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Rating Action:

Moody's revises Yamana's outlook to stable from negative; affirms Baa3

14 Aug 2019

Toronto, August 14, 2019 -- Moody's Investors Service ("Moody's") revised the rating outlook for Yamana Gold Inc. ("Yamana") to stable from negative. At the same time Moody's affirmed the senior unsecured ratings of Yamana Gold Inc at Baa3.

"The rating outlook change to stable reflects the significant debt reduction Yamana has achieved following the sale of its Chapada mine and our expectation the company will be cash flow generative," said Jamie Koutsoukis, Moody's Analyst.

Outlook Actions:

..Issuer: Yamana Gold, Inc.

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Yamana Gold, Inc.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

RATINGS RATIONALE

Yamana's Baa3 rating benefits from 1) low leverage resulting from the debt repayment completed following the sale of its Chapada mine (1.7x proforma the debt reduction at Q2/19) 2) expected stable production (1 million gold-equivalent ounces (GEOs) per year), 3) a favorable cost position ($760/GEO expected in 2019), and 4) free cash flow generation over the medium term. Yamana is constrained by 1) its smaller scale and cash flow concentration in just two mines (Cerro Moro and Malartic) compared to investment grade peers, 2) sensitivity to gold price volatility, and 3) geopolitical exposure to Argentina (B2 Negative) with 20% of gross profits expected from Cerro Moro in 2020.

Yamana closed the sale of their Chapada mine on July 5, 2019, receiving $800 million on closing and concurrent with the closing, Yamana used $385 million to repay the entire June 30, 2019 outstanding balance under the revolving credit facility and the remaining $415 million was used to prepay a portion of its outstanding senior notes. The reduction in debt lowers Yamana's adjusted debt/EBITDA to 1.7x from 2.9x at Q2/19 and we expect leverage to remain near 2x over the medium term. While Chapada was Yamana's lowest cost mine per GEO ($388/GEO cash costs in 2018), the sale contributes to Yamana's production falling to about 1 million GEOs in 2020 from 1.4 million GEOs in 2018 (includes copper production at Chapada) and it reduces mine diversity, Yamana's leverage improves materially and the company avoids material capital expenditures on Chapada in the medium term.

By the nature of its business, Yamana faces a number of ESG risks typical for a company in the mining industry including but not limited to wastewater discharges, site remediation and mine closure, waste rock and tailings management, air emissions, and social responsibility given its often remote operating locations. The company is subject to many environmental laws and regulations in the areas in which it operates all of which vary significantly. The mining sector overall is viewed as a very high-risk sector for soil/water pollution and land use restrictions and a high-risk sector for water shortages and natural and man-made hazards.

Yamana has good liquidity, with $1 billion of liquid resources that include cash of $90 million (at Q2/19), full availability under its $750 million revolving credit facility (matures 2024) and our expectation of about $175 million of free cash flow in the next 12 months. The company has minimal debt maturities during this time with $56 million due in March 2020. We also expect Yamana will maintain good headroom to its bank financial covenants.

The stable outlook reflects the expectation that Yamana will be able to sustain its current production profile, be free cash flow generative, and maintain a disciplined financial policy with leverage remaining below 2x.

An upgrade to Baa2 would require that Yamana materially increase its scale and diversity of cash flows. In addition, an upgrade would require that consolidated cash costs are maintained below $750/oz, adjusted debt/EBITDA is maintained below 2x (1.7x proforma the debt reduction at Q2/19) and (CFO-dividends)/debt be above 40% (22% proforma the debt reduction at Q2/19).

A downgrade could occur if adjusted debt/EBITDA appears likely to be sustained above 2.5x (1.7x proforma the debt reduction at Q2/19) at Q3/18) and (CFO-dividends)/debt of less than 30% (22% proforma the debt reduction at Q2/19).

The principal methodology used in these ratings was Mining published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Yamana Gold Inc. located in Toronto, Canada wholly owns four operating mines located in: Brazil (Jacobina), Chile (El Penon and Minera Florida) and Argentina (Cerro Moro) and it owns 50% of the Malartic gold mine in Quebec, Canada. In 2018, Yamana reported $1.8 billion in revenue.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jamie Koutsoukis
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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