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Yamana Gold, Inc. (NYSE:AUY)
Q4 2018 Earnings Conference Call
February 15, 2019, 9:00 a.m. ET

Contents:

Prepared Remarks:

Operator

All participants, please standby. Your conference is ready to begin. Thank you all for joining us this morning. Before I turn the call over, I need to advise that certain statements made during this call today may contain forward-looking information. And actual results could differ from the conclusions or projections in that forward-looking information which include but are not limited to statements with respect to the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, future metal prices, and the cost and timing of the developments of new projects.

For a complete discussion of the risks, uncertainties, and factors which may lead to actual financial results and performance being different from the estimates contained in the forward-looking statements, please refer to Yamana's press release issued yesterday announcing fourth quarter and full-year 2018 results as well as the management's discussion and analysis for the same period and other regulatory filings in Canada and the United States. I would like to remind everyone that this conference call is being recorded and will be available for replay today at 12:00 p.m. Eastern Time. Replay information and the presentation slides accompanying this conference call and webcast are available on Yamana's website at yamana.com. I will now turn the call over to Mr. Daniel Racine, President and CEO.

Daniel Racine -- President & Chief Executive Officer

Thank you, Operator. Good morning. And welcome to our fourth quarter and full-year result conference call. Presenting with me on the call today is Jason LeBlanc, our CFO, and Henry Marsden, our Senior VP, Exploration. The rest of management is also with us in the room and will be available for the Q&A portion of the call. As you know, last month, a terrible event occurred in our industry in one of the countries in which we operate. Brazil is a country with high-quality protocol in health and safety. We want to assure you that Yamana maintain Robert's high-quality training management facilities at all our operation. They are continuously monitored and evaluated. Our waste management facility in Brazil are newer and on a different type of end design and not down streaming from any communities. You can read more about the facility in our CSR report which is posted on our website. Our thoughts are with our friends and colleagues in Brazil.

The health and safety of our employees are a major importance for us. We are happy to report that we had a 20% improvement in total recordable injury frequency rate from 2017. A number of our mine demonstrated the possibility of achieving the Yamana's goal, "One Team, One Goal: Zero" vision for sustainability which reflects the company's commitment to zero harm to employees, environment, and community near mine operation. We finished the year maintaining our focus on Operation Excellence by delivering production and improving our costs. Once again, we exceeded production expectation.

We had a record gold production in 2018 from Canadian Malartic and Jacobina and about expectation gold production from Chapada and El Penon. We also exceeded guidance for silver and copper. We are also very proud of our newest mine, Cerro Morro. In its first six months of production, the mine has exceeded average mid-sell grade recovery for gold and silver and exceeded guidance. Five of our six mine did better than our guidance. So, not too bad. Henry will talk more about our R&R. But I'm happy to report that our exploration programs continue to deliver on mineral resources discovery and mineral reserve replacement and growth at Yamana's mine excluding those that we sold in 2018. Peter and the team have been busy on advancing our strategic initiative, including the sale of Gualcamayo, option agreement on La Pepa, the combination of Leagold and Brio, and advancing development scenario for Agua Rica. For Agua Rica, we have looked at an integration scenario between Agua Rica and Alumbrera.

And discussion are ongoing with our partners and stakeholders. The operating results for the fourth quarter were solid, both with prospective production and costs. Yet, decline in metal prices and a certain one-time eight items wait on the company headlines financial resort, the results. After accounting for one-time item, we delivered adjusted earnings of $26.2 million or $0.03 per share. The most notable include non-cash impairment reversal at Jacobina which was partially offset by impairment at Florida and Malartic. Jason will speak to it in his financial overview section. When looking at our cash flow in the quarter, it is important to account for the impact of copper advance sale program in which $125 million of copper was pre-sold in Q1 2018 with deliveries scheduled from Q3 2018 through Q2 2019. The impact of this program in the fourth quarter was $33.3 million. Additionally, in the fourth quarter, the company incurred a $23.3 million one-time tax expense that was payable to the Brazilian tax authorities.

The expense was unexpected, not consistent with the company's interpretation of the tax legislation and inconsistent with past practice. The company has made the payment so to avoid penalties and interest but in respect of which, the company is pursuing legal recourse and remedies. In terms of production, we had a strong year, beating the increased guidance set in October of 920,000 ounces. We also exceeded 2018 guidance for silver by 6% and copper by 3%. Importantly, production was delivered and all-in sustaining costs that were lower than the guidance cost ranges for all metals. For the other metals, all-in sustaining costs for silver was also below guidance range while copper was modestly higher. Last night, the company also released its third-year outlook for production and 2019 cost guidance. In terms of production, we are guiding for a million-60, a million gold equivalent ounces in '19, 1.1 million ounces in 2020 and 2021.

The company GEO's production guidance includes contribution from gold and silver with silver converted to gold equivalent production at a ratio of 82.5 to 1 across the guidance period. In the case of gold production, it is expected to benefit from continued strong performance across all mines led by production increase at Canadian Malartic while silver production is expected to benefit from grade and production increase at Cerro Morro in line with current mine plans. Copper production which is not included in GEO is expected to remain at 100 million pounds over the next three years. Last year at this time, we had guided 940,000 ounces for 2019. And yesterday, we came out with exactly the same number. For 2020, we guided 970,000 ounces. And now we are more conservative at 955,000 ounces. But I can tell you now that we won't come with a lower number next year at this time. For copper, we have always guided 120 million pounds for this and the coming years.

This is not negative or light. And they are the same numbers you can see in all the presentation we did last year in our website. In term of cost guidance, our 2019 cost guidance include full adoption of the work gold constant methodology for all-in sustaining cost reporting. The cost metric have also been adjusted to reflect the production of their export tax in Argentina. Jason will walk through this reconciliation later in the presentation. On this slide, 2018 costs have been restated to reflect the updated methodology for cost reporting. On this basis, the low end of 2019 cost range is expected to remain relatively flat year-over-year. Looking more closely at the mine by mine guidance for 2019, our Chapada copper grade are expected to remain constant through the guidance period with copper production forecast to hold steady at 100 million pounds. Mill feed grade for gold are forecast to decline year-over-year with cost guidance set at 100,000 ounces.

The decline is consistent with mine sequencing as reflected in previously published technical reports. The Phase 1 project are getting a further 2% improvement in filtration recovery. It's tracking well for the completion and commissioning by mid-year. The feasibility study for Phase 2 and Phase 3, a mill expansion and a pit wall pushback in the main Chapada pit is also progressing well and is expected to be completed by mid-year. Based on the work completed to date, the phase plan show that the potential to sustain our mill production in the range of 100 to 110 thousand ounces of gold and 150 to 160 million pounds of copper until 2024. This represent an opportunity to deliver significant cash flow increase and cash flow return and does not include the gold only potential [inaudible]. For Jacobina, 2019 is forecast to be as strong as 2018. Jacobina is a very positive turnaround story for Yamana both in term of operating results and exploration potential which Henry will discuss.

With significant underground development work complete and a surface stockpile of approximately 100,000 ton at two grams per ton, the mine continues to be well-positioned to deliver on its production and cost target. Production and costs were better than expected at Canadian Malartic in 2018. And that trend should continue in 2019. Production in 2019 is forecast to be 330,000 ounces, in line with production costs similar to those reported in 2018. The Extension Project is continuing according to plan with over contribution from Barnat expected to begin in late 2019 with more meaningful contribution in 2020 and 2021 with production expected to increase to the guidance period. On the exploration front, the company continues to see inclusion through resort at East Malartic and Odyssey. Project with drilling ongoing to extend and upgrade the mineral resources in these zones.

At Cerro Morro, gold equivalent production for 2019 is expected to be in line with gold of 130,000 ounces and silver at six million ounces. The operation will focus on optimizing the underground mining design and processing practices, building on the success delivered in the first six months of the operation. The exploration budget has been increased by 33% over 2018 which will be used for an aggressive drill program designed to test major structure while continuing to generate new target in the company's very large land package.

At El Penon, GEO production in 2019 is forecast to be in line with production guidance for 2018 with costs expected to be lower than those reported in 2018. I would note for the first half of the year, the plan calls for increased underground development activity which is expected to drive higher grade and higher production from El Penon in the second half of 2019. Overall, El Penon continue to perform well for Yamana with production tracking 200,000 GEO and reserve up by 5% over depletion.

Similar to the approach taken at El Penon and Jacobina in the past, at Florida, the focus of updating the mine life land is to right-size the operation at the sustainable production level, maximize operating margin, and advance mine development in mineral reserves delineation. From there, the company can deliver mine flexibility and gold for the future potential production increases. For 2019, higher mining rate are expected in PVS and Pataguas zone with overall production expected to improve modestly. Several cost containment initiative planned for 2019 are expected to continue to lower our overall cost. I will now pass over to Henry to speak on our company exploration roadmap.

Henry Marsden -- Senior Vice President, Exploration

Thank you, Daniel. Exploration had a good year in 2018, maintaining a relatively steady total reserve and showing an increase in resources, even after conversion to reserves. This allows Yamana to maintain a long-term reserve life index and continue to add to its mine life at its main assets. Overall gold reserves have remained steady in spite of pit depletion at Canadian Malartic. This is due to a near-steady replacement of mine depletion at its main sites and strong contributions from the Brazilian assets. Resources have increased with replacement and reserve conversion at most sites and strong additions from Chapada, Jacobina, and the East Malartic zone at Malartic. When we look on a site by site basis, we've seen significant new reserve growth in both gold and copper at Chapada. This is driven largely by increases at the Baru Sucapira complex allowing engineering to move the high-grade Sucapira zone to reserve status.

Exploration for higher-grade, near-surface, near-mine resources resulted in the discovery of the Baru Northeast zone in 2018. And this effort will continue in 2019. Malartic focused on the deeper zones at Odyssey, East Malartic, and 117, adding significant new measured and indicated on the East Malartic zone. The 2019 program will continue on these zones but will also focus on some near-surface exploration in the eastern part of the trend. El Penon had a very strong year, replacing depletion and adding inferred in the core of the mine in the Dorada Vein system, continuing to extend the mine life of this quality asset. Cerro Morro completed the first year of an aggressive exploration program, partially replacing depletion, adding some inferred, and building a strong inventory of targets that we will attack with an aggressive 2019 exploration program. Jacobina focused on increasing grade and had spectacular results during the year.

We've seen large additions to all categories, driven largely by increases in grade. This program will continue with the same focus in 2019. Exploration at Minera Florida focused on the core mine area, focusing on reserves and resources and trying to add new grant zones at higher than norm grade. This focus will continue in 2019. Our greenfield effort was also expanded substantially in 2019. We added two new exploration projects. We reactivated some of our key internal assets and aimed to fuel a long-term pipeline of quality projects for the future.

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Thank you, Henry. And good morning, everyone. As Daniel mentioned, I wanna take some time to walk through the changes in our cost reporting that will take effect from our Q1 reporting onwards. Our 2019 guidance has been issued in accordance with these new metrics and may have a bit of a different look and feel from our 2018 numbers. First of all, while we continue to report detailed information for gold and silver production as part of our disclosure, our cost reporting will now be on a gold equivalence ounce dual basis going forward. Our GEO calculations will be based on the average realized gold to silver ratio for the quarter. Our updated cash-cost metric has moved to be more transparent and comparable with our industry peers and more closely aligned with GAAP measures. Cash costs now line up with the GAAP-based cost of sales metric before a DD&A and including treatment and refining charges.

As previously noted when we released our 2018 production results in January, we, along with a number of peers worked with the World Gold Council to create an updated and standardized metric for AISC. We have reclassified a number of items. But most notable new inclusions for Yamana are the addition of capitalized exploration, closure-related costs, and stock-based comp. The full reconciliation tables can be found in our MD&A that we filed last night. But I'll take a moment here to walk through a few illustrations using Cerro Morro as an example. Here, you see a wonderful chart to show how our new AISC guidance for Cerro Morro in 2019 ties to the previous 2019 cost guidance which was $650.00 per ounce on a gold co-product basis. The largest impact comes from including items that are ultimately cash flow-neutral and were simply reported in a different manner, previously.

This includes the existing Bocamina sales tax in Argentina that was previously treated as a reduction to revenue and our capitalized exploration spending. These changes do not affect a free cash flow of the operation. The other main item is the Argentina export tax that was introduced in 2018 and is scheduled to be in place for two years through 2020. Our current commodity prices reforecast, it allowed approximately $130.00 per GEO or $30 million per year to Cerro Morro's cost. But this temporary tax only covers a modest portion of the mine's life. So, the overall net asset value and uptick in that asset value for minelet extensions is intact. Last on this point is that this level of tax is higher than is contemplated in our fiscal stability agreement. So, we are in discussions with the national government on this matter. I also wanted to highlight how our new cash cost metric ties directly to cost of sales per unit with the inclusion of DD&A per unit.

In the case of Chapada, we would also add TTRCs. But for the example here, we use Cerro Morro again. We anticipate that the current depreciation cost on a per unit basis at Cerro Morro will improve as we advance further on our $1 million GEO exploration target there. Turning now to our quarterly financial performance, we generated $483 million in revenue for the quarter, our highest revenue quarter of 2018. The revenue was similar to Q4 last year, benefiting from the contributions at Cerro Morro and higher copper sales, offsetting lower attributable gold ounces following the disposition of Brio Gold and Gualcamayo. Revenue in the quarter, however, was impacted by elevated precipitant levels in inventory at Cerro Morro. Higher than planned silver feed grades created capacity constraints at the mine furnace. And this affected our sales volumes, resulting in an extra 15,000 ounces of gold and about 800,000 ounces of silver remaining in inventory at the end of the year.

We expect that the inventory will normalize to about 25% of current levels over the first half of 2019 which will allow approximately $25 million in revenue above guided production. Operating costs during Q4 were all to the lowest of year on the strong production performance, cost discipline, and the depreciation of local operating currencies. Net loss attributable to Yamana, equity holders for the quarter was $61 million or $0.06 per share. But when considering typical adjusting items for the quarter, we had adjusting earnings of $0.03 per share. Daniel mentioned there were some significant events that occurred in the quarter that were non-cash in nature or not reflective of ongoing operations, the most notable being the non-cash impairment reversal at Jacobina, impairment at Florida, and the impairment of goodwill at Malartic. The impairment reversal at Jacobina followed from an extension of the mine life due to increased reserves and resources and many other sustainable operational improvements.

At Florida, recent operating performance and a reset of the mine resulted in an impairment of its carrying value. Similar to the approach we took at Jacobina and El Penon previously, the current focus at Florida is to right-size the operation at a sustainable production level while we deliver mine flexibility and scope for future production increases. We have high confidence in the geologic opportunity at the mine. But we'll be able to pursue that better from an optimized platform. There was also a one-time $33 million tax payment made in Brazil at the end of Q4 that was not anticipated. We do not believe a similar event is likely again. In this instance, we believe the revenue taxing authority there applied an incorrect interpretation of recent tax legislation that led to this payment. We decided to make this payment to avoid penalties on this decision as a normal, administrative process to challenge such a decision with not available and not consistent with prior practice.

We are disputing this payment on both fundamental and administrative grounds. Our cash flow generation for the quarter on a normalized basis was also our strongest of the year. Cash flow from operations before working capital was $115.9 million. But when normalizing for our copper pre-pay and a non-recurring tax payment, cash flow would have been $182.5 million or more reflective of the performance during the quarter. However, with the inventory buildup at Cerro Morro which will reverse this year and the unexpected tax payment, we ended the year behind schedule in terms of our balance sheet improvement. I expect us to be back on track for 2019. Our portfolio of assets has been consistently delivering in terms of production and costs. We are at the end of a period of heavy capital spending and anticipate new contributions from assets like Cerro Morro, so we are well-positioned for a reduction in our net debt over the next few years and are committed to a net debt to EBITDA ratio of one and a half turns or better.

As a reminder, we delivered just under 11 million pounds into the copper advance sales program in Q4, the proceeds of which were received back in early 2018 as part of an overall $125 million advance payment. If not for that timing difference, cash flows would have been $33 million higher this quarter which is more reflective of what the normalized cash flows would have looked like. The two remaining quarters of the program have lower quantities to be delivered at about eight million pounds of copper in each of Q1 and Q2 this year. I'd also like to cover off a few quick guidance items. We expect sustaining capital to total $182 million and DD&A to total $475 million this year, both a little higher than last year with the addition of the full year contribution from Cerro Morro. The largest portion of our expansion rate capital budget, $34 million, relates to the Malartic Extension Project. As anticipated, expansionary capital, on the whole, is down quite significantly year-over-year following the completion of Cerro Morro.

Our total exploration spending will be modestly lower year-over-year as we have focused in on our best opportunities to drive mine life extensions and net asset value improvement. Cerro Morro is receiving a larger portion of our exploration dollars, for example, given the opportunity there and our focus to add to our GEO inventory. With that, I'll now turn the call back over to Daniel.

Daniel Racine -- President & Chief Executive Officer

Thank you, Jason. Maybe before going to the Q&A part, I would like to say that we'll continue to be focused on Operation Excellence, discipline on our costs and production, deliver on our guidance, and then, like Jason mentioned, with the actual price of metals, we will generate free cash flow this year and lower our debt. I'll now turn the -- Operator, we're ready for the Q&A session.

Questions and Answers:

Operator

Certainly. Thank you, Mr. Racine. We will now take questions from the telephone lines. If you have a question, and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press * 1 on your telephone keypad. If at any time, you wish to cancel your question, please press the # sign. Please press * 1 at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Mike Parkin with National Bank Financial. Please go ahead.

Mike Parkin -- National Bank Financial -- Analyst

Hi, guys. Thanks for the details on the Brazilian tax one payment. Can you just give us a bit more color on how did the government come to you asking for that and just a little more explanation on why you feel there's no risk of a repeat?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Yeah. Sure, Mike. Jason here. Good morning. So, the payment we made very late in Q4, in fact, was an extension payment on from what we talked about in 2017 and 2018. So, essentially, a final reassessment on those prior payments was issued. We interpreted the payments previously with the benefit of both our internal and external resources, confidence that we applied it in the correct manner. And then what happened late in the year, the government reassessed us for an amount different than that. Normally, when a situation like that happens, you have a administrative process which would allow due process and for the taxpayer, if they feel that there was a mistake made on that calculation to challenge that that was not provided for here -- we had to make the payment by the end of December and within a couple weeks actually or risk the program that we entered into previously.

And that was just an untenable situation for us that those prior payments were made with the philosophy of reducing risk. So, this would be contrary to that. So, we made the payment. And now we will move to our legal recourse to challenge that on both, as I said, fundamental grounds for the actual calculation of the payment and then from an administrative process where we were not given that opportunity to challenge the payment.

Mike Parkin -- National Bank Financial -- Analyst

Okay. So, rewinding a couple years or so ago, when you had in your MD&A on the details of the final program that dictated annual payments of $8.6 million or which you then opted against and paid the lump sum, those numbers were calculated by your own team, not the tax authorities?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

So, that's a process where we would apply those payments on that basis with the benefit of external tax and legal opinion as well, yes. And then there's always the final true-up assessment through what's called the consolidation process in Brazil. What I can add further on this is we do feel our case is pretty strong. I can't say there's any amount of certainty to it in timing. But we will pursue that aggressively. And then really, if -- that confidence in saying there's no repeat here is that this is it, our worst-case scenario is that we made this last payment, and it's over. And we're not successful in our attempt to challenge and recover this payment. So, there's no construct for any further payments here.

Mike Parkin -- National Bank Financial -- Analyst

Right. Okay. And then just on Cerro Morro, you guys have given us some good detail there in terms of how that silver inventory comes at the first half of this year. Is there a level that we should expect in terms of ounces sold? It seems like there's a max amount you're able to pull out of the system based on the furnace restraints. Is it gonna be fairly consistent Q1 to Q2 or a little more on Q1 versus Q2?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Mike, I think to be conservative, I'd assume it's probably a little bit more geared to Q2.

Mike Parkin -- National Bank Financial -- Analyst

Okay. And then one last question. With the reserves and resources at Cerro Morro, in the fall, we'd been led to believe that -- I felt, at least, that it'd be more of flat or maybe even modestly up year-over-year which wasn't the case. Can you just give us a bit more detail in terms of how the exploration program was laid out and what your potential expectations are this year? Is there a little more infill work where we could see more significant additions to reserves this year?

Henry Marsden -- Senior Vice President, Exploration

Certainly. Last year, we did discover the Veronica Vein. But we've only pulled a part of the Veronica resources up into reserve status. So, we'll be continuing to infill on Veronica. We'll also be doing some infill on some of the Escondida zones. But our main focus really on Cerro Morro is longer term. We're developing a large inventory of potential targets. And I would hope to see our largest increase in 2019 will be largely in the inferred category as we discover new vein systems and ensure a longer-term mine life at Morro.

Mike Parkin -- National Bank Financial -- Analyst

Okay. That's perfect. That's it for me, guys. Thanks very much.

Operator

Thank you. The next question is from Dan Rollins with RBC Capital Markets. Please go ahead.

Dan Rollins -- RBC Capital Markets -- Analyst

Yeah. Thanks very much. Just wondering if you could provide a little bit more color on the working capital flows. I know in past years, you've expected it to be balanced. And that's come in more negative than positive. Obviously, you have the benefit of Cerro Morro silver drawdown. But net net, do you expect positive change in working capital this year or negative working change in capital? And if so, what magnitude are you looking at within the outlook for 2019?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Hi, Dan. It's Jason here, again. Yeah. So, I'd assume it more flattish over the course of the year. You remember what we faced in 2018 was the buildout of Cerro. So, we had a few things going on there in terms of first fills on inventory, VAT tax which we'll start to chew into this year. And then I talked about the normalization of payables from the 2017 basis. So, I feel like that's on a more sustainable basis now. Q4, I did say previously I felt like we'd have an improvement in Q4 of '18. And really, the reconciliation on that is what I mentioned the precipitant level at Cerro Morro there. So, that really accounted for being under on the working capital side.

Dan Rollins -- RBC Capital Markets -- Analyst

Okay. And then when you noted positive free cash flow, if you just look in the Q3 MD&A, your free cash flow definition doesn't include growth capital. So, the free cash less -- your statement of being positive free cash flow in 2019, does that include non-sustaining capital expenditures as well as exploration?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Yeah, Dan. Yeah, exactly. That would be bottom-line after everything. So, a final change in cash. And to take a step back, even on Q4 I think that if not for the inventory levels that I mentioned the precipitant, we had the tax payment. And then we did put in our disclosure we've got some metal tied up with one of our refiners. If you tally all those guys up, you've got about $75 million for those items. We would have had pretty strong final change in cash for 2018 Q4.

Dan Rollins -- RBC Capital Markets -- Analyst

Okay. And just moving on to Chapada, obviously now that you've got everything up and running, the operational consistency is being delivered from the company. One of the goals of the company has been to naturally delever the balance sheet. But my question is is it necessary to continue to run the mining rates so hard at Chapada right now? Or would it be maybe more prudent just to idle some trucks, reduce the amount of low-grade stockpiling and use that next couple years to improve that balance sheet and then allow you to generate a little bit more additional capital to fund out the Phase 1 and potentially Phase 2 expansions at Chapada? It just seems to be a very large number this year on the low-grade stockpiles.

Daniel Racine -- President & Chief Executive Officer

Well, Dan, we always do the evaluation depending on metal prices, what's the best for us to do at Chapada. And then if you look at our actual budget, we began to slow down a bit at Chapada compared to 2018 and the year before. We have less movement of rock. But it all depends. Sometime, if it makes more sense and generate more cash for us to mine these and stockpile some of it, we're gonna do it. But at the end of the day, it's the free cash flow of the operation. Each operation, they have to generate cash. And what's the best return on each mine? It's not only Chapada.

All of them. This is where we're doing our job is to look at each of them and see what's the best option. And Chapada sure is generate a big stockpile. But we have also in mind that we're studying what's the future of Chapada. So, we have to balance what's the best. Yes, you're right. We can slow down Chapada. But then we're gonna produce 70,000 ounces and then 120 million pounds of copper. And then if you do the math on this, you can see there's a huge impact compared to being at 100 and 120 and above. So, there's always a balance to do.

Dan Rollins -- RBC Capital Markets -- Analyst

Okay. Understood. Again, appreciate the company, guys and adopting the more conservative cost guidance going forward. I think that's something that is great to see and brings you more in line with your peers. So, appreciate taking the more conservative approach.

Operator

Thank you. The next question is from Steven Butler with JMP Securities. Please go ahead.

Steven Butler -- JMP Securities -- Analyst

Oh, thanks, Operator. Good morning, guys. Two questions on Cerro Morro. Of course, you've been feeding fairly high grades which has been some of the bottleneck for the furnace. Do you have any plan to retrofit or add to furnace capacity at Cerro Morro? Or as you see grade profile abating, it will no longer be an issue going forward?

Daniel Racine -- President & Chief Executive Officer

Yeah. Actually, Steve, we have ordered a new furnace that will be installed in this quarter. This is why Jason said that more toward Q2 that we'll see the decrease in inventory. And one of the main reasons is we're installing a third furnace with unexpected very high grade because the grade is higher than planned for silver that generate bottleneck at the refinery. It's a good problem to have better grade. But yes, we bought a third furnace. It's gonna be installed and then in production for Q2.

Steven Butler -- JMP Securities -- Analyst

Okay. Thanks, Daniel. Jason, then, just to clarify again on your -- on slide 15, you talked about the new Argentina export tax being temporal or temporary and then in in 2000 -- remind us again the reason for it to end in 2020. Is it just a deal you have? Or is that the structure of the --

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Yes. The approval by Congress was for it to be in place through 2020. So, that's where it stands now.

Steven Butler -- JMP Securities -- Analyst

Oh, OK. That's fine. And what is the Bocamina sales tax rate again?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

At 3%, Steve.

Steven Butler -- JMP Securities -- Analyst

Three percent. Okay. Thanks, guys.

Operator

Thank you. The next question is from Josh Wolfson with Desjardins. Please go ahead.

Josh Wolfson -- Desjardins -- Analyst

Thanks. Most of my questions have been asked. Just one on the stockpile movement. Longer term or what the plan is for stockpiling. Should we continue to expect that Chapada outflow for a number of years going forward? Or is there a point at which that stops?

Yohann Bouchard -- Senior Vice President, Operations

Yohann here on the line. Regarding stockpile at Chapada, I'd like to stay that we're reaccessing stockpile on a yearly basis. As Daniel said, it's based on the metal price. It's based on recovery for type of ore. So, we run through optimizers every year. And as long as we're having higher grade zones to mine, for us, it makes sense to stockpile. Again, it's to generate and to focus on cash flow generation. So, for us, at the moment, I would say that the grade gonna be quite similar to all of our pits. You're gonna see less movement of stockpiling on surface. There's no doubt about that.

Daniel Racine -- President & Chief Executive Officer

Just to add on Yohann's comment, it's also why we're doing study on Phase 2 to do a mill increase because by doing this, then there will be no more stockpile generation. Actually, it will slowly start to deplete the stockpile with that. It won't happen in the next couple of year, but in the year after 2022-'23, we should not see stockpile increase anymore if we go at it with the project.

Josh Wolfson -- Desjardins -- Analyst

Okay. Is it safe to assume then the current expenditures for the stockpile movement until 2022 or 2023 will stay similar though?

Daniel Racine -- President & Chief Executive Officer

No, because like Yohann mentioned, each year, we put that in our optimizer. Our guys are doing it. And then it varies. It all depends on -- there's so many factors. And then we have different bit at Chapada. If we go mine barrels sooner than planned, that's higher grade. Then we won't need as much stockpile as we have right now. So, it's a balance. We guide this year what will be the amount for Chapada and Malartic. And that will change. Next year, they will be different numbers. There will be some stockpile for sure for both. For Malartic, it's still a couple of year when we gonna be in Barnat, then the stockpile will decrease. Or they will continue to increase this year and next year and probably 2021. Then after that, they will decrease. I can see a similar trend for Chapada if we go ahead with the expansion project. So, to be conservative, you can assume that 2020 will be similar to what we are forecasting for 2019.

Josh Wolfson -- Desjardins -- Analyst

Okay. And that's very helpful. And I appreciate the additional transparency on those costs. Thank you.

Operator

Thank you. The next question is from Mark Llanes with Credit Suisse. Please go ahead.

Mark Llanes -- Credit Suisse -- Analyst

Hi. Good morning. Most of my questions have already been asked. Quick question on Chapada again. I know you mentioned various stockpiles at 99 tonnage at .16 grams per ton gold. Could you remind me again what your criteria is to the grade and tonnage and what goes into the stockpile this year? And what was the unit cost when determining the $57 million in your stockpile CapEx guidance? Thanks.

Daniel Racine -- President & Chief Executive Officer

Jason, on the cost?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Yeah. We showed you the costs, Mark. What are you looking for? You want the tonnage?

Mark Llanes -- Credit Suisse -- Analyst

The unit costs for the $57 million. What's the tonnage going into the stockpile?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

At Chapada or Malartic?

Mark Llanes -- Credit Suisse -- Analyst

Chapada.

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Chapada? Yeah. It's about $4.00 per ore ton, I think. Something like that.

Mark Llanes -- Credit Suisse -- Analyst

Okay. And my next question is for the impairments at Malartic and Minero Florida, can you give me some color as to what the indicators of impairment there and what was the main drivers for the writedown?

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Yeah. Sure, Mark. I'll start with Malartic first. So, with good will -- you have to test for goodwill every year. So, there doesn't necessarily need to be any indicator there. So, we test it in relation to the overall value of the operation. In this case, we did have that slight impairment of the technical goodwill that arose from the acquisition at Malartic. In the case of Florida, as we've outlined in our disclosure, it's really taking a look at how the mine has been performing over the course of 2017 and 2018. So, that's the primary factor there. So, with the cost, with the underperformance, that's really the trigger. We also looked at some of the fixed capital there in terms of the PTR plant. So, that would have been another driver of us having to look a little closer at Florida.

Mark Llanes -- Credit Suisse -- Analyst

All right. Thank you very much.

Operator

Thank you. The next question is from Anita Soni with CIBC. Please go ahead.

Anita Soni -- CIBC -- Analyst

Hi. Good morning. Just to follow-up on that goodwill impairment at Malartic, I'm just a little curious about the magnitude of that versus the one that Agnico took at about $250 million. So, could you comment on the criteria you used? I'm assuming it's something to do with gold price where you may have written some of this down previously or the swap that you did with Upper Beaver.

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Yeah. Okay, Anita. So, our understanding is I think when you wade through some of the details, it would be a similar impairment. What you need to do is go back and look in 2014 how each of the companies would have completed their purchase price allocation. I believe the other company had more allocation to goodwill which resulted in a higher impairment compared to what Yamana did here.

Anita Soni -- CIBC -- Analyst

All right. Thank you for clearing that up. Thanks.

Operator

Thank you. The next question is from Carey MacRury with Canaccord Genuity. Please go ahead.

Carey MacRury -- Canaccord Genuity Limited -- Analyst

Hi. Good morning. Just a question on Cerro Morro. You've been targeting roughly a million ounces of GEOs to add over the next little while. I'm just wondering what sort of timeframe do you put on that? And is that the target?

Daniel Racine -- President & Chief Executive Officer

Yeah. It's still that target of a million GEO. And we can't comment on this. But our target is within the next three years to achieve that target.

Henry Marsden -- Senior Vice President, Exploration

Yeah. Certainly, Carey. We had our first really strong year of exploration last year. The intention in that year was really to build our capacity and our inventory of targets. Company's given us a much stronger budget for the upcoming year. And we expect to continue doing that for two years afterward. So, I think we're on target for that. And we should be seeing, as I mentioned earlier- well, hopefully, we'll be seeing some good increases in our inferred inventory by the end of next year.

Carey MacRury -- Canaccord Genuity Limited -- Analyst

And then maybe on the Chapada guidance, does that include the expected 2% increase in recovery

[Crosstalk]

Daniel Racine -- President & Chief Executive Officer

Yeah. For the second half of this year, Carey. That project will be completed at the end of the first half. So, at second half, we have increased recovery by 2% for both gold and copper.

Carey MacRury -- Canaccord Genuity Limited -- Analyst

And then maybe one final question. I know you're working on the Chapada Phase 2 study, but is there any guidance you can give on the range of capital you'd expect for that? Or is it too soon?

Daniel Racine -- President & Chief Executive Officer

No. It's on our website on many presentations we did last year. It's about $250 million for both the expansion and the pit wall pushback. If I remember right, it's $140 for the expansion.

Carey MacRury -- Canaccord Genuity Limited -- Analyst

Okay. Thank you.

Operator

Thank you. And the next question is from Tanya Jakusconek with Scotiabank. Please go ahead.

Tanya Jakusconek -- Scotiabank -- Analyst

Yes. Hi. Great. Thank you. Good morning, everybody. Maybe Daniel, can we talk a little bit about Minera Florida? We did see the change in reserve there. Think the comment was on the underperformance of 217-218 and relooking at the cost. I just wanna get an idea of longer term. I think the target had been to get to 120,000 ounces by 2021 in terms of a mine plan. Can you talk a little bit about how you see this operation going now that you've relooked at your reserve base?

Daniel Racine -- President & Chief Executive Officer

Yeah, Tanya. First, we have used more conservative ways of doing our resources and reserve at Florida. We've decided to be more consistent around the 90,000 ounces for next few years, rebuilt that resources reserve at Florida. This year, finally, we will be able to drill really well PVS and Pataguas where last year, was challenging as, when you know the topography there is difficult from surface, from underground. We had to do a ventilation race to make sure there was enough ventilation for our drillers to go there. So, we have adopted a more conservative approach on Florida to rebuild the base. Then we'll see what happen this year. I think it's a very critical year for Florida on exploration. If you look, we have lower our budget there. But we all know that we're gonna spend more money than what we've put in our guidance or on our budget for Florida. We're still very optimist on Florida. But we better lower our expectation, adjust our cost.

And the new one in the team, this is what they have done I think mainly in the past few months. They had great costs in November and December. And then it's gonna continue in this quarter and then this year. So, we want to generate -- the first objective is to generate free cash flow from that mine then, after that, reinvest. We better go slowly but achieve what we're saying. So, that target of 120 to 130, it's further away now than 2000 -- it will still be an increase this year compared to last year and then 2020 and '21 compared to this year. But it will be a smaller increase than we first thought, maybe --

[Crosstalk]

Tanya Jakusconek -- Scotiabank -- Analyst

Yeah. So, maybe in your guidance for 2020-2021, should we look at this mine producing under 100,000 ounces?

Daniel Racine -- President & Chief Executive Officer

Yes. That's the guidance we've put out yesterday. In both cases, Florida is around 85,000 ounces. So, you can then make the numbers for the others. But I can tell you that Florida is 85,000 ounces for the next three years.

Tanya Jakusconek -- Scotiabank -- Analyst

Three years? Okay. That's very helpful. Thank you very much.

Operator:

Thank you. There are no further questions registered at this time. So, I would like to turn the meeting back over to Mr. Racine.

Daniel Racine -- President & Chief Executive Officer

Thank you very much, Operator. I don't have any further comment. Thank you.

Operator

Thank you. Your conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.
Duration: 53 minutes

Call participants:

Daniel Racine -- President & Chief Executive Officer

Henry Marsden -- Senior Vice President, Exploration

Jason LeBlanc -- Senior Vice President, Finance & Chief Financial Officer

Yohann Bouchard -- Senior Vice President, Operations

Mike Parkin -- National Bank Financial -- Analyst

Dan Rollins -- RBC Capital Markets -- Analyst

Steven Butler -- JMP Securities -- Analyst

Josh Wolfson -- Desjardins -- Analyst

Mark Llanes -- Credit Suisse -- Analyst

Anita Soni -- CIBC -- Analyst

Carey MacRury -- Canaccord Genuity Limited -- Analyst

Tanya Jakusconek -- Scotiabank -- Analyst

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