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Yamana Gold Inc (AUY) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribers – Oct 29, 2021 at 6:30PM

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AUY earnings call for the period ending September 30, 2021.

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Yamana Gold Inc (AUY -0.52%)
Q3 2021 Earnings Call
Oct 29, 2021, 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 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 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 third quarter 2021 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 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 CEO.

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Daniel Racine -- President and Chief Executive Officer

Thank you, operator. Thank you all for joining us and welcome to our third quarter 2021 conference call and webcast.

Presenting with me today is Jason LeBlanc, our Chief Financial Officer; Yohann Bouchard, our Chief Operating Officer; Gerardo Fernandez, Senior VP, Corporate Development; and Henry Marsden, Senior VP, Exploration, who will be available to answer questions during the Q&A portion of the call.

I will start, as always with health and safety. Our total recordable injury rate was 0.68 for the first nine months of 2021. The health and safety of our employees always come first and is something we have always trying to improve. Since the beginning of the pandemic, we have taken quick action to limit the impact of COVID-19 on our operations and the communities in which we operate. We put in place [Technical Issues] across the company to minimize the spread of COVID-19. We are happy to report that we expect over 90% of our employees to be fully vaccinated before the end of the fourth quarter. During the third quarter, we completed human rights risk assessment at all of our site in line with the Voluntary Principles on Security and Human Rights. We also approved a responsibility policy covering all aspects of health and safety and sustainable development. This is available to review on our website.

Earlier this year, we introduced our climate strategy, in Q3, we performed workshops with each operations were established roadmaps for each operation that described project cost and schedule. These actions will help ensure that is along our -- it's long-range GHG reduction efforts are supported by practical and operationally focused short, medium and long-term action to achieve the targets.

Moving onto our third quarter results. Jason will review our quarter in more detail, but I want to spend a moment to recognize the strong performance of our mines delivered. Canadian Malartic, Jacobina and El Pinon, all had standout quarters, and Cerro Moro, also produced excellent results. In total, from our four -- five operating mines, we achieved the second highest quarterly gold production ever in Q3 with record-breaking gold production expected in Q4. As previously guided, we mentioned production was weighted at 53% for the second half of the year, with the fourth quarter being the strongest quarter.

We did better than planned in the first half of the year, so don't be surprised if we do the same in the second half. We are in a very, very good position -- strong position to achieve our or exceed our production guidance of 1 million GEO ounces. I will also mention that September was the lowest cost month of the quarter, and we expect this trend to continue to Q4, where we expect to deliver meaningfully lower costs.

Before talking about the Odyssey project, let me congratulate our exploration team at the Canadian Malartic general partnership. They have been awarded discovery of the year by the Quebec Mineral Exploration Association for East Gouldie. What's an important discovery for the underground mine, assuring multi-decades of production, we are very proud of them at Yamana. At Odyssey, development of the underground ramp continued to perform well. The headframe's slipform pour started in September and 93 meter was completed October 19 in 21 days. Structural steel installation expected to start in November and being completed during Q4.

Infill drilling from underground is defining the Odyssey internal zone, which are not currently included in the life of mine plan, but have potential to add underground production within the next five years. Exploration continues to deliver exciting results at Odyssey and something we will continue to provide updates on.

Turning now to Jacobina and our exploration project -- expansion project, which continues to exceed our expectations. The mine has delivered significant progress on the Phase 2 expansion. A new daily throughput of over 8,800 tonnes per day was achieved in September during a trial test, to test the plant capacity. But the potential we see for Jacobina extend well beyond Phase 2. As we have mentioned in the past, we will advance work toward our Phase 3 expansion, but the true potential lies even beyond this.

Jacobina is located in a mining jurisdiction with huge potential. It shares similar geology to the gold district in West and South Africa that owes massive gold deposit. We are seeing the potential for the Jacobina Bell to become an entire gold mining district, which we own 100%. The Jacobina mine has produced over 2 million ounces and has over 8 million more ounces in mineral inventory, and this is all within a small portion of our land package, which is over 150 kilometer. In the future, Jacobina could very well be a complex of mines, producing at a scale of over 400,000 ounces, and continuing to be one of the lowest cost mines in the Americas.

At our Wasamac project, permitting and engineering are continuing to advance. And as you may have seen from our press release during the quarter, exploration is already beginning to deliver some exciting results, especially at the Wildcat target. The Wildcat zone is located 300 meters south of the Wasa Shear.

Initial step-out drilling has expanded the down deep continuity of the known historic zones that are now included in the current mineral reserve or mineral resources, highlighting the potential for zone with higher grade to increase future production and extend mine life. Our plan infill and exploration drilling has the potential to generate additional mining mineral reserves that will sustain a 200,000 ounces production level for an extended period, and support a strategic mine life of more than 15 years.

I also want to take a moment to speak about MARA, another high-quality asset in our portfolio with huge potential. The project is one of the world's lowest capital intensity copper projects, and we are working to advance it. In the quarter, work progressed on the engineering design, drilling at site and furthering studies and permitting.

We are at a very important moment for this asset, and there are multiple paths forward, all of which deliver value for our shareholders. And that value is huge, as you can see on this slide, at $4 per pound copper and 1,700 per ounces. Mara has an NPV of over $4 billion, and we own 56.25% of that. We will evaluate all possible avenues to deliver the most value to our controlling interest. The opportunity we have to deliver value from this project, that is not currently captured in our share price, is truly exciting.

And I will now pass the call over to Jason, who can go over our quarterly results in more detail.

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

Thank you, Daniel, and good morning, everyone. I'll now provide a brief overview of our third quarter results, as Daniel mentioned.

We recorded net earnings of $27 million or $0.03 per share, and on an adjusted basis, $69.7 million or $0.07 per share, with the main adjusting item relating to our early note redemption premium. We also saw strong cash flows in the third quarter, with a step change increase quarter-over-quarter, which I'll come back to in more detail in a moment. But this profile of a strong third quarter is what we had expected at the start of the year.

If you recall, at the beginning of the year, we guided that production would be weighted at 47% to the first half and 53% in the back half of the year, and that the fourth quarter would be our strongest. Our results through nine months attractive profile, and we expect Q4 production to exceed 270,000 GEO, which positions us to achieve our annual guidance of $1 million GEO production for the year.

On costs, recall in the second quarter, we had indicated that we were seeing some inflationary pressures from certain consumables, with an impact of approximately $20 per ounce above our planning assumptions at the start of the year. This is still our expectation. But with our planned ramp-up in sequential quarterly production, our unit costs have been decreasing since earlier this year. We really started seeing some of that better cost performance later in Q3.

In September, we had meaningfully lower costs at several mines, and to give some gauge of that on a consolidated basis, ASIC for September was about 10% lower than our average Q3 costs. We expect that trend to continue into Q4, where, along with the increase in production, our ASIC for Q4 should be between 5% and 10% lower than our ASIC for Q3, which will translate to our strongest cash flows for the year.

Moving on to results from our mines in a bit more detail. Canadian Malartic followed its exceptional second quarter with another strong quarter in Q3, benefiting from higher grade and recoveries compared to last year. Jacobina also followed a strong performance in Q2 with another solid quarter in Q3. Production in the quarter was close to the record-setting production established in Q2, with no throughput above plan and with recovery and grade as expected. The mine is on track to sustain 7,500 tonnes per day of ore to the mill by the end of the year, which will support our path to the Phase 2 expansion at Jacobina.

Cerro Moro also had an exceptional third quarter with GEO production increasing 50% from the second quarter. More mining faces continued to be opened up in the quarter with more mill feed coming from the higher grade underground ore. This trend will continue in the fourth quarter, which is expected to be the strongest production of the year with stable throughput, but at higher grades. With stronger production expected in Q4, Cerro Moro's costs are expected to be lower as well.

Shifting over to operations in Chile. Estonian delivered solid results with GEO production increasing 19% quarter-over-quarter. Recall, we had indicated, El Penon was one of the mines that would contribute to our back-end weighted production profile. The higher grade zones that contributed to that profile came into the mine sequencing during Q3, and we expect this will continue through the remainder of the year with a further increase in silver production for Q4.

At Minera Florida, production was just under 22,000 ounces, but we are expecting a strong fourth quarter, both in terms of higher production and lower costs, and the mine is off to a great start so far in October.

And on to our financial performance for the third quarter. We continue to generate robust cash flows with cash flows from operating activities and cash flows from operating activities before working capital, increasing from the second quarter by 24% and 21%, respectively. We also generated great free cash flow during the quarter, which increased 59% to $81.6 million, up from Q2. There were some other notable events during the quarter.

We further strengthened our financial position by repaying $720 million of existing debt and completing an offering of $500 million in senior notes due 2031, with a net impact reducing our gross debt by about $220 million. Aside from increasing our average tenor on debt, our interest costs were reduced by approximately $20 million annually, which provides further flexibility for capital allocation.

We also repurchased 3.3 million shares during the quarter since we initiated our share repurchase program. We will remain opportunistic with our NCIB, and continue to use it as a further tool in delivering returns. But to wrap up, I want to come back to the strong Q4 we expect, with our highest production and lowest cost for the year. By extension, we'll see our strongest cash flow and free cash flow generation of the year as well.

With that, I'll now turn the call back over to Daniel.

Daniel Racine -- President and Chief Executive Officer

Thank you, Jason. And with that, I will turn it back over to the operator for questions. Operator?

Questions and Answers:

Operator

Certainly, thank you. [Operator Instructions] The first question is from Fahad Tariq with Credit Suisse. Please go ahead.

Fahad Tariq -- Fahad Tariq -- Analyst

Hi, good morning. Thanks for taking my question. Maybe first, just to clarify, I thought I heard you say 5% to 10% lower ASIC quarter-over-quarter in Q4. Can you just confirm that?

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

Yeah. You're right, Fahad.

Fahad Tariq -- Fahad Tariq -- Analyst

Okay. And then my second question, maybe just extending that. Can you talk a little bit about -- like 2022? I know Q4 of this year benefits from the higher production, but what about going into next year? How does the inflation angle play in then?

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

First, I'd say we're -- obviously, we're going through a planning process right now. We'll deliver a full update on our guidance early next year. Directionally, though, yes, there's some inflation impact that will carry over to next year. We're trying to keep a lid on that. We saw most of the inflation coming to costs later this year. That's most of the impact that I mentioned. So we expect that to continue over to next year as well. But we'll be taking other efforts to try to offset that. But we do think it's here for the shorter term. We don't think this is something that's going to continue on for years in the past. It does look like it's based on some dislocations on the supply side impacts, some commodity inputs are hurting us as well, but we're doing our best to offset it.

Fahad Tariq -- Fahad Tariq -- Analyst

Okay. And then just maybe as a quick follow-up. Can you talk a bit about some of the measures you're taking to mitigate the inflation? Because it sounds like from your comments that it's actually a bit more muted for Yamana than it is for some of your peers that are talking about 5% to 7% inflation on consumables or even higher than that, 3% to 4%, maybe 5% labor inflation. It sounds like -- if I'm hearing correctly, it sounds like it's a bit more muted for Yamana. So, I'm just trying to get a sense of what are the measures you're taking that's allowing you to kind of see less of an impact on inflation?

Daniel Racine -- President and Chief Executive Officer

Good morning, Fahad. You're right. We have already said in Q2 that we're seeing at a maximum $20 per ounces. So that's 2% in our case. So what we did is, early in the pandemic, we have increased our inventory. We have continued to maintain our inventory a lot higher than they're usually hard. And the fact that we bought some of them -- the material we need to operate our mines, sooner. So that is why this year that was not highly impacted maybe compared to others. So there's some measures like that.

And then on a continuous basis, we review our contract. We try goods from other companies that are other suppliers. And then if they can provide the same quality with a better cost, then we're going to take advantage of this. And then we mentioned many times, all our mines have operational excellence, we call it in the Company. So there's many project each year at each of the mine that are there to know -- reduce costs, mitigate costs, improve costs, because we have inflation on a normal basis, with manpower and materials.

So that's part of our culture. That's part of what we do all the time to find ideas. And it's coming from everybody in the organization, from the miners having ideas, from engineers, from people of technical service, from all across the Company. And then we're sharing in between. So, Yohann and the team, they meet -- each might meet together on a monthly basis or quarterly basis to share what they're doing to improve their costs. And then if another mine can do the same, we do it.

We have an initiated global procurement many years ago. So when we go on tender for -- globally, you can assume we have a lot better price than mine by mine. So that's a few of the things we're doing, but we're doing a lot to mitigate costs. And then we've been successful doing it.

Fahad Tariq -- Fahad Tariq -- Analyst

Okay. Great. Thank you. That's it for me.

Operator

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

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

Good morning, Dan, Jason, Yohann, Gerardo and Henry. Just had a couple of questions. Dan, you mentioned earlier that you don't think MARA is being valued in your share price, correct me if I'm misquoting you. Just wondering what was your basis for that assumption? And what steps are you taking to enhance the value, maybe a joint venture or sell the asset? Or is it more longer date? And my second question, I'll come back to it. That was a long one to start off with.

Daniel Racine -- President and Chief Executive Officer

Okay. I will start and then Gerardo can complement. But there's many that are carrying no value for MARA after we even publish a strong pre-feasibility study last year. The numbers we showed on our slide are speaking for themselves. That mine is half built when we have integrated Alumbrera and Agua Rica together to form MARA. You know there's always risk to spend $2.5 billion, $2.8 billion in a project, or $5 billion, if you have to build a mill. This is behind us. The mill is built.

We have the permit for the tailing facilities. We have all the infrastructure in place at Alumbrera to operate the mill. We have the permit to do it. We have huge open pit to even dispose dating in the future. We have pipeline to transport the concentrate to the port. So that all exists. What we need to do at MARA is to strip a big open pit and install conveyors overland to the mill. So that's something very simple to do. So this is why we say -- and then when we look at the valuation that's put on the market compared to the numbers you saw on the slide, at $1,300 and $3 copper, that's not the price the gold is today, and copper. So there's a lot of value there.

We're working to show you the value. We're going to publish a feasibility, final feasibility study next year, or in the permitting phase. There's a lot of interest on that project. And then our goal at Yamana is to demonstrate the potential of MARA. I don't know, Gerardo, if you want to add something on this, but we see huge potential with MARA in the future.

Gerardo Fernandez -- Senior Vice President, Corporate Development

Thank you, Daniel. Maybe just to add, Mike, from a region perspective. Danny was saying, there are a few points there that had zero value for the assets. I would say maybe others have multiples of metal content. But if you look at what is the consensus versus what a similar asset-based on the development stage and the value, I think you can see that it would be a significantly higher value even with a multiple for feasibility stage, right? That's the reason behind that. And it's a high-quality asset, and with a profile for development, as Daniel was saying, that it's a lot lower risk than a comparable asset.

In terms of paths to unlock value, our main path is to advance the project. We're doing the feasibility. We're advancing the permitting, advancing the social engagement, the social license. We have good progress there with the local team. We have good progress on the technical side, our sales leading the study, but also with our partners. There are other paths and other alternatives and some [Indecipherable] for copper assets in the industry. We consider all options as we progress the project. It's obviously, the more we advance it, the more the risk becomes, the more value it has.

Daniel Racine -- President and Chief Executive Officer

Well, we have a great partner, Mike, with Glencore and Newmont, and then the three companies were fully aligned. We're working together now for over two years to -- on the project. So I think there's big value creation for the three companies in this project.

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

Okay. Great. Thanks for that comprehensive answer. And second question is, on your London listing, there was a lot of fanfare about this last year and early this year, but I noticed the volumes have been very, very low on London, still very high in Toronto and New York. So just wondering, is your mind happy with the London listing? Has it achieved what you wanted? Just curious. Thanks.

Gerardo Fernandez -- Senior Vice President, Corporate Development

Yeah, thank you for the question, Mike. Yeah, I think this process is not a 1-day event with a process, and we understand investors in the U.K. and Europe value relationship and long-term relationship, and we started traveling. Now the restrictions are lifted, and starting having a face-to-face meeting. So it's a long-term commitment from our part, and we're going to put the effort to go there and meet face-to-face and tell our story and show our results to the investors.

Daniel Racine -- President and Chief Executive Officer

But we had already a good base shareholders in Europe and in London specifically, and now we're meeting a lot of new potential shareholders. And like Gerardo mentioned, Mike, it's not a one-day situation, it's a long-term establishing partnership or meeting new people in the future. So we're there for long.

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

Okay. Thanks a lot and good luck.

Daniel Racine -- President and Chief Executive Officer

Thank you.

Operator

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

Tanya Jakusconek -- Scotia Capital -- Analyst

Good morning, everyone. Thank you for taking my questions. Just wanted to circle back to Jason on the inflation question for 2022. As we go through the inventory that you purchased earlier this year, I appreciate you on the labor side, you've done all of your agreements. Just want to check with you, if we look at 2022, would it be fair to assume that your inflationary pressures are coming from buying additional fuel, consumables, etc., and therefore, something in the 3% range would be appropriate over the $700 per ounce sort of cost this year?

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

Yeah. Tanya, I think that's the way you laid it out there. That's a reasonable thesis as we work through lower cost inventory purchases more at market than you would have, call it, a cost-plus compared to what we saw this year. But I think that the jury is still low for us, and we're still through a planning process. And they have less exposure on some of the items that you mentioned there. Obviously, we've got exposure to fuel, but with predominantly underground mines, we're just not consuming as much as other operations. We've got power locked up at all of our operations through next year well better than market rates. So I think there's a few other things going in our favor.

And to the extent we've had any inflation in region, I think you see the kind of the natural hedge of currencies working out here as well in Canadian dollar, I guess, being the outlier in that regard. So again, that was our impact this year. That was for a partial year. So I think it's fair to say, by extension, that impact could be -- impact this year plus a little bit more for next year, but the final numbers will roll out into next year with our guidance.

Tanya Jakusconek -- Scotia Capital -- Analyst

Okay. I appreciate that. And just wanted to understand also, as we look at some of your catalysts coming through in the next few months, we didn't have -- we had an exploration update in September. Wondered when we would get a next exploration update or any other studies or other things from now until you release your Q4 financials?

Daniel Racine -- President and Chief Executive Officer

I think the next big catalyst uptake, Tanya, is going to be in February. February, we're going to have our new R&R, the Q4 result. We're going to talk about the Cerro Moro heap leach and then mill expansion. We said we were doing studies on both. So we're going to talk about it. Short Canadian Malartic with the Odyssey project, the advance maybe some more exploration result. We have very good result after we did release news earlier this year. So you can assume that early next year we will probably have an exploration update also. Jacobina, hopefully, we'll get the permit, but we -- of the 8,500 tonnes per day, the mine is already adjusting to that. We said $57 million at the beginning and now we're talking $15 million to $20 million, and that number is still going down.

As you have seen in Q3, we have achieved -- we're able to achieve with the actual mill, 8,800 tonnes per day, so even better than what our Phase 2 plan. So there's a lot of catalyst news coming early in the year. Until then, I think it's going to be quiet in November and December and January, but February will be -- there will be a lot of news. We'll try not to have all of them at the same time, I would say, maybe a week or two apart, but there's many news coming early in the next year.

Tanya Jakusconek -- Scotia Capital -- Analyst

That's good. And then maybe just on your reserves and resources. I just wanted to confirm with you on your pricing. Are we looking at keeping the same pricing? We are seeing a bit of inflationary pressures through the costs. I'm just trying to understand whether the pricing -- you will keep that constant as you had in 2020? And then -- that's the first question. And secondly, how do you feel about replacing your production and your reserve base this year, or growing resources? And what mines should I focus on?

Daniel Racine -- President and Chief Executive Officer

The price won't change. We have $1,250 now for many years. The $1,250 is there to stay for many more years. So that inflation doesn't have any impact on this. So $1,250 in our number. And what is it, 18 or 17 for silver. That's the two numbers that are constant for many years. That's the one that we're going to keep. On all the mines, Henry can put colors, but we see very good results. As you can imagine, Canadian Malartic, the new mine close to 700,000 ounces of your reserve each year. The reserve will go down, but the resources will continue to go up with the underground.

Jacobina, we are already -- I said earlier this year that we have more than replaced foreign ounces to replace what we kind of mine. We had very good success at El Penon, it's like usual. Cerro Moro, some very good news this year. We didn't really speak a lot about it, but you're going to see. So all in all, in general, we're very confident that we will do like in the past few years, to replace depletion and then maybe add some ounces that some of the operation -- I don't know, Henry, if you want to say something else, but we're very confident.

Henry Marsden -- Senior Vice President, Exploration

[Speech Overlap]

Tanya Jakusconek -- Scotia Capital -- Analyst

[Speech Overlap] Go ahead.

Henry Marsden -- Senior Vice President, Exploration

Daniel has covered it really well. We've had this very strong targets for the last few years of always replacing depletion. The sites are performing very well. We're fairly confident we'll make that target. And over the last few years, we've seen consistent growth at Jacobina, and I think we'll see that again this year. And then obviously, at Canadian Malartic, we're going to see some growth in resources there, and perhaps the conversion of some of that inferred to -- indicated for that February release as well.

Tanya Jakusconek -- Scotia Capital -- Analyst

Okay. So, what I kind of take from that is you've got a good chance of at least replacing production in your reserves and growing your resources this year.

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

Yes, precisely. Yeah.

Tanya Jakusconek -- Scotia Capital -- Analyst

And just maybe one last one on Cerro Moro. Can I just have a feel for how much additional material you could unlock if you decide to expand the mouth?

Daniel Racine -- President and Chief Executive Officer

Yeah. It's basically our cutoff tenure at Cerro Moro was very high because it's a very high-grade mine. So when you have a high cut off underground of 6 gram per tonne and in the open pit 3 grams per tonne. So that mill was built expandable. We know the front end of the mill, so crushing and grinding, it's already above 2,000 tonne per day, or processing to 1,000 to 1,100 tonnes per day right now, that's the max. But we know the front end can be able to do more than that. So you'll see in the study what's our thinking.

And then sure, with expanding the mill, we can expand the resources and reserve because we can mine lower grade. We have huge potential on the heap leach. We have mentioned earlier that heap leach can bring us 40,000 to 50,000 ounces per year more, because we're not mining any 1 gram type material, and then huge land position there, huge target, and this is where Henry and the team are going to focus by the end of this year and the early next year, to bring resources at lower grade that will justify the heap leach option.

And then the mill option to be -- to upgrade the mill, it's not very costly. Like I said, it's already planned like that. You just add tanks on the floatation circuit and the sanitation circuit also to increase capacity. So the unlocking that will permit to mine zones that -- right now we're mining right next to it underground. We have the development done. But because they're lower than cut-off grade, we don't mine them.

We have already paid for all the infrastructure ramping down and then getting access. So it will have -- but what's the amount of ounces right now, let us finish the study, then we'll see what we can bring into the mineral inventory.

Tanya Jakusconek -- Scotia Capital -- Analyst

Okay. That sounds good. Great. Thanks a lot for taking my questions.

Daniel Racine -- President and Chief Executive Officer

Thanks, Tanya.

Operator

Thank you. [Operator Instructions] The next question is from Mike Parkin with National Bank. Please go ahead.

Michael Parkin -- National Bank Financial -- Analyst

Hi, guys. Thanks for taking my question. A follow-up on the inventory comment that you've got excessive inventory now. What's the thought of that going into 2022? Is that something that you would be looking to maintain levels at or draw it down to more normalized levels?

Daniel Racine -- President and Chief Executive Officer

Good morning, Mike. We're still in the pandemic. So there's no reason for us to reduce our inventory for now, And the plan right now is to continue. Nothing will change in our planning for, I'll say, at least next year and probably the next three years forecast that we're going to release. The inventories are high, but we benefit of having higher inventory. There was a price to pay in 2020 to do that, but now we're benefiting of having done that right away when the pandemic start last year.

Michael Parkin -- National Bank Financial -- Analyst

And then, has there been any discussion with Tony Makuch at Kirkland, now that the merger with Agnico have been announced in terms of like what the vision is on Canadian Malartic? It seems like possibly, we might be seeing some expansion in budgets for exploration. And certainly, with that asset, it's showing quite a bit of upside. So maybe that's something that you guys would be welcoming.

Daniel Racine -- President and Chief Executive Officer

And the answer is, no, Mike. Let them do their deal, close their deal together, later this month, later in November. And after that, I'm assuming at the management committee level, then we're going to have discussions. So we'll speak with Tony at the time when the deal is closed. And then I think on the management committee level, where the mines are managed and where Yohann and his counterpart at Agnico, the new Agnico, will continue to be the same.

I don't -- we don't see any changes, and we'll be very happy to provide more money to the exploration as we generate, as you know, good, strong free cash flow. Malartic has been an amazing on exploration. I mentioned what they won today, the discovery of the year with East Gouldie and that East Gouldie is always continuing to grow. So we'll be happy to speak with Tony when it's the time.

Michael Parkin -- National Bank Financial -- Analyst

And then just last one question for me. There's been a lot of chatter around labor tightness in Ontario and Quebec for Quebec operations. Are you seeing much in the way of price pressures, to attract people to the Wasamac project, maintain staffing at Canadian Malartic?

Daniel Racine -- President and Chief Executive Officer

I'll start with Wasamac. The answer is no. We were able to attract very good people so far for the Wasamac project. We are building the team there. We're close to rolling Arada. So that helps a lot, I think, to attract people. There's many that are working in the mining industry, that work closer from home. So we've been able to attract good people.

At Malartic, the underground project is basically now mostly a contractor thing. We're going to switch to our own employees in April. And next year, we have started to hire people. I mean, on the staff side point of view, where we are hiring right now, we had no issues so far, but we will see when it comes the time to go with the underground. But the open pit will go down in the future. There's people that have already mentioned, they want to be transitioned from the open pit mining to the underground.

So we have already these employees. They're working at the mine for many years. They want to stay and learn from the underground. So we're going to start training also some of our actual manpower at the site. So we have not seen that pressure at these two operations, but we'll see what happen in the future. But so far, no problem, Mike.

Michael Parkin -- National Bank Financial -- Analyst

Great. And one last question. South America has obviously been a bit of a COVID hot spot through the pandemic. That seems to be turning the corner here with Q3. There's a little bit of color in terms of employee availability. How do you guys see that kind of today? Is that kind of best it's been in kind of year-to-date and thus supporting further that call for a very strong fourth quarter coming?

Daniel Racine -- President and Chief Executive Officer

Yeah, like I mentioned, Chile to give an example, as we have 100% vaccination rate at the two mines. Jacobina is getting close, is above 80% now, and the same at Cerro Moro for first dose. And then as the vaccine is getting more available then they're getting vaccinated. So Cerro Moro is back in full production now for the last quarter and then this quarter. The other three mines, we had no issue. Since the beginning, we have no cases at any of our mines. So we've put protocols in place at the beginning and then they're bearing fruit because we're running the mines at full capacity like before the pandemic. We still have the same protocol at site, but the mines are running like normal.

Michael Parkin -- National Bank Financial -- Analyst

Great. All right. Thanks. That's it for me, guys. Thanks so much. Congrats on good quarter.

Daniel Racine -- President and Chief Executive Officer

Thank you.

Operator

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

Ralph Profiti -- Eight Capital -- Analyst

Thanks everyone. Good morning. Daniel, my first question is on Jacobina Phase 3 permitting. By your own account, Phase 2 permitting has gone very well, tracking ahead. When it comes to Phase 3, do you think it's probably going to go as smoothly? And I'm specifically talking about incremental issues such as tailings and use of the rail-veyor, is that's going to produce any more sort of scrutiny or more difficulties in getting the permitting for Phase 3?

Daniel Racine -- President and Chief Executive Officer

Thank you, Ralph. Good morning. So we're going to get permit for Phase 3 when we get the permit next year. So the tonnage of 10,000 or 10,000 tonnes per day, that's the permit we're going to get. So we need 8,500 tonnes per day for the second phase, but we have asked the permits like we were doing Phase 3. So it's not the permit to 85 than another addendum to increase the permit to 10,000, we had decided to go directly to the 10,000.

Ralph Profiti -- Eight Capital -- Analyst

Understood. Okay. My second question is going back to the earlier comment about incremental Canadian Malartic investment, now that we have sort of a new and bigger player. Is that changing your thinking on the pace at potential dividend bumps, the pace at which we get NCIB action? Just in order for Yamana to sort of buildup that balance sheet for what may be bigger capital commitments?

Daniel Racine -- President and Chief Executive Officer

No. Balance sheet is pristine. So we can afford giving more dividends, buying back more shares, and then continue to invest, if needed, more in Canadian Arctic. We're going at a very high-speed pace there to -- I mentioned the ad frame. It's ahead of plan. We're working on the other infrastructure. So if we need to spend more and more money underground at one point -- we have, I think, 12 drills or 14 drills that I might think right now. Can we go to more drills? Yes, we can. But that's not an issue for us to continue to have the same priorities. No. We had three before.

Balance sheet, that's fixed. So we're focusing on returning to shareholders and reinvesting in the mines and in the project, but that's not an issue for us to put more money at Malartic or any of the other mines. We have increased budget internally to all our mines exploration budget this year because it's going well, and then they have been successful to find more ounces. So that's not an issue. It's -- we should not hear that's a problem for Yamana, even if the -- our partner is a bigger partner. Whatever we decided, we have always decided since day 1, what we want to do at Malartic. I'm assuming it will continue to be the same for both partners. We're 50-50 in there, and then it's going extremely well. I don't see any changes.

At the mine level, we're going to deal with the same people, and then maybe on the corporate level, would be a bit different. But like I mentioned many times, and I think both companies mentioned, on my side and then on Sean side and Tony's side, now in the future. Nothing has ever come to the higher management of the two company because there was problem at the mine level that the management committee was -- is the Board of Director of the partnership. Never the two groups together disagree on anything.

So, now it's going to be almost -- it's what, 7.5 years that we were in partnership. It's going to be eight years in June next year. It's been a great partnership, and it will continue to be like that in the future.

Ralph Profiti -- Eight Capital -- Analyst

Yeah. That's really good news. Thank you, Daniel.

Daniel Racine -- President and Chief Executive Officer

Thank you, Ralph.

Operator

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

Daniel Racine -- President and Chief Executive Officer

Well, thank you, operator. I thank you all for joining us on our third quarter 2021 conference call and webcast. We look forward to sharing more a recap of our full year performance in February. Please take care and stay safe. Bye for now.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Daniel Racine -- President and Chief Executive Officer

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

Gerardo Fernandez -- Senior Vice President, Corporate Development

Henry Marsden -- Senior Vice President, Exploration

Fahad Tariq -- Fahad Tariq -- Analyst

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

Tanya Jakusconek -- Scotia Capital -- Analyst

Michael Parkin -- National Bank Financial -- Analyst

Ralph Profiti -- Eight Capital -- Analyst

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