UPDATE 2-Yamana Gold profit falls, targets major cost cuts

Tue Apr 30, 2013 8:20pm EDT

Related Topics

* Adjusted Q1 EPS $0.16 v Street view $0.18

* Revenue falls 4 percent to $534.9 million

* Company targets cost cuts of $150/ounce by year-end

* Reducing sustaining capital, head count

By Julie Gordon

TORONTO, April 30 (Reuters) - Yamana Gold Inc is aiming to sharply reduce its all-in sustaining costs this year, as the growing Canadian gold producer adjusts to a recent drop in bullion prices, its chief executive said on Tuesday.

The cost-cutting plan comes after the Toronto-based miner, which owns mines in Mexico and South America, reported a 40 percent drop in first-quarter profit, as lower gold prices and higher costs outweighed a boost in production.

"As we've seen the metal prices come down, we're going to reclaim some of that lost margin," CEO Peter Marrone told Reuters. "We anticipate that we should be able to get at least an improvement of $100 per ounce by midyear and trending toward $150 per ounce by the end of the year."

Yamana plans to cut sustaining capital, reduce head count, revamp how it manages inventories, and improve its equipment maintenance cycle, in an effort to bring down cash costs on an all-in co-product basis.

All-in cash costs is a new measure adopted by gold miners, which include sustaining capital, exploration spending and other expenses, to better reflect the true cost of producing an ounce of gold.

The staff reductions are in the implementation phase, said Marrone, with cuts already made at corporate offices, and the focus now on optimization at its mining operations.

"This is an opportunity to say, can we make do with less and do more," he said, adding that Yamana is eyeing automation and other ways to increase the efficiency of existing staff.

Like its rivals, Yamana is under intense pressure to reduce costs. Margins have narrowed in recent months as gold prices have dropped, while operating and capital costs have risen.

The miner's co-product costs, which do not include a credit for copper by-product, rose 13 percent to $587 an ounce in the first quarter, while all-in sustaining costs, which include a copper credit and sustaining capital needs, were $856 an ounce.

Yamana's average realized gold price fell 4 percent to $1,620 in the quarter. Spot gold has since slipped to around $1,475 an ounce, prompting the company's pledge to preserve margins and maximize profitability.

Top producers like Barrick Gold Corp and Kinross Gold Corp have shelved new developments and slashed capital spending in an effort to regain shareholder favor.

Yamana said that it is evaluating its production targets for future years in light of the recent decline in commodity prices. The company has three new Brazilian mines ramping up this year, and has a handful of development projects on its books.

EARNINGS MISS

Net income was $102.1 million, or 14 cents a share, in the quarter ended March 31. That compared with $170 million, or 23 cents a share, in the year-earlier period.

Adjusted to remove one-time items, earnings fell to $117 million, or 16 cents a share, from $184.3 million, or 25 cents a share, in the first quarter of 2012.

Analysts, on average, had expected earnings of 18 cents a share, on revenue of $564.6 million, according to Thomson Reuters I/B/E/S.

Revenue fell 4 percent to $534.9 million, as gold prices slipped and by-product cash costs climbed 31 percent on a fall in copper prices and higher input costs.

Production climbed to 291,312 gold equivalent ounces in the first quarter, up from 278,832 ounces in the year-ago quarter. Gold sales climbed 4 percent to 292,039 ounces.

Lower equity earnings from the company's 12.5 percent stake in the Alumbrera project in Argentina also weighed on profit.

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