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Yamana Gold Inc. (NYSE:AUY)

Q4 2012 Earnings Call

February 21, 2013 11:00 am ET

Executives

Lisa Doddridge – Vice President-Corporate Communications and Investor Relations

Peter J. Marrone – Chairman and Chief Executive Officer

Ludovico Costa – President and Chief Operating Officer

Charles B. Main – Executive Vice President and Chief Financial Officer

Evandro Cintra – Senior Vice President-Technical Services

Darcy E. Marud – Senior Vice President-Exploration

Analysts

Dan Rollins – RBC Capital Markets

Steven Butler – Canaccord Genuity

Salim Ben Mansour – BMO Capital Markets

Steve Parsons – National Bank Financial

Operator

Good morning ladies and gentlemen, thank you for standing by. Welcome to Yamana Gold 2012 Fourth Quarter Year End Release Conference Call and Webcast. At this time all participants are in a listen-only-mode. Following the presentation, we will conduct the question-and-answer session. Instructions will be provided at that time.

I will now turn the cal over to Lisa Doddridge, Vice President Corporate Communications and Investor Relations.

Lisa Doddridge

Thank you for joining us this morning. Before I turn the call over to Peter, I need to advice 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 includes, but are not limited to, statements with respect to 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 our actual financial results and performance being different from the estimates contained in our forward-looking statements, please refer to our press release issued yesterday announcing our fourth quarter 2012 results, as well as our management’s discussion and analysis for the same period, and other regulatory filings in Canada and US.

I would like to remind everyone that this conference call is being recorded and will be available for replay today at 2.00 p.m. Eastern. 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. Peter Marrone, Chairman and CEO.

Peter J. Marrone

Thank you, Lisa. Good morning and thank you for joining us. We have lot of highlights to present from a productive year which we prefer to do recently. Just a few beginning remarks, our goal is reliability, we are focused on growth and sustainability, as always reserves and production, growth and sustainability of those. Increasing and sustaining new levels of assets within per share cash flow, but ultimately important also, and then supporting those resources and production growth.

As we’ve already said before, we stick to what we know, jurisdictional relevance is important to us. This refers to the countries and regions of countries in which we operate, more conventional geologies, mining and processing and where we already have a competency and expertise are also important for us.

Now again as we previously said before, I don’t want to leave you with the impression that we’re always going to get it right and always right across all operations. Some things are unexpected and that is the nature of any money enterprise. If you take a portfolio approached asset management to better deal with this and familiar jurisdiction and regions focusing on our competency and expertise and with better price, we feel we can execute better and moreover to provide reasonable value.

Better geological interpretation preserve estimation and modeling along with more developed work, improved safety approaches leads to better production. We apply that same approach across all measures of this company and perhaps for a moment if I can just deal with an important corporate development.

Cerro Moro is a good example of leveraging in country expertise and asset expertise. The ore bodies geology are similar to Mercedes and El Peñón, we are able to employ strategies and experience gains there delivering immense value to Cerro Moro. We are pleased with how quickly we’ve been able to invest in this project. After two months of drilling, after our acquisition, we increased mineral resources by 44%, and already this year, now only a few short months into the year, we have intercepted three separate new vein zones that are not part of the resource zone.

We may have a new discovery and at an already impressive project. We have completed technical and trade off studies, which will lead to a feasibility study, and we expect Cerro Moro to produce approximately 200,000 ounces per year through a modest processing rate of 1,000 tons per day in part from an underground and the remainder from a small pit.

Initial capital and operating costs were anticipated to be very modest and fit well within our portfolio and budget. We are taking the same approach to development that we used at Mercedes and as the feasibility work continues, we have started the pre-development of a production-ready decline in the biggest of Cerro Moro’s ore bodies, [Estoliga].

This approach will enable us to better understand the ore body and can accelerate the development online. The feasibility work is expected to be completed in 2014, and with the knowledge gained from the decline and further exploration this year, we expect a subsequent construction decision in 2014, although based on prior information and a feasibility study that it will provide.

Cerro Morro has the potential to increase our cash flow by multiples of the roughly 3% of our market capitalization that we take forward, and we believe these contributions should come as early as early 2016 when production should start up.

And as you’ve already noticed here before, growth and cash flow is a focus for us in how we can deliver the best value for our shareholders.

Now I don’t want to leave you with impression that it ends only with cash flow, it is volume as well, volume and the grounded volume of production. So the combustive resources or reserves, the initial clearness demonstration of value enhancement comes from exploration leading mineral reserves, and mineral resources growth.

In 2012, we increased our reserves cumulatively by 4% and gold equivalent ounces over the 2011 level after completion. We increased our measured and indicated resources by 15%, and third resources increased by 10%. Looking at a broader horizon, over the past four years, mineral reserves have increased by 48% and since 2007 mineral reserves have increased by 66%, and that represents an annualized growth rate of approximately 11%.

If we were to only look at existing operations, mineral reserves increased by 6% which is significant as these ounces can work with 3D converted for the production and then ultimately to cash flow. When you add our projects that are currently being developed, mineral reserves still grew up by 5%, despite the fact that more projects in development, the focus has been on growth in resources initially we supplemented and then upgraded to reserves in years fold.

Now on grade, while grade is only a factor, it is a factor of significant importance and one on which we have been focusing. We have increased to rate in all resource categories in 2012 with reserve grade increasing by a full 3% over 2011 and 16% since 2010. The statements have been in reserves and resources, total number of ounces and grade doesn’t explained at all. Exploration in 2012 has given us in 2013 a springboard for new discoveries and new resources at Gualcamayo, at Jacobina, at Mercedes just name a few.

I also wanted to highlight two new projects for which the first inferred mineral resources were declared last year. These are Lahvra Velha and Arco Sul. Arco Sul is a sulphide portion of Fazenda Nova. This was a small mine that we put into production in the early years of this company. It has exceptional infrastructure and significant potential for grow at overall. I will let Darcy provide further insight, but surprising to say that some times it’s far more to the story than just the numbers, but the numbers have been particularly good.

On growth in production; since 2010, we discovered the clear pattern for inter year and multi-year production growth. The first quarter is traditionally our weakest. We have progressive production increases in each quarter to follow. It also moves through the Q1 production, which will usually be lower than the fourth quarter of the prior year. We expect this to be the case for 2013 especially given the expected ramp up in production of new operations throughout the year. Q1 will be higher than Q1 of the prior year and production will increase quarter-over-quarter.

Now if you look at our guidance that we provided last month that focus on our plans quarter-over-quarter, we should see Q1 production above Q1 production of last year and below Q4 production of last year.

Similar to the pattern of prior years, Q1 should be in a range of between the low in the high quarterly production of last year, and increase quarter-over-quarter. By the end of the year last year, we had record quarterly production in the third quarter and fourth quarter, but we anticipate that we will be able to see record again coming into Q2, Q3, and Q4 of this year.

In 2012, we achieved record production of 1.2 million gold equivalent ounces. In 2013 and in 2014, and the years to follow production is expected to increase well above that 2012 level.

Now on costs; 2012 we delivered costs that decline quarter-over-quarter averaging $230 per gold equivalent ounce for the year, and well within our guidance. Going forward we have adopted an all in cost approach taking cash costs, exploration expense, sustaining CapEx, and G&A to come up with a cost that is more representative of what we believe to be the true cost of money at a particular operation.

We expect our all in sustaining cash cost in 2013 as we previously guided to be below $800 per ounce, which compares very well to our peers and remains well within the bottom quartile of the industry.

And so that takes us to cash flow. We have established the long trend of cash flow generation. Trend is important and if we look at that trend and in particular of the cash flow 2012, compares to the average of the previous three years, it shows very well. With the expectation of continued production growth, cost containment, we expect to continue this trend and deliver increases in cash flow this year also.

And now, I’d like to turn the call over to more specifics on our operations to our Chief Operations Officer, Ludovico Costa.

Ludovico Costa

Thank you, Peter. In the fourth quarter, and the full year we delivered record production. Production increased by 16% over last year. We produced just over 322,900 gold equivalent ounces in the quarter and 1.2 million gold equivalents, while the full year production was 1.2 million gold equivalent ounces within the Company’s guidance and 9% above 2011. Costs continue to decline in Q4.

By April this costs where 190 to gold equivalent ounce. Our project cost is where $517 per gold equivalent ounce. Costs for the full year were below guidance, by product costs were $213 per gold equivalent ounces, operating costs were $525 per gold equivalent ounces.

Chapada performed as expected, gold and copper productions were consistent with the plan. As we tried to increase the granitic processes, the CRL project is planned for 2013. Gold production expect increases in 2014 as a result of this type of gold operations in (inaudible) and expect growth in copper production for strong purposes.

El Peñón performed as expected this quarter, when compared to Q4 last year, gold production increased 11%, the silver production ounce is largely down this was related to great recovery and consist with our mining plan. Process increased from Q3 has great improvement.

Gualcamayo production was down compared to last year due to the transition process from Phase II to Phase III our QDD Main areas. Because of positioning, reposition work at Phase II, III could not begin in Phase II compared to which occurred in this quarter. Productions expect increased with the ramp up of production from QDD Main Phase III starting the second quarter of 2013.

Costs spread up versus last year, due to the high labor, consumable process in the dehandling of which, QDD Lower West is on sched for completion in mid 2013. Production and process at Mercedes continue to improve each quarter through the year. Mercedes production was above the top end of guidance in each first years of operation.

The mining and (inaudible) are operating very well. This year we expect grades to decline lightly, however production will increase due to the higher plant throughput levels. Production at Jacobina was relatively down the quarter, and for the year due to the lower fewer grades in tons. This was the lower than our expectation, and the intermediate thing, certainly we are working towards improvement. However we expect to continue mining below mineral reserves continue this year.

In 2014, development of high grade mineralization is expect to improve grades and to continue to our increase in production.

The main story, this Q4 production increased by 42% compared to Q4 of last year mainly due to the new production from the tailings re-treatment project. Production for the year increased slightly. Production in overall cost is expected to improve with addition of tailings production. The tailings re-treatment plant has started production and continues to ramp up. It is expected to contribute to 30,000 gold equivalent tons of production for five years. We have previously indicated that the tailings we process really contribute to 40,000 ounces. However we now believe that 30,000 ounces of annual production is a more conservative and reasonable expectation. This is reflect in our 2013 guidance.

Fazenda Brasileiro and Alumbrera also contribute to production in the quarter. Fazenda Brasileiro’s production increased by 22% compared to the last year with lower cost, all the provisions performed as expected.

Late in the year and that’s far peak, the gold relation is now ramping up with the – is full capacity segment in the year. It is our modest contribute to overall production level. We expect this figure to be above 80,000 ounces this year, most of you which you will be leaving the second half of the year.

I will now turn the call to Chuck to review our financial performance.

Charles B. Main

Thank you, Ludovico. In the fourth quarter, we achieved record revenues of $630 million, an increase from $612 million in the third quarter. We also achieved record revenues for the full year 2012 of $2.3 billion, 8% higher than 2011, mainly due to the new production at our Mercedes mine and partially offset by lower copper and silver prices and lower volume of copper sales.

Adjusted earnings of $197 million were 11% higher than the previous quarter, mainly due to higher mine operating earnings, which were partially offset by higher G&A and exploration expense. On a per share basis, adjusted earnings increased to $0.26 per share, compared to $0.24 in the third quarter 2012. Adjusted earnings for the year were $694 million, which is slightly lower than 2011 mainly attributable to higher exploration spend. On a per share basis, adjusted earnings were $0.93.

Operating cash flow before changes in non-cash working capital items increased from third quarter to $298 million, or $0.40 per share. For the full-year, operating cash flow before changes in non-cash working capital items was in excess of $1 billion. This represents a decrease from 2011, mainly due to increased income taxes paid and the deferrable cash dividends from November in 2012.

Cash and available credit at the end of the year remains solid at $1.1 billion, cash and cash equivalents were $350 million. For the full-year, G&A was $146 million, which was higher than previous year due to the company’s growing operations including the Mercedes mine.

Net financed expense increased to $54 million, compared with $34 million for 2011. The higher net finance expense was mainly due to higher unrealized foreign exchange loss and the higher bank and financing fees, partially offset by higher capitalization of borrowing costs for the new mines and projects under construction.

Depletion, depreciation and amortization expense increased to $384 million for the year, driven mainly by higher volumes in both sales and additional DD&A from the Mercedes mine, which was under construction in 2011.

Exploration expense for the year increased to $58 million from $32 million in 2011, which is consistent with the company’s plan to pursue organic growth replacing and increasing mineral reserves and mineral resources and to other exploration plans, including the continued development of Caiamar. Capital expenditures totaled $1.65 billion for 2012, excluding the $373 million paid to acquire Extorre Gold Mines.

Turning to our margin, our margin increases have outperformed the changes in the gold prices, on a quarter-by-quarter basis for 2012, resulting in decreasing quarter-over-quarter by-product cash costs.

As Peter mentioned, all in cost structure has been an internal metric for sometime as it is a key measure to measure a company’s profitability. In 2013, we will report our all in sustaining cash costs on with our operating cash costs per GEO.

We believe all in sustaining cash costs are complementary to operating cash costs and should be considered to evaluating excess the company’s ability to generate cash flow.

All in sustaining cash costs were approximately $730 per GEO in 2012 and for 2013; we have provided guidance that all in sustaining costs will be below $800. In 2013, we will continue to focus on delivering financially, as well as operationally.

I’ll now turn the call over to Evandro for an update on our development projects.

Evandro Cintra

Thank you, Chuck. During the quarter we already continue to Agbaou development project, C1 Santa Luz is now over 95% complete, our capital operation is outstanding, but we still expect the completion of commissioning in the year 2013.

The live construction is also on the schedule and is now 75% complete. The first half is expected by needed to go in 2013 with completion of commissioning by the end of this year. Underground development, our QDD Lower West continues to advance and project completion remains on schedule to be completed by mid 2013.

In addition to the QDD Lower West expansion, we have now initiated a study to evaluate the milling of the so five portion of the resource that continues to grow. We expect to evaluate approximately 1.6 billion ounces for milling, which does include the operation of Rodado breccia is also available to (inaudible).

Production at Gualcamayo is expected to be sustainable at 200,000 ounces beginning in 2014. We have also continued recently the second gold in three part studies at Cerro Moro as we recently announced.

This is starting to engage approximately 1,000 tonnes per day for passing rate, while averaging and well production of about 200,000 ounces. In 2014, we expect all the required studies to be completed and we will lead it to our construction decision. Production at Cerro Moro could begin as early as 2016.

I will now turn it over to Darcy to discuss exploration.

Darcy E. Marud

Thank you, Evandro. During 2012 all of the exploration objectives were either met or exceeded. In regard to replacement of mineral reserves and resources at our operations, the mineral reserves increased by 6% to 14.2 million gold equivalent ounces. Total gold equivalent mineral reserves increased by 4.1% to 19.3 million ounces. The measured and indicated gold equivalent mineral resources increased by a full 15% to 50.6 million ounces and inferred increased by 10%.

We accelerated the development of new discoveries and development projects, with the exploration drilling at Maria Lazarus at the Pilar project, the definition and inclusion of resources and reserves at Corpo Sul at Chapada and the discovery and delineation of Dorada West at El Peñón.

As always development of new project is important to this company and we have declared preliminary inferred resources at our Lavra Velha and Arco Sul projects in Brazil. We continue with reconnaissance exploration to five new projects and 10-year targets were developed during the year, some of which we hope to talk to you about further on this year. Exploration spending for 2012 was approximately $125 million, which was very close to budget.

Looking at Cerro Moro, we began exploration on the project in October and we completed more than 100 holes in the principal ore bodies before the end of the year.

This drilling was done to increase just quantity of indicated gold equivalent resources, and we were successful in adding 44% more resources to a total of 1.954 million gold equivalent ounces in the indicated categories.

Also as Peter earlier talked about, we’ve made a new discovery at Cerro Moro called the Margarita vein, drilling is ongoing right now and the initial drilling has identified the new vein zone that’s approximately four kilometers north of (inaudible).

Resources have been reported this year to 1 gram per tonne gold equivalent cutoff for comparative purposes with past estimates. We also have included an analysis of different cutoffs. An increasing cutoff result is very little loss and contained ounces, but a dramatic increase in overall gold equivalent grade.

Further successes at exploration in 2012 include Chapada, where Corpo Sul has extended and added to mineral reserves resulting in increased copper gold grade year-over-year. Gold mineral reserves increased by 11% and copper mineral reserves by 7%. At El Peñón, Dorada West was added to the mineral reserves, great dip decreased by 9% with the addition lower grades from Pampa Augusta Victoria open pits.

Gold equivalent mineral reserves increased by 6%. It is important to note that the underground mineral reserve material remain constant in grade for both gold, silver, and gold equivalent. At Mercedes as Peter and Ludovico added to indicated resources and it resulted in the slightly lower average grade. The rate of oil low grade near surface mineralization added to inferred mineral resources. And in the last quarter of the year, we reported higher grades intersected in the lower parts of rate of oil. This will be our principal exploration target at Mercedes during 2013. We believe that this new zone of mineralization may connect with the Klondike deposit located only one kilometer further to the northwest.

At Pilar, we added Maria Lazarus to our inferred mineral resources and the deposit remains open in all directions. Maria Lazarus is located approximately 8 kilometers west of the Jordino deposit, it’s a steeper dipping ore body than Jordino, the grades are very similar to slightly higher and we believe that this will be an important focus of exploration in 2013 for the definition of new resources in both the indicated and inferred categories.

In 2013, we continued to focus on increasing mineral reserves and resources at all of our operations. This will be focused on Fortuna west and Dorada west at El Peñón, Corpo Sul in Chapada North at Chapada; Rodado and QDD Lower West extensions at Gualcamayo; and Rey del Oro, as I previously mentioned at Mercedes. While the vast new development projects such as Cerro Moro where we’ve already got the new zone discovered at Margarita and as I said earlier Maria Lazarus at Pilar will continue to focus exploration on Arco Sul and Lahvra Velha to increase the size potential of those new projects moving forward.

In summary, in 2012, we continued our positive trend of year-over-year mineral reserve and resource growth. Since 2007, reserves have increased by 66%, an annualized growth rate of 11%. We expect to continue this trend of growth in 2013.

Now, I would like to pass the call back to the operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question is from Dan Rollins of RBC Capital Markets. Please go ahead.

Dan Rollins – RBC Capital Markets

Yeah, thanks very much. Peter, I was wondering you might be able to comment on the reservoir and the water situation at C1 and have you seen improvement over the last two or three month sir?

Peter J. Marrone

Yeah. There has been an improvement more into the rainy season. most of the rainfall as you (inaudible) February and March, but to be more significant improvement bringing outside of our control, but the most significant improvement within our control is discovery of new water wells. Water wells alone would not be enough to build the reservoir to allow us separations, but they’re going to put very big supplement at the rainwater and wouldn’t provide a good outset in the event of the rainy season is not as we anticipate it to be much sufficient. so we anticipate the rainy season to be sufficient by the end of this month and March, we expect the effective rainfall that should bring the forecast consistent with prior, and discovered these water wells, which we now move and look a little bit water well would make supplement (inaudible).

Dan Rollins – RBC Capital Markets

Okay, great. And then just on Gualcamayo, I’m not sure if you’re able to provide any information on the potential milling scenario there, but if you are, do you have any ideas of what type of throughput you’d be looking at right now?

Peter J. Marrone

We are at the early stage.

Dan Rollins – RBC Capital Markets

Okay.

Peter J. Marrone

A point – to see that. We’re just at the point of leaving an initial stop in study, should be our expectations there that is in progress, but we would be in a better position to be, let’s say what will do with that already 1.6 million ounces of (inaudible), but as Darcy mentioned, every new mines discovered, sulphide ounce is of higher grade, so we anticipate the (inaudible). By the end of the year, early next year, we should be in a better position to be say, this is our plan or processing…

Dan Rollins – RBC Capital Markets

Okay, great, thanks very much.

Operator

Thank you. The next question is from Steve Butler of Canaccord Genuity. Please go ahead.

Steven Butler – Canaccord Genuity

Good morning guys. Question for you, Darcy perhaps on Corpo Sul, and we saw the reference to the specific booking of the reserves or increase to reserves component for Corpo Sul, is there a bigger resource beyond reserves, on the books for Corpo Sul, if you can quantify, if you have it if not get back to me later? I just wanted to get a sense for what strike length of you define the reserve base on Corpo Sul versus the full extend of the strike length for that particular zone? Thanks guys.

Darcy E. Marud

Yeah, Steve I could talk to little bit to that. I do not recall the real definition or split out story of the reserves versus mineral resources, so we will get back to you on that. But I do know that the reserve is outlined over above 1.2 kilometers of the strike length, the full strike length of Corpo Sul now is about 2.6 kilometers I believe, so probably about half of it is defined as reserves. As we move to the South West, it gets deeper so stripping ratios that is precluding us from incorporating a lot of that into the reserve.

Steven Butler – Canaccord Genuity

Okay.

Darcy E. Marud

This year I just got the results here in front of me for the mineral reserves and resources Steve, we do have about 900,000 ounces in the P&P reserves and additional to that we have about 386,000 measured and indicated and 309,000 inferred.

Steven Butler – Canaccord Genuity

So Corpo Sul in total was 900,000 ounces, P&P is that what you’re saying?

Peter J. Marrone

That’s correct.

Steven Butler – Canaccord Genuity

Okay. Have you guys saw the – you referred to at Mercedes development work continues in the Barrancas zone talking about that higher grade liquid Norte vein, you talked about rate to oil, where do you see the potential for ultimate resource conversion, is it in both of these areas or is there only a small portion of reserves in the Barrancas zone, maybe just give us a bit of context there?

Peter J. Marrone

Yeah. I think next year we will see the reserve addition and resource growth coming from is probably Rey de Oro and Barrancas, but more Rey de Oro. At the end of last year, we had some very good intersects down deep in Rey de Oro that are higher grade. (inaudible) Mercedes, that’s what we will be following up and trying to connect with [Quandite] this year.

Barrancas, we are waiting to get that development completed to drill that from underground. If you will recall, the problem that we have with Barrancas is about a 100 meters to 150 meters of post mineral cover sitting on top of that, which makes drilling and targeting very difficult from surface, so we wanted to do that from underground going forward.

Steven Butler – Canaccord Genuity

Okay. Thanks very much. That’s it.

Operator

Thank you. The next question is from Salim Ben Mansour of BMO Capital Markets. Please go ahead.

Salim Ben Mansour – BMO Capital Markets

Thank you. Hi, Peter. First question relating to the three new mines coming off provision in Brazil, I know you indicated first startup by mid year. Just want to know if you, how soon we are anticipating commercial production at each of the new mines?

Peter J. Marrone

We were still planning same as what we said in the past, our expectation is that commercial production, the program offers in the period of three months, six months, the good measured to be approximately four months.

Salim Ben Mansour – BMO Capital Markets

Okay.

Peter J. Marrone

So in the case of – and just (inaudible) we’re still planning for the quarter and for the year. In the case of [Sequin and Sebaou] we will close at the end of the year Sebaou in operation in middle of the year, so that’s closer to the end of the year. So I would anticipate the end of Q2, within Q2 proposed at the end of (inaudible).

Salim Ben Mansour – BMO Capital Markets

Thank you. And still in Brazil, I know you touched on it last quarter on the new mining law being introduced, any update on this or any anticipated impact?

Peter J. Marrone

Yeah, I think the important thing to mention about Brazil is there are – and that these mining is in events in a country where all these a bit of a challenge, certain types of these because there is a lack of similarity with what one requires, what the impact of (inaudible) is on investment, and employment in the like.

I would comfortably say, even Brazil doesn’t came into that category. Brazil is a country that recognizes the importance of mining, recognizes its contribution performance, contribution capital investment country. Revenues driven up of operations.

And so we stand where we should, but now we also see what we said before, which is – there is more cooperation amongst various departments of governments up to the presidency on making sure that mining companies are protected in terms of getting their licenses and properties.

Just to recap for those who are coming here, Brazil has indicated that the potential investment in mining which has been a cooperative process, but that is not yet been introduced.

It’s also indicated that what we’d like to do is to issue new permits under that mining law. So the challenge that it presents itself, is what happens while that mining laws goes to production and for legislation and in fact (inaudible) but there has been a very cooperative process never been was the case last year and within what we saw last year, we said to you, it would occur. So there has been enough discussion that has taken place on what to give on a interim basis. And on an interim basis, we do have temporary licenses where we need them, I think it’s also important to say that things are not always binary, it does not have a license, it doesn’t have a license, the case of admissive policy be affirmative with regard – final permitting with regards to two mines in regard to sequence of dilutive and the amalgamation of different conjunctions, some of which are perfect and then some of which need final products. So it has become better than what it was last year, but consistent with what we forecast last year and sort of that cooperative approach to go from where we were last year to a provisional arrangement we’re permitting before the mining passed and then ultimately introduction and has to do with mining.

Salim Ben Mansour – BMO Capital Markets

Okay. That’s it from me. Thank you.

Operator

Thank you. (Operator Instructions) The next question is from Steve Parsons of National Bank Financial. Please go ahead.

Steve Parsons – National Bank Financial

Yes. Good morning, thanks for taking my question, just a quick question, maybe in the press release or somewhere, but of the guidance provided for 2013 of 1.44 million to 1.6 million GEO, how much of that is expected to be commercial?

Peter J. Marrone

There is a series of indication to that, but that you have some 10%, and if we don’t see, we’ll get back to you on the numbers, but you’re well directed and it’s a good clarification that 1.44 million ounces is the full production for the year.

Steve Parsons – National Bank Financial

Right.

Peter J. Marrone

So that would not include free commercial production for this policy (inaudible) and QDD Lower West, Gualcamayo, so give us a bit of an opportunity if you don’t mind, if you have any other questions, we are more than happy to address them, but Chuck and Patty are just going for the budgets just to keep you up more precise number to what we think.

Steve Parsons – National Bank Financial

Okay, that will be great. I will actually leave it there for now. Thanks, okay.

Operator

Thank you. There are no further questions registered at this time. I would like to return the meeting over to Mr. Marrone.

Peter J. Marrone

Yes, so we have that number…

Charles B. Main

Just on the commercial production there is 100,000 ounces that would be pre-commercial production.

Peter J. Marrone

So just over 1.3 million ounces. Just let me conclude the call then by making couple of clarifications and an opportunity to provide some final thoughts. And thank you for participating today. We know that this is a period of significant financial results being delivered by many companies in this industry. We would hope that our financial results and our operational results have been received well, certainly in absolute terms and by comparison with peers.

A couple of clarification and some final thoughts; in our development slide, please note the C1 Santa Luz production averages 100,000 ounces after the first couple of years that should be higher initially. In the case of Pilar, we show 140,000 to 150,000 ounces. We will begin Pilar as we have said before with an annual production level of approximately 120,000 ounces. It is planned to increase above 140,000 ounces as the mining rate increases to match the plant capacity, and with better ounces as Darcy mentioned from Maria Lazarus that will give us an opportunity to get that production level.

So final thoughts perhaps I can leave with you are the follows; we have had another year of strong exploration, operational and financial performance. We are now setting our sites into this current year and the years to follow. As Darcy state before mining is always challenging, although our objective remains to deliver growth, resources, reserves and production while it distracts the volume growth, we expect to continue to deliver comparatively low costs, and ultimately strong levels of cash flow and financial performance.

And we have a track record of doing that, certainly this year is another, just keep it as another year of what I think is exemplary performance from an operations point of view, from a reserve and resource point, and from a financial performance point. And we anticipate being able to in this year and the nearest fall. With that, I’d like to thank you for joining us today.

Operator

Thank you, Mr. Marrone. The conference is now ended. Please disconnect your lines at this time and we thank you for your participation.

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