AUY Yamana Gold

Daniel Racine President and CEO
Jason LeBlanc SVP, Finance and CFO
Yohann Bouchard SVP, Operations
Gerardo Fernandez SVP, Corporate Development
Henry Marsden SVP, Exploration
Ralph Profiti Eight Capital
Don MacLean Paradigm Capital
Mike Parkin National Bank
Jackie Przybylowski BMO Capital Markets
John Tumazos John Tumazos Very Independent Research
Tim Huff Peel Hunt
Call transcript

Thank you all for joining us this morning.

Before I turn the call over, I need to advise that certain statements made during this call today may contain forward-looking information, and actual results could differ from the conclusions or projections in that forward-looking information, which include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, future metal prices and the cost and timing of the development of new projects.

For a complete discussion of the risks, uncertainties, and factors, which may lead to actual financial results and performance being different from the estimates contained in the forward-looking statements, please refer to Yamana's press release issued yesterday, announcing fourth quarter 2020 results as well as the management's discussion and analysis for the same period and other regulatory filings in Canada and the United States. I would like to remind everyone that this conference call is being recorded, and will be available for replay today at 12:00 PM Eastern Time. Replay information and the presentation slides accompanying this conference call and webcast are available on Yamana's Web site at I will now turn the call over to Mr. Daniel Racine, President and CEO.

Daniel Racine

Thank you, Operator. Thank you all for joining us, and welcome to our fourth quarter and year-end conference call. Presenting with me today are Jason LeBlanc, our Senior VP Finance and Chief Financial Officer; Yohann [Bouchard] [sic], Senior VP Operation; and Gerardo Fernandez, our Senior VP Corporate Development.

For the Q&A portion, Henry Marsden, our Senior VP Exploration; and [Greg Fort] [Ph], our Senior VP Health, Safety, and Sustainable Development will also be available. Starting as always, with health, safety, environment, and community relation, our recordable injury rate was 0.49 in 2020. That represents a decline of more than 215% since 2012.

We continue to refine and improve our protocol to combat COVID-19. At Canadian Malartic, we have installed a third-party testing lab allowing site to test employees and contractor before they enter the mine. The lab is staffed by trained technician and operate seven days a week.

We also continue to engage closely with our host communities to support them in the fight against COVID-19, providing the nation in critical equipment and supplies. We achieved some notable milestone and recognition in 2020, as you can see on the slide.

As you will have seen in our announcement yesterday, we have formally adopted a climate strategy, further underscoring Yamana's commitment to transitioning to a low-carbon future.

Our strategy is underpinned by the adoption of two targets, a two degree Celsius science-based target, and an aspirational net-zero target by 2050. The targets are supported by fundamental work to be performed, in 2021, to establish a multi-disciplinary Climate Working Group, and determine our emission baseline as part of our effort to achieve our target. This action will help ensure that our long-range greenhouse gas emission reduction efforts are supported by practical and operationally-focused short, medium, and long-term action to achieve these targets. Yamana has a long history of prioritizing the health and safety of its people, sustainable development and environmental protection wherever it operates.

Our climate strategy is a natural extension of this business approach.

Turning now to the 2020 highlights, we showed great resilience in the most challenging and unprecedented of years.

We continue to deliver high ESG performance while moving quickly to ensure the health and safety of our people in the community where the pandemic hit. We delivered strong operational performance with Jacobina, Canadian Malartic, El Peñón, and Minera Florida, all producing above plan. And that translated into strong financial performance and increased free cash flow.

In fact, we achieved our objective of net debt to EBITDA ratio of below 1.0 when assuming a bottom-of-cycle gold price of $1,350. This further increased our financial flexibility, allowing us to raise our dividend by an additional 50%, to $0.105 per share. On a per GEO basis, our dividend floor is now $100 per GEO. We completed our exploration program, and delivered significant updates supporting mine life extension.

We continued to optimize our portfolio, monetizing certain assets such as our royalty portfolio, and acquiring Monarch Gold, which added the Wasamac project to our pipeline, and increased our presence in Quebec's prolific Abitibi District. We completed an Option Agreement on our Suyai gold project in Argentina, which we believe is an important step towards brining this outstanding project to development.

We also completed the integration of Agua Rica with Minera Alumbrera, an important milestone that [there is] [Ph] what is known now as the MARA project.

While we highlighted the significant net asset value as post pre-accessibility study project, we note that net asset value was determined at metal prices well below current level. At current level, the net asset value doubles to $4 billion.

We are not suggesting that this is what should be in models; we are saying that this is an impressive low-capital intensity, low-cost project with large copper and gold inventory, a robust production profile, long life and excellent returns. In the next several quarters, we will begin to outline how we intend to improve and realize more value from this project.

We have received the permit to advance the project yesterday, which is a positive news. And finally, we completed our listing on the London Stock Exchange, which provided us with exposure to investor in U.K., Europe, the Middle East, and Asia, that we didn't have before, raising our profile while offering these investor exposures to our portfolio of high-quality asset in the Americas.

Turning to our fourth quarter result, we produced 221,659 ounces of gold, with standout production from Jacobina and Minera Florida. Silver production was 2.59 million ounces, was above plan, underpinned by exceptionally strong performance from El Peñón. GEO production for the quarter was 255,361 ounces. Cash costs of $675 per GEO and an all-in sustaining cost of $1,076 per GEO were modestly above forecast due to the tightening of national safety measures in Argentina, and less production being classified as commercial production from Barnat at Canadian Malartic. Jason will discuss costs in more detail during his remarks. Net earning during the quarter was $103 million or $0.11 per share, with adjusted net coming at $107.7 million or $0.12 per share. Cash flow from operating activities were $181.5 million, and cash flow from operating activities before net change in working capital were $207.4 million. Free cash flow from before dividend and debt repayment was $61.7 million. We replaced gold mineral reserve depletion on a consolidated basis for our operation. And we delivered significant increase in mineral resources, including 1.84 million ounces of inferred mineral resources at East Gouldie on a 50% basis. East Gouldie is part of the Odyssey underground project at Canadian Malartic, which as you have seen in our announcement yesterday, is proceeding to development, which we could not be more excited about. Yohann will talk more about the project in a moment, but as a reminder, capital cost doesn't include the benefit that we will get revenue from 932,000 ounces coming from underground during the construction phase. The addition of Wasamac project also increased our mineral inventory at a favorable purchase price. Taking a closer look at our result for the full-year, we reported GEO production of 901,155 ounces, including 779,810 ounces of gold, and 10.36 million ounces of silver. Full-year production exceeding our original guidance for the year of 890,000 ounces GEO, and was within the minus 3% -- minus-plus 3% of the variance range of the revised guidance. Jacobina continues to be a standout, producing 44,165 ounces of gold in the quarter and an all-time record of 177,830 ounces for the year. It was the seven straight years of increasing production for Jacobina, a trend that we believe is going to continue. El Peñón produced 55,529 GEO in Q4, including 43,512 ounces of gold, and 922,954 ounces of silver. Q4 production at Canadian Malartic was 86,371 ounces on a 50% basis. The transition from Canadian Malartic pit to Barnat pit is going very well, with Barnat now in commercial production, 70% of the total tons mined in 2021 are expected to come from Barnat. Minera Florida continues to perform exceptionally well producing 26,352 ounces of gold during the quarter. This is the highest production level since 2010, and the second highest since the mine entered into production in 1986, excluding gold production from the reclamation of historic tailings. Costs at Minera Florida are expected to continue declining in 2021. Cerro Moro produced 42,943 GEO in Q4 including 21,259 ounces of gold and 1.67 million ounces of silver. Full-year GEO production was 132,415 ounces including 66.995 ounces of gold and 4.5 million ounces of silver.

While Cerro Moro operated continuously during Q4, travel protocols were tightened and rosters significantly reduced to protect the health and safety of employees and communities. This restriction was particularly stringent during December. Despite the impact of this restriction, production in Q4 was the highest of the year. Operation challenges related to COVID-19 are expected to continue in the first half of 2021, but the company expects the situation to normalize as the vaccination program ramps up in Argentina. The transition to [more mills] [Ph] is coming from underground ore at a higher grade than the open pit ore continued in the quarter and will continue in 2021 with most of the ore to the plant coming from Escondida Far West, Zoe, Escondida Central, and Escondida West underground mines.

We expect to return to production of 1 million GEO per year this year and retain that production level for the next two years -- the following two years. Fifty three percent of our production in 2021 is expected to occur in the second half of the year with production trending higher each quarter. This year we expect production of 862,000 ounces of gold and 10 million ounces of silver. In 2022 we are forecasting 870,000 ounces of gold and 9.4 million ounces of silver, and in 2023, 889,000 ounces of gold and 8 million ounces of silver.

As you may have noticed, we disclosed a three-year mine by mine guidance, a decision that underscores our confidence in forecast. I would add that see the three-year period as steady state on production and cash flow while we did groundwork for significant growth beyond that period as we advanced our project pipeline. We see cash cost ranging from $65 to $695/GEO this year with an all-in sustaining cost between $980 to $1,020.

Our all-in sustaining cost in 2020 was modestly above forecast due to the aforementioned national safety measure in Argentina and also that production being classified as commercial production from Barnat at Canadian Malartic. The net result of the modestly higher cost and lower expansionary capital at Barnat was neutral, and there was little impact to overall general cash flow.

Turning now to our updated reserve and resources, overall, it was another successful year for our mineral reserve and resources with the replacement of reserve depletion at our operating mine. Reserve increased to 13.8 million ounces of gold, 113 million of silver, and 6.7 billion pounds of copper. Of note here is the addition of our newly acquired Wasamac project which added 1.8 million ounces of reserve to our pipeline and that's more of the adjustment really given to recently announced integration agreement between Agua Rica and Alumbrera.

We have included 56% of our share of the MARA project as part of our company subtotal.

We also successfully increased measured and indicated resources to 14.6 million ounces of gold. In the inferred category, gold reserves climbed to 15.7 million ounces. And with that, I will now turn the call over to Yohann to provide some more detail on our reserve, resources, and project pipeline.

Yohann Bouchard

Good. Thank you, Daniel. Well, as Daniel mentioned we replaced depletion of our five operating mines and added ounces. Or as a reminder we are recording our reserves using gold price assumption of $1250 per ounce which has not changed from prior year.

So, all the increases that you see here reflect the success with exploration.

We also increased measure and dedicated resources by 162,000 ounces of gold. And we increased inferred resources by almost 2.2 million ounces.

We will now have a closer look at our reserve and resources on a mine-by-mine basis, starting with Canadian Malartic. Well, on a 60% basis, depletion from mining was 325,000 ounces in 2020. This was partially offset by a Barnat pit optimization, which had 150,000 ounces of gold. The net depletion of Canadian Malartic was only 175,000 ounces in 2020. The additional open pit reserves at the bottom of the Barnat pit is equivalent to increasing open pit mine life by about six months. This will improve the production profile during the transition from open pit to underground mining and the optimized design is offering a geotechnical stability.

We are proceeding with the development of the Odyssey underground project, and I will talk more about these exciting opportunities in a moment. I will also talk in detail about El Peñón and Jacobina in a moment, but note here that they continue to be standup operation with Jacobina extending mine life despite increasing throughput and El Peñón increasing reserve from a third straight year as well as average reserve grade. MARA is not included in our reserves and resources total.

With the completion of the integration, there is now a clear path to unlock value from the significant minerals reserve base, which includes £6.7 billion of copper such as mentioned by Daniel earlier. Disruption due to COVID prevented certain model from adding new zones of high grade and for resources during 2020, but some promising and perception of depth in Suyai and East Gouldie will be investigated further with diamond drilling in 2021.

In addition for the first time, lower grade decrease and further resources has been included in the mine resources statement. These ounces are supported by positive mythological testing. Results I would say conducted earlier this year and a positive concept study completed in 2020. Well, in summary, our significant reserve in natural base provide a solid foundation for a 10 year outlook and a pipeline for extension of the existing operation and two short development of all quality projects. I will now move on with the quick update on our recent announced 10 years production outlook as several development are procured in the interim.

So the base case is to sustain the past home of at least 1 billion GEO through 2030. Since the base was announced, we had issue of positive construction decision for the Odyssey underground project.

We have also update on Mineral Reverse for 2020 disclosing an increase in reserves at Jacobina and another successful year of reserve replacement that does going on. And now that said a moment ago, our pipeline is not including Wasamac and MARA giving us confidence that we can exceed that 1 million GEO bases case outlook.

While Jacobina we increase reverse by 314,0000 ounces of gold or 13% to a total of 2.8 million ounces. This is the fourth conservative year of Jacobina as increased reserve with an average reserve replacement rate of 240%. Average reserve grade has reduced slightly as a result of adding lower grade reef in parallel to the high grade LU reefs at Canavieiras Central.

We also increased mineral resources at Jacobina last year. The combined reserve and resource increased by 826,000 ounces compared to 2019. These drills are not opportunities for further expansion beyond our plant Phase 2 of 8,500 tons per day, and 230,000 ounces per year.

Specifically, we're now elevating a third expansion phase that would increase close to 10,000 ton per day by 2027 with production potential of 270,000 ounces for year.

So, in 2021 drilling will continue to convert inferred resources to reserve while adding new zones of inferred resources such as Juan Velha South. El Peñón has another successful year replacing depletion of reserves for the third straight year, so at year-end 2020 reserves stood at 920,000 ounces compared to 764,000 ounces at the end of 2017. The new veins added to reserve a high quality resulting in a slight increase to the average reserve grade.

For Gold and Silver measure and dedicated resources increased by 16% and 17% respectively, and gold inferred resources increased 16% from 2019, a subset of these inferred sources are included in our 10 years production outlook.

Although the average resource is lowered and reserve grade, the subset of resources included in our mine plan is similar to the reserve rates. This is supported by the year-end numbers where the resources that were converted to reserve throughout 2020 are higher than average reserves grade. The positive expression result does support our 10 years production outlook, which relies on exploration success to maintain a rolling 10-years mine life. This is something really remarkable that this operation has been able to achieve for 21 year accounting and ongoing success as the potential to unlock opportunities to ramp up production by leveraging the existing processing capacity.

Now taking a closer look at the Odyssey underground project, our resources have now increased to more than 14 million ounces on 100% basis over a period of only six years. In the last year alone, we had close to 4 million ounces of gold.

As mentioned, mine life is estimated until 2039 with significant potential to extend beyond that, production is expected to ramp-up to 500,000 to 600,000 ounces of gold per year from 2029 to 2039. This is higher than our original estimate of 450,000 ounces per year and the project has robot economics as you can see from the sensitivity table below. Initial expansion capital of $1.14 billion is expected to be spanned over a period of eight years on 100% basis, with capital requirements fully founded using cash on hand and free cash flow generation. Other growth, capital expenditure and modest sustaining CapEx during the construction areas are estimated at $191.4 million. Gold production during the construction period is expected to be 932,000 ounces at a cash cost of about $800 per ounce, which will significantly reduce external cash requirements. Sustaining CapEx from 2029 through 2039 is forecast at $55.8 million per year. It is important to note that only 7.3 million ounces or about 50% of the project has all sources that have been included in a technical report completed this month.

So, like I said, great potential for future upside.

Our East Malartic resources and Odyssey Internal zone present two of these opportunities and of course the East Gouldie Zone continues to expand and inferred resources at East Gouldie increased by 134% in 2020 to 6.4 million ounces on 100% basis, with an average rate of 3.17 grams per ton. In 2021, we're continuing to drill aggressively East Gouldie to test the extension of the zone along strike and adapt, we will also drill Odyssey South for future mining. We look forward to updating you as the transition to underground Odyssey project is advancing, well, in our long-term outlook profile, the Wasamac project providing opportunities for production growth to exceed 1 million GEO base case target.

As a quick summary of the company, as a quick summary, we did complete exploration in January 21 of this year. The transition was by our Gold team has been excellent and Yamana is already heavily involved in communicating with local stakeholders about the future plan for this operation.

We expect to open a regional office in the upcoming months to support the community engagements, our Wasamac is oil project and Monarch complete facilities study in 2018 that show a very good economics.

We have begun an update on that study and expect to complete it by the third quarter of this year. The updates will evaluate opportunities to achieve the following objectives, minimize potential impact on the environment and communities, maximize throughput and optimize blue sheet and the gold recovery. And we're also going to refine the geology block model. Please, we're also going to look, we're looking at corporate mining technology to establish Wasamac as a low cost underground operation. And with that, I will now turn it over to Gerardo to discuss the MARA project.

Gerardo Fernandez

Thank you, Yohann, and good morning, everyone. In December last year, we completed another key milestone for the MARA project, with the signing of the joint venture agreement between Yamana and our partners Glencore and Newmont. This important step is the last of a series of key development, which have taken the integration of Agua Rica and Alumbrera from a concept to a mature high quality and unique development project. These steps included among others, the creation of a joint team to advance the project not only on its technical aspects, but also to advance the permitting and the relationships with several stakeholders in the region and in the country.

As such, MARA now has all the agreements in place with the local stakeholders, and the JV partners to allow the project to continue to advance to the next stages of development and value creation.

On the technical front, we have completed a series of studies to optimize the project and mitigate risk as part of the ongoing feasibility study, demonstrating significant improvements and opportunities in relation to the 2019 feasibility study.

For the next two years, our purpose is to continue improving the project, advancing the feasibility study, and environmental impact assessment.

We also continue strengthening our social license through the execution of our CSR programs, and our open communication and cooperation with the local communities and stakeholders. On this front now, we have received all the administrative and judicial approvals needed to start our drilling campaign to support the feasibility study. And we're currently working on the procurement aspects and planning the mobilization of personnel to site or serve in the provision and internal COVID-19 regulations. MARA is a significant high quality asset, with a target production of over 450 million tons of copper equivalent per year, or 200,000 tons of copper equivalent per year at 100% basis, also at 100% basis is proven and probable reserves of 11.8 billion ounce of copper, 7.4 million ounce of gold, and over the 100 million of silver support our long mine life. The sustaining costs of the project are expected to be in a second quartile of the global cost curve and since the project requires relatively low capital in relation to the scale, MARA's capital intensity ranked amongst the lowest in the world for similar development projects. MARA shows robust financial results and a strong leverage to copper price.

As we have shown in the past for the discount rate of 8%, the project has an NPV of $1.9 billion, using $3 per ton of copper and $1,300 for gold.

For reference, if you consider the current export prices for both metals, we can see an NPV at an 8% discount rate, which is near $4 billion. We can see an internal rate of return of over 30% which underpins the high quality and value of this project, especially in a strong copper market.

For more information on the MARA project, please visit our website. All things considered this project represent a significant value opportunity, whether that is through the Yamana development of the project, or the development of strategic partnerships or perhaps within a public vehicle.

For now, the best way for us to maximize this value is to advance the project feasibility, permitting and in general to its development cycle. And with that, I will hand it over now to Jason to discuss the financials.

Jason LeBlanc

Thank you, Gerardo, and good morning everyone.

Turning now to our financial performance for Q4, revenue in the quarter was $461.8 million, compared to $383.8 million in the same period of 2019, a 20% increase. Gross margins excluding DD&A rose 38% to $295 million from $214.4 million in the year earlier period. Earnings during the quarter were $103 million or $0.11 per share, compared with $14.5 million or $0.02 per share a year earlier. On an adjusted basis, earnings were also $0.11 per share versus $0.03 per share last year.

Our capital spend during Q4 was similar to last year, but higher than the recent Q3 as anticipated because of the timing of our ability to spend during COVID, sustaining, expansionary and expiration spending increased 25%, 260% and 56% respectively compared to Q3 just past.

Turning now to cash flows, cash flow from operating activities was $181.5 million while cash flows from operating activities before net change in working capital were $207.4 million. Cash flow generation is at multi-year highs. And I would note that this comparison includes periods with considerably higher production from mines that have since been divested. Despite the strong cash flow, there were several timing items in Q4 that impacted the cash flow generation. I already mentioned the higher quarter-over-quarter CapEx, but also the timing of interest payments, which are paid in Q2 and Q4, working capital movements quarter-to-quarter, and the impact of production exceeding sales in Q4, which will normalize during this year.

During Q4, we saw our cash balances increased by $53 million from Q3 after the repayment of the $100 million outstanding balance on a revolving credit facility, which was drawn early in COVID, although unused during the year.

With the growing cash, we achieved our objective of a leverage ratio of net debt-to-EBITDA below one term when assuming a bottom of cycle gold price of 1350 per ounce, which underscores our significant and growing financial flexibility. With our current and expected growth and cash balances, we have the financial flexibility to continue supporting our three capital allocation objectives. Those include maintaining our conservative leverage policy, supporting our capital investment needs, including our targeted growth opportunities at Malartic and Jacobina, and lastly maintaining a sustainable dividend, which will increase with growing cash balances and cash flows.

Turning to a few other Q4 financial highlights, these charts show our total cash flow profile for the year with operating cash flows in 2020 totaling $618 million and free cash flow before dividends and debt repayments of $295 million, more than 200% higher than 2019. Cash and equivalents at year-end were $651.2 million. This includes cash acquired on the integration of Agua Rica with Alumbrera, now MARA in Q4 with a balance of $223.1 million at year-end. This cash is available for utilization by the MARA project. Upon the integration, Yamana has 56.25% controlling shareholder. We'll now consolidate a 100% of the accounts of MARA in our financial results and perspectively we'll show the 43.75% interest of our joint venture partners as a minority interest.

For the quarter, cash costs and all-in sustaining costs were modestly higher than forecast due to production and cost impacts at Cerro Moro following the reposition of national safety measures in Argentina in December. At Cerro Moro not had this impact and performed as anticipated, our consolidated costs would have been within our prior plans.

In addition, we had anticipated that more production from Barnat at Canadian Malartic would be classified as commercial production and would have positively impacted costs.

However, the margin generated from higher than expected pre-commercial production at Barnat was treated as a reduction to expansionary capital. The significant cash flow benefit reduced expansionary capital by a further $14 million in 2020, compared with the plan. The net result was that there was no impact on cash flows.

As we updated in our January 25th preliminary results announcement, we were expecting a net impairment reversal related to El Peñón and Cerro Moro with our Q4 results. That ended up being a pre-tax net impairment reversal of $191 million represented by a $560 million impairment reversal at El Peñón, and $369 million impairment at Cerro Moro. At El Peñón, the strong recent mine performance across production costs and exploration success resulted in a reversal. At Cerro Moro, it was challenges in these factors from the opposite perspective compared to the prior expectations, but also quite significantly the impact of export taxes on cash flow. Despite this result, we still believe strongly in the long-term value opportunity at Cerro Moro, especially from expiration, although the shorter term result was the impairments of the asset. Taking a look at capital spending guidance for 2021, we are forecasting expansionary capital spend of $132 million this year, sustaining capital spend of $183 million and total exploration spending of $110 million. The expansionary number is higher than what we initially guided for '21 back in January, as we hadn't approved the construction of the Odyssey project then, but that capital is now included. Of note in exploration, $18 million will be directed towards our janitor program, which includes both early-stage and advanced exploration projects, such as Monument Bay and Lavra Velha.

We are confident we'll advance at least one of these projects to our longer-term goal of a mineral inventory large enough to support a mine with an annual gold production rate of 150,000 ounces for at least eight years.

Our exploration budget also allocates $18 million to Cerro Moro, underscoring our commitment to the operation and confidence in our ability to expand the mineral resource at this operation and extend its mine life. And with that, I will turn the call back over to Daniel for some final remarks.

Daniel Racine

Thank you, Jason. In closing, I would like to once again highlight the resilience of our people who perform exceptionally well under challenging circumstances to drive strong results. We believe we've positioned ourselves extremely well for the near-term and long-term with the Jacobina phase expansion, exploration upside at our existing mine, coupled with the initiative, like Odyssey, Wasamac, and MARA that will secure our long-time growth for decades.

As our cash flow and cash balances continue to raise, our financial flexibility rise with it, allowing us to advance these project while continuing to increase return and invest in our future. And with that, we'll be happy to take your question. Operator?


Thank you.

We will now take questions from the telephone lines. [Operator Instructions] The first question is from Ralph Profiti of Eight Capital. Please go ahead.

Your line is now open.

Ralph Profiti

Hi, good morning, everyone. Thanks for taking my questions. Daniel, the [NBNA] [Ph] talks about Phase 3 expansion potential at Jacobina, I'm just wondering sort of high-level thoughts, I know it's early. But would you see this as sort of very dependent on finding some of those near mine ore sources, like kind of [indiscernible] in Morro do Vento? And particularly, how do you think about the strategic reserve life, which has up unit now has been about 20 years. Do you think you can maintain that in 10,000 tons per day scenario in the context of the tailings capacity?

Daniel Racine

Well, good morning, Ralph. Thank you for your question. Yes, we -- as we have done for Phase 2 expansion, we wanted to make sure that our reserve and resources were not impacted by the increase in tonnage, and then that's what we will do for Phase 3. Yohann mentioned that we're aiming for 2027, so still six years away of doing that expansion to 10,000 tones per day.

So in three years we'll at 85, we'll continue to do like we did with Phase 1, optimize the mill. And then probably, slowly with time, increase production. There's basically almost no work or capital needed for that Phase 3, it's just an increase in development and production underground. But with the new mill update for Phase 2, we'll be able to reach the tonnage with the new mill.

So our target is always to maintain that reserve life, so that's why we will continue to drill.

We have a very good budget on exploration in the coming years, a bit higher than what we had in the past year exactly for that, that we want to maintain the reserve to the actual with an increased production.

Regarding the tailings, with that Phase 2, now we will do a backfill system, and the backfill system is exactly a 2,000 tons per day.

So any new tons that we will put through the mill, we don't want to reduce the mine life of the tailings, that is extremely long right now, we want to maintain that. And anything -- any production above the 6,500 tons per day at the mill will go back as backfill underground to maintain our tailings.

We have many other areas that we already know that we can have tailings in the future, but that's important for us to maintain the actual mine life of the tailing even if we increase the production.

So you are right in all of what you said, our target is always to maintain our 20-years mine life, even if we increase production, by being successful on exploration. And then we have many target, all these reefs are all expanding at depth. We're finding new one, and the grid is getting better, so we don't see any issue to go in that production in the future.

Ralph Profiti

Yes, got it, that's quite clear now, thanks. At a high level, on the Wasamac property, now that you're seeing much clearer economics and robust economics at Canadian Malartic, has this changed your thinking at all on standalone versus integration with Canadian Malartic?

Daniel Racine

No, not really. We're studying both, but our priority number one is really to have standalone.

We have the room to put the mill. And then the main reason why we want a standalone is for backfill system also, Ralph. The advantage of having backfill at site, and we're going to recover 95% to 100% of the ore underground if we have backfill, if we leave open stoped, and that will be reduced significantly.

So you're developing all these zones, but you have to leave a lot in pillars when you have a backfill system you can't fill the stope and recovery mostly all of your reserve. And then we have high reserve, we know this resource and reserve will increase with -- at the start of drilling this year.

So, MARA site make a lot more sense for us than thinking of a custom milling. And then you have to also assume that it's a long distance to travel, a production each day. In the facility study it was a 6,500 tons per day underground operation, we're thinking a lot higher than that right now in the revised study we're doing.

Ralph Profiti

I got it. I see that now, yes. Thank you, Daniel.


Thank you. The next question is from Don MacLean of Paradigm Capital.

Your line is now open. Please go ahead.

Don MacLean

Well, good morning, guys, and congratulations on the Malartic underground, that's a tremendous value creation and a lot of good done for that area of Canada. I just wanted, maybe I'll start with if Henry is on the line or maybe Yohann talk about the fact that it only uses half of the resources in the projected life to 2039. Could we talk a bit about the other half of the resources that have been left behind, why and what might happen with those if one considers an $1,800 gold world instead of, I think it was, $1,500, maybe it was $1,250 for the cutoff. What can we expect to happen with the existing resource? And then you continue to work on East Gouldie exploration. What's the outlook for that, because my sense is this is a multi-decade mine, not just 11 years?

Daniel Racine

Thank you, Don. Good morning. Good question. To do -- to start the study we had to use what we have.

You can assume for sure that the other seven million ounces, we're going to drill them. And as we build the mine we all know that the production mine life will increase at Malartic. Right now we're focusing on that first seven million ounces, that's more defined than the rest. But we have a healthy exploration budget this year to more define the East Gouldie mine. And as we now driving the ramp down by the end of this year we're going to be in a good position to drill from underground and tighten drilling on Odyssey South will be the first zone to be mined at Malartic Underground, but also to better define East Gouldie with time.

So, even if we -- it's a PE and we use resources, we have -- we wanted to use the best ore quality -- not the best quality but the resources that was drilled tighter than the rest.

So I think with time it will only increase in the future. And then this is why the study right now is only including this half of the resources actually. And then we have also a lot of resources at East Malartic, and then we have included only East Malartic down to 600 meters.

So there is huge potential in the future to increase more than that 11 years. We all know that it will be multi-decades, like you say.

Don MacLean

So is East Gouldie a case of lack of drill density or is it -- was it an economic cutoff that prevented it from…

Daniel Racine

This is not an economic cutoff, Don, it's basically drilling.

Don MacLean

Okay, but what's -- so was East Malartic no more of an economic cutoff?

Daniel Racine

Just depth with the ramp, because the shaft will access first East Gouldie, so East Malartic is quite deep too. And then does asserted depth you can mine East Malartic and Odyssey a depth, but as we go down with the ramp, and we go down with the shaft and then access more level than eventually will increase also the ounces of East Malartic deeper. But East Gouldie open on all directions too. And it's the better grade of the three zones.

So I'm sure you understand that the priority number one, but we're seven years away of -- eight years away of being fully in production at Malartic.

So a lot of things will change during these years as we are going to drill them more, but they are not a cutoff related, they're basically no drill enough or nothing that position with the mine planning right now to put them into the production.

Don MacLean


Okay. Thanks Daniel. My other question is maybe you missed might be Peter is about the Moro project. We've been watching this for years and it's great that it has -- the integration has taken place and it's progressed, your decision to integrate it into your reserves and resources and financials as a significant step. There is always been multiple options for the project. Have your plans for it though within Yamana, both how it's going to fit into your Yamana. Have those plans changed or narrowed at all as time has progressed. And are you seeing interested buyers, I guess not might be another important question?

Daniel Racine

I'll start to answer it and then maybe Gerardo can add on it, but Gerardomade it clear in his part of the presentation. There is many options for MARA. But right now, we have to stay the course.

We have to continue to do the facility study, complete that study by the end of this year or in the next year, but most importantly, the permitting phase.

Now we have the permit to get access to the site that was a key permit to get, because we have to go do some condemnation drilling to complete the facility study, but we have to keep all our options open. It's clear that we can bring, we can do it, but it will change what the company will look like, with more copper production. That's still significant goals if we maintain our 56%. If we bring a financial partner, then we'll reduce our stake and then we will still be involved. We can sell all of it, but we don't think it will be an option. And the latest option is why don't we form a copper company that we have his own management and it's also an option. We're not finalized of which one we will use or what is the best one for now, because like I said, limiting and completing the facility study is our priority number one right now.

Don MacLean

Okay, great. Thank you. Maybe I don't want to occupy this for too long, but one last question, I think everybody is wondering about the Malartic underground and the 900 some odd thousand ounces of pre-production. Maybe Jason can just tell us, is Malartic - the underground is that going to be self-funded, if we keep these kinds of gold crisis, and would it be self-funded if we include the cash flow from the open pit?

Jason LeBlanc

Yes, absolutely, and that 1550 gold pricing, you mentioned that that's the case, it would be a kind of a multiple cover on kind of the integrated cash flow generation compared to the underground CapEx if you toggle over to spot and it's going to be further multiples of the needs there.

So I think it's a unique attribute of the project, having all that production over the construction period to subsidize the ultimate construction there so.

Don MacLean

So, from a net free cash flow from the Malartic project, will it still continue to contribute net free cash flow to Yamana, if we stay at these kinds of prices?

Daniel Racine

Yes, very nice.

So, Don, I would say it's pretty, pretty robust to these prices.

You can kind of do both.

You're going to have that contribution from the open pit net of all the construction costs on the underground.

So that's the study cost of the 1550, but even more so at the prices we see here today.

Don MacLean

Okay, great.

Okay. Thank you. Thank you very much guys.

Daniel Racine

Thank you.


The next question is from Mike Parkin of National Bank. Please go ahead.

Your line is now open.

Mike Parkin

Hi, guys.

Just wanted to confirm the 10-year plan does include the newest numbers on the Odyssey underground, or is it still assuming the smaller scale that was kind of previously communicated?

Daniel Racine

Good morning, Mike. It's including the new numbers you saw yesterday or the presentation today.

Mike Parkin

But does it also include…

Daniel Racine

But still does include other potential upside on top of that like low grade stockpile, or between now and then the end of construction, a lot of things will happen at Malartic and that might change, but when we said -- we presented our 10—year, it's with the new numbers.

Mike Parkin

Okay, that was actually my next question about the stockpile if that was factored in there?

Daniel Racine


Mike Parkin

Do you have a sense of -- okay, and do you have a sense of what gold price -- the joint venture partnership would want to see to factor in that low grade stockpile?

Daniel Racine

The actual gold price we can include it in there now. But, we have decided not for this -- at this time of the study. It might be included in the future, but you know -- [multiple speakers]…

Mike Parkin

Okay. That's 1550?

Daniel Racine

Yes, at 1550, yes.

Mike Parkin

Okay, super. All right, that's it from me guys. Thanks very much.

Daniel Racine

Thank you, Mike.


Thank you. The next question is from Jackie Przybylowski of BMO Capital Markets. Please go ahead.

Your line is now open.

Jackie Przybylowski

Thanks very much. Most of my questions have been answered. I guess one that would helpful is just some clarification with the Malartic underground drill exploration program for 2021, can you give us any sense are you prioritizing infill drilling to move more what you already have delineated into like M&I category? Or, are you still testing the boundaries of the ore bodies and would that sort of step out drilling be a higher priority at this point?

Daniel Racine

Good morning, Jackie. Good question. Henry, why don't you answer that one?

Henry Marsden

Sure, yes. Thanks, Jackie. There is about $30 million budget for exploration. The majority of that is infill on East Gouldie.

We will be looking to take it to about 80-meter centers and then indicated category. But there is $4 million that we will be looking at extensions of the zone.

So, the zone remains wide open, down plunge especially to the east and somewhat up plunge up to the east as well.

So, there is a significant component of both aspects, but the main push is definitely to get stuff to indicated category.

Jackie Przybylowski

Okay. That's it from me. Thanks very much.

Henry Marsden

Thank you.


Thank you. [Operator Instructions] And the following question is from John Tumazos of John Tumazos Very Independent Research. Please go ahead.

Your line is now open.

John Tumazos

Thank you.

Sometimes the best acquisitions are the ones you already have. I am thinking of the MARA project.

Now that copper and gold prices have rebounded, is it likely that you are going to keep a bigger part of it, or, instead of selling a gold stream to do a financing, is there a structure where you sell part of your copper stake going forward your partner likes copper, or gold as a copper stream, or you keep the entire gold participation and reduce the copper participation to fund the CapEx?

Daniel Racine

Good morning, John. Good question. It's like I mentioned earlier there's a lot of option on MARA. And you are right with copper going up and gold going about that project is becoming more and more important of the company. And then, we own it at 56.25%, so that's important. And that is why we are not in a rush to do anything.

We will continue to further deeply study the permitting and evaluate all the option, and then will do what's the best for the company in the future. But right now all these options you mentioned plus the one we have are good option.

We have to see what will happen. But right now, we stay the course on what needs to be done to complete FEA study and the permitting, and it's going well right now.

John Tumazos

Thank you.

Gerardo Fernandez

Just, John, if I may add. This is Gerardo Fernandez.

I think you also have to consider that a project like most likely would have projected production in that range of 50% up to 70%.

So the amount that needs to be financed by the partner is not a 100% of the capital.

John Tumazos

Thank you.


Thank you. The next question is from Tim Huff of Peel Hunt. Please go ahead.

Your line is now open.

Tim Huff

Yes. Thank you. I know you've been focusing a lot on Malartic and Jacobina, but just from an exploration perspective, I mean, you're obviously allocating a good deal of exploration spend towards Cerro Moro and El Peñón this year, but it's supposed to got a life of mine extension. That's you're aiming for Minera Florida eventually. How would you rank those three in terms of your '21 exploration focus? I mean, a lot of it depends on what you find. I know, but if you were to prioritize those three in order, how would it sort of work for the coming year?

Daniel Racine

Well, good afternoon, Tim. Good question. They're all important for us for sure. Malartic is a big, big mine big project.

So the more we can convert into the confidence into the resources, that's an important one. Jacobina has already many years of production. This is maybe less important, but if we want to increase throughput in the future, that's also important.

I think Wasamac is a key one to, because we want to build that mine. We want to update our feasibility study this year, and then we know there is huge potential of extension.

So we don't really put with priority when we do our exploration budget and to be in the team they come with ideas. And along the years we see what the success we have in exploration, and then very often in the past few years. Even in last year with COVID-19, we have extended the exploration budget at El Peñón and at Canadian Malartic. El Peñón you asked the question, it's a great question. El Peñón after 21 years, you answered we already carry above 10 years in our strategic mind life of the mine.

As it's important El Peñón is fully built is fully paid for.

So each ounces we're finding there, it's a healthy budget, but any ounces we find there at and they are at low cost. And then there are a lot of free cash flow generated from that mine.

So we don't really go by priority. When it comes the time for exploration we spend the money that needs to be spend at each of mines and on our generative exploration program and it's all we define.

We have a - like a budget from total exploration, but it's not really a priority for any of them. They're all important in our mind.

Tim Huff

Yes, that's fair enough. And just one last one, you mentioned that you've established that new climate action initiative of establishing the two degree SBT.

You've mentioned the baseline and the greenhouse gas pathways that you want to establish, but is the ultimate aim of what you're trying to do in '21, is it more of that establishing operations, specific abatement projects? And do you expect to have those cost schedules and initial sort of ideas done by the end of this year?

Daniel Racine

Yes, Tim. That's our target. Like I mentioned, we're going to put that working group together. That's our target to have for each mine, specific targets, defined this year.

So I don't know correct, if you want to have more on this, but that's, that's our target.

Jason LeBlanc

Hi Tim, and thanks Daniel. Yes, Tim, just to build on what Daniel said, that is the plan, 2021 is really is a planning year or a foundational year to have all the work in place so that by the end of the year we can have those preliminary operations centric missions, abatement pathways.

Tim Huff

Okay. That's great. That's it for me. Thanks very much and well done.

Jason LeBlanc

Thank you, Tim.


Thank you. There are no further questions registered at this time. I'll turn the meeting back over to Mr. Racine.

Daniel Racine

Well, thank you, Operator. Thank you everyone for joining us today. We look forward to updating you on our first quarter in April. Please take care and stay safe. Bye-bye.


Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.