Yamana
reports net earnings of $3.2 million for the third Quarter
2005.
(all
figures in US$
unless otherwise stated)
Yamana
Gold
Inc. (TSX: YRI; AMEX: AUY; LSE (AIM): YAU) reports net earnings of
$3.2 million
for the third Quarter 2005.
The
Company
recorded net earnings for the quarter ended September 30, 2005
of $3.2 million
or $0.02 per share. This compares to net earnings of $6,000 for
the comparative
quarter ended September 30, 2004 or $0.00 per share.
The
Company
recorded revenue in the amount of $10.7 million for the quarter
ended September
30, 2005 from the sale of 24,946 ounces of gold from the Fazenda
Nova and the
Fazenda Brasileiro mines.
Mine
operating
earnings for the quarter were $1.5 million compared to mine operating
earnings
of $0.6 million for the quarter ended June 30, 2005 and $2.8 million
for the
comparative quarter ended September 30, 2004. Mine operating earnings
on a
year-to-date basis were $3.6 million for the nine months ended
September 30,
2005 compared to $10.3 million for the comparative 10 month period
ended
September 30, 2004. Mine operating earnings for the quarter consist
of earnings
from the Fazenda Brasileiro and the Fazenda Nova mines.
Net
earnings for
the quarter include a foreign exchange gain in the amount of $4.7
million,
interest income of $1 million, general and administrative expenses
of $2.2
million and an income tax expense of $1.4 million.
The
exchange gain
of $4.7 million arises primarily from the Company’s decision to hold higher
levels of Reais and Canadian dollars rather than US dollars. During
the quarter,
the Company transferred US$70 million into Brazil and converted
it into
Brazilian Reais. This created a net monetary asset position in
Brazil that
resulted in a foreign exchange gain for the quarter on the translation
of that
amount to US dollars at the period end exchange rate.
The
Company took
advantage of the high interest rates in Brazil, earning interest
income at an
average rate of 19.6% during the quarter on cash held in Brazil.
Total interest
and other business income for the quarter was $1 million compared
to $140,000
for the quarter ended June 30, 2005.
The
Company has not
hedged its currencies. However, the Company has adopted a policy
of holding
funds in Reais as a means of mitigating the effects of the appreciation
of the
Real as against the US dollar as most of its costs are incurred
in Reais. The
Company earns interest in Reais denominated accounts at rates that
are among the
highest in the world and the interest earned on these funds offsets
some of the
effects from the appreciation of the Real as against the US dollar.
General
and
administrative costs for the quarter were $2.2 million, representing
a decrease
of 8% relative to the prior quarter ended June 30, 2005. General
and
administrative costs for the comparative quarter ended September
30, 2004 were
$1.6 million.
As
the Real continued to strengthen during the quarter, an income
tax expense arose
on the revaluation of the US dollar denominated inter-corporate
debt. The tax
expense was offset by the recognition of a tax asset during
the quarter from
Brazilian tax losses. The income tax provision for the quarter
was $1.4 million
comprised of current income tax recovery of $0.5 million and
a future income tax
expense of $1.9 million.
Cash
and cash
equivalents at the end of the period were $107.8 million reflecting
the release
from escrow of $70 million of the proceeds under the $100 million
loan facility
and the net proceeds of $48.5 million on the warrant early
conversion program in
August 2005. Subsequent to the quarter end, the remaining $30
million of
proceeds advanced under the loan facility were released from
escrow, transferred
to Brazil and converted to Brazilian Reais.
Also,
subsequent to
the quarter end, the Company closed a C$130 million equity
financing. This
brought the Company’s cash and cash equivalents balance to $222 million as at
October 16, 2005.
Cash
flow generated
from operations was $6.5 million before working capital changes
and $3.4 million
after non-cash working capital changes for the quarter ended
September 30, 2005.
This compares to $3 million for the comparative quarter ended
September 30, 2004
after changes of $0.9 million to non-cash working capital items.
Cash flow from
operations on a year-to-date basis was $5.0 million compared
to $8.4 million for
the comparative ten month period ended September 30, 2004.
Production
increased from the prior quarter both at the Fazenda Nova Mine
and the Fazenda
Brasileiro Mine. Total production for the quarter was 30,955
including
commercial production of 29,922 ounces at combined cash costs
of $291 per ounce
which is below combined cash costs for the previous quarter.
Production for the
quarter was comprised of 10,364 ounces from the Fazenda Nova
Mine and 19,558
ounces from the Fazenda Brasileiro Mine. An additional 1,033
ounces were
produced at the São Francisco pilot plant.
Total
production on
a year-to-date basis including pre-operating production from
the Fazenda Nova
Mine and production from the São Francisco pilot plant was 83,810 ounces.
Commercial production on a year-to-date basis was 72,800 ounces
at combined cash
costs of $291 per ounce of which 16,040 ounces was produced
from the Fazenda
Nova Mine and 56,760 ounces was produced from the Fazenda Brasileiro
Mine.
The
following chart
summarizes commercial production and cash costs per ounce for
the quarter ended
September 30, 2005:
|
Quarter
ending September 30, 2005
|
Quarter
ending September 30, 2004
|
|
Production
(oz.)
|
Cash
costs per oz.
|
Production
(oz.)
|
Cash
costs per oz.
|
|
|
|
|
|
Fazenda
Nova
|
10,364
|
$ 215
|
-
|
$
-
|
Fazenda
Brasileiro
|
19,558
|
$ 332
|
23,214
|
$ 215
|
TOTAL
COMMERCIAL PRODUCTION
|
29,922
|
$ 291
|
23,214
|
$ 215
|
Fazenda
Nova
Pre-operating
|
-
|
$
-
|
104
|
$
-
|
São
Francisco
Pilot Plant
|
1,033
|
$
-
|
1,157
|
$
-
|
TOTAL
PRODUCTION
|
30,955
|
$
-
|
24,475
|
$
-
|
|
|
|
|
|
|
For
the nine months ended September 30, 2005
|
For
the ten months ended September 30, 2004
|
|
Production
(oz.)
|
Cash
costs per oz.
|
Production
(oz.)
|
Cash
costs per oz.
|
Fazenda
Nova
|
16,040
|
$ 233
|
-
|
$
-
|
Fazenda
Brasileiro
|
56,760
|
$ 308
|
83,257
|
$ 208
|
TOTAL
COMMERCIAL PRODUCTION
|
72,800
|
$ 291
|
83,257
|
$ 208
|
Fazenda
Nova
Pre-operating
|
7,379
|
$
-
|
104
|
$
-
|
São
Francisco
Pilot Plant
|
3,631
|
$
-
|
2,251
|
$
-
|
TOTAL
PRODUCTION
|
83,810
|
$
-
|
86,012
|
$
-
|
|
|
|
|
|
Average
cash costs
at the Fazenda Nova Mine declined from $265 per ounce during the quarter
ended
June 30, 2005 to $215 per ounce during the quarter ended September
30, 2005.
This represents a decrease of 19% despite a 5.6% increase in the Real
vis-à-vis
the US dollar during the quarter. Cash costs were $169 per ounce for
the month
of September. The reduction in cash costs per ounce is accounted for
by
increased in production and a reduction in Reais denominated costs
from cost
reduction measures, offset by an increase in exchange rates with a
strengthened
Brazilian currency during the quarter.
Cash
costs for the
quarter at the Fazenda Brasileiro Mine were in line with a mine of
its stage of
operations at $332 per ounce. However, cash costs incurred in Reais
were below
those of the prior quarter and consistent with the prior quarter’s US dollar
reported costs as the US dollar further weakened against the Real.
Reais
denominated cash costs per ounce decreased by 4.4% during the quarter
due to the
implementation of cost control measures.
Capital
expenditures for the quarter on property, plant and equipment and mineral
properties were $51 million, of which $43 million was spent on the
construction
of the São Francisco project and the Chapada copper-gold project (net of the
change in accounts payable and accrued liabilities) and $4.3 million
was spent
on exploration.
Construction
of the
São Francisco Mine is near completion. Start-up of mine operations is
expected
in late 2005. Average annual production from the São Francisco Mine is targeted
at 108,000 ounces with an initial mine life of approximately 7½ years. Almost
all of the capital costs for the construction of the São Francisco Mine are
denominated in Brazilian Reais. Total estimated capital cost estimate
of R$165.3
million is in line with the range of capital costs as shown in the
feasibility
study.
Considerable
advancements have been made in the construction of the Chapada copper-gold
Mine,
with commencement of production expected in the fourth quarter of 2006.
Production from the Chapada copper-gold Mine is forecast at an average
of 130
million pounds payable copper and 134,000 ounces payable gold per year
in
concentrate for the first five years of operation. Total life of mine
production
is forecast at 2.0 billion pounds of copper and 1.3 million ounces
of gold.
Subsequent
to the
quarter end, the Company implemented a copper hedging program to help
secure a
less than two year payback at its Chapada copper-gold Mine, to increase
cash
flow from feasibility study levels without removing the upside from
significantly higher copper prices and to mitigate against certain
cost
increases primarily resulting from the appreciation of the Brazilian
currency to
the US dollar by increasing forecast revenue.
The
hedging program
provides a forward price of $1.37 per pound of copper for a total of
50.2
million pounds of copper in 2007, representing about one half of planned
copper
production for that year. The program includes long call options at
an average
strike price of approximately $1.67 per pound of copper thereby providing
further upside in the event that copper prices exceed that threshold
level. No
cash has been paid for the call options as the price
has been
deducted from the hedge price, providing a net hedge price of $1.27
per pound.
The
copper hedging
program will increase the value of the Chapada copper-gold Mine and
thereby the
net asset value per share of the Company and will better position the
Company as
a significant gold producer as copper will be monetized into cash that
will be
available for development and acquisition of other gold projects. Gold
production at the Chapada copper-gold Mine will remain unhedged ensuring
that
the Company fully participates in any future increases in gold prices.
The
third quarter
was also highlighted by strong exploration results. Exploration during
the
quarter focused on advancing three new mineral properties, C1 Santa
Luz on the
Itapicuru Greenstone Belt region, São Vicente and Ernesto on the Santa Elina
Gold Belt region. The Company believes that C1 Santa Luz and Ernesto
merit
scoping and feasibility studies and that São Vicente merits an updated
feasibility study.
A
reserve estimate
at the Fazenda Brasileiro Mine as at August 31, 2005 revealed an increase
of
122,000 ounces in resources from the beginning of the year. Measured
and
indicated resources (including reserves) as at August 31, 2005 were
509,300
ounces and inferred resources were 103,600 ounces. An aggregate of
56,760 ounces
were produced during the nine months ended September 30, 2005. The
new reserve
and resource estimate supports a mine life of another six years at
current
production levels. The objective at the Fazenda Brasileiro Mine is
to continue
to add resources and convert resources to reserves to provide production
levels
of approximately 90,000 ounces per year.
The
complete
financial statements and management and discussion analysis for the
third
quarter ended September 30, 2005 follow this announcement.
A
conference call and audio webcast has been schedule for November 8,
2005 at
11:00 a.m. E.S.T. to discuss the third quarter results.
Conference
Call
Information:
Local
and
Toll Free (North America):
|
800-814-4857
|
International:
|
+1
416-644-3426
|
Participant
Audio Webcast:
|
www.yamana.com
|
Yamana
is a
Canadian gold producer with significant gold production, gold and
copper-gold
development stage properties, exploration properties and land positions
in all
major mineral areas in Brazil. Yamana expects to produce gold at
intermediate
company production levels by 2006 in addition to significant copper
production
by 2007. Company management plans to build on this base through the
advancement
of its exploration properties and by targeting other gold consolidation
opportunities in Brazil and elsewhere in Latin America.
For
further
information, contact
Peter
Marrone
President
& Chief Executive Officer
(416)
815-0220
|
Chuck
Main
Chief
Financial Officer
(416)
945-7354
|
Cautionary
Note Regarding Forward-Looking Statements
This
document contains “forward-looking statements” that involve a number of risks
and uncertainties. Forward-looking statements include, but are not
limited to,
statements with respect to the future price of gold, the estimation
of mineral
reserves and resources, the realization of mineral estimates, the
timing and
amount of estimated future production, costs of production, capital
expenditures, costs and timing of the development of new deposits,
success of
exploration activities, permitting time lines, currency fluctuations,
requirements for additional capital, government regulation of mining
operations,
environmental risks, unanticipated reclamation expenses, title disputes
or
claims, limitations on insurance coverage and timing and possible
outcome of
pending litigation. Often, but not always, forward-looking statements
can be
identified by the use of words such as “plans”, “expects”, or “does not expect”,
“is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”,
“anticipates”, or “does not anticipate”, or “believes”, or variations of such
words and phrases or state that certain actions, events or results
“may”,
“could”, “would”, “might” or “will” be taken, occur or be achieved.
Forward-looking statements are based on the opinions and estimates
of management
as of the date such statements are made, and they involve known and
unknown
risks, uncertainties and other factors which may cause the actual
results,
performance or achievements of the Company to be materially different
from any
other future results, performance or achievements expressed or implied
by the
forward-looking statements. Such factors include, among others: the
actual
results of current exploration activities; actual results of current
reclamation
activities; conclusions of economic evaluations; changes in project
parameters
as plans to continue to be refined; future prices of gold; possible
variations
in ore grade or recovery rates; failure of plant, equipment or processes
to
operate as anticipated; accidents, labour disputes and other risks
of the mining
industry; delays in obtaining governmental approvals or financing
or in the
completion of development or construction activities, fluctuations
in metal
prices, as well as those risk factors discussed or referred to in
the Company’s
annual Management’s Discussion and Analysis and Annual Information Form filed
with the securities regulatory authorities in all provinces of Canada
and
available at www.sedar.com,
and the Company’s Annual Report on Form 40-F filed with the United States
Securities and Exchange Commission.
Although
the Company has attempted to identify important factors that could
cause actual
actions, events or results to differ materially from those described
in
forward-looking statements, there may be other factors that cause
actions,
events or results not to be anticipated, estimated or intended. There
can be no
assurance that forward-looking statements will prove to be accurate,
as actual
results and future events could differ materially from those anticipated
in such
statements. The Company undertakes no obligation to update forward-looking
statements if circumstances or management’s estimates or opinions should change.
Accordingly, readers are cautioned not to place undue reliance on
forward-looking statements.
Management’s
Discussion and Analysis of Operations and Financial
Condition
(US
dollars, in
accordance with Canadian GAAP)
A
cautionary note regarding forward-looking statements and non-GAAP measures
follows this Management’s
Discussion and Analysis of Operations and Financial
Condition.
Change
in
Year End
The
year end of the
Company was changed from February 28/29 to December 31. As such, the
third
quarter for the current fiscal year is for the three month period ended
September 30, 2005 with comparative figures for the three month period
ended
September 30, 2004. Below is a summary of the quarterly periods for
the current
fiscal year and comparative periods:
|
For
the
Period Ending
|
Comparative
Period Ending
|
Q1
|
March
31,
2005
|
February
29,
2004
|
Q2
|
June
30,
2005
|
June
30, 2004
(i)
|
Q3
|
September
30,
2005
|
September
30,
2004 (ii)
|
Q4
|
December
31,
2005
|
December
31,
2004 (iii)
|
(i)
|
Four month period; seven months
year-to-date
|
(ii)
|
Three month period; ten months
year-to-date
|
(iii) |
Three
month period; ten months
year-to-date
|
Highlights
Overview
of
Financial Results
The
overview of
financial results is set forth in the preceding press release.
The
table below
presents selected quarterly financial and operating data:
|
|
|
Sep.
30,
2005
|
|
|
Jun.
30,
2005
|
|
|
Mar.
31,
2005
|
|
|
Dec.
31,
2004
|
|
Financial
results
(in
thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
(i)
|
|
$
|
10,749
|
|
$
|
10,785
|
|
$
|
7,850
|
|
$
|
10,305
|
|
Net
earnings(loss)for
the
period
|
|
$
|
3,246
|
|
$
|
(7,576
|
)
|
$
|
292
|
|
$
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share
financial results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
earnings
(loss)
per
share
|
|
$
|
0.02
|
|
$
|
(0.06
|
)
|
$
|
0.00
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Position (in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
345,206
|
|
$
|
289,433
|
|
$
|
177,902
|
|
$
|
177,106
|
|
Total
long-term
liabilities
|
|
$
|
118,557
|
|
$
|
113,586
|
|
$
|
8,924
|
|
$
|
9,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
sales
(ounces): (iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
16,137
|
|
|
18,131
|
|
|
18,549
|
|
|
23,982
|
|
Fazenda
Nova
|
|
|
8,809
|
|
|
7,426
|
|
|
-
|
|
|
-
|
|
|
|
|
24,946
|
|
|
25,557
|
|
|
18,549
|
|
|
23,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
production (ounces):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
production:
Fazenda
Brasileiro
|
|
|
19,558
|
|
|
18,143
|
|
|
19,059
|
|
|
20,854
|
|
Fazenda
Nova
|
|
|
10,364
|
|
|
5,676
|
|
|
-
|
|
|
-
|
|
|
|
|
29,922
|
|
|
23,819
|
|
|
19,059
|
|
|
20,854
|
|
Pre-operating
production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Nova
|
|
|
-
|
|
|
2,150
|
|
|
5,229
|
|
|
2,745
|
|
São
Francisco
pilot
plant
|
|
|
1,033
|
|
|
1,376
|
|
|
1,222
|
|
|
846
|
|
|
|
|
1,033
|
|
|
3,526
|
|
|
6,451
|
|
|
3,591
|
|
Total
production
|
|
|
30,955
|
|
|
27,345
|
|
|
25,510
|
|
|
24,445
|
|
Non-GAAP
Measures (iv)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
ounce
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
costs
per ounce produced: (ii),(iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
previously
reported
|
|
$
|
NA
|
|
$
|
NA
|
|
$
|
272
|
|
$
|
234
|
|
Reclassification
|
|
|
NA
|
|
|
NA
|
|
|
(9
|
)
|
|
(10
|
)
|
|
|
$
|
332
|
|
$
|
330
|
|
$
|
263
|
|
$
|
224
|
|
Fazenda
Nova
|
|
$
|
215
|
|
$
|
265
|
|
$
|
-
|
|
$
|
-
|
|
|
|
$
|
291
|
|
$
|
314
|
|
$
|
263
|
|
$
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
gold
price realized: (i),(iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
$
|
436
|
|
$
|
426
|
|
$
|
427
|
|
$
|
434
|
|
Fazenda
Nova
|
|
$
|
433
|
|
$
|
427
|
|
$
|
-
|
|
$
|
-
|
|
|
|
$
|
435
|
|
$
|
426
|
|
$
|
427
|
|
$
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
statistics(iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
ore
grade (g/t):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
2.47
|
|
|
2.33
|
|
|
2.66
|
|
|
2.82
|
|
Fazenda
Nova
|
|
|
0.86
|
|
|
0.90
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
recovery
rate (%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
89.6
|
|
|
89.6
|
|
|
90.4
|
|
|
92.5
|
|
Fazenda
Nova
|
|
|
78.0
|
|
|
83.0
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep.
30,
2004
|
|
|
Jun.
30,
2004
|
|
|
Feb.
29,
2004
|
|
|
Nov.
30,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
results
(in
thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
(i)
|
|
$
|
8,827
|
|
$
|
13,166
|
|
$
|
10,453
|
|
$
|
9,359
|
|
Net
earnings
(loss)
for
the
period
|
|
$
|
6
|
|
$
|
1,973
|
|
$
|
639
|
|
$
|
2,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share
financial results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
earnings
(loss)
per
share
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.01
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Position (in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
101,196
|
|
$
|
96,363
|
|
$
|
93,948
|
|
$
|
72,809
|
|
Total
long-term
liabilities
|
|
$
|
8,145
|
|
$
|
7,240
|
|
$
|
7,657
|
|
$
|
7,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
sales
(ounces): (iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
22,246
|
|
|
33,594
|
|
|
26,617
|
|
|
23,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
production (ounces):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
23,214
|
|
|
34,099
|
|
|
25,944
|
|
|
27,127
|
|
Pre-operating
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Nova
|
|
|
104
|
|
|
-
|
|
|
-
|
|
|
-
|
|
São
Francisco
pilot
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plant
|
|
|
1,157
|
|
|
1,211
|
|
|
283
|
|
|
1,050
|
|
|
|
|
1,261
|
|
|
1,211
|
|
|
283
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
production (iv)
|
|
|
24,475
|
|
|
35,310
|
|
|
26,227
|
|
|
28,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
ounce
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
costs
per ounce produced:(ii),(iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
previously
Reported
|
|
$
|
225
|
|
$
|
196
|
|
$
|
213
|
|
$
|
220
|
|
Reclassification
|
|
|
(10
|
)
|
|
(8
|
)
|
|
(9
|
)
|
|
(9
|
)
|
|
|
$
|
215
|
|
$
|
188
|
|
$
|
204
|
|
$
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
gold
price realized: (i), (iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
$
|
401
|
|
$
|
396
|
|
$
|
407
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
statistics (iii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
ore
grade (g/t):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
3.07
|
|
|
3.44
|
|
|
3.50
|
|
|
3.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
recovery
rate(%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro
|
|
|
92.4
|
|
|
95.5
|
|
|
95.3
|
|
|
95.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
Revenues
consist of
sales net of sales taxes. Revenue per ounce data is calculated based
on gross
sales.
(ii)
Certain
mine
general and administrative costs have been reclassified from mine operating
earnings and cash costs to general and administrative expenses.
(iii)
Commercial
production.
(iv)
A
cautionary note regarding non-GAAP measures follows this Management’s Discussion
and Analysis of Operations and Financial Condition.
Mine
Operations
Mine
operating
earnings for the quarter ended September 30, 2005 were $1.5 million,
an increase
of 150% from the quarter ended June 30, 2005. This compares to mine
operating
earnings of $2.8 million for the comparative quarter ended September
30, 2004.
Mine operating earnings for the quarter consisted of earnings from
the Fazenda
Nova Mine and from the Fazenda Brasileiro Mine. Mine
operating
earnings on a year-to-date basis (9 months) were $3.6 million compared
to $10.3
million for the comparative ten month period ended September 30, 2004.
A
total of 30,955
ounces of gold were produced during the quarter, including commercial
production
of 29,922 ounces at combined cash costs of $291 per ounce. This compares
to
27,345 ounces produced during the quarter ended June 30, 2005 of which
23,819
ounces were commercial production. Combined cash costs declined during
the
quarter from $314 per ounce for the quarter ended June 30, 2005 to
$291 per
ounce for the current quarter notwithstanding the strengthening of
the Real as
production volume increased at the Fazenda Nova Mine and cost control
measures
were implemented at the Fazenda Nova and the Fazenda Brasileiro mines.
Of
the 30,955
ounces produced during the quarter, 10,364 ounces were from the Fazenda
Nova
Mine at an average cash cost of $215 per ounce, 19,558 ounces were
from the
Fazenda Brasileiro Mine at an average cash cost of $332 per ounce and
1,033
ounces were from the
São Francisco
pilot plant.
These
cost levels
compare favourably for the Fazenda Brasileiro Mine from the previous
quarter and
represents a significant reduction for the Fazenda Nova Mine.
During the comparative quarter ended September 30, 2004, a total of
23,214
ounces of gold were produced from the Fazenda Brasileiro
Mine at
an average cash cost of $215 per ounce and 1,261 ounces were produced
from
pre-operating activities of which 104 ounces were produced from the
Fazenda Nova
Mine and 1,157 ounces of gold were produced from the São Francisco pilot plant.
Year-to-date
production was 83,810 ounces of gold of which 72,800 ounces were produced
after
the declaration of commercial production at a weighted average cash
cost of $291
per ounce.
Revenue
for the
quarter ended September 30, 2005 was $10.7 million from the sale of
24,946
ounces of gold compared to revenue of $8.8 million from the sale of
22,246
ounces of gold for the comparative quarter ended September 30, 2004.
Revenue for
the quarter consisted of ounces of gold sold from the Fazenda Nova
Mine and from
the Fazenda Brasileiro Mine. Revenue for the comparative quarter ended
September
30, 2004 consisted only of ounces sold from the Fazenda Brasileiro
Mine.
For
the nine months
ended September 30, 2005 revenue was $29.4 million compared to $32.4
million for
the comparative ten month period ended September 30, 2004.
Inventory
as at
September 30, 2005 was $8.5 million compared to $5.9 million as at
December 31,
2004 and $7.3 million as at June 30, 2005. Inventory increased during
the
quarter as more ore was stacked on the heap leach pads at the Fazenda
Nova Mine.
In addition, there were no sales from the Fazenda Nova Mine and the
Fazenda
Brasileiro Mine in the latter part of September in order to reduce
transportation costs.
Of
the total
inventory on hand as at September 30, 2005, $2.7 million consisted
of supplies
and materials, $3.3 million of product inventories and $2.5 million
of
in-circuit and gold in-process inventory. Inventory as at September
30, 2005
consisted of 8,489 ounces of gold at the Fazenda Brasileiro Mine, 10,242
ounces
of gold at the Fazenda Nova Mine and 701 ounces at the São Francisco pilot
plant. Of these ounces, 5,400 ounces were included in Bullion
inventory.
Fazenda
Nova Mine
The
Fazenda Nova
Mine continued to develop as expected with higher volume of production
in its
second quarter of commercial production. A total of 10,364 ounces of
gold were
produced during the quarter compared to 7,826 ounces during the quarter
ended
June 30, 2005, an increase of 32%. The Fazenda Nova Mine was in the
preproduction phase during the comparative quarter ended September
30, 2004 and
only a nominal 104 ounces of gold were produced during that period.
Commercial
production for The Fazenda Nova Mine was declared effective May 1,
2005.
Gold
production
from the Fazenda Nova Mine is forecast at 26,000 to 27,000 ounces for
fiscal
2005. The rainy season which normally starts in November may affect
production
and unit costs for the fourth quarter.
An aggregate of 480,000 tonnes of ore was stacked on the heap leach
pads during
the quarter. This compares to 394,000 tonnes during the quarter ended
June 30,
2005, an increase of 22%.
With
an increase in
volume and cost control measures, total cash costs for the quarter
ended
September 30, 2005 were $215 per ounce. Cash costs have steadily decreased
during the quarter at an average of $169 per ounce during the month
of September
compared to an average of $265 per ounce during the quarter ended June
30, 2005.
This occurred despite the strengthening of the Real to the US dollar
from an
average of 2.482 during the quarter ended June 30, 2005 to 2.342 during
the
quarter ended September 30, 2005, a 5.6% increase.
One
of the
operating efficiency measures implemented during the quarter at the
Fazenda Nova
Mine is a coarser grind whereby volume throughput is increased and
unit costs
decreased. This is intended to maintain the level of total recovered
gold ounces
at lower unit costs notwithstanding lower recovery rates than in
the feasibility
study and an increase in the leaching period.
The
following table
summarizes cash cost per ounce at the Fazenda Nova Mine during the
quarter ended
September 30, 2005:
|
|
Cash
costs
/
oz.
|
Percent
Monthly Change
Increase
(Decrease)
|
July
|
|
$
|
273
|
|
-
|
August
|
|
|
205
|
|
(25%)
|
September
|
|
|
169
|
|
(18%)
|
Quarterly
Average
|
|
$
|
215
|
|
|
|
|
|
|
|
|
The
following table
summarizes the major components of total average cash costs per ounce
for the
Fazenda Nova Mine for the current period:
|
|
Sept
30,
2005
|
|
|
|
Cash
costs / oz.
|
|
|
Percentage
of
cash
costs / oz.
|
Mining
|
|
$
|
77
|
|
|
36%
|
Crushing,
agglomeration and stacking
|
|
|
70
|
|
|
33%
|
Leaching
and
solution neutralization
|
|
|
16
|
|
|
7%
|
Recovery
plant
|
|
|
10
|
|
|
5%
|
General
and
administrative
|
|
|
18
|
|
|
8%
|
Other
(i)
|
|
|
24
|
|
|
11%
|
Total
|
|
$
|
215
|
|
|
100%
|
(i)
Includes
by-product revenues
The
average ore
grade for the quarter from the Fazenda Nova Mine was 0.86 g/t which
is
consistent with feasibility study grade expectations. This compares
to 0.9 g/t
during the quarter ended June 30, 2005.
Inventory
at the
Fazenda Nova Mine as at September 30, 2005 was 10,242 ounces of gold
comprised
of 3,636 ounces of product inventories and 6,606 ounces which were
comprised of
gold in-process and in-circuit inventory which includes approximately
4,600
ounces of gold on the heap leach pads.
A total of 8,809 ounces were sold from the Fazenda Nova Mine during
the quarter
at an average sale price of $433 per ounce for gross sales of $3.8
million. This
compares to 7,426 ounces sold during the quarter ended June 30, 2005
at an
average sale price of $427 per ounce. There were no sales from the
Fazenda Nova
Mine during the comparative quarter ended September 30, 2004.
Fazenda
Brasileiro Mine
A
total of 19,558
ounces of gold were produced during the quarter at an average cash
cost of $332
per ounce. This compares to 18,143 ounces of gold produced during
the quarter
ended June 30, 2005, an increase of 8%. A total of 23,214 ounces
of gold were
produced during the comparative quarter ended September 30, 2004
at an average
cash cost of $215 per ounce. Year-to-date production from the Fazenda
Brasileiro
Mine was 56,760 ounces of gold at an average cash cost of $308 per
ounce.
Cash
costs for the
quarter were affected by a 5.6% increase in the Brazilian Real vis-à-vis the US
dollar during the quarter. However, Real denominated cash costs per
ounce
decreased by 4.4% relative to the quarter ended June 30, 2005. This
was
accomplished through cost cutting measures that were implemented
in September
and the full effect of such measures should be realized in future
periods. Such
measures include manpower reductions, a move to Company drilling
rather than
contract drilling, increasing the proportion of parts purchased in
Brazil and an
increased focus on cost effective purchasing.
The
following table
summarizes the major components of total average cash costs per ounce
for the
Fazenda Brasileiro Mine:
|
Sept
30, 2005
(3
months)
|
Sept
30, 2004
(3
months)
|
|
|
Cash
costs / oz.
|
|
|
Percentage
of
cash
costs /
oz.
|
|
Cash
costs
/
oz.
|
|
Percentage
of
cash
costs /
oz.
|
Mining
|
$
|
179
|
|
|
54%
|
|
|
|
52%
|
Milling
|
|
98
|
|
|
30%
|
|
56
|
|
30%
|
General
and
admin
|
|
37
|
|
|
11%
|
|
24
|
|
13%
|
Other
(i)
|
|
18
|
|
|
5%
|
|
11
|
|
5%
|
Total
|
$
|
332
|
|
|
100%
|
|
|
|
100%
|
(i)
Includes
by-product revenues
A
labour settlement
was made with employees at the Fazenda Brasileiro Mine during the quarter
whereby wages increased by 6%. Labour costs represented on average
33% of total
costs at the mine prior to the settlement and are expected to represent
on
average 34% in future periods.
The
average plant
recovery rate during the quarter was 89.6% which is consistent with
that of the
quarter ended June 30, 2005. An aggregate of 277,100 tonnes were milled
during
the quarter in comparison to 269,700 tonnes milled during the quarter
ended June
30,
2005. The
recovery rate for the comparative quarter ended September 30, 2004
was 92.4% on
254,000 tonnes of ore milled.
Plant
recovery rates continued to be affected by 16,500 tonnes of mill
feed from
carbonaceous ore from open pit material. Mining of open pit material
will
continue into the fourth quarter and processing of carbonaceous ore
is expected
to conclude by the end of January 2006.
Production
and recovery
rates for the Fazenda Brasileiro Mine continued to be affected by the
processing
of lower grade ore while development of higher-grade ore zones continued.
Mining
of the C-Quartz orebody is expected to commence late in the fourth quarter
of
2005 and is expected to account for approximately 20% of ore production
in 2006
at grades that exceed current grades.
The
average ore
grade for the period was 2.47 g/t compared to 2.33 g/t during the
quarter ended
June 30, 2005 and 3.07 g/t during the comparative quarter ended September
30,
2004.
In
addition
to building access to higher grade areas, a reserve estimate at the
Fazenda
Brasileiro Mine as at August 31, 2005 reveals an increase in resources
from the
beginning of the year of approximately 122,000 ounces. Measured and
indicated
resources (including reserves) as at August 31, 2005 were 509,300
ounces, plus
inferred resources of 103,600 ounces. An aggregate of 56,760 ounces
were
produced for the nine month period ended September 30, 2005. The
Fazenda
Brasileiro Mine was purchased with a 2½ year reserve life. The new reserve and
resource estimate supports a mine life of another six years at current
production levels. The objective at the Fazenda Brasileiro Mine is
to continue
to add resources and convert resources to reserves to provide production
levels
of approximately 90,000 ounces per year.
Inventory
as at
September 30, 2005 at the Fazenda Brasileiro Mine consisted of approximately
8,500 ounces of gold of which 5,400 ounces were dore bars and the
remaining
3,100 ounces were in-circuit inventory.
A
total of 16,137
ounces of gold were sold from the Fazenda Brasileiro Mine at an average
sale
price of $436 per ounce for total gross revenue of $7 million compared
to 22,246
ounces during the comparative quarter ended September 30, 2004 at
an average
sale price of $401 per ounce for total gross proceeds of $8.9 million.
A total
of 52,817 ounces of gold were sold during the nine month period ended
September
30, 2005 from the Fazenda Brasileiro Mine at an average sale price
of $430 per
ounce.
Liquidity
and Capital Resources
Cash
and cash
equivalents as at September 30, 2005 were $107.8 million compared
to $38.2
million as at June 30, 2005 and $87.1 million as at December 31,
2004.
The
increase in
cash during the quarter resulted from the release from escrow of
$70 million in
proceeds advanced under the $100 million loan facility. The $70 million
released
from escrow was transferred to Brazil and converted to Brazilian
Reais at an
average rate of R$2.35:US$1.00. As at September 30, 2005, cash in
escrow
consisted of $30 million proceeds advanced under the loan facility
and $0.8
million of interest earned on those funds.
The
funds held in
escrow were for the benefit of the Company pending perfection and
registration
of security interests and receipt of certain authorizations, approvals
and
opinions relating to the perfection and registration of such security
interests
in respect to São Vicente Mine and the São Francisco Mine. These funds were
released in full subsequent to the quarter end. Interest payable
on the $30
million balance was at the reduced rate of LIBOR plus 1.5% until
the release of
funds.
The
Company paid financing fees and
accrued interest of $2.1 million in accordance with the terms of the
loan
facility on such release.
Working
capital as
at September 30, 2005 was $105.5 million compared to $32.5 million
as at June
30, 2005 and $88.9 million as at December 31, 2004.
Cash
flow
generated from operations for the quarter was $3.4 million compared
to $3
million for the comparative quarter ended September 30, 2004. Cash
flow from
operations on a year-to-date basis were $5 million compared to $8.4
million for
the comparative ten month period ended September 30, 2004. Cash flow
from
operations for the quarter consists of operating results from the Fazenda
Brasileiro and Fazenda Nova mines. Cash flow from operations for the
quarter
includes reductions in non-cash working capital items of $3 million
and $2.6
million on a year-to-date basis. Operating cash flow for the quarter
prior to
changes in non-cash working capital items was $6.5 million compared
to $3.9
million for the comparative period ended September 30, 2004.
Cash
inflows from
investing activities were $19 million for the quarter ended September
30 2005
and outflows of $130.9 million on a year-to-date basis. Cash flows
from
investing activities include a cash inflow from the net decrease of
funds held
in escrow of $69.5 million; comprised of $70 million of loan proceeds
released
from escrow minus interest earned during the quarter on the funds held
in
escrow. An aggregate of $51 million was spent during the quarter on
capital
items. These are summarized below:
(In
millions)
|
|
|
|
|
Nine
months
|
Construction
of São Francisco (1)
|
$
|
26
|
|
$
|
40.90
|
Construction
of Chapada (1)
|
|
16.9
|
|
|
37.2
|
Capitalized
exploration
|
|
4.3
|
|
|
10.9
|
Capital
expenditures at Fazenda Brasileiro
|
|
2.3
|
|
|
5.7
|
Capital
expenditures at Fazenda Nova
|
|
1.2
|
|
|
1.8
|
Other
|
|
0.3
|
|
|
2.2
|
|
$
|
51.00
|
|
$
|
98.70
|
|
|
|
|
|
|
(1)
Net of
accounts payable and accrued liabilities
|
|
|
|
|
|
Cash
outflows from
investing activities for the comparative quarter were $6.7 million
and $20.8
million for the comparative ten month period ended September 30,
2004.
Subsequent
to the
quarter end, the Company purchased a portfolio investment in the
amount of $2.3
million. Cash inflows from financing activities for the quarter ended
September
30, 2005 were $47.2 million and consisted mainly of $48.6 million
proceeds
received on the issue of common shares which includes common shares
issued
related to the warrant early conversion program introduced in June
2005. In
addition, an outflow of $1.4 million was incurred in respect of expenditures
relating to the loan facility. There were no cash flows from financing
activities during the comparative quarter ended September 30,
2004.
Cash
inflows from
financing activities on a year-to-date basis were $146.6 million compared
to
$20.2 million for the comparative ten month period ended September 30,
2004.
Year-to-date financing inflows also include a $100 million loan facility
to
finance the construction of the Chapada copper-gold project and the
warrant early
conversion program completed in August 2005. As
at September 30,
2005, a total of $4.1 million interest on the loan was accrued of which
$1.5
million was capitalized to the principal as of June 30, 2005.
Equity
As
at September 30, 2005, the Company had 165.3 million common shares
outstanding
compared to 122.3 million as at December 31, 2004. During the quarter,
the
Company issued a total of 41.8 million shares in connection with
the early
exercise of its publicly traded warrants. An additional 115,000 shares
were
issued on the exercise of stock options and share appreciation rights
during the
quarter.
As
at September 30, 2005, the Company had a total of 5.3 million (December
31, 2004
- 43.4 million) share purchase warrants outstanding at a weighted
average
exercise price of Cdn$4.43 (December 31, 2004 - Cdn$1.78) per share
and a
weighted average life of 4.12 years (December 31, 2004 - 3.65 years).
During
the quarter,
the majority of the Company’s publicly traded warrants were exercised in
connection with a management proposal made to warrant holders to
exercise their
warrants early. An aggregate of 40 million warrants were exercised
at an
exercise price of Cdn$1.50 per share representing approximately 98.3%
of the
total publicly traded warrants outstanding. This transaction provided
total
proceeds net of issue costs of approximately $48.5 million that otherwise
would
not have been available to the Company until July 2008. In connection
with these
exercises, the Company issued 41.3 million common shares (1.0356
common shares
issued for each warrant exercised). The remaining 0.7 million warrants
that were
not exercised were automatically exchanged for an aggregate of 0.48
million
common shares on the basis of 0.6793 of a common share for each warrant,
which
in effect provided a premium to the in-the-money value of the warrant.
This
exchange was made pursuant to the terms of the warrant indenture.
Proceeds from
the early exercise of the warrants are being used for the advancement
of the
Company’s mineral properties and for general corporate purposes.
Shareholders’
equity as at September 30, 2005 was $210.1 million compared to $160.3
million as
at the fiscal year ended December 31, 2004.
A
total of 8
million (December 31, 2004 - 6.66 million) stock options were outstanding
as at
September 30, 2005 of which all were exercisable (December 31, 2004
- 6.54
million). Stock options outstanding as at September 30, 2005 had
a weighted
average exercise price of Cdn$2.67 per share (December 31, 2004 -
Cdn$2.04 per
share) and a weighted average life of 8.41 years (December 31, 2004
- 8.28
years). A total of 300,000 employee stock options were granted under
the Share
Incentive Plan for which a total expense of $0.3 million was recognized
during
the period with an off-setting credit to contributed surplus. An
aggregate of
223,000 stock options were exercised during the quarter ended September
30,
2005.
Subsequent
to the quarter end,
the Company completed an equity financing resulting in the issuance
of 26
million common shares at a price of C$5.00 per share for total gross
proceeds of
$110.9 million (C$130 million). The Company plans to use the net
proceeds of
this financing for the advancement of its mineral properties, potential
acquisitions and for general corporate purposes.
General
and Administrative Expenses
General
and
administrative expenses were $2.2 million for the quarter ended September
30,
2005 and $6.3 million for the nine month period ended September 30,
2005. This
compares to $2.4 million for the quarter ended June 30, 2005, $1.6
million for
the comparative quarter ended September 30, 2004 and $5.2 million
for the
comparative ten month period ended September 30, 2004. The increase
in general
and administrative expenses is a result of growing operations. The
Company
continues to build its infrastructure and personnel reflecting the
construction
of the São Francisco and Chapada projects.
The
Company has
reclassified mine general and administrative expenses from mine operating
earnings to general and administrative expenses for the comparative
period to
conform with the decision to centralize various functions and share
services
among various properties.
Investment
Income and Currency Hedging
The
appreciation of
the Real to the US dollar continued to be largely dependent on high
interest
rates in Brazil which attracted significant inflows of foreign capital.
The
Company transferred surplus cash balances into Brazil to take advantage
of these
high local rates as an offset to the impact of the strengthening
Real on Real
denominated costs. The Company earned interest income at an average
rate of
19.6% on surplus cash during the quarter. An aggregate of $1 million
of
investment income was earned during the quarter of which $0.9 million
was earned
in Brazil. Cash held in Brazil as at September 30, 2005 was $65.2
million.
Foreign
Exchange
A
foreign exchange gain of $4.7
million was recognized during the quarter ended September 30, 2005
and $3.4
million on a year-to-date basis. Of the $4.7 million exchange gain
recognized
during the quarter, approximately $1.3 million was recognized in
Canada and the
remaining $3.4 million was recognized in Brazil. A foreign exchange
gain was
recognized on a monetary net asset
position
both in
Canada and in Brazil on the translation of monetary items to period
end rates.
This compares to a monetary net liability position as at June 30,
2005 in
Brazil. A monetary asset position arose on the transfer of surplus
cash into
Brazil. The unrealized foreign exchange gain recognized on the
foreign
translation of excess cash held in Brazil was reduced by a foreign
exchange loss
on the translation of net monetary liability items.
A
foreign exchange
loss of $1 million was recognized for the quarter ended June 30,
2005 and an
exchange gain of $1.4 million was recognized for the comparative
quarter ended
September 30, 2004. The Real-US dollar exchange rate as at September
30, 2005
was 2.222 compared to 2.3504 as at June 30, 2005.
The
Company holds
cash reserves in both Canadian and US dollars and in Brazilian Reais.
As at
quarter end, the Company held US$35.5 million, C$35 million and R$144.8
million.
During this environment of a strong Real, the Company plans to hold
the majority
of its funds in Canadian dollars and Brazilian Reais. Subsequent to
the quarter
end, the Company plans to convert another significant portion of its
cash
balances to Brazilian Reais.
The
Company’s
revenues are denominated in US dollars. However, the Company’s expenses are
incurred predominantly in Brazilian reais and to a lesser extent in
Canadian and
US dollars. Accordingly, fluctuations in the exchange rates could significantly
impact the results of operation.
Income
Taxes
The
income tax
provision on the consolidated financial statements for the quarter
ended
September 30, 2005 reflects a Brazilian income tax expense of $1.4
million. The
Brazilian net tax expense is comprised of recoverable cash taxes in
the amount
of $0.5 million and a future income tax liability in Brazil of $1.9
million.
As
the Real
continued to strengthen vis-à-vis the US dollar, a future income tax expense of
approximately $4.9 million arose during the quarter in Brazil on the
revaluation
of US dollar denominated inter-corporate debt. This debt is eliminated
on
consolidation. The Real increased in value vis-à-vis the US dollar by 5% from a
rate 2.3504 as at June 30, 2005 to 2.222 as at September 30, 2005.
Similarly, if
the Real were to weaken against the US dollar, the Company would recognize
a
future income tax benefit on its consolidated financial statements
on the
revaluation of the US dollar denominated inter-corporate debt. The
income tax
expense will be reported from period to period and will vary period
to period
depending on the foreign currency exchange rate then in effect. However,
the
income tax is payable only if the inter-corporate debt is repaid and
as such, as
that debt may never be repaid, the income tax expense may never be
paid. The
amount of the tax liability will depend on the foreign exchange rate
in effect
at the time that the inter-corporate debt is repaid.
The
future income
tax expense recognized in Brazil for the quarter was offset by the
recognition
of Brazilian tax loss benefits.
Contractual
Commitments (in
thousands)
Year
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
Mine
operating and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
construction
service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contracts
|
$
|
42,210
|
|
$
|
43,589
|
|
$
|
2,756
|
|
$
|
441
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance
Sheet
Arrangements
The
Company does
not have any off-balance sheet arrangements.
Related
Party Transactions
The
Company paid or
accrued directors’ fees of $38,000 during the three month period ended September
30, 2005 (September 30, 2004 - $36,000). These transactions were
measured and
recorded at the amount of consideration established and agreed to
by the related
parties based on their estimate of fair market value.
Contingency
During
the period,
a sales tax audit was completed by Brazilian state tax authorities
which could
result in a liability or a potential loss of recoverable Brazilian
sales tax
credits that have been recorded as receivables as at September 30,
2005 of
approximately $1.7 million including penalties. The Company has not
recorded an
accrual at September 30, 2005 as it is the Company’s view that the total amount
of sales tax credits is recoverable. The Company is currently undergoing
an
appeal process and while it is not possible to determine the ultimate
outcome of
such process at this time, the Company believes that the ultimate
resolution
will not have a material effect on the Company’s financial condition or results
of operation.
Critical
Accounting Policies and Estimates
In
preparing
financial statements in accordance with Canadian GAAP, management
is required to
make estimates and assumptions that affect the reported amounts of
assets,
liabilities, revenues and expenses for the period end. Critical accounting
estimates represent estimates that are uncertain and for which changes
in those
estimates could materially impact on the Company’s financial statements.
Management reviews its estimates and assumptions on an ongoing basis
using the
most current information available. The following accounting estimates
are
critical:
• Closure
and
reclamation costs
Closure
and
reclamation costs are accrued at their fair value and are estimated
based on the
Company’s interpretation of current regulatory requirements.
• Depletion
and impairment of mineral properties
Depletion
and
impairment of mineral properties is impacted by estimates of reserves
and
resources. There are numerous uncertainties inherent in estimating
mineral
reserves and mineral resources. Differences between management’s assumptions and
market conditions could have a material effect in the future on the
Company’s
financial position and results of operation.
• Reserve
estimates
The
figures for
reserves and resources are determined in accordance with National
Instrument
43-101, “Standards of Disclosure for Mineral Projects”, issued by the Canadian
Securities Administrators. There are numerous uncertainties inherent
in
estimating mineral reserves and mineral resources, including many
factors beyond
the Company’s control. Such estimation is a subjective process, and the accuracy
of any reserve or resource estimate is a function of the quantity
and quality of
available data and of the assumptions made and judgments used in
engineering and
geological interpretation. Differences between management’s assumptions
including economic assumptions such as metal prices and market conditions
could
have a material effect in the future on the Company’s financial position and
results of operation.
Development
Projects Update
São
Francisco
Construction
of São Francisco is near
completion. A total of $26 million was expended during the quarter
on the
construction of São Francisco and a total of $40.9 million was expended
year-to-date. Assets under construction for the São Francisco Mine were $48.6
million as at September 30, 2005.
Almost
all of the
capital costs for the construction of São Francisco are denominated in Brazilian
Reais. Total estimated capital cost estimate of R$165.3 million is
expected to
be 14% above budget. This is due to higher steel prices, an extension
of the
power line and an increase in materials related to the intermediate
stockpile
for the crusher plant which was not contemplated in the feasibility
study. A
total of R$147 million are committed, including amounts paid, to
date and
expenditures of R$41.9 million are expected during the fourth quarter.
Completion
of
construction and start-up of operations is expected in late 2005
with the
gravity circuits expected to commence at the beginning of December
and the
leaching and gold recovery system in January 2006.
Average
annual
production from São Francisco is targeted at 108,000 ounces with an initial mine
life of approximately 7½ years.
The
Company has
commenced a 15,000 metre infill drilling program largely along strike
from the
São Francisco mine to determine whether resources can be upgraded,
thereby
increasing reserves from the current estimate of 1.03 million ounces
of gold.
The Company’s goal is to establish a new mine life estimate for at least 10
years representing the addition of 2½ years on the initial mine life at
estimated production rates contemplated in the feasibility study
and mine plan
for São Francisco. Completion of drilling is expected by the end of 2005
and a
new reserve estimate is scheduled for release in early February 2006.
Current
resource estimates include 1.4 million ounces of measured and indicated
resources plus an addition of 0.8 million ounces of inferred resources.
Chapada
Copper-Gold
Project
Considerable
advancements have been made in the construction of Chapada copper-gold
Mine,
with commencement of mining operations expected in the fourth
quarter of 2006 as
compared to the first quarter of 2007 as contemplated in the
original
construction schedule.
Construction
costs
expended during the quarter ended September 30, 2005 and on a
year-to-date basis
were $16.9 million and $37.2 million, respectively, bringing
the total project
cost (including capitalized items) to a total of $44.2 million.
Total paid and
committed costs to the end of September were R$272.8 million.
Forecast
construction costs of R$425 million include a R$63 million contingency
providing
net forecast expenditures to complete construction of R$360 million.
Of this,
the Company anticipates that R$105 million and R$255 million
will be spent in
the remainder of 2005 and in 2006, respectively. While the Company
presently has
not absorbed into the contingency, there is no assurance that
a portion of the
contingency may be required due to the impact of the strength
of the Real and
cost escalation.
Accounts
payable
(excluding accrued liabilities) relating to the construction
and development of
Chapada were $1.3 million of which 98% were under 60 days as
at September 30,
2005.
Most
significant
construction costs incurred during the period include the
following:
·
|
Construction
of the tailings dam and drainage
system
|
·
|
Civil
construction including the foundation of the
mills
|
·
|
Construction
of the camps
|
·
|
Erection
of
the temporary power line
|
·
|
Construction
of the maintenance and administration
buildings
|
·
|
Site
preparation (completed)
|
·
|
Purchase
of
vehicles and machinery: conveyor system, belt feeders,
concentrate
thickener, cyclones, flotation columns and
cells
|
Most
significant
construction contracts awarded during the quarter include the main
Chapada
substation and the high power transmission line.
The
following table
summarizes property, plant and equipment for the Chapada copper-gold
project as
included in the consolidated financial statements as at September
30, 2005:
Sept.
30,
2005
|
|
Dec.
31,
2004
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
|
Net
Book
Value
|
|
Land
|
|
$
|
396
|
|
$
|
-
|
|
$
|
396
|
|
$
|
396
|
|
Machinery
And
equipment
|
|
|
33
|
|
|
12
|
|
|
21
|
|
|
22
|
|
Furniture
and
office
equipment
|
|
|
13
|
|
|
11
|
|
|
2
|
|
|
3
|
|
|
|
$
|
442
|
|
$
|
23
|
|
$
|
419
|
|
$
|
421
|
|
Assets
under
construction
|
|
|
44,168
|
|
|
-
|
|
|
44,168
|
|
|
3,221
|
|
|
|
$
|
44,610
|
|
$
|
23
|
|
$
|
44,587
|
|
$
|
3,642
|
|
An
aggregate of $70
million of the $100 million proceeds advanced under the loan facility
entered
into in April 2005 was released from escrow and the remaining $30 million
was
released subsequent to the quarter end. Interest expense and amortization
of
deferred financing fees is being capitalized to construction costs
and will be
amortized over the life of the loan facility.
Production
from the
Chapada copper-gold mine is forecast at an average of 130 million pounds
payable
copper and 134,000 ounces payable gold per year in concentrate for
the first
five years of operation and for total life of mine production of 2.0
billion
pounds of copper and 1.3 million ounces of gold. Of the total gold
production
approximately 700,000 ounces is forecast in the first five years with
365,000
ounces of gold in the first two years. Production in the first two
years is
targeted at 290 million pounds payable copper. Production is expected
to
commence in the fourth quarter of 2006 and commercial production is
expected
before the end of the first quarter of 2007.
Subsequent
to the
quarter end, the Company implemented a copper hedging program that
is intended
to help secure a less than two year payback at its Chapada copper-gold
Mine. The
program provides a forward price of $1.37 per pound of copper for a
total of
50.2 million pounds of copper in 2007, representing about one half
of planned
copper production for that year.
This
program
includes long call options at an average strike price of approximately
$1.67 per
pound of copper thereby providing further upside in the event that
copper prices
exceed that threshold level. No cash has been paid for the call options
as the
price has been deducted from the hedge price, providing a net hedge
price of
$1.27 per pound. The program requires no cash margin, collateral or
other
security from the Company. Moreover, the remaining 55 million pounds
of copper
production forecast for 2007 and all gold and remaining copper production
remain
unhedged.
This
program
increases the cash flow from Chapada from feasibility study levels
without
removing the upside from significantly higher copper prices. As such,
it also
mitigates against certain cost increases primarily resulting from the
appreciation of the Brazilian currency to the United States dollar
as it
increases forecast revenue. It ensures that revenue from copper
at the
Chapada mine will be at much higher levels than assumed in the feasibility
study
and mine plan for the Chapada mine.
Benefits
of the
hedging program include:
· |
Providing
support for the payback of Chapada which at $1.00 per pound
of copper
price and $400 per ounce of gold price has a two year payback
;
|
· |
Increasing
the value of Chapada and thereby the net asset value per
share of the
Company;
|
· |
Ensuring
that
the Company participates in higher copper prices especially
for the
balance of its copper production;
|
· |
Ensuring
that
the Company fully participates in any increase in gold prices
from its
significant gold production at Chapada as no gold is being
hedged;
|
· |
Better
positioning the Company and Chapada as a significant gold
producer as
copper is monetized into cash; and
|
· |
As
copper is
monetized, that cash flow will be available for development
and
acquisition of other gold projects.
|
Exploration
A
total of $4.3 million and $10.9 million were spent on exploration during
the
quarter and year-to-date, respectively. This compares to $4.1 million
spent
during the quarter ended June 30, 2005. During the quarter, a total
of $1.8
million and $1.4 million was spent on exploration of the Rio Itapicuru
Greenstone Belt region and the Santa Elina Gold Belt region (including
São
Vicente), respectively.
Exploration
during
the quarter focused on advancing three new potential mineral properties,
C1
Santa Luz on the Itapicuru Greenstone Belt region, São Vicente and Ernesto on
the Santa Elina Gold Belt region. Both C1 Santa Luz and Ernesto have
been
advanced to the point where management believes they merit scoping
and
feasibility studies and São Vicente merits an updated feasibility study.
A
total of 40 holes
for approximately 7,000 metres have been drilled to date at C1 Santa
Luz. Assay
results received, support the view that this property contains a mineral
resource that would be sufficient to support a stand alone mine. The
development
plan for C1 Santa Luz contemplates a resource estimate and scoping
study by the
end of November 2005, a feasibility study by June 2006 and (assuming
a positive
feasibility study) commencement of construction by Summer of 2007.
At
São Vicente, a program of
surface drilling, drift excavation and bulk sampling and underground
drilling
from drill stations established from the drift and extending into the
ore body
began earlier in 2005. São Vicente has a significant course gold effect similar
to São Francisco and as such bulk sampling and underground drilling have
been
undertaken to better understand the true grade. Evidence from bulk
samples to
date suggests grades that will exceed drill indicated and reserve grades.
In
addition, drilling and bulk sampling results continue to support the
view of a
larger open pit operation than contemplated in the original feasibility
study
completed in May 2005 and a new concurrent underground operation. The
development plan for São Vicente contemplates a feasibility study
(including a
new reserve estimate) by April, 2006 and (assuming a positive feasibility
study)
the commencement of construction by late Summer 2007.
A
current drilling
program at Ernesto supports the potential for Ernesto as a stand-alone
mine. The
Company believes Ernesto has the potential to be a high grade very
shallow
underground mine. The development plan for Ernesto contemplates a
Scoping Study
by March 2006, a Feasibility Study by late Summer 2006 and,(assuming
a positive
feasibility study) commencement of construction by early 2008.
The
targeted
production increase from these mineral properties would be approximately
200,000
ounces of copper year beginning in 2008. The Company’s strategic plan
contemplates the construction of two new mines as construction at
the Chapada
copper-gold Mine is completed in 2006 and a third mine in 2007 once
the
construction of the first two is well under way. While current mine
plans
contemplate a stand alone mine and plant for each of São Francisco, São Vicente
and Ernesto, certain administrative, accounting, supply chain and
personnel
functions would be carried out centrally, thereby reducing general
and
administrative costs for all these operations.
The
Company
continues to explore priority targets on its mineral concessions
and expects to
continue at current levels of spending. The Itapicuru Greenstone
Belt north of
The Fazenda Brasileiro Mine hosts a number of interesting targets
including
Mari, Serra Branca, M1, Vereda Grande, Sapateira and Bonsucesso,
all included in
the current year exploration program. In addition to these exploration
initiatives, an aggregate of $0.6 million was spent on near mine
exploration of
the Fazenda Brasileiro Mine during the quarter.
Risks
and
Uncertainties
Exploration,
development and mining of metals involve numerous inherent risks.
As such the
Company is subject to various financial, operational and political
risks that
could have a significant impact on its profitability and levels of
operating
cash flows. Although the Company assesses and minimizes these risks
by applying
high operating standards, including careful management and planning
of its
facilities, hiring qualified personnel and developing their skills
through
training and development programs these risks cannot be eliminated.
Such risks
include changes in local laws governing the mining industry, a decline
in the
price of gold or copper and the activity in the mining sector, uncertainties
inherent in estimating mineral reserves and mineral resources and
fluctuations
in local currency against the US dollar.
Conducting
exploration and production in Latin America also exposes the Company
to the risk
of currency fluctuations. A significant portion of the Company’s expenditures
are denominated in Brazilian reais and Canadian dollars and revenues
are earned
in US dollars. A strengthened local currency could adversely affect
the
Company’s costs denominated in US dollars. Historically,
the
Real has been highly volatile relative to other currencies and can
fluctuate
significantly against the US dollar over short-term periods. Readers
are
encouraged to read and consider the risk factors more particularly
described in
the Company’s Annual Report and its Annual Information Form.
Changes
in
Accounting Policies
There
were no
changes in accounting policies during the period ended September
30, 2005.
This
report provides a discussion and analysis of the financial condition
and results
of operations (“Management’s Discussion and Analysis”) to enable a reader to
assess material changes in financial condition between September
30, 2005 and
December 31, 2004 and results of operations for the three month
period ended
September 30, 2005, for the three month period ended September
30, 2004 and for
the nine month period ended September 30, 2005 and ten month period
ended
September 30, 2004. This Management’s Discussion and Analysis has been prepared
as of November, 2005. The unaudited consolidated interim financial
statements
prepared in accordance with Canadian Generally Accepted Accounting
Principles
(“Canadian GAAP”) follow this Management’s and Discussion Analysis. This
Management’s Discussion and Analysis is intended to supplement and complement
the unaudited interim consolidated financial statements and notes
thereto for
the period ended September 30, 2005 (collectively the “Financial Statements”).
You are encouraged to review the Financial Statements in conjunction
with your
review of this Management’s Discussion and Analysis. This Management’s
Discussion and Analysis should be read in conjunction with both
the annual
audited consolidated financial statements for the period ended
December 31, 2004
and the related annual Management’s Discussion and Analysis included in the most
recent fiscal year’s Annual Report, and the most recent Annual Information Form
on file with the Securities Commissions of all of the provinces
in Canada and
the Annual Report on Form 40-F on file with the United States Securities
and
Exchange Commission. Certain notes to the Financial Statements
are specifically
referred to in this Management’s Discussion and Analysis and such notes are
incorporated by reference herein. All Dollar amounts in the Management’s
Discussion and Analysis are in US dollars, unless otherwise
specified.
Cautionary
Note Regarding Forward-Looking Statements
This
document
contains “forward-looking statements” that involve a number of risks and
uncertainties. Forward-looking statements include, but are not
limited to,
statements with respect to the future price of gold, the estimation
of mineral
reserves and resources, the realization of mineral estimates, the
timing and
amount of estimated future production, costs of production, capital
expenditures, costs and timing of the development of new deposits,
success of
exploration activities, permitting time lines, currency fluctuations,
requirements for additional capital, government regulation of mining
operations,
environmental risks, unanticipated reclamation expenses, title
disputes
or claims, limitations on insurance coverage and timing and
possible outcome of pending litigation.
Often,
but not always, forward-looking statements can be identified by
the use of words
such as “plans”, “expects”, or “does not expect”, “is expected”, “budget”,
“scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “does not
anticipate”, or “believes”, or variations of such words and phrases or state
that certain actions, events or results “may”, “could”, “would”, “might” or
“will” be taken, occur or be achieved. Forward-looking statements are
based on
the opinions and estimates of management as of the date such statements
are
made, and they involve known and unknown risks, uncertainties and
other factors
which may cause the actual results, performance or achievements
of the Company
to be materially different from any other future results, performance
or
achievements expressed or implied by the forward-looking statements.
Such
factors include, among others: the actual results of current exploration
activities; actual results of current reclamation activities; conclusions
of
economic evaluations; changes in project parameters as plans to
continue to be
refined; future prices of gold; possible variations in ore grade
or recovery
rates; failure of plant, equipment or processes to operate as anticipated;
accidents, labour disputes and other risks of the mining industry;
delays in
obtaining governmental approvals or financing or in the completion
of
development or construction activities, fluctuations in metal prices,
as well as
those risk factors discussed or referred to in the Company’s annual Management’s
Discussion and Analysis and Annual Information Form filed with
the securities
regulatory authorities in all provinces of Canada and available
at
www.sedar.com,
and the Company’s Annual Report on Form 40-F filed with the United States
Securities and Exchange Commission. Although the Company has attempted
to
identify important factors that could cause actual actions, events
or results to
differ materially from those described in forward-looking statements,
there may
be other factors that cause actions, events or results not to be
anticipated,
estimated or intended. There can be no assurance that forward-looking
statements
will prove to be accurate, as actual results and future events
could differ
materially from those anticipated in such statements. The Company
undertakes no
obligation to update forward-looking statements if circumstances
or management’s
estimates or opinions should change. Accordingly, readers are cautioned
not to
place undue reliance on forward-looking statements.
Non-GAAP
Measures
The
Company has included
certain non-GAAP Measures including cost per ounce data, adjusted net
earnings
(loss) and adjusted net earnings (loss) per share to supplement its
financial
statements, which are presented in accordance with Canadian
GAAP. Non-GAAP
measures do not have any standardized meaning prescribed under Canadian
GAAP,
and therefore they may not be comparable to similar measures employed
by other
companies. The data is intended to provide additional information and
should not
be
considered
in isolation or as a substitute for measures of performance prepared
in
accordance with Canadian GAAP.
The
Company has included cost per ounce information data because it understands
that
certain investors use this information to determine the Company’s ability to
generate earnings and cash flow for use in investing and other activities.
The
Company believes that conventional measures of performance prepared
in
accordance with Canadian GAAP do not fully illustrate the ability of
its
operating mine to generate cash flow. The measures are not necessarily
indicative of operating profit or cash flow from operations as determined
under
Canadian GAAP. Where cost per ounce data is computed by dividing GAAP
operating
cost components by ounces sold, the Company has not provided formal
reconciliations of these statistics. Cash costs are determined in accordance
with the Gold Institute’s Production Cost
Standard.
YAMANA
GOLD INC.
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
As
at
the periods ended
|
|
|
|
|
|
(Prepared
by Management; unaudited)
|
|
|
|
(In
thousands of US dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
2005
|
|
|
December
31,
2004
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$
|
107,790
|
|
$
|
87,054
|
|
Accounts
receivable
|
|
|
161
|
|
|
1,177
|
|
Inventory
(Note
3)
|
|
|
8,485
|
|
|
5,862
|
|
Advances
and
deposits
|
|
|
4,214
|
|
|
2,068
|
|
Income
tax
recoverable
|
|
|
1,363
|
|
|
-
|
|
|
|
|
122,013
|
|
|
96,161
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
Property,
plant and equipment (Note
4)
|
|
|
25,077
|
|
|
18,315
|
|
Assets
under
construction
(Note
5)
|
|
|
92,748
|
|
|
12,085
|
|
Mineral
properties (Note
6)
|
|
|
61,511
|
|
|
43,292
|
|
|
|
|
179,336
|
|
|
73,692
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Restricted
cash (Note
7)
|
|
|
30,815
|
|
|
-
|
|
Other
assets
(Note
8)
|
|
|
11,464
|
|
|
5,797
|
|
Future
income
tax assets
|
|
|
1,578
|
|
|
1,456
|
|
|
|
$
|
345,206
|
|
$
|
177,106
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
16,525
|
|
$
|
7,225
|
|
|
|
|
|
|
|
|
|
Long
Term
|
|
|
|
|
|
|
|
Notes
payable
(Note
9)
|
|
|
104,121
|
|
|
-
|
|
Asset
retirement obligation
(Note
10)
|
|
|
5,874
|
|
|
4,972
|
|
Future
income
tax liabilities
|
|
|
8,562
|
|
|
4,600
|
|
|
|
|
135,082
|
|
|
16,797
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
|
|
Unlimited
number of first preference shares without par value
issuable
in
series
|
|
|
Unlimited
number of common shares without
par
value
|
|
|
|
|
|
|
|
Issued
and outstanding
|
|
|
|
|
|
|
|
165,338,348
common shares
(December
31,
2004- 122,286,716
|
|
|
|
|
|
|
|
shares)
(Note
11
i)
|
|
|
205,483
|
|
|
147,407
|
|
Share
purchase warrants (Note
12)
|
|
|
3,740
|
|
|
10,864
|
|
Contributed
surplus (Note
11
ii)
|
|
|
4,676
|
|
|
1,775
|
|
|
|
|
|
|
|
|
|
(Deficit)
retained earnings
|
|
|
(3,775
|
)
|
|
263
|
|
|
|
|
210,124
|
|
|
160,309
|
|
|
|
$
|
345,206
|
|
$
|
177,106
|
|
The
accompanying notes are an integral part of the financial
statements.
YAMANA
GOLD INC.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
|
|
For
the periods ended
|
(Prepared
by Management; unaudited)
|
(In
thousands of US dollars)
|
|
|
|
Sept.
30,
2005
(3
months)
|
|
|
Sept.
30,
2004
(3
months
|
)
|
|
Sept.
30,
2005
(9
months
|
|
|
Sept.
30,
2004
(10
months
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
10,749
|
|
$
|
8,827
|
|
$
|
29,383
|
|
$
|
32,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(7,453
|
)
|
|
(4,670
|
)
|
|
(20,952
|
)
|
|
(17,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
amortization and depletion
|
|
|
(1,732
|
)
|
|
(1,293
|
)
|
|
(4,570
|
)
|
|
(4,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of asset retirement obligation (Note
10)
|
|
|
(94
|
)
|
|
(80
|
)
|
|
(258
|
)
|
|
(353
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine
operating earnings
|
|
|
1,470
|
|
|
2,784
|
|
|
3,603
|
|
|
10,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and
administrative
|
|
|
(2,243
|
)
|
|
(1,552
|
)
|
|
(6,314
|
)
|
|
(5,222
|
)
|
Foreign
exchange
gain
|
|
|
4,728
|
|
|
1,387
|
|
|
3,426
|
|
|
666
|
|
Stock-based
compensation
(Note
13)
|
|
|
(304
|
)
|
|
(1,316
|
)
|
|
(2,303
|
)
|
|
(2,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings (loss)
|
|
|
3,651
|
|
|
1,303
|
|
|
(1,588
|
)
|
|
3,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
and
other
business
income
|
|
|
1,041
|
|
|
(51
|
)
|
|
1,419
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before income taxes
|
|
|
4,692
|
|
|
1,252
|
|
|
(169
|
)
|
|
4,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax
recovery (expense) (Note
14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
income tax
recovery
(expense)
|
|
|
532
|
|
|
(379
|
)
|
|
(28
|
)
|
|
(1,355
|
)
|
Future
income
tax
recovery(expense)
|
|
|
(1,978
|
)
|
|
(867
|
)
|
|
(3,841
|
)
|
|
(92
|
)
|
|
|
|
(1,446
|
)
|
|
(1,246
|
)
|
|
(3,869
|
)
|
|
(1,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
|
3,246
|
|
|
6
|
|
|
(4,038
|
)
|
|
2,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
retained earnings, beginning of period
|
|
|
(7,021
|
)
|
|
(547
|
)
|
|
263
|
|
|
(3,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit,
end of period
|
|
$
|
(3,775
|
)
|
$
|
(541
|
)
|
$
|
(3,775
|
)
|
$
|
(541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss)
per
share
|
|
$
|
0.02
|
|
$
|
0.00
|
|
$
|
(0.03
|
)
|
$
|
0.03
|
|
Weighted
average number of shares outstanding (in thousands)
|
|
|
144,069
|
|
|
95,817
|
|
|
129,654
|
|
|
94,660
|
|
The
accompanying notes are an integral part of the financial
statements.
YAMANA
GOLD INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For
the periods ended
|
(Prepared
by management; unaudited)
|
(In
thousands of US dollars)
|
|
|
|
|
|
|
|
Sept.
30,
2005
(3
months)
|
|
|
Sept.
30,
2004
(3
months
|
)
|
|
Sept.
30,
2005
(9
Months
|
)
|
|
Sept.
30,
2004
(10
months
|
)
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
(loss) for the period
|
|
$
|
3,246
|
|
$
|
6
|
|
$
|
(4,038
|
)
|
$
|
2,618
|
|
Asset
retirement
obligations
realized (Note
10)
|
|
|
(77
|
)
|
|
(43
|
)
|
|
(201
|
)
|
|
(155
|
)
|
Items
not
involving cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
paid
in
common
shares(adjustment)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(566
|
)
|
Depreciation,
amortization
and
depletion
|
|
|
1,732
|
|
|
1,293
|
|
|
4,570
|
|
|
4,337
|
|
Stock-based
compensation
(Note
13)
|
|
|
304
|
|
|
1,316
|
|
|
2,303
|
|
|
2,418
|
|
Future
income
taxes
|
|
|
1,978
|
|
|
867
|
|
|
3,841
|
|
|
92
|
|
Accretion
of
asset
retirement
obligation
(Note
10)
|
|
|
94
|
|
|
80
|
|
|
258
|
|
|
353
|
|
Foreign
exchange loss
|
|
|
(556
|
)
|
|
350
|
|
|
-
|
|
|
36
|
|
Other
|
|
|
(254
|
)
|
|
15
|
|
|
924
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,467
|
|
|
3,884
|
|
|
7,657
|
|
|
9,967
|
|
Net
change in
non-
cash
working
capital
(Note
15
ii)
|
|
|
(3,024
|
)
|
|
(868
|
)
|
|
(2,629
|
)
|
|
(1,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,443
|
|
|
3,016
|
|
|
5,028
|
|
|
8,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
of
common shares
and
warrants
for cash
(net
of issue
costs)
|
|
|
48,561
|
|
|
-
|
|
|
50,177
|
|
|
20,142
|
|
Deferred
financing
charges
|
|
|
(1,352
|
)
|
|
-
|
|
|
(3,533
|
)
|
|
-
|
|
Proceeds
from
notes
payable
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
-
|
|
Interest
expense on
convertible
notes
(adjustment)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,209
|
|
|
-
|
|
|
146,644
|
|
|
20,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
on mineral
properties
|
|
|
(6,085
|
)
|
|
(2,714
|
)
|
|
(16,352
|
)
|
|
(9,628
|
)
|
Acquisition
of property,
plant
and
equipment
|
|
|
(1,924
|
)
|
|
(2,135
|
)
|
|
(4,187
|
)
|
|
(2,654
|
)
|
Expenditures
on assets under
construction
|
|
|
(42,986
|
)
|
|
(1,040
|
)
|
|
(78,183
|
)
|
|
(6,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in
restricted cash
|
|
|
69,523
|
|
|
-
|
|
|
(30,815
|
)
|
|
-
|
|
Business
acquisition of Fazenda Brasileiro
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(933
|
)
|
Other
|
|
|
446
|
|
|
(819
|
)
|
|
(1,399
|
)
|
|
(1,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,974
|
|
|
(6,708
|
)
|
|
(130,936
|
)
|
|
(20,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
cash
and cash
equivalents
|
|
|
69,626
|
|
|
(3,692
|
)
|
|
20,736
|
|
|
7,706
|
|
Cash
and cash
equivalents,
beginning
of
Period
|
|
|
38,164
|
|
|
27,658
|
|
|
87,054
|
|
|
16,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash
equivalents,
end of
Period
|
|
$
|
107,790
|
|
$
|
23,966
|
|
$
|
107,790
|
|
$
|
23,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash
equivalents are comprised of the following
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16,397
|
|
$
|
2,574
|
|
$
|
16,397
|
|
$
|
2,574
|
|
Bank
term
deposits
|
|
|
91,393
|
|
|
21,392
|
|
|
91,393
|
|
|
21,392
|
|
|
|
$
|
107,790
|
|
$
|
23,966
|
|
$
|
107,790
|
|
$
|
23,966
|
|
Supplementary
cash flow information (Note
15
i).
The
accompanying notes are an integral part of the financial
statements.
Note:
In the
opinion of management of Yamana, all adjustments of a normal recurring
nature
have been included in these financial statements to provide a fair
statement of
results for the periods
presented.
The
results of those periods are not necessarily indicative of the results
for the
full year.
Yamana
Gold
Inc.
Notes
to
the Consolidated Financial Statements
(Prepared
by
management and unaudited)
For
the three month
and nine month periods ended September 30, 2005 (with comparatives
as at
December 31, 2004 and for the three month and ten month periods ended
September
30, 2004)
(Tabular
amounts in thousands of US dollars)
The
accompanying
consolidated interim financial statements have been prepared in accordance
with
Canadian generally accepted accounting principles (“Canadian GAAP”) for the
preparation of interim financial statements and include the assets,
liabilities
and operations of the Company and its wholly-owned subsidiaries. These
consolidated interim financial statements do not contain all the information
required by generally accepted accounting principles for annual financial
statements and therefore should be read in conjunction with the most
recent
annual financial statements of the Company. These interim consolidated
financial
statements follow the same accounting policies and methods of their
application
as the most recent annual financial statements.
The
Company changed
its year end from February 28/29 to December 31. As such, the third
quarter for
fiscal December 31, 2005 is for the three month period ended September
30, 2005
with comparative figures as at December 31, 2004 and for the three
month period
ended September 30, 2004. Below is a summary of the quarterly periods
for the
current fiscal year and comparative periods:
|
For
the
Period Ending
|
Comparative
Period Ending
|
Q1
|
March
31,
2005
|
February
29,
2004
|
Q2
|
June
30,
2005
|
June
30, 2004
(i)
|
Q3
|
September
30,
2005
|
September
30,
2004 (ii)
|
Q4
|
December
31,
2005
|
December
31,
2004 (iii)
|
(i)
|
Four month period; seven months
year-to-date
|
(ii)
|
Three month period; ten months
year-to-date
|
(iii) |
Three
month period; ten months
year-to-date
|
|
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal
in
circuit and
|
|
|
|
|
|
|
|
gold in process
|
|
$
|
2,462
|
|
$
|
2,729
|
|
Product
inventories
|
|
|
3,291
|
|
|
996
|
|
Materials
and
supplies
|
|
|
2,732
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,485
|
|
$
|
5,862
|
|
4. |
Property,
plant and equipment
|
|
|
|
|
Sept.
30,
|
|
|
|
Dec.
31,
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net
|
|
|
Net
|
|
|
|
|
Cost |
|
|
Amortization
|
|
|
Book
Value
|
|
|
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,147
|
|
$
|
-
|
|
$
|
1,147
|
|
$
|
1,053
|
|
Buildings
|
|
|
12,088
|
|
|
2,588
|
|
|
9,500
|
|
|
6,439
|
|
Machinery
and
|
|
|
13,606
|
|
|
2,797
|
|
|
10,809
|
|
|
7,306
|
|
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles
|
|
|
2,500
|
|
|
642
|
|
|
1,858
|
|
|
2,134
|
|
Furniture
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
office
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment
|
|
|
1,608
|
|
|
356
|
|
|
1,252
|
|
|
958
|
|
Computer
equipment
|
|
|
677
|
|
|
166
|
|
|
511
|
|
|
425
|
|
and software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,626
|
|
$
|
6,549
|
|
$
|
25,077
|
|
$
|
18,315
|
|
5. |
Assets
under construction
|
|
|
|
Sept.
30, |
|
|
Dec.
31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Fazenda
Nova
(i)
|
|
$
|
-
|
|
$
|
6,949
|
|
São
Francisco
|
|
|
48,580
|
|
|
1,915
|
|
Chapada
(ii)
|
|
|
44,168
|
|
|
3,221
|
|
|
|
|
|
|
|
|
|
|
|
$
|
92,748
|
|
$
|
12,085
|
|
Construction
and
preproduction revenues will be transferred to property, plant and equipment
and
mineral properties for each property upon commencement of commercial
production.
(i) |
The
Fazenda
Nova Mine commenced commercial production effective May 1,
2005.
|
(ii) |
Net
interest
capitalized during the period was $2.2 million (December
31, 2004 -
$Nil).
|
|
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fazenda
Brasileiro (i)
|
|
$
|
22,003
|
|
$
|
13,158
|
|
Santa
Elina
(ii)
|
|
|
19,258
|
|
|
13,319
|
|
Chapada
|
|
|
14,480
|
|
|
11,523
|
|
Argentine
properties (iii)
|
|
|
5,168
|
|
|
5,036
|
|
Other
|
|
|
602
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,511
|
|
|
43,292
|
|
(i)
Fazenda
Brasileiro
Balance
is net of
accumulated amortization in the amount of $4.4 million (December 31,
2004 - $2.8
million).
(ii)
Santa
Elina
Balance
is net of
accumulated amortization in the amount of $1.5 million
(December
31, 2004 - $0.7 million).
(iii)
Argentine
properties
The
Company
received a third party offer to purchase the Argentine properties for
consideration comprised of a combination of cash proceeds and an equity
interest
in the capital of the purchaser. In the event the transaction closes,
the
purchaser will pay Yamana $350,000 and deliver 8.0 million common shares
in the
capital of the purchaser and 4.0 million common share purchase warrants
of the
purchaser and provide additional consideration in late 2006. The Company
does
not expect to record a significant gain or loss upon the conclusion
of this
transaction, which is still subject to the completion of due diligence
and
documentation.
Restricted
cash
consists of funds held in escrow advanced under the loan facility for
the
development and construction of the Chapada copper-gold project and
interest
earned on those funds. During the period, $70 million of the total
loan proceeds
of $100 million were released from escrow and the remaining $30 million
was
released subsequent to the period end. Interest earned on the balance
held in
escrow is credited to assets under construction.
|
|
|
Sept.
30, |
|
|
Dec.
31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Deferred
financing charges (i)
|
|
$
|
8,724
|
|
$
|
5,191
|
|
Deferred
equity issue costs (ii)
|
|
|
198
|
|
|
-
|
|
Long
term tax
credits (iii)
|
|
|
1,924
|
|
|
-
|
|
Other
|
|
|
618
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,464
|
|
$
|
5,797
|
|
(i) |
Deferred
financing charges relate to a $100 million debt financing
for the
development of the Chapada copper-gold project. Financing
charges are
amortized over the life of the loan as of the funding date
April 29, 2005.
Amortization is capitalized to property development costs.
Balance is net
of accumulated amortization of $613,000 (December 31, 2004
-
$Nil).
|
(ii) |
Deferred
equity issue costs consist of expenses relating to the closing
of a public
offering on October 5, 2005 resulting in the issuance of
26 million common
shares. These costs will be netted against the proceeds from
the equity
financing.
|
(iii) |
Long
term tax
credits consist of Brazilian sales taxes which may be recoverable
against
other taxes payable.
|
The
notes payable
consist of $100 million for the development and construction of the
Chapada
copper-gold project plus accrued interest of $4.1 million of which
$1.5 million
has been capitalized to the loan balance. The Company drew down the
full $100
million under the loan facility on April 29, 2005. The secured notes
are for a
term of six years and bear interest at an annual rate of 12.45%. Principal
is
repayable upon maturity of the notes. The Company has elected to defer
interest
payments for the first two years. The loan proceeds were held in an
escrow
account for the benefit of the Company pending perfection and registration
of
security. During the period, $70 million of the loan proceeds were
released from
escrow and subsequent to the period end, the remaining $30 million
was released
and the Company paid accrued interest and financing fees in the amount
of $2.1
million.
10. |
Asset
retirement obligation
|
The
asset
retirement obligation relating to reclamation and closure costs
relates
primarily to the Fazenda Brasileiro Mine, the São Vicente project and the
Fazenda Nova Mine and is calculated as the net present value of
estimated future
cash flows required to satisfy the obligation at a discount rate
of 7%.
Reclamation and closure costs of the mines and projects are incurred
in
Brazilian Reais thus subject to translation gains and losses from
one reporting
period to the next in accordance with the Company’s accounting policy for
foreign currency translation of monetary items.
The
following is an
analysis of the asset retirement obligation:
|
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
$
|
4,972
|
|
$
|
4,943
|
|
Accretion
incurred in the current period
|
|
|
258
|
|
|
364
|
|
Accretion
incurred during pre-operating
|
|
|
|
|
|
|
|
activities
at
Fazenda Nova
|
|
|
7
|
|
|
-
|
|
Liabilities
accrued (reduction)
|
|
|
-
|
|
|
(429
|
)
|
Foreign
exchange loss and other
|
|
|
845
|
|
|
331
|
|
Expenditures
during the current period
|
|
|
(201
|
)
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
5,874
|
|
$
|
4,972
|
|
(i)
Common shares
issued and outstanding:
|
|
Number
of
|
|
|
|
|
|
|
Common
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Balance
as at
December 31, 2004
|
|
|
122,287
|
|
$
|
147,407
|
|
Exercise
of
options and share
|
|
|
|
|
|
|
|
appreciation
rights (1)
|
|
|
1,281
|
|
|
1,972
|
|
Shares
issued
pursuant to an early
|
|
|
|
|
|
|
|
exercise
of
publicly traded warrants
|
|
|
|
|
|
|
|
net
of costs
(2)
|
|
|
41,286
|
|
|
55,938
|
|
Shares
issued
pursuant to an exchange
|
|
|
|
|
|
|
|
of
publicly
traded warrants (2)
|
|
|
476
|
|
|
131
|
|
Shares
issued
on the exercise of warrants
|
|
|
8
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as at
September 30, 2005
|
|
|
165,338
|
|
$
|
205,483
|
|
(1) |
The
Company
issued 1.3 million shares to optionees on the exercise
of their share
options and appreciation rights for cash proceeds of $1.6
million.
Previously recognized compensation expense in the amount
of $0.3 million
on options exercised during the period was charged to share
capital with a
corresponding decrease to contributed surplus.
|
(2) |
As
of July
29, 2005, the Company effected an amendment of the terms of
its 40,567,656
publicly traded warrants, each of which were exercisable at
C$1.50 per
common share and expiring July 31, 2008, that entitled
warrant holders to receive an additional 0.0356 of a common
share upon the
exercise of their warrants during a 30-day voluntary early
exercise period
that expired August 29, 2005.
An aggregate
of 41,285,875 common shares were issued for net proceeds of
$48.5 million
pursuant to the early exercise of the warrants. An additional
476,198
common shares were issued pursuant to the automatic exchange
of the
remaining 701,021 warrants subsequent to closing of the early
exercise
period, without payment of the exercise price or any additional
consideration.
|
(ii)
Contributed
surplus
|
|
Sept.
30,
|
|
Dec.
31,
|
|
|
|
2005
|
|
2004
|
|
|
|
(9
months)
|
|
(10
months)
|
|
Balance
as at
beginning of period
|
|
$
|
1,775
|
|
$
|
633
|
|
|
|
|
|
|
|
|
|
Transfer
of
stock based
|
|
|
|
|
|
|
|
compensation
on the
|
|
|
|
|
|
|
|
exercise
of
stock option
|
|
|
|
|
|
|
|
and
share
appreciation
|
|
|
|
|
|
|
|
rights
|
|
|
(324
|
)
|
|
(25
|
)
|
Expired
warrants
|
|
|
927
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based
compensation
|
|
|
|
|
|
|
|
on
options
granted
|
|
|
2,298
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
Balance
as at
end of period
|
|
$
|
4,676
|
|
$
|
1,775
|
|
12. |
Share
purchase warrants
|
As
at September 30, 2005 there were 5.3 million (December 31, 2004 -
43.4 million)
share purchase warrants outstanding with an average exercise price
of Cdn$4.43
(December 31, 2004 - Cdn$1.78) and an average outstanding life of
4.12 years
(December 31, 2004 - 3.65 years).
As
of July 29, 2005, the Company effected an amendment of the terms
of its
40,567,656 publicly traded warrants, each of which were exercisable
at C$1.50
per common share and expiring July 31, 2008, that entitled
warrant
holders to receive an additional 0.0356 of a common share upon the
exercise of
their warrants during a 30-day voluntary early exercise period that
expired
August 29, 2005. A total of 39,866,635 warrants were exercised during
the
exercise period. Upon
the expiry of
the voluntary exercise period, the remaining 701,021 warrants were
exchanged,
without payment of the exercise price or any additional consideration,
for
476,198 common shares.
The
following is a
summary of the issued stock options to acquire common shares
under the Company’s
Share Incentive Plan as at the period end and the changes thereof
during the
period:
|
Sept.
30,
2005
(9
months)
|
Dec.
31,
2004
(10
months)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
(Cdn$
|
)
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
(Cdn$
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning
of
period
|
|
6,660
|
|
$
|
2.04
|
|
|
5,453
|
|
$
|
1.73
|
|
Issued
|
|
2,785
|
|
|
3.78
|
|
|
1,250
|
|
|
3.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(1,485
|
)
|
|
1.97
|
|
|
(41
|
)
|
|
2.25
|
|
Expired
and
cancelled
|
|
(6
|
)
|
|
2.93
|
|
|
(2
|
)
|
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
end
of
period
|
|
7,954
|
|
$
|
2.67
|
|
|
6,660
|
|
$
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
7,954
|
|
$
|
2.67
|
|
|
6,535
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company has
expensed the value of share purchase options granted to employees
during the
nine month period ended September 30, 2005 as compensation expense
in the amount
of $2.4 million with a corresponding increase in contributed surplus.
The share
purchase options were recorded using the fair value based method
of accounting
which was estimated at the time of grant using the Black-Scholes
option pricing
model with the following assumptions:
|
|
Sept.
30,
|
|
Sept.
30,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(9
months)
|
|
|
(10
months
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
yield
|
|
|
0
|
%
|
|
0
|
%
|
Expected
volatility
|
|
|
34
|
%
|
|
35%-40
|
%
|
Risk-free
interest rate
|
|
|
3.4
|
%
|
|
3.5
|
%
|
Expected
life
|
|
|
3
years
|
|
|
3
years
|
|
Forfeitures
|
|
|
Nil
|
|
|
Nil
|
|
The
following table
reconciles income taxes calculated at statutory rates with the income
tax
expense in the period end consolidated financial statements:
|
|
Period
ended
|
Fiscal
year-to-date
|
|
|
|
Sept.
30,
2005
(3
months)
|
|
|
Sept.
30,
2004
(3
months
|
)
|
|
Sept.
30,
2005
(9
months
|
)
|
|
Sept.
30,
2004
(10
months
|
)
|
Earnings
(loss) before income taxes
|
|
$
|
4,692
|
|
$
|
1,252
|
|
$
|
(169
|
)
|
$
|
4,065
|
|
Statutory
rate
|
|
|
36.12
|
%
|
|
38.00
|
%
|
|
36.12
|
%
|
|
38.00
|
%
|
Expected
income tax expense (recovery)
|
|
$
|
1,695
|
|
$
|
476
|
|
$
|
(61
|
)
|
$
|
1,545
|
|
Effect
of
lower effective tax rates in foreign jurisdictions
|
|
|
(1,346
|
)
|
|
(321
|
)
|
|
(1,306
|
)
|
|
(1,084
|
)
|
Unrecognized
(recognized) tax benefits in Canada and United States
|
|
|
(957
|
)
|
|
200
|
|
|
(723
|
)
|
|
816
|
|
Non-taxable
items
|
|
|
(913
|
)
|
|
891
|
|
|
(17
|
)
|
|
170
|
|
Foreign
exchange on inter-corporate debt
|
|
|
3,679
|
|
|
-
|
|
|
5,972
|
|
|
-
|
|
Other
|
|
|
(712
|
)
|
|
-
|
|
|
4
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax
expense
|
|
$
|
1,446
|
|
$
|
1,246
|
|
$
|
3,869
|
|
$
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
income tax recovery (expense)
|
|
|
532
|
|
|
(379
|
)
|
|
(28
|
)
|
|
(1,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
income
tax (expense) recovery
|
|
$
|
(1,978
|
)
|
$
|
(867
|
)
|
$
|
(3,841
|
)
|
$
|
(92
|
)
|
15. |
Supplementary
cash flow information
|
(i)
Supplementary
information regarding other non-cash transactions
|
|
Period
ended
|
Fiscal
year-to-date
|
|
|
|
Sept.
30,
2005
(3
months)
|
|
|
Sept.
30,
2004
(3
months
|
)
|
|
Sept.
30,
2005
(9
months
|
)
|
|
Sept.
30,
2004
(10
months
|
)
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares
issued on
the
exercise
of stock
options
and
share
appreciation
rights
|
|
$
|
65
|
|
$
|
-
|
|
$
|
324
|
|
$
|
2
|
|
Transfer
of
contributed
surplus
on
the issue of
stock
options
and share
appreciation
rights
|
|
$
|
(65
|
)
|
$
|
-
|
|
$
|
(324
|
)
|
$
|
(2
|
)
|
Expired
warrants
|
|
$
|
(927
|
)
|
$
|
-
|
|
$
|
(927
|
)
|
$
|
-
|
|
Increase
in
contributed
surplus
on
the expiry
of
warrants
|
|
$
|
927
|
|
$
|
-
|
|
$
|
927
|
|
$
|
-
|
|
Issue
of
common shares
to
management
|
|
$
|
-
|
|
$
|
1,021
|
|
$
|
-
|
|
$
|
1,021
|
|
Stock-based
compensation
recognized
on
the issue
of
common
shares to
management
|
|
$
|
-
|
|
$
|
(1,021
|
)
|
$
|
-
|
|
$
|
(1,021
|
)
|
Interest
expense accrued
on
loan
facility
|
|
$
|
2,641
|
|
$
|
-
|
|
$
|
4,121
|
|
$
|
-
|
|
Amortization
of deferred
financing
fees
|
|
$
|
376
|
|
$
|
-
|
|
$
|
613
|
|
$
|
-
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
interest
capitalized
to assets
under
construction
|
|
$
|
(2,641
|
)
|
$
|
-
|
|
$
|
(4,121
|
)
|
$
|
-
|
|
Amortization
of deferred
financing
fees
capitalized
to assets
under
construction
|
|
$
|
(376
|
)
|
$
|
-
|
|
$
|
(613
|
)
|
$
|
-
|
|
(ii)
Net
change in
non-cash working capital
|
|
Period
ended
|
Fiscal
year-to-date
|
|
|
|
Sept.
30,
2005
(3
months)
|
|
|
Sept.
30,
2004
(3
months
|
)
|
|
Sept.
30,
2005
(9
months
|
)
|
|
Sept.
30,
2004
(10
months
|
)
|
Net
decrease
(increase) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
1,468
|
|
$
|
(898
|
)
|
$
|
1,016
|
|
$
|
(1,210
|
)
|
Inventory
|
|
|
(1,188
|
)
|
|
(1,694
|
)
|
|
(2,623
|
)
|
|
(750
|
)
|
Advances
and
deposits
|
|
|
(1,382
|
)
|
|
34
|
|
|
(2,147
|
)
|
|
(1,382
|
)
|
Income
tax
recoverable
|
|
|
(946
|
)
|
|
(982
|
)
|
|
(1,363
|
)
|
|
(982
|
)
|
Net
increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and
accrued
liabilities
|
|
|
(1,309
|
)
|
|
2,672
|
|
|
9,298
|
|
|
2,723
|
|
Less:
Accounts payable
relating
to
assets
under
construction
|
|
|
333
|
|
|
-
|
|
|
(6,810
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,024
|
)
|
$
|
(868
|
)
|
$
|
(2,629
|
)
|
$
|
(1,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Segmented
information
|
The
Company
considers its business to consist of three geographical segments primarily
in
Brazil, Argentina and corporate head office in Canada.
(i)
Capital assets
referred to below consist of land, buildings and equipment and mineral
properties.
|
|
|
|
|
|
|
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Mineral
properties, assets under
|
|
|
|
|
|
|
|
construction
and property,
|
|
|
|
|
|
|
|
plant
and
equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
$
|
173,639
|
|
$
|
68,163
|
|
Argentina
|
|
|
5,520
|
|
|
5,413
|
|
Corporate
|
|
|
177
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179,336
|
|
$
|
73,692
|
|
(ii)
|
|
Period
ended |
Fiscal
year-to-date
|
|
|
|
Sept.
30,
2005
(3
months)
|
|
|
Sept.
30,
2004
(3
months
|
)
|
|
Sept.
30,
2005
(9
months
|
)
|
|
Sept.
30,
2004
(10
months
|
)
|
Mine
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
$
|
10,749
|
|
$
|
8,827
|
|
$
|
29,383
|
|
$
|
32,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
Related
party transactions
|
The
Company had the
following transactions with related parties:
|
|
Period
ended
|
Fiscal
year-to-date
|
|
|
|
Sept.
30,
2005
(3
months)
|
|
|
Sept.
30,
2004
(3
months
|
)
|
|
Sept.
30,
2005
(9
months
|
)
|
|
Sept.
30,
2004
(10
months
|
)
|
Directors
fees (i)
|
|
$
|
38
|
|
$
|
36
|
|
$
|
161
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
Included in
accounts payable and accrued liabilities is $39,400 (Dec 31, 2004 -
$39,100) in
this regard.
These
transactions
occurred in the normal course of business and are measured at the exchange
amount, which is the amount of consideration established and agreed
to by the
related parties based on their estimate of fair market value.
18.
Contractual
commitments
Year
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
leases
|
|
$
|
83
|
|
$
|
332
|
|
$
|
288
|
|
$
|
152
|
|
$
|
-
|
|
Mine
operating and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
service
contracts
|
|
|
4,093
|
|
|
6,540
|
|
|
1,148
|
|
|
-
|
|
|
-
|
|
Chapada
construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
service
contracts
|
|
|
30,905
|
|
|
35,817
|
|
|
1,320
|
|
|
289
|
|
|
|
|
São
Francisco
construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
service
contracts
|
|
|
7,129
|
|
|
900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,210
|
|
$
|
43,589
|
|
$
|
2,756
|
|
$
|
441
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
Subsequent Events
(i) |
On
October 5,
2005, the Company completed a public offering for 26 million
common shares
at a price of C$5.00 per share for net proceeds of $110.9
million.
|
(ii) |
Subsequent
to
the period end, the Company implemented a copper hedging
program that
provides a forward price of $1.37 per pound of copper for
a total of 50.2
million pounds of copper in 2007, representing approximately
one half of
planned copper production for that year. The program includes
long call
options at an average strike price of approximately $1.67
per pound of
copper thereby providing further upside in the event that
copper prices
exceed that threshold level. No cash has been paid for the
call options as
the price has been deducted from the hedge price, providing
a net hedge
price of $1.27 per pound. The program requires no cash margin,
collateral
or other security from the Company.
|
(iii) |
Subsequent
to
the period end, the Company purchased a portfolio investment
in the amount
of $2.3 million.
|
20.
Contingency
During
the period,
a sales tax audit was completed by Brazilian state tax authorities
which could
result in a liability or a potential loss of recoverable Brazilian
sales tax
credits that have been recorded as receivables as at September 30,
2005 of
approximately $1.7 million including penalties. The Company has not
recorded an
accrual at September 30, 2005 as it is the Company’s view that the total amount
of sales tax credits is recoverable. The Company is currently undergoing
an
appeal process and while it is not possible to determine the ultimate
outcome of
such process at this time, the Company believes that the ultimate resolution
will not have a material effect on the Company’s financial condition or results
of operation.
21.
Comparative figures
Certain
of prior
years’ figures have been restated to conform with current period’s
presentation.