Yamana Gold Inc (AUY) 2020 Q4 法說會逐字稿

Thank you all for joining us this morning. Before I turn the call over, I need to advise that certain statements made during this call today may contain forward-looking information, and actual results could differ from the conclusions or projections in that forward-looking information, which include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, future metal prices and the cost and timing of the development of new projects. For a complete discussion of the risks, uncertainties and factors, which may lead to actual financial results and performance being different from the estimates contained in the forward-looking statements, please refer to Yamana's press release issued yesterday announcing fourth quarter 2020 results as well as the management's discussion and analysis for the same period and other regulatory filings in Canada and the United States.

I would like to remind everyone that this conference call is being recorded and will be available for replay today at 12:00 p.m. Eastern Time. Replay information and the presentation slides accompanying this conference call and webcast are available on Yamana's website at yamana.com.

I will now turn the call over to Mr. Daniel Racine, President and CEO.

Thank you, operator. Thank you all for joining us, and welcome to our fourth quarter and year-end conference call. Presenting with me today are Jason LeBlanc, our Senior VP, Finance and Chief Financial Officer; Yohann LeBlanc (sic) [Yohann Bouchard], Senior VP, Operation; and Gerardo Fernandez, our Senior VP, Corporate Development. For the Q&A portion, Henry Marsden, our Senior VP, Exploration; and Craig Ford, our Senior VP, Health, Safety & Sustainable Development will also be available.

Starting, as always, with health, safety, environment and community relation, our recordable injury rate was 0.49 in 2020. That represents a decline of more than 215% since 2012. We continue to refine and improve our protocol to combat COVID-19.

At Canadian Malartic, we have installed a third-party testing lab allowing site to test employees and contractor before they enter the mine. The lab is staffed by trained technician and operates 7 days a week. We also continue to engage closely with our host communities to support them in the fight against COVID-19, providing the nation in critical equipment and supplies. We achieved some notable milestone and recognition in 2020, as you can see on this slide.

As you will have seen in our announcement yesterday, we have formally adopted a climate strategy, further underscoring Yamana's commitment to transitioning to a low-carbon future. Our strategy is underpinned by the adoption of 2 targets: a 2-degree Celsius science-based target and an aspirational net 0 target by 2050. The targets are supported by fundamental work to be performed in 2021 to establish a multi-disciplinary Climate Working Group and determine our emission baseline as part of our effort to achieve our target. These actions will help ensure that our long-range greenhouse gas emission reduction efforts are supported by practical and operationally-focused short, medium and long-term action to achieve this target.

Yamana has a long history of prioritizing the health and safety of its people, sustainable development and environmental protection wherever it operates. Our climate strategy is a natural extension of this business approach.

Turning now to our -- to the 2020 highlights. We showed great resilience in the most challenging and unprecedented of years. We continued to deliver high ESG performance while moving quickly to ensure the health and safety of our people and the community where the pandemic hit. We delivered strong operational performance with Jacobina, Canadian Malartic, El Peñón and Minera Florida all producing above plan. And that translated into strong financial performance and increased free cash flow. In fact, we achieved our objective of net debt-to-EBITDA ratio of below 1x when assuming a bottom-of-cycle gold price of $1,350. This further increased our financial flexibility, allowing us to raise our dividend by an additional 50% to $0.105 per share. On a per GEO basis, our dividend floor is now $100 per GEO.

We completed our exploration program and delivered significant update supporting mine life extension. We continued to optimize our portfolio, monetizing certain assets such as our royalty portfolio and acquiring Monarch Gold, which added the Wasamac project to our pipeline and increased our presence in Quebec's prolific Abitibi district. We completed an option agreement on our Suyai gold project in Argentina, which we believe is an important step towards bringing this outstanding project to development. We also completed the integration of Agua Rica with Minera Alumbrera, an important milestone that derisks what is known now as the MARA project. While we highlighted the significant net asset value at post pre-feasibility study project, we note that net asset value was determined at metal prices well below current level. At current level, the net asset value doubles to $4 billion. We are not suggesting that this is what should be in models. We are saying that this is an impressive, low capital intensity, low-cost projects with large copper and gold inventory, a robust production profile, long life and excellent returns. In the next several quarters, we will begin to outline how we intend to improve and realize more value from this project. We have received the permit to advance the project yesterday, which is a positive news.

And finally, we completed our listing on the London Stock Exchange, which provided us with exposure to investor in U.K., Europe, the Middle East and Asia that we didn't have before, raising our profile while offering these investor exposure to our portfolio of high-quality assets in the Americas.

Turning to our fourth quarter result. We produced 221,659 ounces of gold with standout production from Jacobina and Minera Florida. Silver production was 2.59 million ounces, was above plan, underpinned by exceptionally strong performance from El Peñón.

GEO production for the quarter was 255,361 ounces. Cash costs of $675 per GEO and an all-in sustaining cost of $1,076 per GEO were modestly above forecast due to the tightening of national safety measure in Argentina and less production being classified as commercial production from Barnat at Canadian Malartic. Jason will discuss costs in more detail during his remarks. Net earnings during the quarter was $103 million or $0.11 per share with adjusted net coming at $107.7 million or $0.12 per share.

Cash flow from operating activities were $181.5 million, and cash flow from operating activities before net change in working capital were $207.4 million. Free cash flow from before dividend and debt repayment was $61.7 million. We replaced gold mineral reserve depletion on a consolidated basis for our operation. And we delivered significant increase in mineral resources, including 1.84 million ounces of inferred mineral resources at East Gouldie on a 50% basis. East Gouldie is part of the Odyssey underground project at Canadian Malartic, which as you have seen in our announcement yesterday, is proceeding to development, which we could not be more excited about. Yohann will talk more about the project in a moment. But as a reminder, capital cost doesn't include the benefit that we will get revenue from, from 932,000 ounces coming from underground during the construction phase.

The addition of Wasamac project also increased our mineral inventory at the favorable purchase price. Taking a closer look at our results, for the full year, we reported GEO production of 901,155 ounces, including 779,810 ounces of gold and 10.36 million ounces of silver. Full year production exceeding our original guidance for the year of 890,000 ounces GEO and was within the minus 3% -- minus-plus 3% of the variance range of the revised guidance.

Jacobina continues to be a standout, producing 44,165 ounces of gold in the quarter and an all-time record of 177,830 ounces for the year. It was the seventh straight years of increasing production for Jacobina, a trend that we believe is going to continue. El Peñón produced 55,529 GEO in Q4, including 43,512 ounces of gold and 932,954 (sic) [922,954] ounces of silver.

Q4 production at Canadian Malartic was 86,371 ounces on a 50% basis. The transition from Canadian Malartic pit to Barnat pit is going very well. With Barnat now in commercial production, 70% of the total tonnes mined in 2021 are expected to come from Barnat. Minera Florida continued to perform exceptionally well, producing 26,352 ounces of gold during the quarter. This is the highest production level since 2010 and the second highest since the mines entered into production in 1986, excluding gold production from the reclamation of historic tailings. Costs at Minera Florida are expected to continue declining in 2021.

Cerro Moro produced 42,943 GEO in Q4, including 21,259 ounces of gold and 1.67 million ounces of silver. Full year GEO production was 132,415 ounces, including 66.995 ounces of gold and 4.5 million ounces of silver. While Cerro Moro operated continuously during Q4, travel protocols were tightened, and rosters significantly reduced to protect the health and safety of employees and communities. These restriction were particularly stringent during December. Despite the impact of these restriction, production in Q4 was the highest of the year.

Operational challenges related to COVID-19 are expected to continue in the first half of 2021, but the company expect the situation to normalize as the vaccination program ramps up in Argentina.

The transition to more mill feed is coming from underground ore at a higher grade than the open pit ore continued in the quarter and will continue in 2021, with most of the ore to plan -- to the plan coming from Escondida Far West, Zoe, Escondida Central and Escondida West underground mines.

We expect to return to production of 1 million GEO per year this year and retain that production level for the next 2 years, the following 2 years. 53% of our production in 2021 is expected to occur in the second half of the year, with production trending higher each quarter. This year, we expect production of 862,000 ounces of gold and 10 million ounces of silver. In 2022, we're forecasting 870,000 ounces of gold and 9.4 million ounces of silver. And in 2023, 889,000 ounces of gold and 8 million ounces of silver.

As you may have noticed, we disclosed a 3-year mine-by-mine guidance, a decision that underscore our confidence and forecasts. I would add that we see the 3-year period as steady state on production and cash flow, while we lay the groundwork for significant growth beyond that period as we advance our project pipeline. We see cash costs ranging from $655 to $695 per GEO this year with an all-in sustaining cost between $980 to $1,020. Our all-in sustaining cost in 2020 was modestly above forecast due to the aforementioned national safety measure in Argentina and also less production being classified as commercial production from Barnat at Canadian Malartic. The net result of the modestly higher cost and lower expansionary capital at Barnat was neutral. There was little impact to overall general cash flow.

Turning now to our updated reserve and resources. Overall, it was another successful year for our mineral reserve and resources, with the replacement of reserve depletion at our operating mines.

Reserve increased to 13.8 million ounces of gold, 113 million ounces of silver and 6.7 billion pounds of copper. Of note, here is the addition of our newly acquired Wasamac project, which added 1.8 million ounces of reserve to our pipeline. And that's more of the adjustment really given to recently announced integration agreement between Agua Rica and Alumbrera. We have included 56% of our share of the MARA project as part of our company subtotal. We also successfully increased measure and indicated resources to 14.6 million ounces of gold. In the inferred category, gold resources climbed to 15.7 million ounces.

And with that, I will now turn the call over to Yohann to provide some more detail on our reserve, resources and project pipeline.

Very good. Thank you, Daniel. Well, as Daniel mentioned, we replaced depletion of our 5 operating mines and added ounces. Well as a reminder, we are reporting our reserve using a gold price assumption of $1,250 per ounce, which has not changed from prior year. So all the increases that you see here reflect the success with exploration. We also increased measure and indicated resources by 162,000 ounces of gold, and we increased inferred resources by almost 2.2 million ounces.

We will now have a closer look at our reserve and resources on a mine-by-mine basis, starting with Canadian Malartic. While on a 50% basis, depletion from mining was 325,000 ounces in 2020, this was partially offset by a Barnat pit optimization, which added 150,000 ounces of gold. The net depletion of Canadian Malartic was only 175,000 ounces in 2020. The additional open pit reserve at the bottom of the Barnat pit is equivalent to increasing open pit mine life by about 6 months. This will improve the production profile during the transition from open pit to underground mining. And the optimized pit design is offering a tolerable geotechnical stability.

We are proceeding with the development of the Odyssey underground project, and I will talk more about this exciting opportunity in a moment. I will also talk in detail about El Peñón and Jacobina in a moment. But note here that they continue to be standout operation with Jacobina extending mine life despite increasing throughput and El Peñón increasing reserve from a third straight year as well as average reserve grade.

MARA is now included in our reserves and resources total. With the completion of the integration, there is now a clear path to unlock value from the significant mineral reserve base, which includes 6.7 billion pounds of copper reserves as mentioned by Daniel earlier. Disruption due to COVID prevented Cerro Moro from adding new zones of high-grade inferred resources during 2020, but some promising intersection at depth in Zoe and Escondida will be investigated further with diamond drilling in 2021.

In addition, for the first time, lower grade heap leach inferred resources has been included in the mine resources statement. These ounces are supported by positive methodological testing -- I would say results, I would say, conducted earlier this year and the positive concept study completed in 2020.

Well, in summary, a significant reserve in reserve base provide a solid foundation for a 10-year outlook and a pipeline for extension of the existing operation and future development of our quality projects.

I will now move on with a quick update on our recent announced 10 years production outlook as several developments have occurred in the interim. So on the base -- the base case is, for sure, to sustain the platform of at least 1 million GEO through 2030. Since the update was announced, we have issued a positive construction decision for the Odyssey underground project. We have also updated our mineral reserve for 2020, disclosing an increase in reserves at Jacobina and another successful year of reserve replacement at El Peñón.

And as I said a moment ago, our pipeline is now including Wasamac and MARA, giving us confidence that we can exceed that 1 million GEO basis case outlook. For Jacobina, we increased reserve by 314,000 ounces of gold or 13% to a total of 2.8 million ounces. This is the fourth consecutive year that Jacobina has increased reserves, with an average reserve replacement rate of 240%.

Average reserve grade has reduced slightly as a result of adding lower grade reefs in parallel to the high-grade LUT reefs at Canavieiras Central. We also increased mineral resources at Jacobina last year. The combined reserve and resource increased by 826,000 ounces compared to 2019. This will unlock opportunities for further expansion beyond our planned Phase 2 of 8,500 tonnes per day and 230,000 ounces per year. Specifically, we are now evaluating a third expansion phase that would increase throughput to 10,000 tonnes per day by 2027, 2027 with a production potential of 270,000 ounces per year.

So in 2021, drilling will continue to convert inferred resources to reserves while adding new zones of inferred resources such as João Belo South. El Peñón has another successful year replacing the depletion of reserve for the third straight year. So at year-end 2020, reserves stood at 920,000 ounces compared to 764,000 ounces at the end 2017. The new lines added to reserve are high quality, resulting in a slight increase to the average reserve grade.

For gold and silver, measure and dedicated resources increased by 16% and 17%, respectively. And gold inferred resources increased 16% from 2019. A subset of these inferred resources are included in our 10 years production outlook. Although the average resource grade is lower than reserve grade, the subset of resources included in our mine plan is similar to the reserve grade. This is supported by the year-end numbers, where the resources that were converted to reserve throughout 2020 are higher-than-average reserves grade.

The positive exploration results at El Peñón support our 10 years production outlook, which rely on exploration success to maintain a rolling 10-year mine life. This is something really remarkable that this operation has been able to achieve for 21 years and counting, and ongoing success has the potential to unlock opportunities to ramp up production by leveraging the existing processing capacity.

Now taking a closer look at the Odyssey underground project. Our resources have now increased to more than 14 million ounces on 100% basis over a period of only 6 years. In the last year alone, we had close to 4 million ounces of gold. As mentioned, mine life is estimate until 2039 with significant potential to extend beyond that. Production is expected to ramp up to 500,000 to 600,000 ounces of gold per year from 2029 through 2039. This is higher than our original estimate of 450,000 ounces per year. And the project has a robust economics, as you can see from the sensitivity table below.

Initial expansion capital of $1.14 billion is expected to be spent over a period of 8 years on a 100% basis with capital requirements fully funded, using cash on hand and free cash flow generation. Other growth capital expenditure and modest sustaining CapEx during the construction period are estimated at $191.4 million. Gold production during the construction period is expected to be 932,000 ounces at a cash cost of about $800 per ounce, which will significantly reduce external cash requirements. Sustaining CapEx from 2029 through 2039 is forecast at $55.8 million per year. It is important to note that only 7.3 million ounces or about 50% of the projected overall resources has been included in the technical report completed this month. So like I said, great potential for future upside.

Our East Malartic resources at depth and Odyssey internal zone present 2 of these opportunities. And of course, the East Gouldie zone continues to expand. Inferred resources at East Gouldie increased by 134% in 2020 to 6.4 million ounces on 100% basis with an average grade of 3.17 grams per tonne. In 2021, we are continuing to drill aggressively East Gouldie to test the extension of the zone along strike and at depth. We will also drill Odyssey South for future mining. We look forward to updating you as the transition to underground Odyssey project is advancing.

Well, in our long-term outlook profile, the Wasamac project provide opportunities for production growth to exceed our 1 million GEO base case target. As a quick summary we complete -- as a quick summary, we did complete acquisition in January 21 this year. The transition with Monarch Gold team has been excellent, and Yamana is already heavily involved in communicating with local stakeholders about the future plan for this operation.

We expect to open a regional office in the upcoming months to support the community engagement. While Wasamac is a well-advanced project and Monarch completed facility study in 2018 that show a very good economics. We have begun an update on that study and expect to complete it by the third quarter of this year.

The update will evaluate opportunities to achieve the following objectives: minimize potential impact on the environment and communities; minimize -- sorry, maximize throughput and optimize flow sheet and the gold recovery; and we're also going to refine the geology block model, at least. We also going to look at -- we're looking at incorporating mining technology to establish Wasamac as a low-cost underground operation.

And with that, I will now turn it over to Gerardo to discuss the MARA project.

Thank you, Yohann, and good morning, everyone. In December last year, we completed another key milestone for the MARA project with the signing of the joint venture agreement between Yamana and our partners, Glencore and Newmont. This important step is the last of a series of key developments, which have taken the integration of Agua Rica and Alumbrera from a concept to a mature, high-quality and unique development project. These steps included, among others, the creation of a joint team to advance the project not only on its technical aspects, but also to advance the permitting and the relationships with several stakeholders in the region and in the country. As such, MARA now has all the agreements in place with the local stakeholders and the JV partners to allow the project to continue to advance through the next stages of development and value creation.

On the technical front, we have completed a series of studies to optimize the project and mitigate risk as part of the ongoing feasibility study, demonstrating significant improvements and opportunities in relation to the 2019 pre-feasibility study.

For the next 2 years, our focus is to continue improving the project, advancing the feasibility study and environmental impact assessment. We also continued strengthening our social license through the execution of our CSR programs and our open communication and cooperation with the local communities and stakeholders. On this front, now we have received all the administrative and judicial approvals needed to start our drilling campaign to support the feasibility study, and we're currently working on the procurement aspects and planning the mobilization of personnel to site while serving the provision and internal COVID-19 regulations. MARA is a significant high-quality asset with a target production of 450 million tonnes of copper equivalent per year, or 200,000 tonnes of copper equivalent per year at a 100% basis. Also at a 100% basis, is proven and probable reserves of 11.8 billion pounds of copper, 7.4 million ounces of gold and over 100 million ounces of silver support a long mine life. The all-sustaining costs of the projects are expected to be in the second quartile of the global cost curve. And since the project requires relatively low capital in relation to the scale, MARA's capital intensity ranks amongst the lowest in the world for similar development projects. MARA shows robust financial results and a strong leverage to copper price. As we have shown in the past, for a discount rate of 8%, the project has an NPV of $1.9 billion using $3 per pound for copper and $1,300 per ounce for gold. For reference, if you consider the current spot prices for both metals, we can see an NPV at an 8% discount rate, reaching near $4 billion, and we can see an internal rate of per tonne of over 30%, which underpins the high-quality and value of these projects, especially in a strong copper market. For more information on the MARA project, please visit our website. All things considered, this project represents a significant value opportunity, whether that is through Yamana's development of the project or the development of strategic partnerships or perhaps within a public vehicle. For now, the best way for us to maximize its value is to advance the project through feasibility, permitting and in general, through its development cycle.

And with that, I will hand it over now to Jason to discuss the financials.

Thank you, Gerardo, and good morning, everyone. Turning now to our financial performance for Q4. Revenue in the quarter was $461.8 million compared to $383.8 million in the same period of 2019, a 20% increase. Gross margins, excluding DD&A, rose 38% to $295 million from $214.4 million in the year earlier period. Earnings during the quarter were $103 million or $0.11 per share compared with $14.5 million or $0.02 per share a year earlier.

On an adjusted basis, earnings were also $0.11 per share versus $0.03 per share last year. Our capital spend during Q4 was similar to last year, but higher than the recent Q3 as anticipated because of the timing of our ability to spend during COVID. Sustaining, expansionary and exploration spending increased 25%, 260% and 56%, respectively, compared to Q3 just passed.

Turning now to cash flows. Cash flow from operating activities was $181.5 million, while cash flows from operating activities before net change in working capital were $207.4 million. Cash flow generation is at multiyear highs, and I would note that this comparison includes periods with considerably higher production for mines that have since been divested. Despite the strong cash flow, there were several timing items in Q4 that impacted the cash flow generation. I already mentioned the higher quarter-over-quarter CapEx. But also the timing of interest payments, which are paid in Q2 and Q4, working capital movements quarter-to-quarter and the impact of production exceeding sales in Q4, which will normalize during this year. During Q4, we saw our cash balances increase by $53 million from Q3 after the repayment of the $100 million outstanding balance on our revolving credit facility, which was drawn early in COVID, although unused during the year.

With the growing cash, we achieved our objective of a leverage ratio of net debt-to-EBITDA below 1 turn when assuming a bottom-up cycle gold price of $1,350 per ounce, which underscores our significant and growing financial flexibility. With our current and expected growth and cash balances, we have the financial flexibility to continue supporting our 3 capital allocation objectives. Those include: maintaining our conservative leverage policy; supporting our capital investment needs, including our targeted growth opportunities at Malartic and Jacobina; and lastly, maintaining a sustainable dividend, which will increase with growing cash balances and cash flows.

Turning to a few other Q4 financial highlights. These charts show our total cash flow profile for the year, with operating cash flows in 2020 totaling $618 million and free cash flow before dividends and debt repayments of $295 million, more than 200% higher than 2019. Cash and equivalents at year-end were $651.2 million. This includes cash acquired on the integration of Agua Rica with Alumbrera, now MARA, in Q4, with a balance of $223.1 million at year-end. This cash is available for utilization by the MARA project. Upon the integration, Yamana as 56.25% controlling shareholder will now consolidate 100% of the accounts of MARA in our financial results and prospectively will show the 43.75% interest of our joint venture partners as a minority interest.

For the quarter, cash costs and all-in sustaining costs were modestly higher than forecast due to production and cost impacts at Cerro Moro following the reimposition of national safety measures in Argentina in December. Had Cerro Moro not had this impact and performed as anticipated, our consolidated costs would have been within our prior plans. In addition, we had anticipated that more production from Barnat at Canadian Malartic would be classified as commercial production and would have positively impacted costs. However, the margin generated from higher-than-expected pre-commercial production at Barnat was treated as a reduction to expansionary capital. This significant cash flow benefit reduced expansionary capital by a further $14 million in 2020 compared with plan. The net result was that there was no impact on cash flows. As we updated in our January 25 preliminary results announcement, we were expecting a net impairment reversal related to El Peñón and Cerro Moro with our Q4 results. That ended up being a pretax net impairment reversal of $191 million, represented by a $560 million impairment reversal at El Peñón and a $369 million impairment at Cerro Moro.

At El Peñón, the strong recent mine performance across production, costs and exploration success resulted in the reversal. At Cerro Moro, it was challenges in these factors from the opposite perspective compared to the prior expectations, but also quite significantly the impact of export taxes on cash flow. Despite this result, we still believe strongly in the long-term value opportunity at Cerro Moro, especially from exploration, although the shorter-term result was the impairment of the asset.

Taking a look at capital spending guidance for 2021, we are forecasting expansionary capital spend of $132 million this year, sustaining capital spend of $183 million and total exploration spending of $110 million. The expansionary number is higher than what we initially guided for '21 back in January as we hadn't approved the construction of the Odyssey project then, but that capital is now included. Of note in exploration, $18 million will be directed towards our generative program, which includes both early stage and advanced exploration projects, such as Monument Bay and Lavra Velha. We are confident we will advance at least one of these projects to our longer-term goal of a mineral inventory large enough to support a mine with an annual gold production rate of 150,000 ounces for at least 8 years. Our exploration budget also allocates $18 million to Cerro Moro, underscoring our commitment to the operation and confidence in our ability to expand the mineral resource at this operation and extend its mine life.

And with that, I will turn the call back over to Daniel for some final remarks.

Thank you, Jason. In closing, I would like to once again highlight the resilience of our people who perform exceptionally well under challenging circumstances to drive strong results. We believe we've positioned ourselves extremely well for the near-term and long-term with the Jacobina phase expansion, exploration upside at our existing mine, coupled with the initiative like Odyssey, Wasamac and MARA that will secure our long-time growth for decades. As our cash flow and cash balances continue to rise, our financial flexibility rise with it, allowing us to advance this project while continuing to increase return and invest in our future.

And with that, we'll be happy to take your questions. Operator?

(Operator Instructions) The first question is from Ralph Profiti of Eight Capital.

Daniel, the MD&A talks about Phase 3 expansion potential at Jacobina. I'm just wondering sort of high level thoughts, I know it's early, but would you see this as sort of very dependent on finding some of those near-mine ore sources like Canavieiras Central and Morro do Vento? And particularly, how do you think about the strategic reserve life, which has, up until now, has been about 20 years. Do you think you can maintain that in the 10,000 tonne per day scenario in the context of the tailings capacity?

Thank you for your question. Yes, we -- as we have done for Phase 2 expansion, we wanted to make sure that our reserves and resources were not impacted by the increase in tonnage. And then that's what we will do for Phase 3. Yohann mentioned that we're aiming for 2027. So still 6 years away of doing that expansion to 10,000 tonne per day. So in 3 years, we'll be at [85]. We'll continue to do like we did with Phase 1, optimize the mill and then probably slowly with time increase production. There's basically almost no work or capital needed for that Phase 3. It's just an increase in development and production underground. But with the new mill update for Phase 2, we'll be able to reach the tonnage with the new mill. So our target is always to maintain that reserve life. So that's why we will continue to drill. We have a very good budget on exploration in the coming years, a bit higher than what we had in the past year, exactly for that, that we want to maintain the reserve level to the actual with an increased production.

Regarding the tailings, you know with that Phase 2, now we will do a backfill system. And the backfill system is exactly at 2,000 tonne per day. So any new tonnes that we will put to the mill, we don't want to reduce the mine life of the tailings. That is extremely long right now. We want to maintain that. And anything -- any production above the 6,500 tonnes per day at the mill will go back as backfill underground to maintain our tailings. We have many other areas that we already know that we can have tailings in the future, but that's important for us to maintain the actual mine life of the tailing even if we increase the production. So you're right in all what you said, our target is always to maintain our 20 years' mine life even if we increase production by being successful on exploration. And then we have many targets. All these are all expanding at depth. We're finding new ones, and the grid is getting better. So we don't see any issue to go in that production in the future.

Yes, got it. That's quite clear now. At a high level on the Wasamac property, now that you're seeing much clearer economics and robust economics at Canadian Malartic, has this changed your thinking at all on stand-alone versus integration with Canadian Malartic?

No, not really. We're studying both, but our priority #1 is really to have standalone. We have the room to put the mill, and then the main reason why we want a standalone is for a backfill system also, Ralph. The advantage of having backfill at site, we're going to recover 95% to 100% of the ore underground if we have backfill. If we -- they've open stope, then that will be reduced significantly. So you're developing all these zones, but you have to leave a lot in pillars when you have a backfill system, you can't fill the stope and recover mostly all of your reserve. And then we have high reserve. We know this resource and reserve will increase with the start of drilling this year. So a mill at site makes a lot more sense for us than thinking of custom milling. And then you have to also assume that it's a long distance to travel, a big production each day. In the feasibility study it was a 6,500 tonnes per day underground operation. We're thinking a lot higher than that right now in the revised study we're doing.

The next question is from Don MacLean of Paradigm Capital.

Congratulations on Malartic underground. That's a tremendous value creation and a lot of good done for that area of Canada. I just wanted -- maybe I'll start with if Henry is on the line or maybe Yohann, talk about the fact that it only uses half of the resources in the projected life to 2039. Could we talk a bit about the other half of the resources that have been left behind? Why and what might happen with those, if one considers a $1,800 gold world instead of, I think it was $1,500, maybe it was $1,250 for the cutoff. What can we expect to happen with the existing resource? And then you continue to work on East Gouldie exploration. What's the outlook for that? Because my sense is this is a multi-decade mine, not just 11 years.

Thank you, Don, good question. To do -- to start the study, we had to use what we have. You can assume for sure that the other 7 million ounces, we're going to drill them. And as the -- as we build a mine, we all know that the production mine life will increase at Malartic. Right now, we're focusing on that first 7 million ounces. That's more defined than the rest, but we have a healthy exploration budget this year to more define the East Gouldie mine. And as we now, driving the ramp down by the end of this year, we're going to be in a good position to drill from underground. And Titan drilling on Odyssey South will be the first zone to be mined at Malartic underground, but also to better define East Gouldie with time. So even if we -- it's a PEA and then we use resources, we have -- we wanted to use the best quality. Not the best quality, but the resources that was drilled tighter than the rest. So I think with time, it will only increase in the future. And then this is why the study right now is only including these -- half of the resources actually. And then we have also a lot of resources at East Malartic, and then we have included only East Malartic down to 600 meters. So there's huge potential in the future to increase more than that 11 years. We all know that it will be multi-decades like you say.

So is East Gouldie a case of lack of drill density? Or was it an economic cutoff that prevented it from...

It's not an economic cutoff, Don, it's basically drilling.

Okay. But what -- so was East Malartic though more of an economic cutoff?

Just depth with the ramp because the shaft will access first East Gouldie. So East Malartic is quite deep, too. And then there's a certain depth you can mine East Malartic and Odyssey at depth. But as we go down with the ramp and we go down with the shaft and then access more level, then eventually we'll increase also the ounces of East Malartic deeper. But East Gouldie is open on all direction, too. So -- and it's the better grade of the 3 zones. So I'm sure you understand that's the priority #1. But with -- we're 7 years away of -- 7, 8 years away of being fully in production at Malartic. So a lot of things will change during these years as we're going to drill them more, but they are not cut-off related. They're basically not drilled enough or not in a position with the mine planning right now to put them into the production.

Great. Okay. My other question, it may be you, might be Peter, is about the MARA project. We've been watching this for years, and it's great that it has -- the integration has taken place and it's progressed. Your decision to integrate it into your reserves and resources and financials is a significant step. There's always been multiple options for the project. Have your plans for it, though, within Yamana about how it's going to fit into Yamana. Have those plans changed or narrowed at all as time has progressed? And are you seeing interested buyers? I guess that might be the other important question.

I'll start to answer it and then maybe Gerardo can add on it. But Gerardo made it clear in his part of the presentation. There's many options for MARA. But right now, we have to stay the course. We have to continue to do the feasibility study, complete that study by the end of this year, early next year. But most importantly, the permitting phase. Now we have the permit to get access to the site. That was a key permit to get because we have to go do some [completion] drilling to complete the feasibility study. But we have to keep all our options open. It's clear that we can bring -- we can do it, but it will change the -- what the company will look like with more copper production, still significant goals if we maintain our 56%. If we bring a financial partner, then we'll reduce our stake, and then it will still be involved. We can sell all of it, but we don't think it will be an option. And the latest option is why don't we form a copper company that we have its own management. And it's also an option. We're not finalized at which one we will use or what's the best one for now because, like I said, permitting and completing the feasibility study is our priority #1 right now.

Okay. Great. Maybe -- I don't want to occupy this for too long, but one last question. I think everybody is wondering about the Malartic underground and the 900 some-odd-thousand ounces of preproduction. Maybe Jason can just tell us, is Malartic, the underground, is that going to be self-funded if we keep these kind of gold prices? And would it be self-funded if we include the cash flow from the open pit?

Yes, Don, absolutely. And that $1,550 gold price that you mentioned that -- that's the case. It would be kind of a multiple cover on kind of the integrated cash flow generation compared to the underground CapEx. But if you toggle over to spot, then it's going to be further multiples of the needs there. So I think it's a unique attribute of the project having all that production over the construction period to subsidize the ultimate construction there, so.

So from a net free cash flow from the Malartic project, will it still continue to contribute net free cash flow to Yamana, if we stay at these kind of prices?

Yes. Very much so, Don. It's pretty robust at these prices. You can kind of do both. You're going to have that contribution from the open pit, net of all the construction costs on the underground. So that's -- as I said, that's the study cost of the $1,550, but even more so at the prices we see here today.

The next question is from Mike Parkin of National Bank.

Just wanted to confirm, the 10-year plan does include the newest numbers on the Odyssey underground? Or is it still assuming the smaller scale that was kind of previously communicated?

Mike, it's including the new numbers you saw yesterday or the presentation today. But it still does include other potential upside on top of that, like low-grade stockpile or between now and then the end of construction, a lot of things will happen at Malartic, and that might -- that might change. But when we said -- we presented our 10 years, it's with the new numbers.

Okay. That was actually my next question, about the stockpile, if that was factored in there. And do you have a sense of what gold price you -- the joint venture partnership would want to see to factor in that low-grade stockpile?

Well, at the actual gold price we can include it in there now, but we've decided not for this -- at this time of the study, it might be included in the future. But if you want to...

That's $1,550?

Yes, that's $1,550. Yes.

The next question is from Jackie Przybylowski of BMO Capital Markets.

Most of my questions have been answered. I guess 1 would be helpful would be just some clarification. With the Malartic underground total exploration program for 2021, can you give us a sense, are you prioritizing infill drilling to move more of what you already have delineated into like an M&I category? Or are you still testing the boundaries of the ore bodies, and would that sort of step-out drilling be a higher priority at this point?

Jackie, good question. Henry, why don't you answer that one?

Sure. Yes. There's about a $30 million budget for exploration. The majority of that is infill on East Gouldie. We'll be looking to take it to about 80-meter centers and an indicated category. But there is $4 million that we'll be looking at extensions of the zone. So the zone remains wide open down-plunge, especially to the east. And somewhat up-plunge off to the east as well. So there's a significant component of both aspects, but the main push is definitely to get stuff to indicated category.

(Operator Instructions) And the following question is from John Tumazos of John Tumazos Very Independent Research.

Sometimes the best acquisitions are the ones you already have. I'm thinking of the MARA project. Now that copper and gold prices have rebounded, is it likely that you're going to keep a bigger part of it? Or instead of selling a gold stream to do a financing, is there a structure where you sell part of your copper stake? Glencore, your partner, likes copper. Royal Gold has a copper stream. Or you keep the entire gold participation and reduce the copper participation to fund the CapEx?

John, good question. It's -- like I mentioned earlier, there's a lot of option on MARA. And then you're right with copper going up and gold going about that project is becoming more and more important for the company. And then, we own it at 56.25%. So that's important. And that is why we're not in a rush to do anything. We'll continue the feasibility study, the permitting and evaluate all the options and then we'll do what's the best for the company in the future. But right now, all these options you mentioned, plus the one we have are a good option. We have to see what will happen. But right now, we stay the course on what needs to be done to complete the feas study and the permitting, and it's going well right now.

Well, just John, if I may add, this is Gerardo. I think you also have to consider that a project like this, most likely, we have projected perhaps in the range of 50% up to 70%. So the amount that needs to be financed by the partner, it's not 100% of the capital.

The next question is from Tim Huff of Peel Hunt.

The -- I know you've been focusing a lot on Malartic and Jacobina. But just from an exploration perspective, I mean, you're obviously allocating a good deal of exploration spend towards Cerro Moro and El Peñón this year. But you've also got a life of mine extension that you're aiming for, for Minera Florida eventually. How would you rank those 3 in terms of your '21 exploration focus? I mean, a lot of it depends on what you find, I know. But if you were to prioritize those 3 in order, how would it sort of work for the coming year?

Tim, good question. They're all important for us, for sure. Malartic is a big, big mine, big project. So the more we can convert into -- the confidence into the resources, that's an important one. Jacobina has already many years of production. So this is maybe less important, but if we want to increase throughput in the future, that's also important. I think Wasamac is a key one, too, because we want to build that mine. We want to update our feasibility study this year. And then we know there's huge potential of extension. So we don't really put priority when we do our exploration budget. Henry and the team, they come with ideas. And along the years, we see what the success we have in exploration. And very often in the past few years, even in last year with COVID-19, we have extended the exploration budget at El Peñón and at Canadian Malartic. El Peñón, you asked the question. It's a great question, El Peñón after 21 years. Yohann said, we already carry above 10 years in our strategic mine life of the mine. It's important. El Peñón is fully built. It's fully paid for. So each ounces we're finding there -- it's a healthy budget. But any ounces we find there, they are at low costs and then there are a lot of free cash flow generated from that mine. So we don't really go by priority when it comes the time for exploration. We spend the money that needs to be spent at each of our mines and also in our generative exploration program, and that's how we define. We have like a budget for total exploration, but it's not really a priority for any of them. They are all important in our mind.

Yes. That's fair enough. And just one last one. You mentioned that you've established that new climate action initiative of establishing the 2-degree SBT. You've mentioned the baseline and the greenhouse gas pathways that you want to establish. But is the ultimate aim of what you're trying to do in '21, is it more of that establishing operations-specific abatement projects? And do you expect to have those cost schedules and initial sort of ideas done by the end of this year?

Yes, Tim. That's our target. We -- like I mentioned, we're going to put that group, a working group together. That's our target to have for each mine a specific target defined this year. So I don't know, Craig, if you want to add more on this, but that's our target.

Thanks, Daniel. Yes, Tim, just to build on what Daniel said, that is the plan. 2021 really is a planning year, a foundational year to have all the work in place so that by the end of the year, we can have those preliminary, operations-centric emissions abatement pathways.

There are no further questions registered at this time. I'll turn the meeting back over to Mr. Racine.

Well, thank you, operator. Thank you, everyone, for joining us today. We look forward to updating you on our first quarter in April. Please take care and stay safe. Bye-bye.

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