Yamana green lights development for Wasamac gold with higher production

Yamana Gold (TSX: YRI; NYSE: AUY; LSE: AUY) has given the go-ahead to develop the Wasamac gold mine, with study results showing more reserves, higher annual production and increased cash flows. The project is 15 km west of Rouyn-Noranda, Quebec.

The company acquired the Wasamac deposit and Camflo property and mill when it bought Monarch Gold in January. Since that time, it has used its due diligence study and update to the 2018 feasibility study to create a new feasibility study. Work done most recently will also form the basis for the project description for the environmental impact assessment.

Project economics include an after-tax net present value of US$470 million, with an after-tax internal rate of return of 24% at a gold price of US$1,500 per ounce. Initial capital requirements are US$416 million, including US$318 million for underground mine development and mobile equipment.

One of the most promising aspects of the Wasamac project, according to Yamana, is sustained annual gold production of 200,000 oz. for years two through five and 169,000 oz. per year over the first ten years production. All-in sustaining costs are estimated at US$828 per ounce.

Yamana has refined the geological model and boosted the probable mineral reserve. It now stands at 23.2 million tonnes grading 2.56 grams gold per tonne for  1.9 million oz. of recoverable gold. That material will support the first ten years of production.

The deposit also has 5.8 million indicated tonnes grading 1.76 grams gold per tonne for 326,000 oz. contained gold, plus 4 million inferred tonnes at 2.01 grams gold per tonne for 258,000 ounces of gold.

Wasamac will be an underground bulk mining operation with a minimal footprint, the company says. The use of an underground conveyor, electric mining equipment and high efficiency ventilation fans will substantially reduce carbon emissions from the project, Yamana says. Installing the conveyor, rather than using diesel trucks, will save an estimated 2,233 tonnes of carbon dioxide emissions per year.

A new mill will be built with an initial throughput of 7,000 tonnes per day, although that could be raised to the nameplate capacity of 7,500 tonnes per day. A portion of the tailings will be returned to the mine as paste fill, and the remainder will be placed in a filtered dry stack storage facility about six km from the mill.

Yamana believes it can outline further reserves that would sustain a 200,000 oz. production level and support an additional five years of mine life. It plans to spend $15 million on a 120,000-metre infill and exploration drill campaign in 2021 and 2022. Another 10,000 metres will be drilled this year on the broader Wasamac property to delineate secondary zones and test extensions of the Wasa Shear.

The company has recently acquired the Francoeur, Arntfield and Lac Fortune gold deposit located 6 km from the mill. They, too, may provide additional mining opportunities in the future.

Development at Wasamac will be fully funded from available cash and cash flow.

“This project remains critically important to Yamana’s long-term production profile,” Jackie Przybylowksi, a mining analyst at BMO Capital Markets, commented in a research note. “We noted when Yamana released its 10-year guidance in January that Wasamac will become an important contributor to the company’s production profile from ~2027.”

“We had previously modeled Wasamac at the purchase price, ~US$117 million,” she added. “Our new DCF [discounted cash flow] values Wasamac at US$240 million, or US$144 million after a 0.6x target multiple is applied, a modest increase to our estimates.”