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Yamana’s Costs Zoomed Higher in 3Q, but Can They Normalize in 4Q?

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Unit costs increase

Yamana Gold’s (AUY) gold cash costs in 3Q16 were $692 per ounce, as compared to $643 per ounce in 3Q15. The 8% YoY (year-over-year) rise in gold cash costs was mainly due to the appreciation of the Brazilian real and the Chilean peso. The company’s AISC (all-in sustaining costs) rose 14% YoY to $965 per ounce due to the impact of stronger operating currencies, higher sustaining capital expenditures, and mine development.

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Normalizing in 4Q16

During the company’s 3Q16 earnings call, Chief Executive Officer and Chairman Peter Marrone mentioned that the company expects these costs to improve going forward. Marrone stated: “In the case of gold and silver, we certainly would expect ourselves to be and we believe that we are bottom quartile, although we would like that to improve. And we anticipate that through Q4, that should be improving.”

Yamana’s costs were also higher at the Chapada mine in 3Q16 due to its ramp-up after the in-pit failure in 2Q16. Jacobina also had additional development above its budget. The company expects this to average out between 3Q16 and 4Q16.

Guidance maintained

On the heels of these normalizing effects, despite higher costs in 3Q16, Yamana maintained its cash costs to be $635–$675 per ounce and its AISC to be between $880 and $920 per ounce.

Yamana peers (GDX) Newmont Mining (NEM) and Goldcorp (GG) also maintained their respective cost guidance for the year, but Barrick Gold (ABX) reduced its cost guidance to $740–$755 per ounce from $750–$790 per ounce. This is the third time that the company has improved its cost guidance in 2016.

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