Cerro Moro’s ramp-up going well
Yamana Gold (AUY) announced the ramp-up of commercial production at its newest mine, Cerro Moro, on June 26. The first ore was fed to the mill on April 25, and the Argentinian mine’s production ramp-up is progressing according to plan. Currently, the mill throughput rate at Cerro Moro is ~900 tons per day, which is 90% of its capacity. Its gold and silver recovery rates are 91% and 87%, respectively. The company has recently installed a gravity circuit, which is expected to boost its recovery rates further.
Cerro Moro, a game changer
Cerro Moro, a significant operation for Yamana, is expected to contribute meaningfully to Yamana’s production growth at below-average costs. Once Cerro Moro fully ramps up in 2019, it should triple Yamana’s silver production and increase its gold production by ~20% YoY (year-over-year). Yamana’s all-in sustaining costs are expected to be less than $600 per ounce of gold, and it expects its cash flow and free cash flow to change significantly in early H1 2018 because of Cerro Moro’s start-up. During Yamana’s Q2 2018 earnings call, CEO and chairman Peter Marrone stated that “we are transitioning into a cash flow harvest cycle with a focus on longer term cash flow growth and maximizing our return measures mostly our return on invested capital.”
Entering the cash-harvesting phase
As Cerro Moro contributes more meaningfully in H2 2018, Yamana hopes to enter a long-anticipated cash harvesting phase. After the completion of its Canadian Malartic Extension project, Yamana’s expansionary capital is expected to reduce significantly. This reduction, along with lower costs and higher production, should strengthen the company’s cash flow and free cash flow in H2 2018 and more noticeably in 2019.
Yamana’s peers (GDX) are also trying to increase their profitable production. While Barrick Gold’s (ABX) production has fallen, Agnico Eagle Mines (AEM), Newmont Mining (NEM), and Goldcorp (GG) have steadily increased their production with their strong project pipelines. The upside to Kinross Gold’s (KGC) production lies in its Tasiast Phase I and Tasiast Phase II expansions.