the sale of sulphiric acid, as well as those risk factors discussed or referred to in the Company's annual Management's Discussion and Analysis and 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 or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.
CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES
This news release uses the terms "Measured", "Indicated" and "Inferred" Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. "Inferred Mineral Resources" have a great amount of uncertainty as to their existence, and 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 other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.
CAUTIONARY LANGUAGE REGARDING RESERVES AND RESOURCES
Readers are advised that National Instrument 43-101 of the Canadian Securities Administrators requires that each category of mineral reserves and mineral resources be reported separately. Mineral resources are not mineral reserves and have not demonstrated economic viability. Other than as disclosed, the effective date, details of key assumptions, parameters and methods used in the foregoing estimates and other information is disclosed in the Annual Information Form of Yamana for the year ended December 31, 2006 available under Yamana's profile at www.sedar.com, for this detailed information, which is subject to the qualifications and notes set forth therein.
Yamana Gold Inc.
For the Second Quarter Ended June 30, 2007
Management's Discussion and Analysis of Operations and Financial Condition
(US Dollars unless otherwise specified, in accordance with Canadian GAAP)
A cautionary note regarding forward-looking statements and non-GAAP measures follows this Management's Discussion and Analysis of Operations and Financial Condition.
1. HIGHLIGHTS
Operational
- Total production of 115,843 ounces of gold for the quarter and 236,450 ounces on a year to date basis.
- Average cash cost of $(434) per ounce after by-product credits representing an improvement of 313% in cash costs from the first quarter.
- Total concentrate production from Chapada of 50,304 tonnes for the quarter, an increase of 13.2% over the first quarter.
- Recovery improvements and decrease in mining costs per tonne at the Chapada Mine.
- Continued development plan at Jacobina focusing on the Canavieiras mine development with two ramps to accelerate development.
- Pyrite sulphuric acid scoping study at Chapada completed with feasibility study advancing.
- Gualcamayo feasibility study pending with expected production to begin in mid-2008.
Financial
- Record quarterly sales of $183.7 million, an increase of 339% over the comparative quarter ended June 30, 2006 and an increase of 27% over the first quarter ended March 31, 2007.
- Mine operating earnings of $106.7 million for the quarter, an increase of 829% over the comparative quarter and 40% over the first quarter.
- Adjusted earnings for the quarter of $85.2 million before income tax effects and $76.4 million after income tax effects or $0.22 per share.
- Net earnings for the quarter of $52.8 million or $0.15 per share (the primary difference between accounting net earnings and adjusted net earnings is non-cash mark-to-market copper hedge losses).
- Cash flow from operations of $90.9 million before changes in non-cash working capital.
- Cash balance of $89.0 million as at June 30, 2007. Accounts receivable of $72.1 million as at June 30, 2007 of which $49.7 million is expected to be collected by mid August and will further increase available cash.
- Declared further quarterly dividend of $0.01 per share.
Exploration
- Continued exploration efforts with significant exploration successes.
- At the Gualcamayo project, the Amelia Ines and Magdalena deposits are showing the potential to be much larger and higher grade than originally anticipated.
- Deep drilling program at Sao Francisco underway to investigate the potential resource expansion.
- Resources expected to increase at Jacobina as exploration and development continues.
- Intensive 20,000 metre drilling program in 174 holes ongoing at C1-Santa Luz, with the feasibility study expected by the end of 2007.
- Additional land acquired near C1-Santa Luz expanding the target.
- Continued exploration on the Pillar de Goias Greenstone Belt.
Other
- Subsequent to the quarter end, the Company announced it had signed a definitive business combination agreement with Northern Orion Resources Inc. and concurrently filed a formal offer to acquire all the outstanding shares of Meridian Gold Inc. Details provided in section 4 "Business Acquisitions".
- Subsequent to the quarter end, the Company entered into copper forward contracts intended to hedge copper prices at a weighted average forward price of $2.97 per pound of copper for a total of 124.9 million pounds of copper for 2008, 2009 and 2010 ($3.33 for 2008, $3.00 for 2009 and $2.67 for 2010) and $2.37 per pound of copper for a total of 35 million pounds of copper for 2011. Yamana's strategy relating to copper is to secure a low-cost structure for gold production and increase the Company's leverage to gold.
2. OVERVIEW OF FINANCIAL RESULTS
Net earnings for the quarter were $52.8 million compared to a loss for the comparative quarter ended June 30, 2006 of $58.3 million, representing an improvement of $111.1 million. Net earnings on a year to date basis were $80.2 million compared to a loss of $64.2 million for the six months ended June 30, 2006, representing an improvement of $144.4 million. The increase in earnings is primarily due to commencement and ramp up of operations at the Chapada Mine since the beginning of this year.
Net earnings for the three and six months ended June 30, 2007 included certain non-cash and non-recurring charges in respect of stock-based compensation, foreign exchange gains or losses, unrealized losses on derivatives, loss on impairment of the Fazenda Nova Mine, non-production costs during business interruption (sill pillar failure costs) and a future income tax expense on foreign currency translation of inter corporate debt.
Adjusted earnings for these non-cash and non-recurring items was $85.2 million before income tax effects and $76.4 million after income tax effects for the quarter ended June 30, 2007 compared to $13.1 million for the comparative quarter. The following table summarizes adjusted net earnings for the three and six month periods ended June 30, 2007 with comparative figures for the three and six month periods ended June 30, 2006:
Three months ended Six months ended
A non-GAAP Measure June 30, June 30, June 30, June 30,
(in thousands of dollars) 2007 2006 2007 2006
------------------------------------------------------------------------
Net earnings (loss) per
consolidated financial
statements $ 52,761 $(58,312) $ 80,186 $ (64,219)
Adjustments:
Stock-based compensation 137 37,540 561 37,540
Foreign exchange loss (gain) 5,275 (2,100) 6,693 (5,593)
Unrealized loss on derivatives 19,931 11,390 28,700 20,286
Loss on impairment of the
Fazenda Nova Mine and
sill pillar failure expense 4,440 - 12,286 -
Future income tax (recovery)
expense on foreign
currency translation of inter
corporate debt 2,680 (122) 7,863 1,548
Debt repayment expense - 24,750 - 24,750
------------------------------------------------------------------------
Adjusted earnings before
income tax effects 85,224 13,146 136,289 14,312
Income tax effect of
adjustments (8,795) - (10,986) -
------------------------------------------------------------------------
Adjusted net earnings $ 76,429 $ 13,146 $ 125,303 $ 14,312
------------------------------------------------------------------------
Adjusted net earnings per
share $ 0.22 $ 0.05 $ 0.35 $ 0.06
------------------------------------------------------------------------
Basic earnings per share were $0.15 and diluted earnings per share were $0.14 for the three months ended June 30, 2007. For the six months ended June 30, 2007 basic earnings per share were $0.23 and diluted earnings per share were $0.22. This compares to a basic and diluted loss per share of $0.21 and $0.27 for the comparative three and six month periods ended June 30, 2006, respectively.
Earnings per share adjusted for certain non-cash and non-recurring items were $0.22 per share for the quarter. This compares to adjusted earnings per share of $0.05 for the comparative quarter, representing an increase of 340%.
Revenue for the quarter was $183.7 million, an increase of 27% over the preceding quarter and approximately 339% increase over the comparative quarter ended June 30, 2006. Revenue on a year to date basis was $328.8 million, an increase of 458% over the comparative six month period ended June 30, 2006.
Revenue for the quarter included sales of 120,022 ounces of gold and 31.7 million pounds of copper. Revenue for the six months included sales of 242,723 ounces of gold and 55.6 million pounds of copper.
The Company's average net realized gold price during the quarter was $660 per ounce, an increase of 5% from an average net realized price of $628 per ounce during the comparative quarter. This also compares to an average spot price of $668 per ounce for the quarter. On a year to date basis, the company has realized an average net gold sale price of $653 per ounce, consistent with a spot price of $659 per ounce for the period.
Mine operating earnings were $106.7 million and $183.0 for the three and six month periods ended June 30, 2007, respectively. Mine operating earnings for the six months include earnings from the six mines. Mine operating earnings for the comparative six month period were $16.7 million and included earnings from the Fazenda Brasileiro Mine, the Fazenda Nova Mine and the San Andres Mine and Jacobina Mines as of the date of acquisition.
A total of 115,843 ounces were produced during the quarter. On a year to date basis, the Company produced 236,450 ounces of gold. A total of 83,089 and 158,047 ounces of gold were produced by the Company's mines during the comparative three and six month periods ended June 30, 2006 including pro forma adjustments for pre-acquisition production from existing mines.
Additionally, production for the quarter and on a year to date basis included 31.5 million pounds of copper within 50,304 tonnes of concentrate and 59.0 million pounds of copper within 94,734 tonnes of concentrate, respectively.
Gold production for the balance of the year is expected to exceed 300,000 ounces of gold and up to 350,000 ounces of gold, largely depending on accelerating the production increase at the Jacobina Mine and processing planned higher grade material at the Sao Francisco Mine. Copper production for the balance of the year is expected to exceed 70 million pounds of copper. The Company will assess its production expectations from time to time and as it continues to gain production experience from its mines recently placed into production and will update its production schedule accordingly.
Average cash costs for the quarter were $(434) per ounce compared to $332 per ounce for the comparative quarter ended June 30, 2006 and $(105) per ounce for the previous quarter ended March 31, 2007. Average cash costs for the six months ended June 30, 2007 were $(267) per ounce compared to $325 for the comparative six month period ended June 30, 2006. Cash costs for the three and six month periods for the Fazenda Nova and Jacobina mines are not reflective of ongoing operations as Fazenda Nova operations are being discontinued and Jacobina operations are gradually resuming after the sill pillar failure in the first quarter. Average cash costs for the quarter excluding Fazenda Nova and Jacobina were $(557) per ounce. On a co-product basis cash costs for the quarter were $0.72 per pound of copper and $305 per ounce of gold (excluding Fazenda Nova and Jacobina).
The Company recorded a non-recurring loss from non-production costs during business interruption of $10.4 million as a result of sill pillar failures at its Jacobina Mine during the six months ended June 30, 2007 of which $4.4 million was recognized during the second quarter. The Company has filed an insurance claim with respect to these business interruption losses. Any insurance recovery will be credited to net earnings in the period that the claim is settled with the insurance company.
Inventory as at June 30, 2007 was $62.3 million compared to $61.0 million as at March 31, 2007 and $51.3 million as at December 31, 2006.
Cash as at June 30, 2007 was $89.0 million compared to $69.8 million as at March 31, 2007 and $69.7 million as at December 31, 2006. As at June 30 2007, the Company had accounts receivables in the amount of $72.1 million, compared to $49.5 million as at March 31, 2007 and $6.0 million as at December 31, 2006. This increase is due to concentrate receivables as at the quarter end from Chapada Mine sales and of ordinary course as production increases at the Chapada Mine and concentrate sales increase accordingly.
Working capital as at June 30, 2007 was $120.6 million compared to $97.4 million as at March 31, 2007 and $53.0 million as at December 31, 2006. The increase in working capital is primarily related to the start up of operations at the Chapada Mine.
Cash flow from operations before changes in non-cash working capital items was $90.9 million for the quarter compared to $15.1 million for the comparative quarter ended June 30, 2006. Cash flow from operations before changes in non-cash working capital items was $159.8 million for the six month period ended June 30, 2007 compared to $22.9 million for the comparative six month period ended June 30, 2006. The increase in cash flow from operations is primarily due to start-up of operations at the Chapada Mine.
General and administrative expenses were $10.7 million and $18.9 million for the three and six month periods ended June 30, 2007 compared to $5.3 million and $8.7 million for the comparative three and six month periods ended June 30, 2006. The increase in general and administrative expenses reflects the Company's growth from operations and acquisitions and the growing infrastructure to support its production growth.
The Company recorded unrealized derivative losses of $19.9 million and $28.7 million for the quarter and six months ended June 30, 2007 consisting of mark-to-market gains and losses on commodity contracts, currency contracts and warrants held.
The table below presents selected quarterly financial and operating data:
------------------------------------------------------------------------
(Unaudited) June March December September
30, 31, 31, 30,
2007 2007 2006 2006
------------------------------------------------------------------------
Financial results (in
thousands of dollars)
Revenue (i) $ 183,667 $ 145,133 $ 59,950 $ 50,299
Net earnings (loss) for
the period $ 52,761 $ 27,426 $ 6,140 $ (12,085)
Per share financial results
Basic earnings (loss) per
share $ 0.15 $ 0.08 $ 0.02 $ (0.04)
Diluted earnings (loss)
per share $ 0.14 $ 0.07 $ 0.02 $ (0.04)
Financial Position (in
thousands of dollars)
Total assets $2,407,179 $2,267,075 $2,181,192 $1,433,890
Total long-term
liabilities $ 430,303 $ 384,455 $ 364,141 $ 181,535
------------------------------------------------------------------------
Gold sales (ounces): (iv)
------------------------------------------------------------------------
Brazil
Chapada 47,427 33,723 - -
Sao Francisco 25,622 34,880 33,723 21,828
Jacobina 9,451 9,676 19,867 20,221
Fazenda Brasileiro 20,992 20,799 20,574 19,835
Fazenda Nova 1,704 5,272 6,816 6,140
------------------------------------------------------------------------
Total Brazil 105,196 104,350 80,980 68,024
------------------------------------------------------------------------
Central America
San Andres 14,826 18,349 16,260 14,578
------------------------------------------------------------------------
120,022 122,699 97,240 82,602
------------------------------------------------------------------------
Copper Contained in
Concentrate sales (in
millions of pounds):
Chapada 31.7 23.9 - -
Copper Concentrate sales
(tonnes):
Chapada 56,183 40,615 - -
------------------------------------------------------------------------
Gold production (ounces):
Commercial production:
Brazil
Chapada 44,027 38,954 - -
Sao Francisco 24,988 31,261 37,089 20,789
Jacobina 11,447 7,076 20,880 19,321
Fazenda Brasileiro 19,060 22,317 20,443 18,569
Fazenda Nova 2,380 4,047 7,853 6,548
------------------------------------------------------------------------
Total Brazil 101,902 103,655 86,265 65,227
------------------------------------------------------------------------
Central America
San Andres 13,941 16,952 18,298 14,685
------------------------------------------------------------------------
Commercial production 115,843 120,607 104,563 79,912
------------------------------------------------------------------------
Pre-operation production:
Chapada - - 7,881 -
Sao Francisco - - - 8,869
------------------------------------------------------------------------
Total production 115,843 120,607 112,444 88,781
------------------------------------------------------------------------
Copper Contained in
Concentrate production
(in millions of pounds):
Chapada 31.5 27.4 - -
Copper Concentrate production
(tonnes):
Chapada 50,304 44,430 - -
------------------------------------------------------------------------
Non-GAAP Measures (v)
Cash costs per ounce produced:
(iii),(iv)
Brazil
Chapada $ (1,789) $ (1,077) $ - $ -
Sao Francisco $ 340 $ 328 $ 284 $ 314
Jacobina $ 448 $ 470 $ 332 $ 317
Fazenda Brasileiro $ 418 $ 330 $ 357 $ 356
Fazenda Nova $ 589 $ 551 $ 305 $ 306
------------------------------------------------------------------------
Average Brazil $ (547) $ (181) $ 315 $ 325
------------------------------------------------------------------------
Central America
San Andres $ 391 $ 359 $ 349 $ 386
------------------------------------------------------------------------
Average production cost per
ounce $ (434) $ (105) $ 321 $ 337
------------------------------------------------------------------------
Average gold price realized
per ounce:
(i),(iv)
Brazil
Chapada $ 664 $ 652 $ - $ -
Sao Francisco $ 657 $ 637 $ 620 $ 613
Jacobina $ 666 $ 650 $ 619 $ 620
Fazenda Brasileiro $ 655 $ 639 $ 618 $ 615
Fazenda Nova $ 654 $ 648 $ 628 $ 610
------------------------------------------------------------------------
Average Brazil $ 660 $ 644 $ 620 $ 615
------------------------------------------------------------------------
Central America
San Andres $ 662 $ 652 $ 614 $ 615
------------------------------------------------------------------------
Average price realized per
ounce $ 660 $ 645 $ 619 $ 615
------------------------------------------------------------------------
Average copper price
realized per pound
Chapada (excluding hedge
contracts) $ 3.59 $ 2.81 $ - $ -
------------------------------------------------------------------------
Operating statistics (iv)
Gold ore grade (g/t):
Brazil
Chapada 0.54 0.57 - -
Sao Francisco 0.52 0.52 0.74 0.58
Jacobina 1.59 1.76 1.91 1.72
Fazenda Brasileiro 2.47 2.93 2.80 2.54
Fazenda Nova 0.52 0.46 0.57 0.63
Central America
San Andres 0.58 0.58 0.63 0.63
Copper ore grade (%)
Chapada 0.51 0.47 - -
Concentrate grade
Gold (g/t) 27.2 27.3 - -
------------------------------------------------------------------------
Copper (%) 28.4 28.0 - -
Gold recovery rate (%):
Brazil
Chapada 79.2 66.6 - -
Sao Francisco (ii) 76.7 104.1 67.2 60.6
Jacobina 95.1 95.1 95.3 93.6
Fazenda Brasileiro 93.9 93.9 93.6 93.0
Fazenda Nova 117.6 89.7 93.3 70.0
Central America
San Andres 94.0 88.4 79.3 80.0
Copper recovery rate (%):
Chapada 88.9 83.6 - -
-------------------------------------------------------------------------
(Unaudited) June March December September
30, 31, 31, 30,
2006 2006 2005 2005
-------------------------------------------------------------------------
Revenues $ 41,882 $ 17,074 $ 16,655 $ 10,749
Net earnings (loss) for the
period $ (58,312) $ (5,907) $ (73) $ 3,246
Per share financial results
Basic and diluted earnings
(loss) per share $ (0.21) $ (0.03) $ 0.00 $ 0.02
Financial Position (in
thousands of dollars)
Total assets $1,448,069 $529,954 $468,446 $345,206
Total long-term liabilities $ 186,389 $134,426 $122,030 $118,557
Gold sales (ounces): (iv)
Brazil
Fazenda Brasileiro 19,803 15,109 19,257 16,137
Fazenda Nova 6,044 9,484 15,463 8,809
Jacobina 24,014 - - -
-------------------------------------------------------------------------
Total Brazil 49,861 24,593 34,720 24,946
-------------------------------------------------------------------------
Central America
San Andres 17,319 6,327 - -
-------------------------------------------------------------------------
Sales from operations held
for sale
La Libertad 6,508 - - -
-------------------------------------------------------------------------
73,688 30,920 34,720 24,946
-------------------------------------------------------------------------
Gold production (ounces):
Commercial production:
Brazil
Fazenda Brasileiro 19,658 17,743 17,810 19,558
Fazenda Nova 5,893 9,549 12,740 10,364
Jacobina 22,333 - - -
-------------------------------------------------------------------------
Total Brazil 47,884 27,292 30,550 29,922
-------------------------------------------------------------------------
Central America
San Andres 17,082 6,727 - -
-------------------------------------------------------------------------
Commercial production 64,966 34,019 30,550 29,922
-------------------------------------------------------------------------
Pre-operation production:
Sao Francisco Pilot Plant 12,194 1,187 1,212 1,033
-------------------------------------------------------------------------
77,160 35,206 31,762 30,955
Pro forma adjustments:
Pre-acquisition production
San Andres - 13,987 - -
Jacobina - 18,974 - -
Post acquisition production
from operations sold - La
Libertad 5,929 6,791 - -
-------------------------------------------------------------------------
Total pro-forma production 5,929 39,752 - -
-------------------------------------------------------------------------
Total production 83,089 74,958 31,762 30,955
-------------------------------------------------------------------------
Non-GAAP Measures (v)
Per ounce data:
Cash costs per ounce produced:
(iii),(iv)
Fazenda Brasileiro $ 334 $ 353 $ 357 $ 332
Fazenda Nova $ 392 $ 216 $ 177 $ 215
Jacobina $ 331 $ - $ - $ -
-------------------------------------------------------------------------
Average Brazil $ 340 $ 305 $ 282 $ 291
-------------------------------------------------------------------------
Central America
San Andres $ 311 $ 271 $ - $ -
-------------------------------------------------------------------------
Average Production cost per
ounce $ 332 $ 290 $ 282 $ 291
-------------------------------------------------------------------------
Average gold price realized
per ounce:
(i),(iii)
Fazenda Brasileiro $ 628 $ 552 $ 483 $ 436
Fazenda Nova $ 633 $ 567 $ 487 $ 433
Jacobina $ 628 $ - $ - $ -
-------------------------------------------------------------------------
Average Brazil $ 629 $ 557 $ 485 $ 435
-------------------------------------------------------------------------
Central America
San Andres $ 626 $ 553 $ - $ -
-------------------------------------------------------------------------
Average price realized per
ounce $ 628 $ 555 $ 485 $ 435
-------------------------------------------------------------------------
Operating statistics (iv)
Gold ore grade (g/t):
Fazenda Brasileiro 2.80 2.40 2.31 2.47
Fazenda Nova 0.60 0.89 0.87 0.86
Jacobina 2.03 - - -
Central America
San Andres 0.68 0.74 - -
Gold recovery rate (%):
Fazenda Brasileiro 93.0 88.2 88.3 89.6
Fazenda Nova 65.0 80.0 90.0 78.0
Jacobina 93.8 - - -
Central America
San Andres 98.1 88.6 - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Revenues consist of sales net of sales taxes. Revenue per ounce data
is calculated based on net sales.
(ii) Fazenda Nova recovery rate for the quarter ended June 30, 2007 and
Sao Francisco recovery rate for quarter ended March 31, 2007 is in excess
of 100% due to draw down of gold contained in ore on heap leach pads.
Recovery grade calculated as recovered ounces divided by the quantity of
ounces stacked in the month.
(iii) Certain mine general and administrative costs have been reclassified
from mine operating earnings and cash costs to general and administrative
expenses.
(iv) During commercial production.
(v) A cautionary note regarding non-GAAP measures follows below.
3. NON-GAAP MEASURES
The Company has included certain non-GAAP Measures including cost per ounce data, adjusted net earnings and adjusted net earnings per share to supplement its financial statements, which are presented in accordance with Canadian GAAP. Non-GAAP measures do not have any standardized meaning prescribed under Canadian GAAP, 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 Canadian GAAP.
The Company has included cost per ounce information data because it understands that certain investors use this information to determine the Company's ability to generate earnings and cash flow for use in investing and other activities. The Company believes that conventional measures of performance prepared in accordance with Canadian GAAP do not fully illustrate the ability of its operating mines to generate cash flow. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under Canadian GAAP. Where cost per ounce data is computed by dividing GAAP operating cost components by ounces sold, the Company has not provided formal reconciliations of these statistics. Cash costs are determined in accordance with the Gold Institute's Production Cost Standard. For the purposes of co-product cash cost calculation purposes, the Company assumes that operating costs are attributable to copper and gold on a 70/30 split. The attributable costs will vary from time to time and would be influenced by a number of factors including current market terms for treatment and refining costs and customer mix. Cost of sales under Canadian GAAP and cash costs are reconciled by the following: non-cash movements in net working capital items and provisions for losses on inventory.
The Company uses the financial measures "adjusted net earnings" and "adjusted net earnings per share" to supplement its consolidated financial statements. The presentation of adjusted measures are not meant to be a substitute for net earnings or net earnings per share presented in accordance with GAAP, but rather should be evaluated in conjunction with such GAAP measures. Adjusted net earnings and adjusted net earnings per share are calculated as net earnings excluding (a) stock based compensation, (b) foreign exchange loss (gain), (c) future income tax expense on the translation of foreign currency inter corporate debt, (d) unrealized losses on derivatives, (e) impairment losses, (f) non-production costs during business interruption and (g) debt repayment expense. The terms "adjusted net earnings" and "adjusted net earnings per share" do not have a standardized meaning prescribed by Canadian GAAP, and therefore the Company's definitions are unlikely to be comparable to similar measures presented by other companies. The Company's management believes that the presentation of adjusted net earnings and adjusted net earnings per share provide useful information to investors because they exclude non-cash charges and are a better indication of the Company's profitability from operations. The items excluded from the computation of adjusted net earnings and adjusted net earnings per share, which are otherwise included in the determination of net earnings (loss) and net earnings (loss) per share prepared in accordance with Canadian GAAP, 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.
4. BUSINESS ACQUISITIONS
Subsequent to the period end, the Company signed a definitive business combination agreement with Northern Orion Resources Inc. ("Northern Orion") whereby the Company will acquire all of the issued and outstanding securities of Northern Orion on the basis of 0.543 of a Yamana share for each Northern Orion share. Concurrently, the Company filed a formal offer for all of the outstanding common shares of Meridian Gold Inc. ("Meridian"). The offer to Meridian shareholders entitles shareholders to receive 2.235 Yamana common shares plus C$3.15 in cash for each Meridian common share tendered and taken up by the Company. The offer will remain open until August 27, 2007, unless it is withdrawn or extended by the Company.
The premium to Northern Orion shareholders was approximately 28.4% based on the respective average closing prices for Yamana shares and Northern Orion shares for the 20 trading days on the TSX immediately preceding the June 27, 2007 announcement date.
The premium to Meridian shareholders was approximately 24.6% based on the respective average closing prices for Yamana and Meridian shares for the 20 trading days on the TSX immediately preceding the June 27, 2007 announcement date.
The Northern Orion transaction is subject to customary conditions including receipt of all requisite third party and regulatory approvals and consents, court approval and approval by shareholders of Northern Orion. It is also conditional on at least 66 2/3% of the fully diluted outstanding Meridian common shares having been tendered to the Yamana offer. The Northern Orion shareholder meeting to consider the business combination is currently scheduled for August 22, 2007, approximately five days prior to the expiry of Yamana's offer to Meridian shareholders.
As part of the Northern Orion transaction, Northern Orion has agreed to enter into a definitive loan agreement with the Company for an amount of $200 million bearing interest at LIBOR plus 2%, repayable on the earlier of 12 months from the initial drawdown and 30 days following the acquisition by the Company of 100% of the fully diluted issued and outstanding shares of Meridian. The first drawdown under the loan is conditional upon at least 66 2/3% of the fully diluted issued and outstanding shares of Meridian having been tendered, and not withdrawn, to the offer. The loan is not conditional upon the completion of the Northern Orion Transaction, and will not terminate in the event the termination of the Northern Orion Agreement, except in the case of a material breach of covenants by the Company and provided that another acquisition proposal for Northern Orion has not been made.
To complete the Meridian offer and the Northern Orion transaction, Yamana will issue approximately 309.8 million new common shares (226.1 million and 83.7 million common shares to Meridian and Northern Orion shareholders, respectively) and pay cash consideration of approximately $305 million (C$3.15 per share) to Meridian shareholders. The cash consideration will be funded from the Northern Orion $200 million loan, internally generated cash and/or the Company's existing $300 million revolving line of credit facility. On an issued basis, the pro rata shareholdings of the combined company are anticipated to be: 53.4% existing Yamana shareholders, 34.0% existing Meridian shareholders and 12.6% existing Northern Orion shareholders.
The Company believes that the proposed business combination presents an opportunity to create a stronger cash flow generating gold mining company.
5. MINES AND DEVELOPMENT PROJECTS
Total gold production for the quarter was 115,843 ounces. Gold production for the six months was 236,450 ounces. The following chart summarizes commercial gold production and cash costs per ounce for the quarter ended June 30, 2007 with comparative figures for the quarter ended June 30, 2006 by mine:
For the three months ended
June 30, 2007 June 30, 2006
--------------------------------------------------------------------------
Production Cash costs Production Cash costs
(oz.) per oz. (oz.) per oz.
(a non-GAAP (a non-GAAP
measure) measure)
--------------------------------------------------------------------------
Brazil
Chapada 44,027 $ (1,789) - $ -
Sao Francisco 24,988 $ 340 - $ -
Jacobina 11,447 $ 448 22,333 $ 331
Fazenda Brasileiro 19,060 $ 418 19,658 $ 334
Fazenda Nova 2,380 $ 589 5,893 $ 392
--------------------------------------------------------------------------
Total Brazil 101,902 $ (547) 47,884 $ 340
--------------------------------------------------------------------------
Central America
San Andres 13,941 $ 391 17,082 $ 311
--------------------------------------------------------------------------
Commercial Production 115,843 $ (434) 64,966 $ 332
--------------------------------------------------------------------------
Pre-commercial Production
Sao Francisco - $ N/A 12,194 $ N/A
--------------------------------------------------------------------------
Post acquisition production from
Operations held for sale -
La Libertad - $ N/A 5,929 $ N/A
--------------------------------------------------------------------------
TOTAL PRODUCTION 115,843 $ N/A 83,089 $ N/A
--------------------------------------------------------------------------
The following chart summarizes commercial gold production and cash costs per ounce for the six months ended June 30, 2007 with comparative figures for the six months ended June 30, 2006 by mine:
For the six months ended
June 30, 2007 June 30, 2006
-------------------------------------------------------------------------
Production Cash costs Production Cash costs
(oz.) per oz. (oz.) per oz.
(a non-GAAP (a non-GAAP
measure) measure)
-------------------------------------------------------------------------
Brazil
Chapada 82,981 $ (1,455) - $ -
Sao Francisco 56,249 $ 333 - $ -
Jacobina 18,524 $ 456 22,333 $ 331
Fazenda Brasileiro 41,376 $ 371 37,401 $ 334
Fazenda Nova 6,427 $ 565 15,442 $ 392
-------------------------------------------------------------------------
Total Brazil 205,557 $ (363) 75,176 $ 340
-------------------------------------------------------------------------
Central America
San Andres 30,893 $ 373 23,809 $ 310
-------------------------------------------------------------------------
Commercial
Production 236,450 $ (267) 98,985 $ 332
-------------------------------------------------------------------------
Pre-commercial
Production
Sao Francisco - $ N/A 13,381 $ N/A
-------------------------------------------------------------------------
Pre acquisition
production from
San Andres - $ N/A 13,987 N/A
Jacobina - $ N/A 18,974 N/A
Post acquisition
production from
Operations held for
sale - La Libertad - $ N/A 12,720 $ N/A
-------------------------------------------------------------------------
TOTAL PRODUCTION 236,450 $ N/A 158,047 $ N/A
-------------------------------------------------------------------------
In addition to gold production, the Company produced a total of 31.5 million pounds of copper contained in concentrate from its Chapada Mine for the quarter. A total of 59.0 million pounds of copper contained in concentrate were produced for the six months. A total of 50,304 tonnes and 94,734 tonnes of concentrate were produced during the three and six months ended June 30, 2007, respectively. There was neither copper production nor concentrate production for the comparative periods.
Mine operating earnings for the quarter were $106.7 million, an increase of 829% from mine operating earnings of $11.5 million for the comparative quarter ended June 30, 2006 and an increase of 40% over the first quarter of the fiscal year 2007.
The following chart summarizes mine operating earnings by mine for the six months ended June 30, 2007 with comparatives for the six months ended June 30, 2006:
(in thousands of dollars) June 30, Percentage June 30, Percentage
2007 2006
-------------------------------------------------------------------------
Chapada $ 167,381 91.4% $ - -
Sao Francisco 10,949 6.0% - -
Jacobina (3,173) (1.7%) 2,595 15.6%
San Andres 7,706 4.2% 5,414 32.5%
Fazenda Brasileiro 4,860 2.7% 4,635 27.8%
Fazenda Nova (4,689) (2.6%) 4,016 24.1%
-------------------------------------------------------------------------
$ 183,034 100% $ 16,660 100%
-------------------------------------------------------------------------
Revenue for the quarter was $183.7 million from the sale of 120,022 ounces of gold and 31.7 million pounds of copper contained in concentrate. This compares to revenue of $41.9 million from the sale of 73,688 ounces of gold for the comparative quarter ended June 30, 2006. There were no sales from copper concentrate for the comparative quarter.
The following chart summarizes revenue by mine for the six months ended June 30, 2007 with comparatives for the six months ended June 30, 2006:
(in thousands of dollars) June 30, Percentage June 30, Percentage
2007 2006
-------------------------------------------------------------------------
Chapada $ 223,809 68.1% $ - 0.0%
Sao Francisco 39,181 11.9% - 0.0%
Jacobina 12,460 3.8% 14,986 25.4%
San Andres 21,779 6.6% 14,300 24.3%
Fazenda Brasileiro 27,040 8.2% 20,599 34.9%
Fazenda Nova 4,531 1.4% 9,111 15.5%
-------------------------------------------------------------------------
$ 328,800 100% $ 58,996 100%
-------------------------------------------------------------------------
Inventory as at June 30, 2007 was $62.3 million compared to $61 million as at March 31, 2007 and to $51.3 million as at December 31, 2006. Inventory increased as a result commercial production commencing at the Chapada Mine in February 2007, thereby increasing in circuit plant inventory and concentrate inventory.
CHAPADA MINE
For the three months ended For the six months ended
Operating Statistics June 30, 2007 June 30, 2007
---------------------------------------------------------------------------
Production
Ore mined 5,160,617 tonnes 8,725,918 tonnes
Ore grade Gold 0.54 g/t 0.56 g/t
Ore grade Copper 0.51% 0.49%
Concentrate 50,304 tonnes 94,734 tonnes
Gold contained in 44,027 ounces 82,981 ounces
concentrate
Copper contained in 31.5 million pounds 59.0 million pounds
concentrate
Gold grade 27.2 g/t 27.3 g/t
Copper grade 28.4% 28.2%
Recovery rate
Gold 79.2% 72.9%
Copper 88.9% 86.3%
Sales
Concentrate 56,183 tonnes 96,798 tonnes
Payable gold contained 47,427 ounces 81,150 ounces
in concentrate
Payable copper
contained in
concentrate 31.7 million pounds 55.6 million pounds
Cash costs per ounce
produced $ (1,789) $ (1,455)
---------------------------------------------------------------------------
Commercial production was declared at the Chapada Mine ahead of schedule on February 11, 2007.
The original design and operational results to date show the promise of expanding mill throughput to over 16 million tonnes per year of mill feed. The Company expects to optimize the mill and increase throughput during the remainder of the year. Quarterly ore production of 5.2 million tonnes annualized represents an annualized production rate of over 20 million tonnes which is higher than design plant capacity. The vertimill commenced operation in mid April. Combined with refinements to the ore grinding size, selection of reagents and management of the circulating load, it is anticipated that recovery rates will continue to increase during the balance of the year. Recovery rates for the second improved relative to the first quarter for both gold and copper.
Chapada produced 50,304 tonnes of concentrate in the second quarter. For the third and fourth quarter concentrate production is forecast to be approximately 60,000 tonnes per quarter. On a year to date basis it produced 94,734 tonnes of concentrate. Concentrate production increased by 13% from the first quarter and is expected to rise further for the remainder of the year.
Gold contained in concentrate production was 44,027 ounces for the quarter at cash costs after by-product credit of $(1,789) per ounce. This compares to gold contained in concentrate production of 38,954 ounces for the first quarter at cash costs of $(1,077) per ounce.
Copper contained in concentrate revenue is applied as a by-product credit in the determination of cash costs per ounce of gold produced. On a co-product basis cash costs at Chapada during the quarter were approximately $0.72 per pound of copper and $209 per ounce of gold. Total gold contained in concentrate produced for the six months was 82,981 ounces at cash costs of $(1,455) per ounce after by-product credits. The Company measures cash costs based on the aggregate of all treatment, refining and transportation costs incurred for all copper and gold sold during the quarter rather than only costs attributed to ounces of gold and pounds of copper produced during the quarter.
Total revenue for the quarter net of sales taxes, treatment and refining costs during the quarter was $135.9 million and $223.8 million on a year to date basis. Associated transportation costs were approximately $9.2 million and $15.9 million for the respective periods. As at June 30, 2007 the Company had receivables in the amount of $65.5 million in respect of concentrate sales. Increases in second quarter revenues due to final pricing adjustments on first quarter sales were $2.0 million. As at June 30, 2007, revenues included 40.3 million pounds of copper recorded at $3.38 per pound that were still subject to final pricing adjustments.
Ore grades for the second quarter (gold - 0.54 g/t; copper - 0.51%) were fairly consistent with that of the first quarter (gold - 0.57 g/t; copper - 0.47%) . Improvements in throughput and recoveries are expected for the balance of the year.
A total of 5.2 million tonnes of ore were mined at average costs of $1.54 per tonne of ore during the quarter, representing an increase of 45% in tonnes mined over the first quarter and a decrease in mining costs per tonne of 22% over the first quarter.
Mine operating earnings for the quarter from the Chapada Mine were $100.7 million, making it the Company's most profitable mine. Mine operating earnings for the six months ended June 30, 2007 were $167.4 million. Waste removal has now been contracted out and 18 Randan trucks are being redeployed at other mines as part of a cost reduction and efficiency program. There were no mine operating earnings for the comparative periods from the Chapada Mine as the mine was still under construction in 2006.
The Company has completed a scoping study to evaluate the potential of a pyrite recovery circuit to roast pyrite to produce sulphuric acid for the fertilizer and mining industry. The final feasibility report is expected by the end of 2007. This initiative would provide an additional source of revenue and further increase copper and gold recovery rates.
SAO FRANCISCO MINE
For the three months ended For the six months ended
Operating Statistics June 30, June 30, June 30, June 30,
2007 2006 2007 2006
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Gold production 24,988 ounces - 56,249 ounces -
Gold sales 25,622 ounces - 60,502 ounces -
Cash costs per ounce
produced $ 340 - $ 333 -
Grade 0.52 g/t - 0.52 g/t -
Recovery rate 76.7% - 89.9% -
Tonnes mined 1,937,562 - 3,735,374 -
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A total of 24,988 ounces of gold were produced from the Sao Francisco Mine during the quarter. This compares to production of 31,261 ounces of gold during the first quarter of 2007 for total production of 56,249 ounces for the year. There was no production from the Sao Francisco Mine for the comparative quarter ended June 30, 2006 as the mine was under construction with commercial production declared August 1, 2006.
Production at Sao Francisco was lower than previously forecast due to the fact that material which had previously been considered waste turned out to be mineralized and thus was put on the leach pads. While this means that production in the short term is lower it also means that total ore reserves are higher thus extending the mine life. It also accounts for costs being higher than previously forecast.
Average cash costs per ounce for the quarter were $340 per ounce, an increase of 3.7% from the quarter ended March 31, 2007. The increase in cash costs were a result of mining more dump leach ore during the quarter compared to that of the quarter ended March 31, 2007.
In March 2007, a currency hedge was put in place to manage the Company's exposure to increases in costs at the Sao Francisco Mine due to fluctuations in the R$-US$ exchange rate. This hedge continues to help improve cash costs and will provide protection against a strengthening Brazilian Real.
The average ore grade for the quarter was 0.52 g/t which is consistent with that of the first quarter.
Mine operating earnings for the quarter were $5.1 million compared to $5.8 million for the quarter ended March 31, 2007. Revenue for the quarter amounted to $16.8 million from the sale of 25,622 ounces of gold. This compares to revenue of $22.4 million from a total of 34,880 ounces sold during the first quarter.
Operations at Sao Francisco subsequent to the second quarter will begin to mine a higher percentage of the higher grade material and production and cash costs are expected to improve over the balance of the year. Additional ramp access to the open pit has been created in order to reduce haulage costs. Further, waste removal is now under contract to reduce waste removal costs and allow the Company to concentrate on operations and grade control. Improvements in sampling procedures are also expected to reduce dilution of higher grade material.
JACOBINA
For the three months ended For the six months ended
Operating June 30, June 30, June 30, June 30,
Statistics 2007 2006 2007 2006 (i)
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Gold production 11,447 ounces 22,333 ounces 18,523 ounces 22,333 ounces
Gold sales 9,451 ounces 24,014 ounces 19,127 ounces 24,014 ounces
Cash costs per
ounce produced $ 448 $ 331 $ 456 $ 331
Grade 1.59 g/t 2.03 g/t 1.65 g/t 2.03 g/t
Recovery rate 95.1% 93.8% 94.8% 93.8%
Tonnes mined 221,901 361,637 368,084 361,637
Tonnes milled 235,514 364,938 368,084 |