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Yamana Gold Inc (NYSE:AUY)
Q4 2019 Earnings Call
Feb 14, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 may 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 and cost of production, capital expenditures, future metal prices and the cost of timing and the development 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 2019 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 o'clock PM 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 Chief Executive Officer.

Daniel Racine -- President and Chief Executive Officer

Thank you, operator. Thank you all for joining us and welcome to our fourth quarter and year end conference call. With me on the call today is Jason LeBlanc, our CFO, other members of our great management team are also in the room and will be available for the Q&A portion of the call.

2019 was by any measure, a very strong year for Yamana. Production exceeded guidance, cash flow increased, debt declined, reserves grew, project advanced, and the Yamana was one of the top performing stock in its peer group. These are just some of the highlights of the year which I'll cover in greater detail, but first look at our health and safety performance.

Our total recordable injury frequency rate in 2019 fell to 0.57, a 5% decrease from 2018 and a 24% decrease over the past three years. El Penon, I'm pleased to inform you, completed its second straight year without a lost time injury, marking 8.9 million work hour without a lost time incident. Yamana did not have any material, environmental or community incidents for the fourth consecutive year.

Turning to our production result, we exceeded 2019 guidance for both gold and silver, with silver significantly outperforming guidance. GEO production also exceeded guidance at 1.024 million versus 1.01 million. Cash costs of $667 per GEO and all-in sustaining costs of $978 were in line with guidance after the inclusion of adjustments noted during the year. Jason will discuss costs in greater detail during his remarks.

Total debt decreased in 2019 by $711 million and we nearly halved our net debt to $889 million, significantly strengthening our balance sheet and financial flexibility, and with greater financial flexibility, good things happen. One of those things was the 25% increase to our annual dividend announced in Q4. We now have cumulatively increased our annual dividend by 150% to $0.05 per share from $0.02 per share in less than eight months.

In September, we announced the discovery of East Gouldie, a new mineralized zone at Canadian Malartic. We said that the drilling result indicate that Gouldie in East Malartic zone are converging at debt, increasing our confidence in the economic of the underground mineral resources at Canadian Malartic. The joint Yamana-Agnico Eagle partnership that owns and operates the mine is evaluating scenarios to optimize the project, which includes discussion with royalty holders and other stakeholders that enhance the economics of the project. Given Yamana robust pipeline of development projects, we do not currently anticipate approving the project for development, unless these discussions are successful and the project economic are improved.

In addition to Canadian Malartic, we issued positive exploration update for El Penon, Cerro Moro, Minera Florida and Jacobina in the second half of 2019. We also advanced Phase 1 of the Jacobina optimization, and we expect a prefeasibility study to be complete in Q1 that evaluates economic scheduling and expansion scenario for Phase 2. We increased mineral resources on a consolidated basis with inferred mineral resources showing a substantial 27% increase. Jacobina was a standout in this regard, increasing mineral reserve by 19% from year end 2018. I'll talk more about reserves in a moment.

Another positive this past year was the progress on Agua Rica. Last March, we signed an integration agreement with Glencore and Newmont, under which Agua Rica would be developed and operated using the infrastructure and facilities of the Alumbrera mine. The agreement significantly derisks development with reducing the project complexity and environmental footprint. In July, we announced positive prefeasibility study result for the project that underscore Agua Rica as one of the longest life, lowest capital intensity copper project in the world. A feasibility study is expected to be completed by year end or early 2021. We continue to advance studies to further enhance project economic. Finally, we completed the sale of Chapada mine in July, receiving upfront cash consideration of $800 million in addition to other consideration.

This next slide cover our fourth quarter highlights. I want to walk you through all the numbers, but I do want to highlight cash and liquidity. Our cash balances climbed by 59% to $158.8 million from $99.9 million at the end of Q3. This is yet another barometer of our improved financial flexibility and strong free cash flow, which climbed to $73.4 million in our latest quarter before dividend and debt repayment up from $29 million in the third quarter. With that flexibility, we are not only able to do things like increase our dividend, we can also continue to reduce our net debt, which we did by nearly $60 million in Q4.

This slide shows our Q4 production and costs. Jason will discuss costs in greater detail during his remark. Looking at production, Jacobina posted an all-time high quarterly and full year production of 41,774 ounces and 159,499 ounces, respectively. Full year production was also well above our upwardly revised guidance from 152,000 ounces. The success of this operation is a testament to what can be done with planning, patience and great people, and there is more to come.

Phase 1 of the expansion is on track for completion in mid-2020. This will bring total throughput to a stable and sustainable 6,500 tonnes per day. Average throughput in the fourth quarter was approximately 6,200 tonnes per day. The increase in mineral reserves that I discussed earlier will support Phase 1 throughput, but also support the potential for the second phase of the expansion. This phase call for production to increase to 200,000 ounces per year at 7,500 tonnes per day and 225,000 ounces at 8,500 tonnes per day. A prefeasibility study is expected to be completed in the current quarter.

El Penon reported its highest quarterly and yearly production since we completed the rightsizing three years ago. Gold production in the quarter was 48,131 ounces with full year production of 159,515 ounces. As with Jacobina, additional mine development has greatly improved production flexibility and the expectation for 2020 is to process ore -- the processed ore will primarily be from runoff mine, with reliance on low grade stockpile, a supplemental ore to the mill.

Canadian Malartic produced 85,000 ounces on a 50% basis during the quarter and 334,596 ounces for the full year, in line with budget. The Canadian Malartic expansion project continues to advance as expected, with a modest contribution from Barnat of 3,137 ounces during the fourth quarter. Minera Florida at its strongest quarterly performance of the year in Q4, highlighted by an outstanding month of December during which it produced 8,200 ounces of gold. Quarter-on-quarter throughput increased as did grade and mechanical availability. We are very pleased with the mine performance and we are confident that this is a sign of things to come.

Cerro Moro produced 26,658 ounces of gold in the quarter and 1.6 million ounces of silver. The full year production was 120,802 ounces of gold with silver production coming above plan at 6.32 million ounces, while the strong silver production at a positive impact on GEO production, this was partially offset by higher GEO ratio goes by a performance of gold versus silver. We expect silver to continue to be a more meaningful contributor to GEO in 2020.

Taking a look at our gold mineral reserve. We replaced the depletion in 2019, exiting [Phonetic] the year with 7.86 million ounces of mineral reserve compared to 7.84 million ounces at the end of 2018. Measured and indicated mineral gold resources were also increased year-over-year to 7.69 million ounces from 12.49 million ounces. Inferred gold mineral resources increased by 27% to 12.07 million ounces, from 9.53 million ounces. As you can see also Canadian Malartic was a big contributor.

Silver mineral reserve ended the year at 63.82 million ounces, measured and indicated came at 44.63 million ounces, up 22% from 2019, where inferred silver came at 45.42 million ounces. The gold and silver resources and reserves show our success in exploration, the increase in gold and silver show our success in exploration. At Canadian Malartic with the discovery of East Gouldie and East Malartic below 1,000 meter, we increased the mine inferred mineral resources by 111% in 2019. On a 50% basis, East Gouldie added 12.8 million tonne at 3.34 grams per tonne for 1.37 million ounces. The zone continues to be open in all direction.

With the resource defined today, the potential underground is impressive. But like I mentioned before, the different scenarios need to be optimized, and the partnership do not anticipate approving the project for development under the current economic results. Last year, the El Penon mine replaced gold and silver mineral reserves above and beyond depletion by 15% and 21%, respectively. It was the third straight year that El Penon increased mineral reserves for both metal well beyond depletion.

The operation gold measure and indicated mineral resources increased by 66% from year end 2018 with silver rose 70%. We recently indicated that new structural interpretation of faulting and the deep Orito vein at El Penon is helping to define new high grade mineralization with potential to increase mine life. I hope the message is clear, El Penon to continue to show a remarkable ability to grow mineral reserve beyond depletion and we are confident that it has plenty of mine life ahead. Measured and indicated mineral resources increased modestly at Cerro Moro in 2019, while gold and silver inferred mineral resources rose 25% [Phonetic] and 10%, respectively. Exploration will continue to be focused on drilling high potential target, including Naty.

For Jacobina in the mid-year exploration update for the mine, we announced that mineral reserves increased by 8.6% from year end 2018. We continue an improvement to Jacobina's cost structure and development productivity, the operation was able to incorporate ore previously categorized as mineral resources into mineral reserves. The inclusion of this supplemental ore which has encountered as halo to the core mineral reserves, slightly decreased total mineral reserve grade, but significantly increased economical mineral reserves ounces. We have effectively and profitably mined some of the supplemental halo over the past few quarters.

We are prioritizing the mining of core mineral reserves with a grade of 2.4 grams per tonne and deferring the majority of the mining and processing of the supplemental halo until late in Jacobina's mine life. At Minera Florida, the result last year on the consolidated property included new veins at better than life of mine grades, underscoring the potential that we see at this operation. The increase in mineral reserve reflects positive result at Pataguas, Don Leopoldo, Fantasma and PVO Sur, among others, along with block models revisions. I would also like to highlight gold and copper mineral reserve growth at Agua Rica last year. Gold mineral reserve increased 13% from 2019 to 7.1 million [Phonetic] ounces and copper mineral reserve rose 21% to 11.8 billion pounds.

This slide shows our three years production guidance along with our cost guidance for 2020. We see growth in gold production over the next three years with 2020 production at 857,000 ounces [Phonetic]; 2021 at 873,000 ounces; and 2022 at 885,000 ounces. Silver production will be 11.5 million ounces this year; 11 million in 2021; and 10 million in 2022. GEO production of 990,000 ounces this year, and 1 million ounces in 2021 and '22. Our guidance for both metal and GEO is plus or minus 2% for 2020 and '21, and plus or minus 3% for 2022. We are confident to achieve and exceed these numbers.

As previous year production will be stronger in the second half of the year, with approximately 54% of the production in the second half. Cost of sales for 2020 will be between $1,130 per GEO ounces to $1,170 per GEO ounces. Cash costs this year will be between $640 to $684 per GEO and all-in sustaining costs between $980 and $1,020 per GEO. While we are forecasting a marginal increase in sustaining capital expenditure, we do not anticipate any impact to margins. With the higher production waiting in the second half of the year, the Company anticipates unitary costs to also trend lower in the second half in relation to the first half of the year.

I will now turn it over to Jason to discuss the financial.

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

Okay. Thank you, Daniel and good morning, everyone. I'll start off with a quick recap of some of the financial highlights of the year. Revenue in the fourth quarter was $383.8 million, compared with $483.4 million in the same period of 2018. The decrease reflecting that the Company's current portfolio comprises five mines, compared with seven last year. Despite the lower volumes though, gross margin was flat as metal prices were up significantly year-over-year. Net earnings attributable to Yamana equity holders in the fourth quarter were $14.6 million or $0.02 per share, compared with a loss of $61.4 million or $0.06 per share last year. The current quarter includes certain items that may not be reflective of current and ongoing operations totaling $12.1 million. On an adjusted basis, then earnings were $26.7 million or $0.03 per share or flat with last year.

During the quarter, we also had our lowest cash cost performance of the year at $656 per GEO, even compared with earlier in the year when we owned Chapada. Jacobina and El Penon in particular had a great Q4. Our Q4 results were best characterized by the strong cash flow and free cash flow performances that we had been expecting to end the year.

Cash flows from operating activities increased 75% in the latest quarter to $201.7 million from $114.8 million [Phonetic] a year ago, while cash flows before net change in working capital were $176.6 million, compared to $115.8 million. Free cash flow before dividends and debt repayments during the quarter increased to $73.4 million, up sharply from $9.5 million a year ago. This drove a commensurate reduction in our net debt of about $60 million during the quarter to $889 million, which is our lowest aggregate net debt level since all the way back in 2013.

At the time last year, we said to expect our inflection point on free cash flow during Q2 after an investment cycle of several years. That would lead to sequentially increasing free cash flow in Q3 and Q4, which was all the case. We'll be generating free cash flow and further reducing both gross and net debt during 2020. We have a scheduled debt maturity of about $56 million in Q1 this year, that we'll repay from cash balances at year end of $159 million plus free cash flow generation.

Along with our financial results last night, we also released guidance information, including those on capital for 2020. Expansionary capital spending of $89 million in 2020 is down about $6 million from last year. Sustaining capital of $164 million is up about $18 million from last year, mainly attributable to Cerro Moro as we concentrate more on underground development there. Total exploration spending of $84 million is up from $68 million last year, about $20 million of the total exploration spending will be expensed with the balance capitalized in 2020. With respect to the exploration spend, we are allocating $14 million of our total this year to our generative exploration program to advance many highly prospective opportunities in our portfolio.

The program will target the Company's most advanced exploration projects, while retaining flexibility to prioritize as merited by our drill results. For the increased budget that we are targeting over the next three years, we expect to use the proceeds from the monetization of non-producing assets to fund this budget. This will create a better balance between investing in new projects and maximizing sustainable free cash flow from our operations. While we have a number of prospective land packages, the program is mainly focused on projects in Canada and Brazil. As you can see here, production will be weighted toward the second half of the year, representing 54% of the total. Costs will also follow this profile with lower costs as the year progresses from the unit cost benefits of the higher back-end loaded production.

I also wanted to reference back to the strong free cash flow generation we saw in Q4 of 2019, which is their strongest production quarter of the year. With the production and cost profile just mentioned for 2020, free cash flow will follow a similar trend this year, with second half free cash flow above the first half. On average though for 2020, we expect to generate quarterly free cash flow during the year that would conservatively approximate our experience in Q3 and Q4 of 2019 on average as spot prices. So that to say a very healthy free cash flow profile, which we're quite excited about. With that profile, we can reinvest in our business, continue to improve our balance sheet and target higher sustainable dividends and dividends per ounce for our shareholders.

Yamana has positioned itself as a dominant gold company with a portfolio of high quality assets, providing stable and increasing cash flows, optionality, growth and prospects for additional monetizations with an American focus, we operate in the best mining jurisdictions in the world.

And with that, I'll turn the call back over to Daniel.

Daniel Racine -- President and Chief Executive Officer

Thank you, Jason. Last year, our slogan was the beginning of what's next. Given our progress, it makes sense to revise that to the beginning of what's now. And what's happening now is that our free cash flow has grown to a point where we are able to reduce that significantly using cash from treasury while supporting higher dividend and continuing to grow the business. We are confident that this sustainable -- is sustainable as our free cash flow profile continue to improve, we will be in an even better position to advance our growth project and exploration program, while further reducing debt and increasing shareholder returns.

And with that, I'll be happy to answer your questions. Operator?

Questions and Answers:

Operator

Thank you, Mr. Racine. We'll now take questions from the telephone lines. [Operator Instructions] And the first question is from the Fahad Tariq from Credit Suisse. Please go ahead.

Fahad Tariq -- Credit Suisse -- Analyst

Hi, good morning. Thanks for taking my question. At Jacobina, can you maybe walk through the reason for including the lower supplemental ore in the reserves? And was this the only kind of reason for the reserves increasing 19% year-over-year?

Daniel Racine -- President and Chief Executive Officer

Well, Luke Buchanan, our Senior -- our VP of Technical Services will answer the question, Fahad.

Luke Buchanan -- Vice President of Technical Service

Yeah. Hi there. First of all, we did increase the highest grade reserves as well, as you saw in the middle of the year. And then we replaced depletion again by the end of the year. In terms of the lower grade, we previously took a conservative approach to downgrade those reserves to measured and indicated resources, but by demonstrating over the past several quarters, that we can sustain the low operating cost, we're confident that we can include these in reserves in the later part of the mine life. One of the key improvements was the internalization of development over the past year, which has resulted in improved productivity and lower cost. So we just think now is the good time to add those lower grade reserves back into reserves and include it in the mine plan.

Fahad Tariq -- Credit Suisse -- Analyst

Thanks, and just as a follow-up, can you remind me what the capex would be for the Phase 2 expansion in 2021 and 2022?

Daniel Racine -- President and Chief Executive Officer

Well, in 2021 and 2022, if we go ahead right now, we have said many times, as these going to be below $50 million. So, we will complete the study this quarter, we're going to comment in April with the exact numbers, but for now, it's going to be below $50 million and then you can assume a split, so $25 million in '21 and in '22.

Fahad Tariq -- Credit Suisse -- Analyst

Right, thank you.

Operator

Thank you. The next question is from Ralph Profiti from Eight Capital. Please go ahead.

Ralph Profiti -- Eight Capital -- Analyst

Good morning. Thanks for taking my questions. Firstly, Daniel, when we talk about primary development versus secondary development at Jacobina, can you help us with how far ahead you are on development and maybe put that in context by comparing to say where you were, say a year ago? And also like to get a sense of -- how many zones you have opened now and how many are going to be required if you hit the upper end of that expansion phase, let's say, 8,500 tonnes a day?

Daniel Racine -- President and Chief Executive Officer

Thank you, Ralph. I'll let Yohann answer these questions.

Yohann Bouchard -- Senior Vice President, Operations

Good morning, Ralph. Just to answer your question here, I mean last year we were doing about 1,500 meters to 1,800 meters of development per month. This year, we see a development in a range of 1,200 meters to 1,300 meters. So we're already decreased. And I would say, expansionary capex of next year, we indeed put some more development, because we believe that the Phase 1 expansion may yield a bit more throughput that has been previously thought. So I mean to make sure that we're going to be able to support the Phase 1 expansion in case that -- I would say, in case that we're being a bit more higher than the 6,500 tonnes per day targeted. We decided to put some more capex in our budget this year in that aspect.

Daniel Racine -- President and Chief Executive Officer

Maybe to answer your first part, Ralph, five, six years ago, we were just in time in development. We are now about 18 months ahead in the development and that the production of the next six to nine months is already all developed and ready to be mined. So, that's adding a lot of flexibility to the Jacobina mine and like Yohann just mentioned, I think when we have completed our 6,500 tonnes per day, the mine already think that with the new equipment, we will install, we might be able to process more tonne, more than 6,500 tonnes per day.

Ralph Profiti -- Eight Capital -- Analyst

Okay, got it. Thank you. The second question is on Argentine export tax. Jason, can you help me maybe reconcile this new regime that talks about sort of fixed percentages as opposed to the 4:1 ratio, and you know, going forward until this expires, is that going to have kind of around the same impact sort of $60, $70 maybe up to $80 an ounce impact?

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

Yeah. Hey, Ralph. Yeah, so we mentioned the 12% tax, which has been announced, it's not approved and finalized yet, but we've assumed that 12% tax prospectively in our planning for the next year, and really it's the easiest way to do it on a per ounce basis, 12% times the gold price, and that will give you the per unit impact at Cerro Moro or take that number and divide through by our 990,000 ounces guided to get the consol impact.

Ralph Profiti -- Eight Capital -- Analyst

Right. And have you had, you know, discussions with the government sort of face time with them to discuss sort of the impact and how they're thinking about it?

Daniel Racine -- President and Chief Executive Officer

Yes, Ralph. We did that discussion with the government, Peter, our Executive Chairman was there two weeks ago -- three weeks ago to discuss directly with the President of the country and they understand that we just built Cerro Moro, we spent $330 million to build it, and then we got it with these taxes. I think there's -- they understand, they're listening. And then there's going to be follow-up on this regarding what should be the right level of tax, as we have stability agreement tax of 5% at Cerro Moro. So we're still contesting each time we pay the tax. But we're contesting this taxing which should be a maximum of 5%. So, we're going to see what will happen in the future. But right now, we say we should pay a maximum of 5%.

Ralph Profiti -- Eight Capital -- Analyst

Understood. Okay, so encouraging. Thank you.

Daniel Racine -- President and Chief Executive Officer

Thank you, Ralph.

Operator

Thank you. The next question is from Mike Jalonen from Bank of America Merrill Lynch. Please go ahead.

Mike Jalonen -- Bank of America Merrill Lynch -- Analyst

Hi, Dan and Jason. Just had a question on East Gouldie that's an impressive start there with the resource. I guess 2.8 million ounces of gold with your partner's share. I guess Dan, just on the mineability would you access? It looks pretty deep. Would that be accessed by a decline line from the Canadian Malartic pit or a new shaft and looks pretty good fitness as would it be mined like Goldex for economies of scale? And that could be my first question. I have a second one on East Gouldie.

Daniel Racine -- President and Chief Executive Officer

Okay, good morning, Mike. Yeah, it's quite impressive to have already resources of 2.8 million ounces on 100% that's there only one year of exploration. You're right it's quite deep right now between 800 meters to 1.5 kilometers, 1.6 kilometers below the surface. But it's an open going toward surface, going east, west and deep, and I think this is our main goal this year is to find how close the surface is going and then east and west and deep. Also it's quite interesting what you saw as resources, we think it's going to be a lot higher than that in the future. But we have just to continue to drill that, it's is going to be a similar type of mining than Goldex now with [Indecipherable] sitting in the stope, they're quite wide stope and big.

We're studying right now to know as you know to start around, we were studying to start around to go to East Malartic and Odyssey, right now East Gouldie is a bit too deep to be accessed by a ramp but again if we find that the zone comes closer to surface, then we might access it by the ramp. This is why we have also delayed the ramp last year and that was clear two time this morning that we have no intention to start the ramp this year. As we want to understand better where the East Gouldie zone go up to surface. But also, we have some issues paying high royalty for underground mines.

Mike Jalonen -- Bank of America Merrill Lynch -- Analyst

Okay, I guess that's my second question says here at Page 23, the Agnico release just include discussions with the royalty holders. Has the discussion started yet?

Daniel Racine -- President and Chief Executive Officer

Yes, they have started. They have started before Christmas, they're still ongoing with the main royalty holder, and then it's progressing. So, we're going to see what will happen in the next weeks and months. But for now, for us, nothing has really changed. We're going to continue to drill. We have quite a big exploration program, it's about $20 million or $10 million or half of it for East Gouldie this year.

So, we believe in the potential, but as you know, and it's clear in our press release, we use $1,200 per ounce gold when we do our study in our resources and reserves at Malartic. And using that number, the economic is not really good, all the cash flow is going back to the royalty holders.

Mike Jalonen -- Bank of America Merrill Lynch -- Analyst

Yeah, I guess well, obviously I guess well Osisko has their 5% NSR, as Abitibi have a 5% NPI? Is that correct?

Daniel Racine -- President and Chief Executive Officer

No. Abitibi has a lot smaller percentage.

Mike Jalonen -- Bank of America Merrill Lynch -- Analyst

All right. So the main ones just were gold royalties and their 5% NSR?

Daniel Racine -- President and Chief Executive Officer

Yeah.

Mike Jalonen -- Bank of America Merrill Lynch -- Analyst

All right. Okay. Well, thank you. Good luck.

Daniel Racine -- President and Chief Executive Officer

Thank you.

Operator

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

Carey MacRury -- Canaccord Genuity -- Analyst

Hi. Good morning, guys. Maybe just another question on Malartic. Now that you've got East Malartic, Odyssey, East Gouldie just wondering what sort of development options you're thinking about in terms of tonnes per day or size?

Daniel Racine -- President and Chief Executive Officer

Good morning, Carey. Right now, there's no, we're doing a study as we mentioned last year, so 2018 we started a study on East Malartic and Odyssey alone, the discovery and in -- with the discovery of East Gouldie at the end of 2018 it completely changed our plan to look at the underground project. So we have restarted -- we're just restarting the study right now to -- with the 2.8 million ounces we just announced in resources. We can start to look at PEA study, internal PEA study to see how we can integrate the three zones into mining, but we're just starting.

So, at this time, we don't have any indication on tonnage and stuff like that. We'll come later this year. I think both partners we agree that we would come later this year and then show our plan for Malartic what we think it would be, but it's too early to say now.

Carey MacRury -- Canaccord Genuity -- Analyst

Okay, great. And then maybe on Cerro Moro. I know you guys had a target of 1 million ounces of gold equivalent over some time period and reserves came down this year. I'm just wondering how you're -- what's the outlook now in exploration and are you still comfortable you can get there or has your view changed there?

Daniel Racine -- President and Chief Executive Officer

Henry will answer this one.

Henry Marsden -- Senior Vice President, Exploration

Yeah. Good morning, Carey. We talked last year really about increasing our sort of inventory of targets some at Cerro Moro. We haven't done that over the year, we've had a very strong and aggressive exploration program. We've seen some new discoveries and we're starting to see small, but significant contributions to the inferred resource at Cerro Moro. So, by the end of 2020, we should start to see some of those converting into measured and indicated, and we'll see just gradual growth much like we do at El Penon and at the Cerro Moro site.

Carey MacRury -- Canaccord Genuity -- Analyst

Okay. Thank you.

Operator

Thank you. The next question is from Tanya Jakusconek from Scotiabank. Please go ahead.

Tanya Jakusconek -- Scotiabank -- Analyst

Yes. Good morning, everybody. I have just a couple of questions. One technical and then just one for you, Jason, on the capital side. Maybe just Daniel starting on the technical side, just looking out for your three-year guidance when you provided the 885,000 ounces in 2022. What have you assumed in that guidance for Minera Florida and Jacobina?

Daniel Racine -- President and Chief Executive Officer

Well, we don't -- as you know, good morning, Tanya, as you know, we don't provide mine guidance after this year, but assume that Jacobina, we have already said what will be the production with the increased throughput. Florida will be -- we have always said it's going to be stable for the next three years. So, the 80,000 ounces to 90,000 ounces.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. And then when you say Jacobina with the increased throughput, are you implying the 6,500 tonnes per day?

Daniel Racine -- President and Chief Executive Officer

Yeah. No, there's no -- in our capital that Jason discussed earlier, there's zero money for an expansion at Jacobina. Like we said before, we want to wait to see the study coming this quarter. And then we're going to decide if we go ahead, we're going to tell the capital needed to do it. But so far, the three years as assuming 6,500 tonnes per day.

Tanya Jakusconek -- Scotiabank -- Analyst

In the production profile and in the capital?

Daniel Racine -- President and Chief Executive Officer

Yes.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. And -- OK. So, that's good. Thank you on that front. And then maybe just on the capital front and maybe this moves over to Jason. I think Daniel mentioned under $50 million, if we were to go to the 7,500 tonnes a day at Jacobina. When you look out the next few years, is that really the only to 2022? Is that really the only development capital do you see in your portfolio right now?

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

Yeah, I know, Tanya, we'd referenced back to -- we call it that, you know, bucket of $50 million to $75 million, which we'd say a steady state. So, we're a little above that this year, the primary difference is spending on Agua Rico with feasibility and some of the stuff. But really, to your point after we get out pass this year, that capital drops off pretty significantly, there's no -- there's a margin size across the portfolio, but it's a fraction of what we're going to spend this year in 2021 and '22 at least what we see on paper right now. So when we do come to that decision on Jacobina story, assuming that will be spent over multiple years, we'd be well within that $50 million to $75 million bucket.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. And then the sustaining sort of in that $165 million range?

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

Yeah, that's a pretty good number.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. And then maybe just on the -- you mentioned that this year's capital expenditures doesn't include the development of the exploration ramp at Odyssey and East Malartic. Is that because you're not going ahead with it or is that just another number that, sorry, what is that capital number maybe and where is it being allocated?

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

There's no capital allocated, Tanya. And that's I think what Daniel had mentioned, we're still wrapping our arms around the project to find out the best sequencing of everything. So we're not at the point of approving and developing that underground ramp yet.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay, so just the $10 million on exploration was the only expenditure that you're going to have in there and that's going to be coming through the exploration budget?

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

That's right. Yeah.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. Okay. No, that was my questions. Thank you.

Daniel Racine -- President and Chief Executive Officer

Thank you.

Operator

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

Anita Soni -- CIBC -- Analyst

Hi. Good morning, guys. I just want to ask a question on El Penon. I think you touched upon most of it, but just can you delineate where -- we noticed you had some good exploration success there. And could you just tell me what the go forward plan with El Penon is?

Daniel Racine -- President and Chief Executive Officer

Good morning, Anita. Henry will answer the question on exploration. But El Penon, you saw last year was an amazing year, the last three years there was an increase in gold production and then they maintained silver production. I think what we saw last year, it's a good number of what we guide for this year. It's a good number for the coming years for El Penon but as we drill and discover more gold and more silver ounces, El Penon has the potential to grow production in the coming years.

As you all know, we have a 4,000 tonne per day mill at El Penon, we're processing around 2,800 -- 2,700, 2,800 tonnes per day so we have extra mill capacity at El Penon. Once in a while now we're processing some of the stockpiles that incremental ore is bringing ounces to the mill and at cheap cost. So, there's huge potential at El Penon, but I let Henry answer the question on the potential on the exploration.

Henry Marsden -- Senior Vice President, Exploration

Sure. Thanks, Daniel. Yeah, Anita we had a very strong year last year. And I think as we mentioned, we combined some sort of new techniques, including the machine learning at El Penon that developed some strong targets and we were able to chase some of the principal veins like Orito at depth, and that we'll be continuing to do that in 2020, combined with looking at some of the secondary veins that have been very productive for us in the past.

And we've also stepped out of the core mine and we're going to put a significant budget this year into some follow-up drilling on targets looking for new veins that could extend the mine life beyond what we're seeing currently. So, we're really on a very similar program. We just plan to keep on showing a growth in resources there and to continue replacing depletion on an annual basis ongoing.

Anita Soni -- CIBC -- Analyst

Okay. And then maybe could talk a little bit about the generative program that you have going forward. So you said, $14 million budgeted for this year and then going forward, you guys are planning to fund that plan. Is that in a similar level that you said you're going to fund it based on asset sales I guess, non-core assets the things that are more tied up in the balance sheet not generating cash flow? Could you talk about that plan and how you see that going forward?

Daniel Racine -- President and Chief Executive Officer

Yeah, Anita. The total is around $63 million for the next three years, so $14 million this year as you can see it will increase in 2021 and '22. And we will give the detail out of it and then you're absolutely right, all the funding for this will come from the non-producing assets or either the royalty portfolio, some selling of our Brio Gold shares or money coming from Agua Rica, we don't intend to use cash flow from operation to provide that exploration that already a generative program in the past few years.

So, for this year was easy, the $14 million was already and mostly in the budget. We had already, it's just we moved the money that was going somewhere else to generative exploration program in Canada and Brazil. But Henry can give more detail.

Henry Marsden -- Senior Vice President, Exploration

Yeah, certainly you know what -- we built a very strong portfolio of properties, particularly in Brazil. And we have been slowly moving those ahead and what we'd like to see with the use of the monetization funds is a very stable exploration program is independent of gold price, independent of some of the cash flow restraints we've seen in the past. So, we'll be basically moving ahead our internal projects aggressively this year and then with increasing budgets over the next two years with -- as Daniel mentioned about $53 million total budget over three years.

Anita Soni -- CIBC -- Analyst

Okay, thank you very much.

Daniel Racine -- President and Chief Executive Officer

Thank you.

Operator

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

Daniel Racine -- President and Chief Executive Officer

Thank you, operator. Thank you, everyone, for joining our call. And stay tuned for our Q1 release in April and our continued cash flow, free cash flow generation in the coming month and quarter. Thank you and have a wonderful Valentine's Day. Bye.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Daniel Racine -- President and Chief Executive Officer

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

Luke Buchanan -- Vice President of Technical Service

Yohann Bouchard -- Senior Vice President, Operations

Henry Marsden -- Senior Vice President, Exploration

Fahad Tariq -- Credit Suisse -- Analyst

Ralph Profiti -- Eight Capital -- Analyst

Mike Jalonen -- Bank of America Merrill Lynch -- Analyst

Carey MacRury -- Canaccord Genuity -- Analyst

Tanya Jakusconek -- Scotiabank -- Analyst

Anita Soni -- CIBC -- Analyst

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