Yamana says Brazilian gold mine could be world class

The Jacobina Mine in Bahia state, Brazil. Source: Yamana Gold Inc.

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Yamana Gold Inc. [YRI-TSX; AUY-NYSE] on Friday June 28 released new production forecasts for its 100%-owned Jacobina Mine in Brazil. The company also announced an update on its two-phase plan that is expected to deliver further production increases in the future.

The Jacobina operation, located in Bahia state in northeast Brazil, consists of a complex of underground gold mines and a 6,500 tonnes per-day, carbon-in-pulp processing plant. Proven and probable reserves at the site stand at 1.9 million ounces of gold, with a further 3.3 million ounces in the measured and indicated resource category.

The company said Phase 1 is running one year ahead of schedule. So Yamana has increased its production guidance for 2019 by 7,500 ounces to 152,000 ounces. The company has also released initial guidance for 2020-2021 showing a step-up to steady state annual production of 170,000 ounces. That’s up from 145,000 in 2018.

As well, Yamana offered some additional details on the Phase 2 program, which could see annual production at Jacobina rise to between 200,000 and 225,000 ounces annually. In addition, Yamana said it has reduced its G&A guidance by 20% due to lower expected overhead costs following the US$1 billion sale of its Chapada Mine, also located in Brazil, to Lundin Mining Corp. [LUN-TSX]. The sale is expected to close within the next few weeks.

On Friday, Yamana shares advanced on the news, rising 2.5% or $0.08 to $3.31 on volume of over 2 million. The shares are currently trading in a 52-week range of $2.41 and $4.20.

Yamana is a Canadian gold producer with operations in Brazil, Argentina, Chile, Mexico and Canada. The company is expected to produce 940,000 ounces of gold, 10 million ounces of silver and 120 million pounds of copper this year. On a gold equivalent basis, that amounts to 1.06 million ounces.

“Jacobina has improved significantly in the last several years across all measures, and is now one of our higher quality, high value operations,” said Yamana President and CEO Daniel Racine. “We believe that is on the cusp of becoming a world class mine, particularly once a decision is made to proceed with the Phase 2 expansion, given strong production, production growth, increasing mineral inventory at improving grades, and continuous increases in cash flow,” Racine said.

The planned expansion at Jacobina is the continuation of a series of incremental improvements that have been successfully implemented over the past four years, during which gold production increased from 75,000 ounces to 145,000 ounces in 2018.

Yamana said it has been critically evaluating its general and administrative (G&A) expenses to align its cost structure to its remaining portfolio of assets. The company said it now expects 2019 G&A expenses on a cash basis to be lowered to US$68 million, compared with previous guidance of US$75 million. That implies a run rate of US$60 million annually.

The company expects G&A expenses to remain at US$60 million in 2020, resulting in savings of over US$15 million annually. The company anticipates that further reductions will be realized through optimizations and cost reduction initiatives.

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