https://www.engineeringnews.co.za

Yamana bets on gold price falling, locks 60% of output in option contracts

26th September 2017

By: Henry Lazenby

Creamer Media Deputy Editor: North America

     

Font size: - +

VANCOUVER (miningweekly.com) – In the final stages of construction of the $126-million Cerro Moro project, in the Santa Cruz province of Argentina, Canadian gold major Yamana Gold has locked up about 60% of gold output in option contracts.

The Toronto-based miner said on Monday that it needed to secure certainty of cash flows during the periods of completion of construction, commissioning and start-up of Cerro Moro, prompting the company to enter into option contracts relating to some of its gold and copper output.

“We view entering into options contracts for a portion of our gold and copper production over a set period coincident with the completion of ramp-up at Cerro Moro as prudent,” chairperson and CEO Peter Marrone stated in a news release.

“Recent metal price increases have allowed us to set price floors for a majority of our planned gold and copper production over a few upcoming quarters at levels above 2017 budget assumptions while maintaining significant flexibility and upside, both for the portion of our production covered by the option contracts and the significant portion of our planned gold and copper production that is not covered by these option contracts.

“These are important quarters for us. The gold and copper option contracts will underpin our cash flows during peak construction intensity and capital spend at Cerro Moro in the next several months,” he said.

In deciding to pursue this strategy, Yamana considered several factors, including recent significant run ups in metal prices and a pattern in the last several years of significant metal price declines for gold late in the year, in particular in the fourth quarter. This period of metal price vulnerability coincides with a critical period of development of Cerro Moro, which creates a risk that will be mitigated with the options contracts.

Yamana has agreed to option contracts for 285 000 oz of gold, to provide a price floor of $1 300/oz and a price ceiling of $1 414/oz, spread over the fourth quarter of 2017 and the first quarter of 2018.

The TSX- and NYSE-listed miner also entered into hedge contracts for 45-million pounds of copper, cumulatively to be produced in the first and second quarters of 2018. These provide a minimum price of $2.85/lb and a maximum of $3.33/lb, the company noted.

This production represents about 60% of planned gold output in the period of the gold option contracts and about 75% of planned copper output in the period of the copper option contracts.

As was the case in previous years, production is expected to increase quarter-on-quarter next year and output in the second half of the year is expected to be higher than in the first half of the year. Percentages of production do not include production from Cerro Moro, Yamana said.

Yamana said these option contracts complement a previously completed put arrangement for September output. In August, during a period of low volatility for gold option prices, the company bought a put for 70 000 oz of gold produced in September, with a strike price of $1 250/oz at a nominal price, thereby creating a floor price for the balance of the third quarter.

The current Cerro Moro mine plan anticipates initial production in the second quarter of 2018. Initial gold and silver output at feed grades forecast to average 11 g/t gold and 650 g/t silver is expected. Yamana expects 2019 gold output to top about 130 000 oz, at an average feed grade of 11 g/t, and the silver output to be about 9.9-million ounces, with the average feed grade rising to 920 g/t silver.

The average all-in sustaining costs for the period from 2018 to 2019 are expected to be below $600/oz of gold produced and below $9/oz of silver produced, with co-product cash costs for the same period expected to be below $500/oz of gold and below $7.50/oz of silver produced.

The mine is forecast to produce 150 000 gold-equivalent ounces (GEOs) a year over the ten-year mine life, calculated at a silver-to-gold ratio of 50:1, for 700 000 oz of gold and 40-million ounces of silver and total output of 1.5-million GEOs.

Edited by Creamer Media Reporter

Comments

Latest News

Magazine video image
Magazine round up | 29 March 2024
29th March 2024

Showroom

WearCheck
WearCheck

Leading condition monitoring specialists, WearCheck, help boost machinery lifespan and reduce catastrophic component failure through the scientific...

VISIT SHOWROOM 
Environmental Assurance (Pty) Ltd.
Environmental Assurance (Pty) Ltd.

ENVASS is a customer and solutions-driven environmental consultancy with established divisions, serviced by highly qualified and experienced...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.27 0.333s - 156pq - 2rq
Subscribe Now