Yamana Gold Inc. (NYSE:AUY ) Gold Forum Americas / XPL-DEV 2022 Conference September 20, 2022 10:00 AM ET

Peter Marrone - Executive Chairman

Great, thank you very much. So let me begin by saying what you know, which is we're in the midst of a, in process on a business combination, but to provide context and underpin the value that has been ascribed to the deal, first I'll provide a summary of our assets and the assessment of value that our board went through and then I'll come back to the combination. I'll come back to the deal.

We're an Americas focused company as many of you are aware in four countries in the Americas. These are rules based jurisdictions that have considerable mining backgrounds and mining pedigrees. As importantly as the four countries, we're in four districts in those countries. We try to regionally concentrate so that we become relevant in those. And in all of these, there are rules based, but there's also mining pedigree and background.

We produce gold and silver. The revenue mix is 88% gold and 12% silver. In terms of number of ounces it is about 880,000 ounces of gold and roughly 9.5 million ounces of silver. All in all then on a gold equivalency basis using spot prices our platform is roughly 1 million ounces of gold equivalent, and we have low all-in sustaining costs.

To highlight and punctuate where we are in the year, in the first half of the year, we produced 500,000 ounces, so we're in line with that 1 million ounces to the end of the year and our all-in sustaining costs were below what we said that they would be at $1088 per ounce.

We have five producing mines, a number of development stage projects, and those producing mines with some optimizations, expansions, and some of those development stage projects take our production profile sequentially on a step up basis to a sustainable production from 1 million ounces to 1.5 million ounces, so a full 50% growth, but just as importantly, it does, we do that with an all-in sustaining cost that is actually lower than our current average.

Beginning then with one of those districts, Abitibi prolific in mining and certainly in precious metals mining, our largest mine in Abitibi and in the company is Canadian Malartic. Canadian Malartic is a 50-50 joint venture. It is a true joint venture. It is not a profits participation joint venture. There's no operator. It is operated by the mine and the two partners in the enterprise have a management committee that provide oversight. We own 50% of the gold. They own 50% of the gold. The attributable production is between 220,000 and 340,000 ounces. I think more interesting is what we see in the bar graph at the bottom, which is the all-in sustaining costs and those all-in sustaining costs average between $900 and $1030 per ounce.

We're on the high end this year that was anticipated in our mine plans, but we expect that that average will actually come down in time. It is a large open pit, but it is transitioning to an underground. The Odyssey underground will produce an initial 500,000 to 600,000 ounces. And again, just as importantly, we'll be able to do that at lower costs than what we're currently running with the open pit. We're estimating $850 or lower as our all-in sustaining costs.

I think what's important on this slide is what we see to the right hand side. We've been able to increase the resources, the overall resources very significantly in a very short period of time. It's one of those rare situations where that resource has increased as dramatically as this one has. We've increased the resource by a full 11 fold in the period of 2016 to present day and we're currently carrying an inventory of 15.5 million ounces across our categories. Of that 15.5 million ounces the mine plan contemplates just over 7 million ounces that is in the mineable category, so that represents about 47%. But as you can anticipate, that means that there's a lot of upside left as we get underground that allows us to be able to mine more ounces than that 7.2 million ounces.

The plant throughput that we expect from this underground is 19,000 ounces. That gets us to that 500,000 to 600,000 ounces per year at an $850 all-in costs. But with a plant capacity that was designed for a large open pit at 61,000 tons per day, we certainly have the opportunity to be able to increase that number. We're taking a two-prong approach to the mining of these ore bodies. It is more of mine ore body. As you see in that roughly purplish color, that's the Odyssey ore bodies, Odyssey south being the one that is closest to surface. We're already in progress with a ramp that is going into the ore body. We expect to be mining from the upper zones in the first quarter of next year.

What's relevant from that then is that as we're in development on the shaft, that goes to that depth of roughly 1.8 meters into the main ore body with is East Goldie, we expect to be generating cash flow. And that cash flow that gets generated before East Goldie comes into production in 2027 and 2028 carries more than 70%, assuming a $1,700 gold price carries more than 70% of the capital costs of the development of this underground project.

What is more interesting also is that East Goldie, which carries most of that 7.2 million ounces is open to the east a full 1.5 kilometers, you see that in this diagram, this long section. We're now discovering that it's open to the west and most recently that it is open up dip, a full 900 meters. So we're very confident in saying to you that the initial production platform of 500,000 to 600,000 ounces will be trumped by its ultimate platform and we expect to be able to get from this mine close to, or perhaps even in excess of a million ounces per year, coming from a possible second shaft into that East Goldie upper zone and some of the surface areas that we continue to explore.

Moving on then about a 100 kilometers down the road in Abitibi is our Wasamac project. Wasamac is in development. We already carry 1.9 million ounces in inventory as proven in probable reserves. The initial mine plan in this shear zone is to produce 169,000 ounces per year as an average, but in the first couple of years to be producing more than 200,000 ounces per year. The plant is being designed with a capacity of 7,500 tons per day and we're tweaking it to be able to get to 9,000 tons per day. We're in permitting, and we've made a decision to move forward with this project. Once again I'm a cost guy and cash flow guy. And if we look at that cost, the all-in cost is coming in at certainly below $830 per ounce. And so this will bring our overall average down, and this mine will generate some very robust and significant cash flows.

With exploration successes in the discovery of a new shear zone in the Wasamac greater area, we expect that we'll be able to mine at more than the 169,000 ounces per year average and likely closer to or exceeding 200,000 ounces and not the initial 10 years of mine life, but closer to 15 years of mine life. We're in the process on a bulk sample that will allow us access into underground, it will allow us to determine continuity of grade, rock conditions, but because we have access into the underground with our development ramp, it should also provide us with an acceleration to start-up of operations.

Moving then to another district, the Jacobina Greenstone Belt in Brazil, Jacobina is our largest mine in that Greenstone Belt. There are two assets there as well. The Jacobina mine is prolific. We have more than 20 years of mine life, 16 years in proven and probable reserves. And with high conviction resources, we take that to more than 20. And Jacobina has been demonstrating over the course of the last five, six years that we're finding more ounces than what we're depleting by mining.

Currently, we're producing at 230,000 ounces per year, but we're doing all of that at an all-in sustaining costs of $760 per ounce. So to put a point to this, and again, coming back to cash flows, Jacobina punches above its weight class in terms of its cash flows. If we look at a mine that perhaps produces 350,000 ounces per year at our industry average of $1,100 per ounce, Jacobina at 230,000 ounces per year is generating the same cash flow as that mine and with 20 years of mine life. And that number likely increasing, we're very confident that we'll be able to generate some very robust returns from this asset.

We've had a four phased expansion at Jacobina. We've completed the second phase that gets to that 230,000 ounces. We're permitted to get to 10,000 tons per day and that 10,000 tons is the third phase of expansion that takes production to 270,000 ounces. And then ultimately we've planned this mine to get to 15,000 tons per day and 270,000 ounces per year. It is a paleoplacer deposit, multiple mines with a common plant, no difficulty in terms of access. And so with multiple mines we certainly have the opportunity to be able to get 8,500 tons, 10,000 tons, and then ultimately 15,000 tons per day from underground.

And the other asset on the Jacbina Greenstone Belt is the rest of that Greenstone Belt. And I don't want to underestimate its importance. We're just starting to scratch the surface at its exploration potential. But Jacobina represents only 11 kilometers of a 150 kilometer belt that we own 100%. And there are significant opportunities for further mines. This is a unique opportunity and a unique asset in the Americas. Mostly these paleoplacer deposits are found in Africa.

And if we looked at Africa, for example, in Ghana, there would probably be four or five mines on a Greenstone belt, such as this. We are now starting an exploration program we believe that we'll find another mine somewhere north of Jacobina. We're starting with Jacobina north, which is just over that 11 kilometer level. That exploration effort will increase over the course of the next several years.

Coming then to Chile, our El Peñón mine, there are two assets in this Alhué district, this Atacama-Alhué district. El Peñón is the largest of the two. El Peñón is prolific. It's been in production since 1999. We have been producing for the last several years, 220,000 ounces per year. It is one of those mines that never shows proven and probable reserves above a certain level.

At this conference and 15 years ago, we announced the completion of the purchase of El Peñón, and El Peñón had seven and a half years of mine life in 2015. And here we are in 2022, 15 years later, and it has seven and a half years of proven and probable reserves, but with a lot of exploration opportunities, a lot of ounces in inventory and resources new existing mine workings and infrastructure. And so we're confident saying to you that El Peñón is a 220,000 ounce per year producer at all-in sustaining costs ranging in the range of $900 per ounce. And we expect to be mining here for at least 10 to 12 years.

El Peñón has shown that prolific opportunity for expansion of resources. You see here since 2017, we downsized the mine in 2017 to allow exploration more time to catch up to lower our exploration dollars and lower our development dollars to maximize cash flows. We generate more cash flow from this mine today than when it was producing more than 300,000 ounces per year. So we're more methodical in our exploration effort and that exploration effort has paid off, because as you see here in this bar graph, we've been able to demonstrate our significant growth in mineral reserves and mineral resources with a 23% increase in mineral reserves and 27% increase in mineral resources, net of depletion.

Minera Florida is our other mine in Chile. It's a small mine. We're producing 90,000 ounces per year. The all-in sustaining costs are higher than our average running at about 1200 to 1250 per ounce. We have a plan here as we advance exploration to take production to 120,000 ounces. Presently, this is a mine life of about five years, but it has been a mine life of five years for more than 27 years. So we're certainly confident that there will be more discoveries, but as we increase that inventory of ounces, our exploration knowledge of the various ore bodies here we'll be in a better position to be able to see that we can take the production level to a higher level than that 120,000 ounces.

And then coming to Argentina, Cerro Moro is a high grade mine, a 1000 tons to 1200 tons per day. It has been built so that it can accommodate up to 2,000 to 2,400 tons per day with modest modifications to the plant. We're currently producing between 150,000, 165,000 ounces per year. We're doing that at higher than our all-in sustaining costs, closer to $1230 to $1250 per ounce, but that number has been coming down and we see lots of line of sight to be able to bring that number down further.

And then finally then in terms of the assets is our Mara project. Mara is a copper-gold project, copper, gold, and moly. It is an advanced project. What you see here diagrammatically is an actual photograph of the plant. Several years ago, we completed the integration of Alumbrera and Agua Rica and in completing that integration, this creates a brownfield project. We don't have to spend money on the plant. The plant is already built. The infrastructure is already there. It's now as simple as opening up the open pit, a conveyor system to transport ore to the plant and then processing that ore.

We would be producing a significant amount of copper here along with gold. What's interesting for us is the value of this asset. Presently, we're taking it through permitting and completing feasibility study, but it's the value proposition that really drives the issue here. And even at $3 per pound of copper and $1,300 gold, which is not where we are with metals, we're certainly above that, this asset carries a net present value of $1.9 billion, and we own 56.25% of it. It is an impressive project that we're continuing to advance through the permitting and feasibility project, as we evaluate what we do with it. Do we sell it, do we further joint venture it along with our partners, or do we develop it?

Then coming together then where we've got low cost production growth? What you see on this bar chart is the growth of the company. That 1 million ounce is becoming 1.5 million ounces, but the production platform is greater than that. If we take Mara into account and some of the expansions that are not included in the 1.5 million ounces, we get to a production level of the portfolio that is in the company that is closer to 3 million ounces. So it's a very a significant portfolio with considerable value.

Important to me, hopefully to you is the costs. So the projects that take us to that production growth are actually coming in at lower cost than our average. Wasamac will be coming in as I mentioned at below $830 per ounce and Jacobina we're mining below $740 per ounce. So we certainly see that our overall cost will be coming down. So it's not just the 50% production growth, we expect that the cash flow contribution from that will actually be significant, greater than the 50%.

And the other thing to highlight here is that we really concentrate on free cash flow on top of those cash flows, and the free cash flow that we show here is the conversion ratio. Here we're showing to cash flows. And I know there's an element of complexity here, but really what we're trying to say is, every dollar that we generate in cash flow or revenue, how much of it becomes free cash flow that's available for other purposes, for distributions to shareholders, for further growth above what we've already planned. That gives us considerable flexibility to manage our balance sheet, to manage our growth, and to manage our returns to investors.

What we -- what I'm showing here is the assets that will contribute to that 1.5 million ounce that 50% growth. And as you can see here, the -- except for Wasamac with 200,000 ounces, most of these are incremental, but they add up and they add up very significantly. And what's just as important is the capital intensity is the bubbles on the side, and that capital intensity demonstrates that these are very easy projects to manage. We've committed that we would be spending to capital for expansion, not more than an average of $175 million per year. So a company our size, certainly that is very manageable and that allows us to be able to continue to maintain the resilience of our balance sheet and deliver returns to our investors.

So let's come to the transaction in a few moments left. We recognize the importance of asset quality and the increasing importance, however, of critical mass and scale. And while we're advancing that 1.5 plan, that gets to 1.5 million ounces, we want to, and strengthen the organic growth at low cost, we've also concluded, our board concluded that smart transformative business combinations should be considered. And to that end, we engaged in another transaction with Gold Fields to unlock the value inherit in our existing assets.

So the transaction is an all share deal at a ratio of 0.6. It represents a 42% premium to the price just before announcement. The value that is implied in that is $6.7 billion and I'll come back to that in a moment. Our shareholders then get the benefit of 39% of the combined company, roughly 40%. Without the premium it would have been closer to 29%. So our shareholders are benefiting and getting a larger share of the combined company.

The combined company will trade on the Johannesburg Stock Exchange, New York Stock Exchange and Toronto, and we expect to be publishing information circulars likely in early October. We're now setting date with a meeting sometime in November and a closing in November.

And let me come to the value proposition. We talked about -- I talked about the $6.7 billion. That $6.7 billion is actually represented on the left hand side of this bar graph with roughly what we currently have in production with a very modest allowance of the growth. That growth then is in addition to the $6.7 billion. And I know that there's a lot said about premium deals in our industry, but I'm not a believer that deals cannot be done with premium. Deals should be done with premiums where they are warranted. And clearly here it is warranted because we certainly represent a value that was higher than in market at the 6.7 and we provide further upside to our shareholders and the combined company shareholders.

We're getting stock in this transaction. And the way that we look at it is, is the consideration received reflective of the amount of fair value? We can check that box. It has more value than what is our shares have and our company has more value than the $6.7 billion. What is the value proposition in the Gold Fields shares standalone? We conducted diligence and we formed an informed decision that there was more value in their shares and then in the combination is the whole greater than the sum of the parts. And the conclusion that we reached was that it was. Not only because of size, size gets us into an elite club of the largest companies in our industry, but because we have better growth, we have better cash flow, we have better free cash flow conversion and we have a value proposition because the combined market capitalizations are still smaller than the market capitalization of the other companies that are in that top tier of the precious metals companies.

And with that, that's our presentation.

Thank you, Peter. You timed it down to the second. So the 20 minutes is completely filled up, so I'm afraid no time for questions. We'll move on to the next session.