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AUY Yamana Gold

Participants
Daniel Racine President and Chief Executive Officer
Jason LeBlanc Chief Financial Officer
Yohann Bouchard Chief Operating Officer
Anita Soni CIBC World Markets
Fahad Tariq Credit Suisse
Josh Wolfson RBC Capital Markets
Mike Parkin National Bank
Ralph Profiti Eight Capital
Tanya Jakusconek Scotiabank
Call transcript
Operator

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 second quarter 2021 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 p.m. Eastern Time. Replay information and the presentation slides accompanying this conference call and webcast are available on Yamana’s website at yamana.com. 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 Second Quarter 2021 Conference Call and Webcast. Presenting with me today is Jason LeBlanc, our Chief Financial Officer; Yohann Bouchard, Chief Operating Officer; and Henry Marsden; Senior VP, Exploration will be available to answer questions. I will start as always with health and safety.

Our total recordable injury rate was 0.58 for the first six months of 2021. Earlier this year, we introduced our climate action strategy, continue to advance the strategy during the quarter with work ongoing to determine baselines and gathered data to develop abatement scenarios. The strategy is one pillar of our approach to ESG. Health and safety, environmental management, governance and community engagement are all deeply rooted within our organization.

We’re proud to have been named one of Canada’s Best 50 Canadian Corporate Citizen by Corporate Knights. Yamana ranked 31st overall and was the top ranked Canadian mining company. The best 50 ranking are based on a series of criterias, including eight environmental metrics, five social metrics, six governance metrics, and three economic factors. To learn more about our ESG performance, I invite you to look at our latest Material Issue Report and Global Reporting Initiative Report. Both are available on our website.

Turning now to our Q2 operational highlights. We had a strong production with 217,402 ounces of gold lead by standout performance at Jacobina, Canadian Malartic, El Peñón, and Minera Florida. Jacobina and Canadian Malartic, I’m pleased to note both reached all time quarterly high. Cerro Moro production increased compared to the second quarter of last year. Both as we indicated previously, we’re expecting the mine to see much stronger results in the second half of this year. Produce 1.63 million ounces of silver during the quarter. GEO production was 241,341 ounces. Quarterly cash costs were $720 for GEO and all-in sustaining cost were $1,081 for GEO, in line with plan.

Our strong cash flow generation and increase cash balances continue to position us well for return cash to shareholders in the form of higher dividends.

As reported yesterday, we are increasing our annual dividend to $0.12 per share, up nearly 15% from the previous dividend and 500% increase compared to Q2 2019.

We also announced a Normal Course Issuer Bid that allows for the purchase of up to 5% of the company issued and outstanding common shares over the next 12 months.

First half production and costs were in line with our plan, set out at the beginning of the year.

As with prior years, we expect Q4 to be the strongest quarter. I would like to remind everyone that we guided production to be a 57-53 split between the first half and the second half. And this is exactly what we have achieved in the first half. Taking a closer look at our operations.

As mentioned, Jacobina posted record quarterly production of 47,503 ounces of gold.

As you may have seen in our release yesterday, updating progress on the phase expansion of Jacobina, average throughput for the quarter was 7,200 tons per day, up to 5% over the prior quarter with throughput averaging 7,500 tons per day for the entire month of May. I’ll talk more about the phase expansion in a moment. At El Peñón GEO production for the quarter was 52,607 ounces, including 39,492 ounces of gold and 891,255 ounces of silver.

We continue to expect planned production in Q3 and Q4 with the second half production to account for approximately 57% of the annual GEO production. Canadian Malartic had a record quarter, producing 92,106 ounces of gold, exceeding plan due to higher grade and recoveries from ore found deeper in the Malartic pit. The operation remain on track to complete topographic drilling and blasting at Barnat by the end of Q3 of 2021. Minera Florida was a standout performer during the quarter production of 23,818 ounces of gold was above plan and higher than the same period in the prior year. Linear development continues to advance well ahead of plan and exploration results continue to demonstrate extension of identified areas of mineralization and new discoveries. Production at Cerro Moro was 25,313 GEO compared to 15,451 GEO in the prior year period. This includes 14,488 ounces of gold and silver production was at 736,820 ounces in the latest quarter. Challenging water condition and limited travel and impacted shift change.

However, the company took the opportunity during this time to fast track certain health, safety and other site improvement originally planned for the second half of the year, which will benefit future quarters. The transition to more mill feed coming from the underground are at higher grade than the open pit ore will continue into the second half of 2021.

We have a number of compelling growth opportunities in our portfolio, and that we’re very excited about.

One of these is the phase expansion at Jacobina. We’ve made significant progress on Phase 2 expansion to increase throughput to 8,500 tons per day and raise production to 230,000 ounces per year. The Jacobina plant continues to exceed expectations.

As mentioned our success underscore a simplify approach that we are now taking to complete Phase 2. This includes debottlenecking the processing plant and tailing system, as well as operational improvement that de-risk the project, greatly reduce CapEx and eliminate the needs to install an additional ball mill.

Our capital costs are expected to be only a fraction of the original estimated amount, not exceeding $15 million to $20 million. The key takeaway in yesterday’s update is the greater certainty and reduced risk as we know required incremental optimization and operational improvements to achieve the Phase 2 throughput. Subject to the successful completion of required permit modification, we expect Jacobina to begin producing the new 8,500 tons per day in the second half of 2023.

As we advance Phase 2, engineering for Phase 3 expansion to 10,000 ton per day will advance in parallel, with the plant modification originally planned for Phase 2, now consider adequate for the Phase 3. A feasibility study for Phase 3 is scheduled to be completed in 2023 and project commissioning is still on track for 2027.

In addition to the Phase 2 update, we also disclose strong exploration results at Jacobina yesterday. The results included exceptional drilling from Canavieiras Central and Morro do Vento, as well the discovery of a new zone João Belo Sul with 536,000 ounces of mineral resources. The results support the phase expansion and demonstrate Jacobina’s exceptional long-term growth potential and the ability to further extend strategic mine life.

Turning now to Wasamac, our wholly-owned gold project in Quebec’s prolific Abitibi-Témiscamingue Region, we’re excited to be growing our presents in Quebec, which is also owned to our Canadian Malartic operation. Wasamac is great project, and since acquiring it early this year, we have made it even better. We’ve carried out several studies that have expanded reserve and the average annual production while increasing throughput and plant nameplate capacity.

As a result, we’ve made a decision to advance the project to construction.

We expect to receive all permit and authorization by the third quarter of 2024.

We have identified opportunities to improve ramp up and decrease the processing plant construction period. Development will be fully funded from available cash and cash flows, once development is completed, production will ramp up quickly and will achieve full production of approximately 200,000 ounces per year in year two and sustained at level of at least the next four years with cost well below the company’s average. Wasamac as a reserve of 1.91 million ounces, along with indicated resources of 326,000 ounces and inferred resources of 258,000 ounces with excellent additional exploration potential. We believe Wasamac will be a very long mine life of 15 years or more. And assuming this strategic mine life indeed will be in the range of $850 million to $900 million at $1,850 gold price.

Just 100 kilometer down the road from Wasamac, is our Canadian Malartic operations, where we advancing the Odyssey underground project with our partner. This is another outstanding project that will extend Canadian Malartic’s mine life through at least 2039.

The second quarter, we’ve competed overburden excavation and grouting to prepare for the construction of the production shaft and headframe. We’ve also made progress on the underground ramp development is ahead of schedule with approximately 764 linear metres completed this year and 1,587 linear meters competed since the start. The exploration ramp is expected to take about two years to complete with the first drilling platform established in early July.

We have also completed construction of the shaft collar and engineering is progressing on the headframe, hoist rooms, paste plant, power line/substation, the workshop and the warehouse. Construction of the headframe and hoist room is slated to begin in the third quarter of 2021. And with that, I will turn it over to Jason.

Jason LeBlanc

Thank you, Daniel, and good morning, everyone.

Turning now to our financial performance, adjusted net earnings for the second quarter were $70.7 million or $0.07 per share, combined cash and cash equivalents at quarter end totaled $702 million, an increase of approximately 8% over December 31 year end. This includes about $223 million that has been made available for the MARA project. Cash balances along with further liquidity and cash flows are more than sufficient to fully manage the company’s business and capital allocation objectives, which includes further returns of capital to shareholders.

We continue to generate robust cash flows. The cash flows from operating activities increasing to $153.5 million in Q2 versus $129.4 million in the same period last year. Cash flows from operating activities before net change in working capital were $167.8 million and free cash flow before dividend and debt repayments increased 34% year-over-year to $51.2 million.

We expect cash flow to improve in the second half of the year with Q4 expected to deliver the strongest performance in line with the production and costs.

For Q3 and Q4, capital spending will be a little higher than the first half of the year as expected.

For sustaining capital, we will average about $50 million of spend per quarter.

For expansionary CapEx, the average will be about $40 million per quarter with about half attributed to Odyssey. And for exploration, we’ll spend between $25 million and $30 million with a 70/30 split between capital and OpEx.

We continue to see a strong performance across our portfolio with production and cost tracking to plan.

Our first half results are well aligned to our 2021 guidance released at the start of the year, which called for 53% of production to be weighted to the second half of the year.

Our costs are all also tracking in line for where they thought they would be at the end of Q2 and prospectively with minimal impact from inflationary pressures for the balance of year.

As noted, we expect stronger production and lower costs in the second half. Q4 is expected to be our strongest quarter with the highest quarterly production and lowest quarterly costs continuing to trend from previous years. And with that, I’ll turn it back over to Daniel.

Daniel Racine

Thank you, Jason.

Before we begin the Q&A, I want to talk a little bit more about Wasamac and our growing presents in Quebec. I want to highlight the points raised by our Executive Chairman, Peter Marrone in his most recent blog.

If you haven’t read it yet, the blog, I encourage you to do so. It’s published roughly once a month, as Peter share his perspective on a wide range of topics really assisted the gold mining sector. His message in the blog can be summed up in five words, focus on big pictures.

Our long-term production profile in Quebec, including Wasamac and Odyssey is 450,000 to 500,000 ounces per year between 2028 and 2035.

While that’s a strong profile in its own rate, we believe it’s just a starting point that the mineral resources and exploration for profile at Wasamac and Odyssey will generate significant production and mining life upside. That’s where we’re forecasting a 15 year strategic mine life for Wasamac. And why we believe, Odyssey will be in production far from beyond 2039. We know that production like this call for an element of trust on your part and trust and benefit of the doubts are in short supply in our industry for actual good reason as a result of event in the last cycle.

However, there have been many changes in our industry and in our company in particular, along with many successes. We believe we merit the benefit of the doubt that our long-term track record of converting resources to reserve at El Peñón and Jacobina and our success at Canadian Malartic had good reason for your faith and confidence. Without diminishing the success of our other mines, Odyssey is a game changer at a mine that has been the significant win for us on cash flows. But before Odyssey, Canadian Malartic was seen as limited only to its well-established open pit. Today, it’s at top tier generational open-pit and underground mine.

So we urge you to look at the bigger picture. Wasamac has the potential to become another generational mine in our portfolio and mine that will be in production for at least 15 years, carried in our strategic mine life. We look forward to advancing this mine and realizing its full potential, and we hope you join us and enjoy the full upside. And that in term of our Canadian profile in short few years, we have established a platform, this is among the biggest in Canada in terms of production, but the production platform will reach an initial roughly 500,000 ounces of gold all concentrated in two mines in the same region of the country. And with that, I will turn it back over to the operator for questions. Operator?

Operator

Thank you. [Operator Instructions] And the first question is from Anita Soni from CIBC World Markets. Please go ahead.

Your line is now open.

Anita Soni

Good morning guys. Thanks for taking my call. My question is with regards to the indications that you’ve given for inflation going forward. Can you give us a little bit more color on some of the offsets that you’re seeing? I think you mentioned that you are seeing some inflationary pressures that you’ve got some operational – sorry, operational synergies that can offset that in areas where you might not have the operational synergy that we might see some of cost escalation? Thanks.

Daniel Racine

Thanks, Anita. I’ll start and I’ll let Jason to give more detail. But talking about inflation, big part of our cost is manpower. And then we have negotiated two contracts this year successfully within our budgets.

So we have not seen really inflation in that part. There’s been some inflation pressure in the first half, but like we mentioned, we were able with some synergy, some good operational excellence again, to limit the impact. And then we were right in line.

So maybe Jason, you can give some detail of what we see coming and now we plan to mitigate these cost pressure.

Jason LeBlanc

Yes. Sure, Daniel and good morning, Anita. Daniel mentioned, we’re seeing inflation those headline items like everybody else out there. They’re trickling down to consumption level of grinding media and the light explosives, et cetera. And those are all up year-over-year up a little bit more than our plan. But we indicated it is – not significant with the guidance range that we provided previously. It’s combinated in there with a little bit stronger foreign exchange, I’d probably pet that at $15, $20 of negative impact compared to where we were at the start of the year. And obviously, we’re working to try to offset that with all of our procurement efforts and we feel pretty good about that. And then also operational excellence, I think has been big part of our success over the last number of years. And that program is just that much more mature and advanced.

So we feel that we’re in pretty good position to offset some of these impacts. And we do think they are cyclical in nature. They are all these direct inputs are up quite a bit from recent cycle loads.

So they’ve come off from highs earlier this year.

So they do seem to be moderating, but there is definitely an element of uncertainty here and we have to do our best to manage it.

Anita Soni

Okay. And then the second question is just on Jacobina.

I think you guys mentioned that you’d be pulling lower grades for the second half of the year, as the mill is now outpacing the mine.

As you go forward and that was temporary and it’s going to reverse – it’s going to be your set up into 2022, but how do we think about grades in Jacobina 2022 and 2023? I think previously, you were kind of targeting towards 2.3 gram per ton material to achieve those production targets. Is that still your target?

Daniel Racine

Yes, Anita. Coming from the underground mine itself, that’s the grade you can expect. But you can understand that’s our Phase 1 was 6,500 tons per day. We budget a bit higher than that at 6,800, but you saw our number.

We’re actually hitting 7,200 and 7,500.

So the mine is not ready to produce that amount of a ton, but we have stockpile that at bit lower grade.

So this is why the grade is will be a bit lower.

So we’re going to process more ton, a bit lower grade. And then in total, that will be a higher production at the end of the day.

I think we have to take the advantage that we can with that supplemental and incremental ore into the mill. And that’s what we do. We were making a lot of money, even with 2.1 grams per ton at Jacobina that’s widen. And then eventually, when are we going to catch up to do production – the underground production to what the mill is able to do within the grade will come back to that 2.3 to 2.4.

Anita Soni

Okay.

So yes, I guess I was just asking, when do you think you get back to that 2.3 or 2.4, and then secondly as you mentioned, you were making a lot of money at 2.1.

So then what kind of – is there any kind of I guess processing cost reduction with the higher throughputs that I should be thinking about in the model while you’re still purchasing 2.1?

Daniel Racine

Yohann, why don’t you answer that question?

Yohann Bouchard

Yes, Daniel, thank you.

We’re going to see for sure, I mean, we’re doing step by step implement to the processing council, for sure, with what we have in mind by increasing to 8,500 ton per day, without having going to ball mill. We can understand that’s where we’re going to be a much more efficient.

So yes, for sure, actually 1,500 would that new, I would say approach, I would say – I would expect to see some cost decrease with processing.

Daniel Racine

Regarding grade, Anita, that’s when Phase 2 was planned.

So around it, the second half of 2023, you should see grade going back even maybe next year we should be able to see grade covering 2.3 to 2.4.

Anita Soni

Okay. Fair enough. Thank you. And then last, lastly, on Cerro Moro.

As we look at the – just taking a look at the production year-to-date overall. Is it fair to say that it might undershoot the original sort of guidance range for that specific asset where other assets that are performing like Minera Florida and El Peñón versus your budgets might make up the difference?

Daniel Racine

Sure.

The other four mines will do better. But we’re still targeting to achieve our guidance for Cerro Moro.

So second assets at Cerro Moro is planned to be a very good for us, we going to see there’s always a risk.

We’re still aiming to achieve our guidance at Cerro Moro.

Anita Soni

All right.

So that was on a throughput reverting back to normal throughputs after that sort of a health and safety shutdown that you guys had. And then secondly, on I guess, a really good grades, right?

Daniel Racine

Yes, exactly.

Anita Soni

Okay. Thank you very much. That’s it for my questions.

Operator

Thank you. The next question is from Fahad Tariq from Credit Suisse. Please go ahead.

Your line is now open.

Fahad Tariq

Hi, good morning. Thanks for taking my question.

Just on the dividend, I noticed there was some commentary around just maybe a different methodology or a slightly different perspective based on minimal cash that’s needed. Can you just touch on kind of if thinking around how the dividend is increased? If that has changed given there’s obviously some capital commitments that are coming up over the next few years with Wasamac and Malartic? You add that up, it could be almost $1 billion of CapEx over the next few years. Maybe just any changes to the way you’re thinking about the dividend? Thanks.

Daniel Racine

Good morning, Fahad. Yes. We mentioned in the past that we might look up on no formula to – for dividend, but we’ve decided not to do that. We look at our – like you mentioned, we look at our future capital, our future cash flow generations, and then what we can afford as a dividend. And then when we look at what’s coming at Malartic, at Wasamac.

You saw that Jacobina is lot less now, that we can afford to increase our dividend to $0.12 per share. And then we’re going to continue to look at it in the future. And then we want that like we mentioned many times that dividend to be sustainable.

So if we were able to increase it from $0.105 to $0.12 per share, because we believe our profile in the next many years we can afford to be at that level.

Fahad Tariq

Okay. That’s clear.

So if gold price to stay above $1,350 an ounce, it’s fair to assume that this dividend would be consistent?

Daniel Racine

It will be consistent at $1,350. Absolutely.

Fahad Tariq

Okay, great. All right, that’s it for me. Thanks so much.

Operator

Thank you. The next question is from Josh Wolfson from RBC Capital Markets. Please go ahead.

Your line is now open.

Josh Wolfson

Thanks for taking my questions.

Focusing on Cerro Moro, is there any things that you – is there any details you can provide in order for us to sort of connect the dots as to what’s required to see improvements in the second half of year? Historically, in last year, obviously COVID being a bigger impact, getting the development rates seems to be a challenge, what’s maybe giving you more comfort on the outlook now in terms of expected improvements?

Daniel Racine

Good morning, Josh, thank you. I’ll let Yohann answer, but I’ll say, development is, the rates are improving. They’re going a lot better now.

So maybe Yohann can give color of why we’re very confident that the second half will be quite a good half Cerro Moro.

Yohann Bouchard

Yes, for sure. Good morning, Josh.

So, as Daniel said, I mean, we did progress really well to catch back on our development.

So with that we’ll turn a lot of flexibility with mining, just to give you an example, when we start July we were only – we had only to do 70 meters development to meet all the requirements for the next six weeks.

So we’re getting in better position.

We have higher reconciliation, I would say better reconciliation between what we mine versus what we see at the mill within some progress as well, with controlling dilution and what’s already in our vein.

So all that together, I think that the operation now reach a point where we see, I would say at Q3 and Q4 we will reach the target that we wanted.

So again, it’s going to be a progressing approach quarter-over-quarter at Cerro Moro.

So for sure, and I will not hide, it’s going to be challenging to meet our budget and guidance on that one. But the plan that we have in front of us is showing a good trend if we succeed to maintain at high level of development.

Josh Wolfson

Okay. And for the heap leach study, what was the grade of the material that was used for the column test?

Yohann Bouchard

It’s about 1 gram per ton.

Josh Wolfson

1 gram. And when you’re thinking about this 5 million ton target I guess initial resource is that the comparable grade and we should think about for this opportunity.

Yohann Bouchard

Yes.

I think it’s one. Yes. Yes, that’s correct.

Josh Wolfson

Okay, great.

Yohann Bouchard

For sure, I mean, we’re going to see – we’re going to tell folks to meet these as well. I mean, we won’t dilute full if we don’t have to. But that can be grade as well, but I would say, 1 gram per ton is minimal heap leach grade for sure.

Josh Wolfson

Okay. Thank you very much.

Operator

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

Your line is now open.

Mike Parkin

Thanks for taking my questions. With Odyssey, is there have been good plan developed in terms of what will ultimately be involved with the Canadian Malartic mill in terms of what it will be scaled down to right now? You’ve got the big say feeding into the three on the lines, if I remember it correctly. I’ve know there’s been some preliminary talk a bit, potentially you’re moving the sag, is the idea that it kind of runs couples of ball mill lines and kind of keep a third one as a spare, or what’s the thoughts there?

Daniel Racine

Good morning, Mike. Yohann, maybe you can put some color on it. But we know exactly what needs to be done to achieve. But again, Mike, you were what six, seven years away to be in full production underground at that Odyssey.

So things might change. And we – our partner announcing and we said the same thing. And you knew a new discover at Malartics during the second quarter.

So if we find more areas to have to be mine, then throughput might increase in the future at Malartic. But for now we know exactly what is needed to achieve 20,000 ton per day.

So maybe Yohann, under mill what needs to be done?

Yohann Bouchard

Yes. I will not go into detail, Mike for the question. But what’s unique to – what we need to understand here is we cannot batch the ore, because the processing time, because we need to keep all a piece at the plant running all the time, to accommodate of the mining sequence.

So as you said, we need to – I would say right side of the processing spends about 20,000 ton per day. And the idea here is going to be – to do it efficiently.

So we’re going to park some of the grinding units.

Some of – many equipment going to be parked, but that’s when one of the remove in case of something up that is coming.

So we’re going to have – we’re going to be remain with that flexibilities.

So from the current, let’s say from the current costs, processing costs by processing less tons, we believe that the processing costs will increase by about, I would say top of my head, $1.50 U.S. per ton more for processing going at 20,000 ton per day.

Mike Parkin

Okay. That’s perfect.

Another question, the Jacobina kind of revisit on the Phase 2, simply just kind of looking at it in terms of where the bottlenecks are in unlocking the potential by addressing those rather than going ahead with a bigger capital spent. Can you just give us a couple of ideas where the bigger bottlenecks are within the mill? And how you’re working to address those?

Yohann Bouchard

Yes, for sure. I mean, in Jacobina we had a really good surprise of team working, they did a really good job to do those bottlenecking project and it just great surprise. It brings us to just reconsider, what we have for Phase 2 extension.

So I would say on the short-term, Mike, they’re going to work on the like what all be the water pumping system and slurry pumping system. And we also want to do some modification to our tailing line.

So even if we put in some, we still have to do some modification there to release the system.

So in parallel, I mean, what we see there is we have – we’re using a power draw of about 92%. And the sweet spot for mining is about 95% to 97%.

So we’re going to take [indiscernible] power draw at our running units. I would say we also under utilize the crushing circuits, primary circuit uses about 38% and the secondary crusher circuit uses about 50%.

So we see some opportunities there by optimizing usage. And I would say maybe decreased, I think our number three of these are under crushing.

So that will help. And I would say the second one is – I would say the third point is going to be to optimize grinding size and also screening and bottleneck performance to for sure unload the running units and be able to push more tons to the mill.

Mike Parkin

Do you expect any loss in recovery, or have you already kind of done some studies on that where you’re not seeing material?

Yohann Bouchard

Yes, it’s a good question. I mean, maybe you saw that in our release that we run two tests in Q2 and we went up – we pulled them up to 8,600 tons per day, and we average really high tonnage over a short period of time.

So for sure we saw a decrease of recovery during that time, but that’s was with 10.1%, I would say. And I’m generously saying that.

So I mean, by the way on Jacobina, for sure, now we’re looking at like PD, we actually have designed 160 micron. I mean, between 160 and 100 micron doesn’t make a big difference. We believe that we can pull it out further and we don’t see at the inflection point.

So that means by being cutting a little bit by processing, I would say, cost of material for sure we’re going to cut on power requirement as well.

So, as I said, the system team that come up like in Q3 and we’re very excited and we still try to understand what’s going to be I would say the positive impact on cost going forward and really to find where it’s going to be a sweet spot for processing rates.

Mike Parkin

Okay. That’s good. And then last question with respect to the NCIB, how should we kind of think about the execution of that? Are you going to be strategic or looking to kind of just be a regular participant in the market with it and buying kind of a fairly steady pace of shares through the next 12 months?

Daniel Racine

We’re going to be strategic Mike, we don’t intend to buy small amount of shares. When are we going to decide to do it, if we do it, it’s going to be on a strategy point of view.

Mike Parkin

Okay. That’s it for me guys. Thanks so much.

Daniel Racine

Thank you, Mike.

Operator

Thank you. [Operator Instructions] The next question is from Ralph Profiti from Eight Capital. Please go ahead.

Your line is now open.

Ralph Profiti

Good morning. Thank you, Daniel, for the question. There’s quite a comprehensive tailing strategy being built around Jacobina. And I’m just wondering, is substitution of the surface tailings to the highest degree possible the goal here where you’re taking more sort of an ESG perspective? Or are you coming away with more of a strategic mine life at the increased processing rate of 10,000 tons per day when you’re managing the surface tailings capacity?

Daniel Racine

Good morning, Ralph. Good question. There’s a lot of strategy behind that 10,000 ton per day at Jacobina, where we have to think about tailing. We mentioned already that we’re going to go with an hydraulic backfield system to start, we’re probably going to switch eventually, or have both also what base fill system to put more of the tailing underground. And even now we’re studying a dry stack drilling on surface to have to use less, that’s based on surface. And all of that, it’s included in our strategy. We would like to use as much as possible and the maximum extra injectable attaining. And that’s what we’ve been successful. At 6,500 tons per day, we had the 13 years – 16 years obtaining in mine life, we will increase to 8,500 and we will have the same because we’ve got to implement a backfill system.

So the next step going to a higher tonnage is to use the same strategy, what we can do to maintain our attaining mine life, still increasing the underground mine life, but putting more training.

So you’re absolutely right, that’s part of a strategy to put as much or more tailings underground, or reduce our footprint on surface with training. Doing already quite good, but we see opportunities in the future and that’s going to be part – one of the big part of the Phase 3 expansion.

Ralph Profiti

Okay. Yes. Thank you. And my second question is coming back to some of these wage inflation pressures.

You talked about the two contracts secured. Would it be safe to say that those are in that sort of plus 2% to 5% range that we’re seeing in the industry benchmark and specifically when does the Cerro Moro wage negotiation come due?

Daniel Racine

We did El Peñón and Jacobina this year, Cerro Moro I don’t remember. Maybe Yohann you know.

Yohann Bouchard

Daniel, I don’t recall.

Sorry.

Daniel Racine

Yes, I’ll get back to you, but I don’t think it’s this year.

Jason LeBlanc

2023.

Daniel Racine

2023, okay.

So it’s more two years away.

Ralph Profiti

Okay. Thank you. That’s great.

Daniel Racine

Thank you, Ralph.

Operator

Thank you. The next question is from Tanya Jakusconek from Scotiabank. Please go ahead.

Your line is now open.

Tanya Jakusconek

Hi. Great. Good morning, everybody.

Just wanted to come back on the share buybacks. I know you commented on it being strategic. I’m just trying to understand how you view your dividend versus your share buybacks? Dividend is about $115 million, your share buybacks, should you do all of it that’s over $200 million, it’s probably double your dividend. I’m just wondering how you’re balancing that. Do you have a target in mind that share buyback would be similar to your dividend? Just trying to understand the strategy?

Jason LeBlanc

Yes.

First, Tanya, it’s got to start with the overall capital allocation.

So we still have that balance across all of those priorities. That’s the first kind of point of reference. And as Daniel said, with the $0.12 that’s effectively fixed in our mind. It’s sustainable. We’ve made sure it’s sustainable through the cycle and now it’s going to be the first priority. And then once we look at those other capital allocation opportunities, then we can look at the NCIB.

So straight to first, and then you there’ll be a component going to the NCIB.

Tanya Jakusconek

Okay.

So there isn’t a target within the component. It’s whatever you – so there isn’t a target basically?

Jason LeBlanc

Well, we can’t look at just the dividend, in and of itself. We’ve got to look at all the capital allocation.

I think we’ve got the transparency on capital now. It’s very well laid out with the two projects in Odyssey and Wasamac.

Now it’s spread out manageable and every year, and we will still continue to chip away at the balance sheet too.

So we’re going to be balanced across everything like we have been for the last several years.

Daniel Racine

We mentioned many times Tanya that we have like three buckets.

So our capital allocation, the dividends and reducing the debt and then that is reaching a level now that we are very comfortable, it will continue to improve.

So that’s one point when there’s enough cash, then we might decide to do the NCIB. It’s all included in our strategy. We look at all the time the three – these three buckets, and then if there’s money available at one point, we might do the share buyback. But it will all depend on what’s happened – there’s so many other factors like oil price that we don’t control.

Tanya Jakusconek

Okay. Fair enough. Thank you. And maybe just coming back to the inflation, I know I need to ask this. I just wanted to come back, you talked about some efficiencies offsetting this inflation and Jason, thank you for the currencies of $15 to $20 was due to stressing of the currency.

Just for ourselves, are you seeing the inflation when you look at all of these numbers going forward in that 3% to 5% range that you’re looking to offset. I’m just trying to see if that is similar with your peers in that sense.

Jason LeBlanc

Yes.

So maybe just to clarify the $15 to $20 would be both FX and inflationary pressures baked together. I kind of gave you a one-stop there.

So that’s the two of them. And it’s coming through on a component of items. We highlighted a few in our disclosure. But we’re seeing the results of our procurement efforts showing lower costs on other stuff.

So I think that that’s part of it as well, to the extent we are seeing higher costs, like the straightforward stuff, like grinding media, where we’re actually seeing lower costs than cyanide by example because of consolidation work that we’re doing.

So it’s a bit of both, but the net is a little bit more in inflation for sure.

So we’ve got a focus on more of those bundling and consolidation opportunities to try to take the edge off it. And then, back to our pure operational excellence.

So that’s more of a productivity avoidance type approach there.

So we’re coming at it from all angles.

Tanya Jakusconek

Okay.

So it seems as though you’re probably then on the lower end of that sort of range in terms of what you are seeing inflationary wise?

Jason LeBlanc

Yes, for sure. The 3% to 5%, I think that fits squarely within the labor component that Daniel mentioned very much within our planning and then, on a line item basis, we may see higher than 3% to 5%. But when you look at the aggregate of all of our work, it’s going to come out more to that 3% to 5% range.

Tanya Jakusconek

That’s good. Great. Thank you so much for the insights.

Daniel Racine

Thank you, Tanya.

Operator

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. We look forward to updating you on our third quarter call in October. Please take care, stay safe and enjoy the rest of the summer. Thank you. Bye-Bye.

Operator

Thank you. The conference is now ended. Please disconnect your lines at this time. And we thank you for your participation.