Yamana Gold Inc.
Q1 2015 Earnings Call Transcript

Published: 29 Apr 2015

[Operator:]

All participants, please standby, your conference is ready to begin. Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Yamana Gold's Q1 2015 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. I will now turn the meeting over to Ms. Lisa Doddridge, Vice President, Corporate Communications and Investor Relations. Please go ahead.

[Lisa Doddridge:]

Good morning and 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 list 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 first quarter results, as well as our Management's Discussion and Analysis for the same period and other regulatory filings in Canada and the U.S. I would like to remind everybody that this call is being recorded and will be available for replay at noon today 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. Peter Marrone, Chairman and CEO.

[Peter Marrone:]

Ladies and gentlemen, thank you again for joining us this morning for our first quarter conference call and our first quarter results. With me here today is Chuck Main, who is our Chief Financial Officer; Darcy Marud, who is our Executive Vice President of Enterprise Strategy; Gerardo Fernandez, who is our Senior Vice President of Southern Operations; and Daniel Racine, our Senior Vice President of Northern Operations. We will try to be brief this morning and open up the call to as many questions as possible. Also here today is Bill Wulftange, our Senior Vice President of Exploration, and while we in this presentation do not have an exploration updates, there is lot to say on exploration and any questions that you have we are more than happy to take. I will begin with an overview, pass it to Darcy for our Technical Services and Projects, and then to Daniel and to Gerardo for our operations followed by Chuck on our financial situation. 2015 as an overview, we are focused on meeting production and cost expectations. The first quarter is an excellent start to the year for us. We are focused on continuing our cost containment initiatives. We are focused on maximizing cash flow always in the context of the gold price but we are focused on that cash flow nonetheless. We are focused on the quality of mineral reserves and mineral resources, and an expansion of the resources again this year as it was last year, and increasing our mineral reserves this year also. We are focused on maintaining costs at or below our 2014 level, with further cost reductions that will be possible given local currency devaluations and the decrease in other input prices. We will continue the advancement of Cerro Moro with -- this is our very high grade gold silver deposit in Santa Cruz province in Argentina, where we have already made a construction decision then, of course, the advancement of other projects in the pipeline. We will continue with the technical improvements to the assets of Brio Gold in the first quarter, particularly for Pilar shows very well on that and as we continue with those technical improvements we will then look to how we realize and capture value from these assets. Our plans are progressing toward going public event in the third quarter as we previously announced. And finally, we're looking at capturing value from other gold mine assets in our portfolio and that, of course, includes Agua Rica, where we delivered an update to our feasibility study for Agua Rica late last year. I want to emphasize again on our operational overview that we were entirely on budget, on production and on costs. We produced just under 305,000 ounces of gold, we produced 2.5 million ounces of silver and just under 27 million ounces -- million pounds of copper. Our cash costs were also in line with our budget, with silver cost, it’s just a little over $7 per ounce and gold cash costs at $654 per ounce. All-in sustaining costs, as you know we focus on our all-in costs that include our sustaining capital. We produce every ounce of gold at an all-in sustaining cost at $893 per ounce and every ounce of silver at $10.45 per ounce. Our co-product cash cost for copper was $1.81 per pound. We see operational improvements throughout the year. We see sequential quarter-over-quarter increases in production and that will also go to the further reduction on our costs. We' have guided for costs that would be in the range of low $800 on an all-in basis and we anticipate being able to be there this year. In terms of further operational highlights, quarterly gold production increased 33% year-over-year looking at Q1 last year as compared to Q1 this year. More importantly, if you look at some specific assets and their performance, Gualcamayo’s production increased by a full 20%, Chapada’s production for gold increased by 9% with stable copper production, Minera Florida’s production increased by 15%. We had record production at Canadian Malartic, at just under 68,000 ounces of gold. And as importantly in our view is the production in March that Daniel will highlight and what that bodes -- how that bodes well for the expectation for the balance of the year. And finally on Jacobina, Jacobina’s production increased by full 25%, with 23% lower cash costs. One of the important items on Jacobina is also that we have significantly advanced our development at Jacobina and that bodes well in terms of being able to capture higher grades throughout the balance of the year. Looking at our portfolio, you’ve heard me refer it before about our primary portfolio and our secondary portfolio, perhaps if I can take you through this bar graph from the bottom up. From the bottom-up, these are our flagships. And in our flagships of our primary portfolio, we include Canadian Malartic, Chapada and El Peñón. These constitute top tier assets with significant production and low co-product cash costs. The ounces that we generated in Q1 from these assets were generated at a cash cost of $593 per ounce. If we look at the next year, the remaining four producing mines in the portfolio in their primary portfolio that are Gualcamayo, Jacobina, Florida and Mercedes. These are the other cornerstone assets that offer the potential to further enhance this company’s value by producing quality ounces and better margins. We produced everyone of these ounces at a cash cost of $801 per ounce. And if we exclude Jacobina or to say it differently as Jacobina continue to improve for the balance of the year and as cash cost come down, we see the cash cost in this portion of the portfolio coming down as well. And even in the case of Brio Gold, we produced every ounce of gold in that portfolio at $824 per ounce. We have a management of that division that is looking to the technical improvements of those assets. We are beginning to demonstrate those technical improvements and over the course of the year, we’ll then look at how we reclaim value from Brio Gold. So we’re continuing to enhance our primary portfolio but not taking our eye off of the balance of the portfolio in this company. And in the context of those portfolios, may I then now turn to Darcy so that we can go through a brief discussion about the project pipeline.

[Darcy Marud:]

Thank you, Peter. Our principal effort as everyone knows in new project development right now is the Cerro Moro project in Santa Cruz province of Argentina. On February 11th this year, the company announced the construction decision on that project and we continue to advance with the detail engineering and design. Pre-construction activities such as road, laydown yards, camps and service installations will commence in Q3 of this year with more construction commencing in late Q4. The extra time before the start of construction is allowing us to complete as much detailed engineering as possible. Source in order of long lead items and build an experienced owners team in Argentina. This will allow us to eliminate the risk as scope change and cost creep due to design and engineering changes that would delay the project. As currently designed, the project will average about $100,000 ounces of gold of $5 million ounces of silver a year during its eight-year mine life with peak production in the first three years being 135,000 ounces of gold and about 6.8 million ounces of silver. Due to the high grade of the ore we expect life of mine all in cash cost to average about $550 per ounce of gold and about $7.70 per ounce of silver. On April 24, Yamana entered into an agreement to acquire Mega Precious Metals Inc. This acquisition is part of our corporate strategy to build up our business in Canada following the acquisition of Osisko in 2014. Yamana will pay shareholders of Mega Precious the total 0.02092 shares of Yamana for each share of Mega Precious portfolio consideration of $14.4 million. The principal asset of Mega Precious is the Monument Bay project located in northeastern Manitoba near the border of Ontario. Monument Bay as an M&I resource were approximately 2.1 million ounces, an additional inferred resource to 0.9 million ounces implying an acquisition cost of $5 per M&I ounce. During the remainder of 2015, Yamana plans on spending an additional $5 million on exploration to advance the Monument Bay project. The acquisition of Monument Bay as we said earlier continues our strategy of making a bigger beachhead into Canada and we look forward to advancing our project in the short term. With that, I will turn the presentation over to Daniel Racine to talk about our northern operations.

[Daniel Racine:]

Thank you, Darcy. Good morning, everyone. Canadian Malartic delivered another quality production record. In March, on 100% basis, the record of 54,000 ounces was poured. The operation continues to demonstrate the ongoing potential for improvement over the course of 2016. Cash cost at Canadian Malartic was positively impacted by lower cost fuel and the depreciation of the Canadian dollar. Throughput average approximately 52,000 ton per day during the quarter as efforts continue to advance our nameplate capacity. Throughput forecast to increase -- this forecast to increase in the second half of 2015. This forecast was partially contingent on updating existing operating permits. Discussions are ongoing with permitting authorities in relation to pre-crushing activities and crushing levels are expected to remain in the range of 53,000 to 55,000 tons per day through 2016. 2015 production expectation are unchanged as guidance had contemplated a longer timeframe to receive necessary permits. Mercedes delivered a strong quarter and gold production was in line with the year-over-year and silver production increased approximately by 21%. The significant increase in silver production was the result of 25% increase in silver recoveries due in part to mining in specific areas of Lagunas and Barrancas. The lower year-over-year and silver grade were according to plan due to an increase in processing of stockpiles. I will now turn it to Gerardo.

[Gerardo Fernandez:]

Thank you, Daniel. At Chapada, gold production increased 9% year-over-year, reflecting the contribution from Corpo Sul and processing of higher grade of stockpiles as planned. In the quarter, commissioning of the in-pit crusher continued with an effort centered on achieving stable throughput at higher levels going forward. Work also advanced on projects to increase recoveries at Chapada, including further metallurgical testing and optimizations of operational parameters in support of increasing recoveries through a combination of modest, modifications to the processing circuit, blending strategies and enhanced operational controls. Co-product cash costs per ounce also increased 9% year-over-year and benefited from continued depreciation of the Brazilian Real. At Jacobina, we delivered 25% production increase year-over-year with a 23% lower cash costs. Also, we achieved significant improvements in mine development, having six months ahead in grades, the well above what we mine in Q1. We continue to see improving operational performance at Jacobina, is demonstrating the value of our progress on producing quality ounces with sustainable margins. We expect production and costs to continue to improve quarter-over-quarter through 2015 as rates improve further. At El Peñón, gold production and costs for the quarter were in line with the first quarter last year. Silver production increased approximately 19% year-over-year with 10% lower cash costs. Higher silver production and lower cost was a result of a continued mining in high grade areas and improved recoveries. Cash costs were impacted by heavy rains and severe flooding in northern Chile during the quarter, which resulted in lower tons mined and the processing of lower grade stockpiles. At Minera Florida, gold production increased 15% year-over-year as a result of improving gold rate in recoveries. Gold grades and recoveries were consistent with high grade levels that were established in the fourth quarter of 2014. Cash costs in the quarter were impacted by lower mining throughput and additional ore development. At Gualcamayo, production increased approximately 20% year-over-year and was in line with the level established in the fourth quarter 2014. Increased production was due in part to the recovery of material placed at the leach pad late in 2014, which entered into production in the first quarter as planned. Cash costs improved $115 per ounce compared to the first quarter of 2014 and were lower than levels established in the second half last year. Considerable progress has been made at improving the operations in the Brio Gold portfolio. At Pilar, production averaged 6,300 ounces of gold per month in the first quarter, representing a 61% year-over-year increase in production. Increased production is due to a more efficient mining and dilution control and is expected to be a baseline for production going forward. At Fazenda Brasileiro, mine frequent maintenance was undertaken earlier than originally planned and the maintenance schedule for the CIL circuit was accelerated into the first quarter to enhance operational flexibility for the site. In the second quarter, production and cost of Fazenda Brasileiro are expected to normalize on higher and lower levels respectively. The considerable progress made to improve the Brio Gold portfolio supported advancement of plans for a going public event in the third quarter. I will now turn the call over to Chuck.

[Chuck Main:]

Thank you, Gerardo. Overall, our first quarter results were in line with the expectations, both operationally and financially. Revenues for the first quarter were $458 million, up approximately $350 million in Q1 of last year. Higher revenues were the result of higher sales, partially offset by lower metal prices. Our adjusted loss for the quarter was approximately $37.5 million or $0.04 per share, after adjusting for the impact on the income tax expense and non-cash unrealized foreign exchange losses related to deferred income taxes. We continue to believe that the financial performance and strength of our company has better demonstrated by cash flow rather than earnings. In the first quarter, we generated operating cash flow of $96 million or $0.11 per share. To put this in context, we generated $0.21 of cash flow from operating activities for every dollar of revenue. On an absolute level this is approximately $2 million higher than the cash flow generated in the first quarter of last year and reflects our continued ability to generate cash flow in a lower metal prices environment. At the end of the quarter, cash and available credit was approximately $911 million. Depreciation and amortization increased in the quarter to approximately $138 million. This reflects the addition of Canadian Malartic and the inclusion of commercial ounces from Pilar, which completed commissioning in the third quarter of last year. Corporate G&A was approximately $29 million, which represents a 7% decrease from the first quarter last year. Our Exploration expense for the quarter was approximately $5 million, exploration expense increased slightly from the first quarter 2014, reflecting our focus on growth and mineral reserves and resources. We will continue to evaluate our exploration program to ensure exploration spending is targeted on those opportunities with the greatest potential. Total capital, including both sustaining and expansionary capital spent in the quarter was $76 million, a 45% decline from the previous year. Expansionary capital expenditures will be significantly lower in 2015 compared to preceding years. Our net debt at the end of the quarter stands at approximately $1.6 billion and reflects using a proceeds of the equity marking completed in the first quarter to reduce the balance owing link on our revolving facility. I would like to provide some additional color on our financial performance in the quarter and the trend for earnings and cash flow. In 2014, we streamlined our management and organization structure, initial rationalization is expected to further benefit our bottomline going forward. In the quarter, we announced that plans are progressing for going public event for Brio Gold. The going public event is expected to occur in the third quarter and on an annualize basis it’s expected to result in the $7 million reduction in G&A. Last year we announced our strategy for paying down the balance outstanding on a revolving credit facility. The implementation of this strategy is expected to result in our interest expense declining in coming years as we pay down the balance owing on that facility. We expect all three these efforts to benefit our future earnings and addition, we will continue to pursue other opportunities to further reduce G&A and other expenses. In the first quarter, we generated $96 million in operating cash flow compared to approximately $94 million last year. The $94 million in 2014 includes cost of $18 million in cash dividends from Alumbrera, an asset that is coming to the end of its life. This quarter we’ve recorded a loss from Alumbrera and no cash dividend was paid. If we exclude the cash distribution from Alumbrera, which is not consistent, Our cash flow increased 26% from Q1 last year. This significant increase in cash flow demonstrates the continuing strength of our portfolio and the potential to generate cash flow due to our focus on our primary portfolio. In the quarter, there was a broad-based depreciation currencies from the region in which we operate, with the Canadian dollar declining approximately 9% and the Brazilian real declining approximately 17% on continued U.S. dollar strengthening. Whole of these exchange rates now see a path that are below our budget assumptions for 2015. We expect that our cost will benefit from these devaluations if they continue throughout the year. The outstanding forward contracts to hedge against the risk of an increase in the value of the Brazilian real and the Mexican peso are due to expiring 2015. We did not enter into any new contracts during the quarter. When we look at our low cost structure, we are seeing continued improvement as a result of our focus on mitigating cost while pursuing production growth. Our all in sustaining cost on a co-product basis for gold decline 13% compared to the first quarter of last year to $896 per ounce. For silver, our all-in sustaining cost declined 23% compared to last year to $10.55 per ounce. These cost levels are consistent with guidance and we expect to continue delivering cost improvement as we pursue opportunities to continue reducing our G&A. Our operating -- operational performance in the quarter supports our continued confidence in previously provided production and cost guidance. We expect to produce 1.3 million ounces of gold, 9.6 million ounces of silver and 120 million pounds of copper in 2015. All-in sustaining costs are forecast to be between $800 and $830 per ounce of gold, and between $10.30 and $10.50 per ounce of silver. Our expansionary capital spending range is between $90 million and a $140 million and our sustaining capital budget is $265 million. We expect our expiration spending to be near the $98 million top end of our previously provided guidance range. Expiration spending now includes spending on programs, not originally contemplated such as Malartic CHL and Odyssey properties at Canadian Malartic, and an expansion of the program at El Penon. Expiration spending will continue to be evaluated based on the results of the program and its ability to continue unlocking value. First quarter performance continues to demonstrate the stability of production of costs within our portfolio and provides a strong base to return to a focus on growth. I’ll now turn the call back to Peter.

[Peter Marrone:]

So, ladies and gentlemen, let me provide some wrap up comments. First of all, if I can pick up on something that Darcy -- that Chuck mentioned. The currency depreciations and there were significant currency depreciations, particularly with the Brazilian real and the Canadian dollar occurred late in the quarter at least, as compared to the budget assumptions that we made. They would not have provided significant benefits in the quarter, but they should benefit future quarters. A few other observations, we expect to see sequential quarter-over-quarter production increases. Our Q1 production and costs were entirely on budget and that's an important point. We see Q2 through Q4 production increasing and cost per unit, cost per ounce decreasing as production increases and also with the benefit of those improvements to the inputs including currencies. We see significant production and cost improvements in Q1 of this year as compared to Q1 of 2014. We have seen improvements at Jacobina and Pilar and these were some of our problem operations last year and those improvements are significant. But we are maintaining our production and cost forecast. We expect lower CapEx and G&A this year. We have increased our expiration budget interestingly because we expect to generate more resources and reserves and because of the impressive potential that has been highlighted by Chuck. We see increases in cash flow in Q1 over Q1 of last year and particularly relevant as Chuck mentioned that we received no cash flow from Alumbrera and yet the core operations of this company generated more cash flow in Q1 of this year than Q1 of last yea, including in Q1 of last year, the cash flow coming from Alumbrera. We have begun to maximize our new Canadian platform with our offer to acquire, our binding offer to acquire Mega Precious. And so this bodes very well for us in Canada also and of course across all of the jurisdictions in which we operate. We have seven producing mines in five high quality jurisdictions, including of course Canada, one development stage project and a panoply of opportunities that are in front of us from expiration all the way on up to develop -- near development stage projects. We encourage every shareholder and others to participate in our Annual Meeting that will occur this morning at 11 a.m. at the Design Exchange. And with that if I can open up the call to questions.

[Operator:]

Thank you. [Operator Instructions] Our first question is from Andrew Quail from Goldman Sachs. Please go ahead.

[Andrew Quail:]

Good morning, Peter and everyone in the room. Thanks for taking my question. First, is on cost, if I just try and break this down and try and compared your guidance which -- when you’re talking about gold and silver, you guys used the same ratio in your list in February to the mines like El Peñón and Mercedes, and it’s changed obviously in Q1. So how do we think about that? And can you disclose what the thinking is behind how you report your cost?

[Chuck Main:]

Yes. This is the first quarter whereby we’ve moved away from GEO ounces. In prior years, we did GEO ounces and we had been using a 50-to-1 ratio, and overtime that ratio got out of the mine market. So then, I think, in the fourth quarter last year we announced we would go to a new methodology and that methodology is on a bipartite basis we will disclose gold costs and silver costs net of the copper credit. So we spread the copper credit against those two metals. And we also report the co-product cost. So there under the co-product cost, we allocate the cost to three metals gold, silver, and copper. So that’s what we do for the co-product basis. The allocation of the cost to gold and silver is based on relative metal value. We allocate roughly 80% to copper and then rest to precious metal at Chapada. So I think that’s an overview of the new methodology.

[Peter Marrone:]

So the other comment I should make is that, in the comparative numbers we give for unit cost we’ve redone them on the new basis so that we’re comparing apples-to-apples.

[Andrew Quail:]

Okay. So you give -- so it’s gone away from the fixed which we can say in the February sort of guidance. And so from a Chapada, it’s more to see other mines with gold and silver.

[Peter Marrone:]

Yes. Sorry, just if I can just say on the guidance, we did give the guidance on the new basis.

[Andrew Quail:]

Okay. It’s a huge variable between the gold silver ratio which was 72 in February an ounce to all the mines and now it’s obviously different for every mine, just how to forecast?

[Peter Marrone:]

Andrew, we are more than happy to continue this discussion now we’re applying, but the ratio as Chuck is mentioning and perhaps we’re not understanding the question but there is no gold equipment ratio that we’re using. On the allocation of cost, so what we’re doing is we’re allocating it based on the relative metal value. It’s a revenue contributions for silver and for gold for example at El Penon and that’s how we allocate that cost construct. So whatever the aggregate cost is at a particular mine, we have to find the methodology for allocating it between multiple metals where mine as multiple metals. And in the case of mines that have gold and silver, we try to allocate is based on the relative metal value.

[Andrew Quail:]

Okay. Great. Maybe I’ll fine with it. Moving onto the metallic, maybe one for Daniel. Can you just outline exactly the point that you guys have used it to get that throughput up, is it at mine or the mill, and is it about sort of the blast patterns, or what initiatives could be basic just to get that throughput update?

[Daniel Racine:]

Many thanks, Andrew. We are working on the crushing, the crushing, secondary crushing, grinding. We are working on all the aspects of the mine to increase that throughput. And then we were successful to do it since the acquisition. It’s basically running the equipment to the capacity they were designed for.

[Andrew Quail:]

Yes. And there was no sort of CapEx in that?

[Daniel Racine:]

No, there is not. We are not spending any money to do that. It is just optimizing the actual fleet of equipment and then the crushing and grinding circuit.

[Andrew Quail:]

Okay. Thanks very much, guys.

[Operator:]

Thank you. The following question is from Dan Rollins from RBC Capital Markets. Please go ahead.

[Dan Rollins:]

Yes. Thanks very much. Just a few questions for the team, Peter and all. Daniel, maybe just touch on Canadian Malartic just a follow-up. What permits or amendments to the existing permits are required to get the crushing circuit to 55,000 ton a day, because under the previous ownership I thought all the permits were in hand, is something changed?

[Peter Marrone:]

Yes. We want to improve the tertiary crushing, so we have a temporary tertiary crushing facility right now, so we have primary, the main crusher, the second crusher. We have a tertiary crusher so that crush all to a finer size and we wanted to upgrade that facility more it actually to the mill site. And to do that, we just need to get the permit to do it and it will take longer than planned to get that permit.

[Dan Rollins:]

Okay. So it’s just on the tertiary site. Okay. That’s good.

[Peter Marrone:]

Yes.

[Dan Rollins:]

Perfect. And then Peter maybe to you or Chuck, you did highlight the fact that Brazilian reais and Canadian dollar have come off. Obviously, in the past you’ve taken advantage to hedge the reais and also the Mexican peso. Are you currently looking or interested in putting in hedges in place going forward to protect yourself from an appreciation of those currencies going forward if we see the gold price rally?

[Chuck Main:]

No. We think that over a medium term, we are going to continue to see U.S. dollar strengthening. So we are not contemplating and we are not into our existing currency hedge positions, which all expire during 2015.

[Dan Rollins:]

Okay. Perfect. And then why have you Chuck, could you just touch based on the -- I guess it’s not a cash issue but just on the earnings basis, what should we expect going forward for interest expense versus capitalized expense, why this quarter relative to Q1, just wondering we should assume that going forward or if we will more capitalize as the Cerro Moro get build?

[Chuck Main:]

Yes. This, the first quarter we capitalized around 800,000, the prior year 12.5 million and that was the reflection of the much higher level of construction activity going on. So during 2015 the amount of the construction activity is fairly low and then it starts to ramp up in the fourth quarter of this year as we start to the construction at Cerro Moro. So I think you will see that amount capitalized increasing starting in the fourth quarter this year and then building as we further ramp up the level of spend rate at Cerro Moro?

[Dan Rollins:]

Okay. And then just on the taxes paid, obviously probably true up from the 2014 profits. Should we expect the cash taxes to be closer to current taxes for the remainder of the year and then see another bump in Q1 of '16?

[Chuck Main:]

Yes. In Q2, it should be closer to the annual run rate.

[Dan Rollins:]

Okay. Perfect. And then maybe the last question for you Peter, you talked about production being on target for Q1, I was wondering if you might be able to give us a glimpse into what percentage of production for the year you expect to happen in Q2 so we can sort of fine-tune our estimates going forward?

[Peter Marrone:]

It’s always difficult to say exactly what we expect in terms of the number of ounces of production by quarter by quarter. And forgive me for saying it this way, but it’s sort of like expense setting once up for quarter over quarter opportunity or disappointment. So if we don’t get an ounce of production on June the 30th but get it on July the 1st, then if we get it on June the 30th, we look like heroes and if we get it on July the 1st we look like bumps. So it’s always a bit of a challenge. But what I would say is that if we look at the next three quarters and if we look at the production this quarter, we should the production increase. So looking at the next three quarters, Q4 is more significant production than Q2 and Q3. Q2 and Q3 will be comparable and Q2 will be higher than Q1. And if you use that as a guide and looking at what we did in Q1, subtracting that from production expectations for the entirety of the year and assuming that in Q4 we would expect production increases at a more significant, you should be able to get a sense of where we would come out on Q2. So I apologize I don’t want to come across as being evasive, but I don’t want to leave anyone with the impression that we are going to precisely get a certain number of ounces in Q2 or Q3, because of that variability that can occur at the end of a particular quarter and particularly with mines at Chapada where the amount of concentrate and the amount of concentrates that has produced and sold could make a meaningful difference. So mines like Gualcamayo where the amount of ore that is loaded on pads and the percolation timeframe for the recovery of those ounces could make a meaningful difference from quarter over quarter. I am comfortable saying this, as Chuck mentioned, Q1 is entirely consistent with our budget, on production and on cost. And that puts us in a very, very good position in terms of what our guidance -- our overall guidance to the end of the year of 1.3 million ounces and 9.6 million ounces of silver. I hope I can leave with you that way.

[Dan Rollins:]

That’s perfect. I wasn’t trying to get a number of more percentage but I understand where you are coming from, so we just modeled similar seasonality we have seen from your core operations?

[Peter Marrone:]

If you look at the production growth from quarter-over-quarter last year on our core operations, that will give you some indication, a very good indication actually of what to expect this year except that the higher production level. We are pretty consistent, if we look at the trend over the course of the last many, many years, we are pretty consistent in terms what happens in Q2 over Q1 and then Q3 and Q4, and then the second half of the year over the first half of the year. So using last year as a guidance, the percentage increase is quarter-over-quarter and H2 over H1, will give you a good indication of what to expect year except that the higher production level. Again, I am going to make one more observation, which is that, the question that you asked which are fair questions about Canadian Malartic and 50,000 tons per day. I do want to leave everyone with this clear point, when we provided our guidance we anticipated that there will be a longer timeframe. There was a longer timeframe assumed for obtaining the permits that would get us to a consistent 55,000 tons per day. So in other words to say differently, we don’t see that our guidance is at risk because of the permitting situation.

[Dan Rollins:]

Okay. Great. Thanks very much.

[Operator:]

Thank you. [Operator Instructions] The following question is from Patrick Chidley from HSBC. Please go ahead.

[Patrick Chidley:]

Morning, Peter, everybody. Just question on the currency hedging again, in Q1, can you say how much of your exposure in reais and Mexican peso was actually hedged and what kind of rate you got for that?

[Chuck Main:]

Yeah. Roughly, we are hedged at around 50% on the Brazilian mines and around 40% on the Mexican mine. I think that if you go to the financial statements more importantly as what we have to comment, this is fairly distributed over the years, so we have roughly 390 million reais at 228 and 26 million Mexican pesos at 13.3.

[Patrick Chidley:]

Okay. That’s fairly well sort of evenly spread for the next three quarters?

[Chuck Main:]

Correct.

[Patrick Chidley:]

Okay. Great. Thanks. That’s very useful. And then just in terms of Argentina. What’s been the experience in terms of local inflation there and was that a sort of negative on your cost this quarter?

[Peter Marrone:]

It did impact our cost. We are experiencing inflation that is at a level that is higher than the publish inflation rates, but consistent with our budget. In our budgeting we assume the inflation rate of about 26% and we experience an inflation rate on our cost that was consistent with that.

[Patrick Chidley:]

26% wow. Thanks. And then, just finally, on the Brio sale or taking public, if you do sell a portion of that -- take it that's your guidance totally includes 100% of Brio production and cost right?

[Peter Marrone:]

Yeah. That's correct. I mean, our production expectation this year include 130,000 ounces coming from the Brio division and we are anticipating we are about 180,000 ounces from that in 2016 in our guidance and that would assume the start up at C1 Santa Luz again in the middle of next year.

[Patrick Chidley:]

Right. Thanks. And then, in terms of the plans for that is, I mean, I realize that it’s maybe early to say, but any idea about what you want to end with, when you do that deal or in terms of control position or would you sell as much as you can sort of thing?

[Peter Marrone:]

Patrick, I think, the best way to deliver value is as you’ve -- as I’ve said before is, first demonstrate the technical competencies of the mines and the projects. We have demonstrated or at least begun to demonstrate the rehabilitation of Pilar by the middle of this year. The plan is to demonstrating new plant for the metrology with C1 Santa Luz then to start to put that in place so that it is back in production in the middle of 2016. Showing the technical competencies, the first and foremost, and we are happy to say that we’ve begun -- we checked the box on Pilar and its advancing very well on checking the box to the middle of this year on C1 Santa Luz, that will drive some of those decisions that you are asking about. And so we’ll be in a better position to say what should we expect and what should marketplace expect from that going public event. We’re likely in with our second quarter results. However, I do want to leave you with this important point. We are committed to the technical competency of those assets, I think that’s important. We’re committed to delivering value to shareholders from those assets. We think we can do that. We are also committed to flexibility in terms of what best delivers that value. In terms of approaches to going public, we’re open to reverse takeovers, initial public offerings. We’re open to all of those avenues that would allow us to be able to garner value from it. Ultimately, our intention would be that Brio is a standalone entity, running its own operations with nominal influence coming from Yamana. So if we look at it from that perspective, we would be ultimately want to be at a level that is below 20%. But that would be over the course of time. I would anticipate that would occur on the going public event. One final observation is that when we look at consensus, consensus is carrying the values -- is carrying the asset values for the assets in Brio at an average of $265 million. The bottom end is I think about $185 million and the top end is something higher than $450 million with an average of $265 million. We think these assets certainly with rehabilitation of C1 Santa Luz would be worth more than that.

[Patrick Chidley:]

Okay. Thanks Peter.

[Peter Marrone:]

Thank you.

[Operator:]

Thank you. The following question is from Botir Sharipov from HSBC. Please go ahead.

[Botir Sharipov:]

Good morning. I have one question. You generated $96 million in operating cash flow. But the decrease in payables offset most of it and your cash declines about $100 million, $200 million. You still have over $100 million, $350 million in short term payable. What should we expect in terms of working capital management in the next two quarters and how do you plan to manage your short-term liquidity given the Q1 impact on cash flow?

[Chuck Main:]

Yeah. I think the first quarter decrease in payables to say situation coming out of 2014. There are a few factors in play. One is we have done our restructuring in Brazil and so there was a reasonable amount of termination payments that were accrued at the end of 2014 that we actually paid the cash in the first quarter of 2015. So that would be non-recurring event. We also had brought down the payable levels down to a level that we think is more sustainable-type level. So we won’t be bringing those payable levels down further. So we shouldn’t see an outflow of cash from further reductions in payable levels going forward. So those are the primary factors on the decrease in payables in the first quarter.

[Botir Sharipov:]

Okay.

[Chuck Main:]

But Peter, if I can pick up on a point, if you look at the historical trend of our cash flow before changes in working capital and after changes in working capital and as you know our focus is always before changes in working capital. But there is an adjustment and it balances over the course of a longer term but there will be periods where there is movement between before and after changes in working capital. We anticipate from Q2 and into Q3 and Q4, the cash flow before changes and after changes in working capital will be more aligned to what has historically been true. As Chuck said in Q1 of this year, we have these accrued events because of terminations and changes in the management construct that we initiated last year that had an impact in the movement of working capital. But going forward, there will be more of an alignment in the cash flow before and after changes in working capital.

[Botir Sharipov:]

Thank you. And this is very helpful.

[Chuck Main:]

Thank you.

[Operator:]

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

[Peter Marrone:]

Ladies and gentlemen, thank you very much for participating in this call. Frankly, these have been very, very good questions and we are happy to have entertained them. We are delighted with the performance of this first quarter and we are particularly delighted with the rehabilitation of a couple of issues and problems that we had last year, including Pilar and Jacobina. We are progressing that to a more satisfactory point. And with that, we encourage those who are on the call and shareholders to participate in our Annual General Meeting at 11 a.m. at the Design Exchange as I mentioned, where we will provide a recap and summary of what we did throughout 2014 and how that positions us for the entire year 2015. Thank you very much.

[Operator:]

Thank you. That concludes today’s conference call. Please disconnect your lines at this time and we thank you for your participation.