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Thank you all for joining us this morning. Before I turn the call over, I need to advise that certain statements made during the call today may contain forward-looking information and actual results could differ from the conclusions or projections in that forward-looking information, which includes, 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 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 second quarter 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. Peter Marrone, Chairman and CEO. Please go ahead.
Thank you very much. It has been another really good quarter for us, and I would like to thank Daniel Racine, Jason LeBlanc and Henry Marsden who are here with us today in presenting, and their teams for their efforts. I should also mention that here with us and we would like to thank as well are Yohann and Gerardo and Barry, who manage our operations and technical services. While not formally presenting, they will be available for any questions that you might have. Moving into the presentation. It's been another quarter of production and costs that are better than planned. Precious metals production is expected to exceed our 2018 guidance. We are above plan to the midyear. As I mentioned, we expect to see guidance for precious metals. Gold is expected to be above guidance. Silver has begun the year more slowly, but higher grade silver areas will be mined in the second half of the year at El Peñón and Cerro Moro contributed very modestly to production at the end of the quarter and will contribute more significantly to gold and silver production all in the second half of the year.Overall then precious metals production is ahead of plan and tracking to above guidance, and gold and silver individually will track and are tracking well to meet our guidance.On the copper side, copper production is well above plan, and on track to exceed our guidance. And our costs are tracking to the low end of the range of guidance for our costs. We continue to advance in the quarter, a phased approach evaluating the opportunities to maximize value at Chapada, with optimizations for further recovery improvements and a progressing feasibility study for our expansion.We announced commercial production at Cerro Moro late in the quarter. The mill throughput rates are now approximately 90% of capacity. Gold and silver recovery rates are at 95% of design rates. But more interestingly in the course of the last week or so, we have begun to see our mill capacity coming closer to 90% to 95% and recoveries as much as 94%. We are transitioning into a cash flow harvest cycle, with a focus on longer-term cash flow growth and maximizing our return measures, mostly our return on invested capital.And on the exploration side, we continue to advance several discoveries at existing operations, in particular. We are expecting more ounces in inventory at Jacobina and at better grades. We have an improved plan on the expansion of Chapada with better grades and more resources coming from Baru and Sucupira, which improves the life-of-mine plans. New higher-grade discoveries at Hidrothermalito, a new discovery, that is adjacent to the existing open pit at Chapada. We are expanding the sulfides at Suruca, with significant opportunity to improve strip ratios on that project. More ounces in inventory at Minera Florida, more ounces in inventory at Cerro Moro and the replacement of depleted ounces at El Peñón.I won't spend a lot of time on this page of our presentation other than to say, again, that gold production and metals production generally were better than our plans, and we're tracking very well to our guidance. On the cost side, by-product, all-in sustaining costs of $682 per ounce per gold and just over $11.20 per ounce on silver. Strong production across the board and in line or better costs across all measures. We are -- we have a significant number of assets in this portfolio that have strategic value to this company, have longer-term value to this company. They include Agua de la Falda, La Pepa, Monument Bay, our investment in Leagold to name some. We are highlighting some of them here that are significant, and I'd like to spend just a few moments before passing the presentation to Daniel and others to discuss these.Agua Rica is an impressive project that is not so well known, it is reminiscent to me at Chapada 15 years ago. It was a known project, but it had been known for 25 to 30 years until we came along to develop -- with a development plan and ultimately put that into production. We believe we should be engaged in its development, while finding responsible and quality and qualified partners. This requires multi-lateral discussions and time to get it right, and we will take that time to get it right. These discussions are advancing. And in the meantime, we are advancing the project, including now with a study on a scalable project that require significantly less initial capital.Gualcamayo. Jason had clarified certain aspects of Gualcamayo, and what we're doing on the aspect of asset held for sale versus the management of that asset on our conference call for the last quarter.Let me touch on some of that. We've developed a plan that extends the operations for a 3-year period plus production coming from the heaps after the mine life of the open pit expires. This gives time for exploration to catch up. There is significant exploration potential in our oxides, but the terrain is difficult, and it will mean that there has to be a longer term exploration plan. There is further potential in deep carbonates and that is advancing. And yes, we are considering, we had been advancing discussions. We were - overtures were made to us on a possible sale. And any possible sale, if anything, if any should recognize this. We need to be sensitive, also to market conditions. We are aware that market conditions are where they're in the precious metals industry. And in respect to the balance sheets and ability to finance, the purchase of this asset amongst the various interested parties. So while this is a small asset for us, it has value and we will take our time to manage it well, both operationally and on a possible sale.And finally, let me touch a little bit on Suyai. There's a new paradigm in the local and provincial engagement relating to this project. It has significant value for us. It has significant value for our stakeholders. It is one of the richer deposits, certainly in the Americas. It is a multi-million ounce deposit. And we continue our commitment with local stakeholders to work with them on the possibility of developing a development plan for that project.And with that, ladies and gentlemen, let me pass it to Daniel on our operations.
Thank you, Peter. Good morning, everyone. In the second quarter, we continued to deliver operationally. We produced 224,000 ounces of gold for Yamana's mine plus over 24,000 ounces for Gualcamayo. The strong performance including -- included year-over-year increases of 19% at Chapada, 12% at El Peñón, 11% at Canadian Malartic and 10% at Jacobina. Despite the lower production at Minera Florida, we are still on target to achieve our 2018 guidance. We also produced 1.3 million ounces of silver and 31.1 million tonnes of copper. Globally, we are tracking to exceed our gold production guidance. We are also ahead on -- of plan for copper production. While we are slightly lower than plan in relation to silver, our strong gold production is positioned to exceed total precious metal production. For silver, we're expecting production to increase in the second half, as we mine higher grade areas at El Peñón and several more ore will contribute more significantly. We continue to expect a strong second half so all in all we are well positioned, based on our first half production.Turning to costs. We are well-positioned compared to guidance through the first half of the year. We are already in line or below the midpoint of our guidance range for gold and copper for both cash costs and all-in sustaining costs. We expect full year costs to be at the low end of our guidance. Our costs are benefiting from higher production, operational efficiencies and weaker local currencies, which begun to positively impact costs late in the quarter. At Chapada, we began exceeded -- we again exceeded quarterly expectation for both gold and copper. This contributed to our higher revenue and operating earnings.Modifications to the flotation circuit that were made in 2016 and '17 continue to drive process improvement, most notably with plan recoveries and secret stability across the range ore types present in process material at Chapada. In terms of average recoveries, we achieved the highest quarterly level in over 6 years for both metal. Gold and copper recoveries were 66.5% and 86.2%, respectively. The higher production of gold and copper plus operational efficiencies and the weaker Brazilian real positively impacted costs in the quarter. With Q1 results, we presented a multi-phase plan for Chapada. In Q2, we advanced Phase I, which target an additional 2% increase in gold and copper recoveries. We have begun to prioritize engineering for long lead time equipment, and we are on track for commissioning on this phase in mid-2019.At El Peñón, gold production exceeded expectation in the quarter, and we are on track to exceed annual expectation. We expect second half gold grade to be higher than Q2, which should support strong production in Q3 and Q4. Silver production increased compared to Q1, although was slightly lower than plan for the first half. We're expecting higher silver production in the second half as the Dorada and Providencia veins contribute higher grade ore.Overall, unit costs were in line with our plan. The allocation of costs are proportional with revenue contribution. So we did see higher gold and lower silver costs compared to plan.It is worth nothing -- noting that the weakening of the Chilean pesos occurred late in the quarter so we got some of the benefit of that as well. Our infill drilling program continues to replace production by upgrading mineral resources and the exploration program is identifying structures in the core mine area, which are expected to increase the mineral inventory, and ultimately we see the potential to expand the mine life.At Canadian Malartic, we had another record quarterly production. Strong production was again driven by higher mill feed grades and tonnes processed. The strong production is positively impacted cost, and we are tracking below guidance year-to-date. The extension project is advancing according to plan and is on budget. We expect to begin blending ore from Barnat with its higher grade in late 2019. The contributions from Barnat should increase and be more significant starting in 2020.Jacobina also delivered record quarterly production, which reflect the strong momentum we have at that operation. Increased production was driven mainly by higher processing rate. The flexibility provided by staying on top of underground development and the 60,000-tonne surface stockpile we have built, are supporting the strong operational performance and position us to potentially exceed full year guidance for that mine. Costs are benefiting from the increased production in addition to the benefit of ongoing cost optimization initiative and the weaker Brazilian real, we experienced late in the quarter. Plant optimization initiative continued and the commissioning of the advanced control system, planned for the third quarter is expected to enhance plant stability. We continue to target the objective of 150,000 ounces per year, and we think we can get there with minor modification to the plant. Minera Florida continues to transition to higher grade zones at Pataguas and PVS. This is impacting short-term production as efforts are redirected to development and exploration activities. We expect both of these zones to contribute to higher production in the second half of the year. Grades are expected to increase to 4 grams per tonne for the second half. Development access has reached the central position in the Pataguas vein and at PVS development, and the main vein progressed with still production commencing by the end of Q2. The sequence of mining has been adjusted due to the discovery of several secondary structure around the PVS main vein. We expect these discoveries to increase the mineral inventory. As mining transition to more productive area, we see grade increases. This will continue to improve costs.At Cerro Moro, we have our first ore report in mid-May and declared commercial production on June 26, 2018. With the declaration of the commercial production, our attention has turned to operational optimization in support of delivering guided metal production of 85,000 ounces of gold and 3.75 million ounces of silver in 2018. Presently, mill throughput rates are around 900 tonnes per day, equivalent to 90% of capacity. Recoveries are also tracking well with gold and silver recoveries at 91% and 86%, respectively. Those levels are approximately 95% of design rate. The gravity circuit was commissioned in late July and is expected to increase recoveries for both metals. Since the gravity circuit has been operational, we have been getting these with tonnage and recoveries in line with design rates. I will now turn the call over to Henry.
Thank you, Daniel. Good morning, everybody. Yamana is having a good year in exploration, and I'd like to briefly introduce 5 sites where I see a significant progress in the first half of the year. We'll start with Jacobina. This is a long-life asset that already has over a decade of reserves in place. So our focus at Jacobina has been on grade. We're looking for new inferred resources with higher grades. Our most successful program this year has been in Serra Do Corrego. This is the uptick portion of our active mining area, Canavieiras. And we're seeing good results at Serra do Corrego. We're seeing higher grades, and we expect to see substantial new inferred resources by the end of the year at higher than life-of-mine grades. We are also own a very large land packaging at Jacobina. We cover almost 80 kilometers of strike of the favorable formations, the house formations. And we've been reviewing that package and defining new targets. And we think we have a very significant new target to south of João Belo, which we call João Belo Sur. And we'll be working on that later in the year.We've also reinvigorated our generative program and elsewhere in Bahia State about 180 kilometers South of Jacobina. We returned to the Lahvra Velha project. This is another district scale project that hosts some copper-gold mineralization similar to IOCG deposits. And we have a modest surface resource at excellent grades that is, in part, oxidized and potentially amenable to heat bleaching. We are currently drilling about 6,000 meters on this project this year. And we're going to try to define an overall mineral envelope with a potential for about 1 million ounces at over 2 grams in [ the pittable ] scenario.At Chapada, we've been focusing on improving life-of-mine plans essentially. So we've been focused on the first 2 quarters looking at expanding resources in Suruca and in Sucupira areas. At Suruca, we've been targeting the sulfide deposit underneath the known oxide deposits and we've also been expanding down deep. The deeper parts of the deposit are significantly higher grade than the overall deposit. And the most significant development was Hole SU-1000, when targeting the deeper portions we continue hanging wall zone. This gave us a wide zone at over 1 gram of gold in the near surface. And we expect that to really help us with the ultimate pit design in the long term. At Sucupira, we've also been focusing on improving the mine planning for a proposed pit expansion that will be designed to try to access the high-grades but deeper Sucupira deposit. We successfully expanded the high grade at Sucupira for about 150 meters to the Northwest. And we've also been intersecting shallower lower grade material in the Baru area that we think will help reduce potential waste and improve the overall economics of the pit design.Current exploration in the next 2 quarters is going to focus on additional near mine resources with higher grades to improve the long-term production plans.At Cerro Moro, we've seen major advances in 2018, and we're getting well positioned for a strong exploration push in 2019. We've built a very active and successful exploration team that through the use of extensive soil sampling, mapping -- rock sampling have defined numerous new surface targets. We've set 13 of these targets in Q1, Q2 on 2 areas the Tres Lomas [indiscernible] areas have yielded good intercepts that are potentially economic.Infill drilling on Veronica, a vein that we discovered in 2017, has also been successful. We expect by the end of the year to have measured and indicated that will at least replace 2018 production, adding another year to the profile of the mine. We expanded our budget in 2018 by about $2 million and look forward to seeing further exploration success on this project. At Minera Florida, we focused our efforts on the new Agua Fria concessions that we acquired in late 2016. We previously reported significant success in this block with the discovery of the Fantasma vein. And we're now defining measured and indicative resources at Pataguas, at PV Sur and we're growing new resources on the play of Pataguas called Don Leopoldoon. The attached figure shows a portion of the PV Syour vein. And we'd like to emphasize how these veins tend to play into wide higher grade zones near the north-south faults like the Marqui fault. And applying this model should give us much better defined targets in order to look for higher grade and concentrated resources within the mine.Ongoing surfaces work this year has defined 5 new veins. And we'll be testing those for a combination of surface and underground drilling. All of the new resources that we have in 2018 are well above the average mine grade demonstrating the potential of the [ Highway 5 ] block to significantly enhance the mine operation in the long-term. Thank you.
Thank you, Henry, and good morning, everyone. Turning now to financial performance for the second quarter. We delivered over $430 million of revenue, up $3 million compared to last year. However despite the flat revenue year-over-year, our gross margin before DD&A was up $30 million or 18%. With our first quarter results, we highlighted the expectation that gross margin in both dollar and percentage terms would increase as the year progresses, which was the case in Q2. We're up about $7 million quarter-over-quarter and expect further improvements from the contribution of Cerro Moro starting now in the second half.Net earnings attributable to Yamana equity holders for the quarter was $18 million or $0.02 per share. Included in earnings are certain noncash and other items not reflective of ongoing operations. The most notable being nearly $112 million effect of noncash foreign exchange losses in the calculation of deferred income taxes. Earnings per share will be impacted positively by $0.04 after taking into account this and other adjusting type items during the quarter. Operating cash flows before net change in working capital was approximately $157 million during the quarter. And after working capital outflow of $55 million, operating cash was approximately $102 million. The largest working capital impact with the anticipated inventory buildup and lower payables at Cerro Moro that accounts for about $26 million of the total. This is roughly in line with what we laid out in Q1. The remaining impact is from smaller movements across a number of mines. I'd like to point out that since the start of the year, our trade payables are down about $110 million, which now reflects a more normalized run rate for our operations. As I mentioned on our Q1 Call, we currently reversed the working capital movement in the second half of the year. I'd expect something in the range of $30 million to $50 million through year-end, with our seasonality effects in considering Cerro Moro as a new operation.During Q2, we spent approximately $41 million on expansionary CapEx, which were down to its lowest level in over a year. This mainly reflects the completion of construction at Cerro Moro. Going forward, we expect expansionary CapEx to normalize around our future annual run rate of between $50 million to $75 million. With a stronger cash flow generation on the back of Cerro Moro and the lower CapEx, we're transitioning to a cash harvesting phase that we've been anticipating. With that I'll now turn the call back over to Peter.
So ladies and gentlemen, thank you very much for participating on the call this morning. And at that point -- at this point, perhaps we can open the call up to any questions.
[Operator Instructions] Our first question is from Josh Wolfson of Desjardins.
Just a couple of questions on Cerro Moro. Just with respect to the stockpile grade, which I believe was over 20 grams, as reported in May. Was that processed in the second quarter or is that still available on surface for the second half of the year?
Dan, go ahead.
Josh, it's -- the current grade is about 20 grams per tonne on gold and over a 1,000 on silver. So we've been replenishing the high-grade from the mining during the quarter.
But it wasn't processed, Josh, in Q2. It started to be processed in Q3. Q2 was lower grade. To start the mill we have to process lower grade.
Okay. And what was the -- what's the current volume of that stockpile?
Almost 30,000 tonnes.
Okay. And looking at costs, is there any sort of guidance you can provide on expectations for unit costs that -- at the current time for Cerro Moro?
Well, our costs are in line with what the guidance we provided earlier this year. So we don't see any increasing costs. They're right in line with what we expect.
Got it. Okay. And lastly, for Cerro Moro, for capital costs going forward, what should we expect to be a reasonable sustaining capital rate with the development, I guess, ramping up?
Josh, it's Jason. I think it's -- I'd assume something like $15 million for the balance of the year.
Our next question is from David Haughton of CIBC.
Just looking at Chapada, very strong results when it came to mining but, the processing rate was below the run rate that we've seen recently. I'm not sure whether there is maintenance involved there. But thinking forward, what sort of throughput rate should we be expecting of the mill at Chapada?
Yohann here. Chapada, I would say in the second quarter, we processed harder rock than we anticipated because we mine most -- I would say, good portion of the Corpo Sul. In our budget, we had about 24.3 million tonnes. And it seems like this year, we're heading through -- we're going to be about 1 million ounces -- 1 million tonnes, sorry, below that. To mitigate that, we decided to use about the same strategy in Canadian Malartic and use quick crushing. So that quick crushing will be installed some time, I would say, during the first week of August. And the plan is to go up to about 70,000 tonnes per day processed with that new set up.
Okay. So that's quite a step up going forward. So should we be anticipating a forward rate of more like 70,000 tonnes per day when we go into the fourth quarter and into 2019?
We -- this is what we use slightly lower. We get about 68,000 tonnes in our model just to be cautious.
Okay. And that's before you even introduced the Phase 2 expansion. So moving in the right direction.
Yes.
Yes. Exactly, yes.
Okay. So I think, it's been up to nearly 25 million tonnes per annum. The other question that I had there was in relation to recoveries. So recoveries in Q2 through Chapada, very good, Daniel, as you pointed out in your slide. I'm just wondering what we should be thinking about going forward? And what the implication is for your Phase 1 improvement on recoveries? So what should we be thinking about recoveries going for the balance of this year and ahead into 2019, et cetera?
I would like to start first with the -- we said the gold reserve in the second quarter was mainly due by our ability of blending raw material ore. So basically we really have to manage our pyrite content and level of oxidations. So by doing so we can really like increase our recovery. The other thing is for sure the expansion that -- the acquisition that we did in 2016 and '17. Which -- we found a really good result, as you know, we were targeting like 2% recovery, but it seemed like it was more better than that. And the third thing, I mean, I need to give credit to the people that we have on site. They did a really good job. And we have a -- they really look at innovation and really proactive to always seeking opportunities to increase recovery. I would say for the Phase 1 that we undertook is, the idea is to install 4 new cells on the retrofit flotation circuit on the back-end. And by doing so, we believe that we're going to be able to increase recovery by about 2% for all type of material.
All right. So...
We're going to see these changes happening in the second half of 2019. And the last question maybe is for the total year, we expect to have an average recovery on copper and gold of 82% and 62%, respectively.
Okay. So stepping down a little bit from your success with blending in Q2. But then moving into 2019, you would expect for each phase to move up by another 200 basis points, say, it's another 2%. So 64%, 65% for gold. Is that achievable and 85% copper?
It's always based on the blend that we're going to have, based on the mining sequence, but this is exactly the target. Yes.
Okay. And I've just got another question if you don't mind. Looking at Jacobina, pretty good results there on your throughput. I heard about that the commentary you'd made of getting your stope inventory in place. Can you see Jacobina getting through potentially the 6,000 tonnes a day kind of level?
This is a goal, there's no doubt about it. I mean, if you look at our meal throughput, this is an average for the quarter. We are peaking way above 6,000 tonnes per day at this moment. So we -- in the process to install an expert system that's going to give some consistency to the operation. But furthermore, we started a study to -- with very, very low investment to bring that processing plan at an average of 6,500 tonnes per calendar day.
And when would you expect for the 6,500 tonnes a day to be achievable? And what kind of costs is required to get there?
It's under study at this moment in time. So we believe that we're going to have all these numbers by the end of this year. But as I've said, the mill is already doing really good. And the goal is really to gain some consistency in the throughput at that processing rate.
Okay. One last question, I know I've asked a few, perhaps, for Peter. We saw it from the Goldcorp release that Alumbrera is going to go an underground, possibly sub-level cave. What's the implication of that on Agua Rica do you think?
Well, first, I'm not aware of what Goldcorp has said. We are aware certainly of that underground plan for Alumbrera. These underground developments will be difficult. It will be substantially smaller scale, and not for particularly long period of time. I don't think it has an impact on our efforts on Agua Rica. As I touched on, David, we're looking at scenarios that do not require the -- I said that Agua Rica is not a well-understood project, and I stand by that. Again it reminds me of Chapada with 25 years, 30 years of history until we came along in 2003 and then put it to development and production by 2007. And people have talked about how there were challenges with that operations. And one of the challenges I think with Agua Rica is an impression that the only scenario that is available for it is an integration with Alumbrera. And part of what we've been doing, what we say in our MD&A, what we've said in the prior quarter and what we'll continue to advance is that we think that there's an option here that is not necessarily the big large open pit with multi-billion dollars of capital, but a scalable option that starts with the smaller pit, a smaller plant substantially reduced CapEx, that allows that project to be developed over time. And then it would scale to large -- sorry, on a smaller CapEx, and then it would scale to a larger size. So I don't believe it will have any impact on what is the intermediate and longer-term prospects and perhaps even the shorter-term prospect for any activity relating to Agua Rica. What will have an impact is how we evaluate potential partners in that project. We think that it should be developed. We think that we should be in a partnership on its development. We're not a copper company. And so we don't believe that we should be operating it. We don't believe that we should have the lion's share of the project. But there are lots of options available to us in terms of how we continue to advance that. What we're doing right now is we're seeing who are the viable parties, the responsible parties, the parties that are like-minded. We like partnerships, as you are aware, and we're looking at how we can advance those discussions.
Our next question is from Steven Butler of GMP Securities.
Good looking quarter overall and particularly the recoveries at Chapada. And I guess, coming back to that Chapada, was it particularly a good quarter, I guess, you're saying on the ore blending front and one that was maybe a perfect -- more of a perfect storm of mill feed, is that what you're saying?
Yes, Steve.
Okay. The -- thank you for the elaboration.
No. No. You know mining, Steven, it's all depends where your mine is sequenced, and we are in a good sequence and good blending in the quarter. The rest of the year will be typical, but globally our recoveries are better than what we expected when we did the Phase 1 and Phase 2 optimization at the mill.
I'd like to add something that [ when we have a choice ]. You know, Steve, what we're doing now, I mean, we have -- we did all these optimizations and one after the other. And we are in the process as well to test different kind of blends, sorry. This quarter, I would say this month, we're testing different kind of blends between, like, lower grade and higher grade to see how the mill is going to react to that. So it's a learning process for us. And as Daniel said, it's all about blending and the key is also to improve recovery of different kind of blends. So that's why we need to go through this test. So as you said, it was a perfect storm in the second quarter. And hopefully -- and our job, I mean, our work is really to optimize our recovery by type of material, and this is one of the main points for us.
Okay. Cerro Moro -- just last question, Cerro Moro, gravity recovery that you expect from Cerro Moro on both metals, if you can remind us of that? And the net benefit to gold and silver recoveries for the gravity being added in?
Okay. The expected recovery for gravity is between 30% and 35%, that is from gold and silver, I don't recall on top of my mind right now, Steven. But if we are 91% gold without gravity, what we see in the last 5 days is that we get our cake of the bulk 4% through 5% run in the gravity circuit and for silver the impact is even higher as we get a lot of electron in the gravity concentrate. So we see a jump from 87%, 88% to over 92%, 93%.
Our next question is from Mike Parkin of National Bank.
Most of my questions got answered, but on Chapada the comment about the blending of the ore, is the different types of ore available, able to sustain that blending that you've realized in Q2 for a longer period of time?
I would say to that question here is for sure, I mean, the Corpo Sul is the -- our great pit. And we have to go through a phasing of removing some ways to get access to that better ore. So there's a kind of, I would say, a cycle between these good recovery period. But basically for the second half of 2018, we believe that we're going to be pretty much aligned with what you saw in the first half.
Okay. And then on Jacobina, it's what you're doing there in the stock inventory, is the CapEx spend in 2Q kind of fair to assume on a go-forward basis for the near-term?
I would say, on a CapEx point of view, we're going to spend a little more CapEx in the second half of this year. But mostly, it's going to be with development, and we're going to also invest on our mobile equipment underground.
Our next question is from Dan Rollins of RBC Capital Markets.
Yes, I was just wondering, just on Jacobina costs, a significant improvement there. And it continues the trend that you've been building in the last, let's say, 8 to 12 quarters accelerating mid-last year. But the drop-in costs this quarter relative to Q1, how much of that was related to currency movements? And how much of that was actually related to improved productivity at the mine site?
Dan, Jason. I'll jump in on the currency component. And really there was a bit of an effect late in the quarter, but the currency swing really happened in -- right at the end of Q2. And then we're getting a more significant effect here in Q3. So Jacobina is probably the site that is most exposed to that beneficial tailwind right now.
But most of the improvements of the costs to pick up on what Jason said was not the result of currencies because we saw the currency devaluation occurred too late in the quarter for it to really have a meaningful impact in Jacobina costs. If the currencies stayed at the level that it is after this quarter and the balance of the year, it is more heavily geared towards depreciation of currency. We will see a more significant improvement in its costs. And so we should see an improvement in Q3 and Q4 costs as a result of currency.
We have many cost initiatives at Jacobina that we started last year and then we're improving each quarter and then the main component for this quarter on costs is the production. We had a record production in the quarter at Jacobina.
Okay. So you're pretty comfortable these -- this is a sort of -- as you move quarter-by-quarter, you'll have some fluctuation, but you're almost setting a new base every quarter.
We're still -- we're doing quite good at Jacobina. We're happy. We're going to trend below our target or our guidance at Jacobina for this year. The quarter was an amazing quarter. We would like to see the same costs each quarter, but it always depend on the where we're mining the sequence, the development that we need to do each quarter. But Q2 was a perfect, again, perfect quarter at Jacobina.
And, Dan, the expression about the trend being our friend. I think the friend at Jacobina with the excellent stewardship has been provided by Daniel and by Yohann and clearly the people at the operation. It shows a very positive trend on production optimizations, the impact of that on costs. Quarter-over-quarter there may be fluctuations, but we're very comfortable with what we've said at the beginning of the year. And now we do have the tailwinds of currencies that would likely improve the cost of that operation.
It's been a good change around that asset because if you look at what you've produced sort of quarter to sort of the first half of the year, you're almost at 75,000 ounces. That was the level you're producing at above 4 or 5 years ago when that asset sort of came off, but it's been a great turnaround. I'd like to see the costs going forward. And then just on one question. I know you didn't change guidance but used some very positive wording around the guidance. Is this something just to see how Q3 goes and then take a look at providing an updated guidance? Or are you just sort of comfortable with the 900 and sort of using wording to say, we're comfortable that we'll beat the top-end.
So I hope we can say -- I can say on behalf of the entire management that it's a little bit of both. We're very comfortable with the guidance. We're very comfortable that we will be above the guidance. And we debated whether or not we should say and so we're comfortable saying to you now that we will evaluate in Q3 what we do with our guidance. And the first half of the year looks, some have said should we be increasing our guidance for the rest of the year. Cerro Moro just started operations, at least commercial operations late in the quarter. So we have -- what I think, is an excellent plan for the improvement to production at Minera Florida. The advancement of those 2 things along with what we've done with the rest of the operations should suggest that we will be in a very good position to significant -- not only significantly increase our guidance, but then in Q3, as we get most of that quarter under our belt, or to be able to say, this is what we expect the production platform for the company to be and to increase that production platform. So it's a little bit of both. We were trying to be more cautious, more introspective. We do see a very positive trend, but we'll come back to it in Q3.
Okay. And then maybe just one last question from me. Just with respect to the improving free cash flow that Cerro Moro is up and running, we should see that go through Q3, Q4 and Q1 of next year. Have you thought about, obviously the first use of proceeds is likely to repay what's drawn on the line of credit. Is there a minimum cash balance you need as a company to run the operation smoothly without having to draw on that line of credit? And two, once you're at that level, is there any -- do you find it right now that where your bond, where your debt is sort of trading that is attractive to go out and sort of aggressively buyback some of that debt?
Yes, Dan, I think, you are consistent with what we've said before $100 million, $125 million is what we think we needed a minimum to run the business. First use of proceeds is suggested would be the revolver. And again, like we've said before, we're not going to be shy to build those cash balances though if we don't have a use for it otherwise and given just a profile we have right now that cash harvest that would be a likely case.
And then, may I say, one of the people in the room has just commented. So perhaps, if I can express the point, you made the observation that several years ago, Jacobina produced in a year what we produced in the first half of the year. And what we did at Jacobina is we said, we've got to throttle it back to get to advanced development, to get a better understanding of proven and probable reserves, to catch up on the exploration plan we pulled back on the mining and the plant. I think we were closer to 4,000 tonnes per day during that period. And now, what we've done as a result of those improvements. And as you know, these improvements can take years to get to the right point. We're now at a point where we can actually not only look at the existing design, the existing plant capacity, the existing mining rate, but also how we can improve on that to get to 150,000 ounces or better from that operations. So it's a very, very good point that you made. And several years later, I think, that operation is now a very responsible contributor to our production and to our bottom line.
[Operator Instructions] Our next question is from Andrew Kaip of BMO.
Just 2 questions. One, can you confirm or if you have or reiterate whether the 8,600 ounces of preproduction is included in the....
I'm sorry, Andrew, we're having -- we are struggling to hear you.
Sorry about that. Is this better.
Much better.
All right. So the 8,600 ounces of preproduction at Cerro Moro, is that included in your guidance for that operation for the year?
Yes. We've included it in our guidance. As you can surmise, our budget is higher than our guidance. And so we're not yet at the point of saying that the commercial production portion is what is in our guidance, but our budget is higher than our guidance.
Okay. I just wanted to clarify that. And then secondly, can we just discuss Florida and your forecast upgrade in the second half of the year? It sounds like you're suggesting that Florida is going to be processing at materially higher grades in the back end of this year and that there is a good chance that it's actually going to catch up with its annual guidance. Is that the way we should be thinking about what's happening at Minera Florida?
Andrew, its Gerardo Fernandez. Yes, we expect to increase grades in the next quarter and then further increase in the last quarter as we progress in the new zones, particularly PVS. It's a high grading mine, we have zones [ with 6,000 tonnes ] as Henry described and shown on the presentation. And also -- but that was also why high grade. If you're going to think of [indiscernible] like developing a new mine, this new trend, which is Pataguas and PVS is the new development, a new infrastructure. We're building ramps, accesses, ventilation raises for new zones that are away from the congested area in the core mine. So there we would have to -- you're gaining there, we are there. We are finding more veins than we originally anticipated. We have to throttle back a little bit of the development and preparation so we can put our grades and let sub-levels in the right position without compromising the future of high grading structure. But we expect to be -- meet between 3 and 4 next quarter, 3.5, 3.6 and over 4 in the last quarter this year.
Our next question is from Anita Soni of Crédit Suisse.
My questions are with regards to Cerro Moro. So now that it has gone commercial, is there anything that we should be expecting in terms of residual preproduction capital or will it all move to sustaining capital at this point?
Sorry, Anita. I missed the last -- very last part of the question? Preproduction...
Yes. So this is the CapEx. Is it all moved to sustaining now and what kind of...
No. there is no expansionary to speak of now.
Okay. And what do you think the budget will be for the remainder of the year at this point?
Yes. I've mentioned $15 million before, I think, that's a conservative number.
Okay. And then as we go forward into 2019 and 2020, what does that look like for Cerro Moro, the sustaining sort of an ongoing number?
Anita, bear with me, I'll come back to you on that one, okay.
Sure. And then just in terms of the recovery rates and the throughput that you've seen at Cerro Moro, if that continues to hold up right now that they're going into the first part of Q3, right?
Yes. As we've mentioned before and during July and then we've mentioned during the presentation, we started the gravity circuit in the last part of July, and we've been able to achieve or define recoveries with all that, the 100% of the processes within the plan running.
We're quite happy, Anita, after only 2 months of starting the mill, we're already at almost full design capacity on production, on tonnage and then on the recoveries we're right there. So it's quite an amazing start of the process at Cerro Moro.
Yes. So that's what, I was asking, it's a pretty good start. I just want to make sure that it was holding up? And then just lastly on costs. We don’t, obviously, only had like a few days commercial production. So do costs look in line with what you were previously projecting or is that -- is there something that we should be considering in terms of sort of inflation or currency movements or anything like that?
No. Like I mentioned before, Anita, our costs are right in the line of what we have planned at Cerro Moro. So there's no bad surprise there. The costs are what we predicted to -- that it will be. Our guidance is right on the cost and on production at Cerro Moro.
And in fact, Anita, we -- the currency is -- the devaluation of the currency has become more favorable. And it's actually passed that inflection point where the devaluation of -- the benefit of the devaluation of the currency is actually overcoming the inflationary impacts in the country. So we're comfortable with what we've guided on costs certainly for the year. Jason, do you have that...
Yes. Anita, Jason, back here. So I mentioned $15 million on the back half. I think it is really now, but if you annualize that number for the future, I think, that's fine.
And the guidance that we provided on our mine towards Cerro Moro before it was in production was in the range of $25 million to $30 million for a year.
Our next question is from Carey MacRury of Canaccord Genuity.
Just one more question on Cerro Moro. Can you talk about the mining grade? Is the mining grades producing enough ore now to keep the mill full?
Yes. This is Gerardo. We've been ramping up from both open pit and underground. Our focus -- since we've build this stockpile since last year, our focus has been to establish practices for grade control and dilution control, which is a really, really good at Cerro Moro at the moment. Through June, we were over 21,000 tonnes per month ore mining, and that is the high grade we are now considering the low grade or marginal ore into that number. This month, we expect to be around 25,000 and then above that on getting the run rate of 30,000 for the month starting in August. So we have 5 open -- pits open. All of them are high grade. And the underground mine started the stocking production last month. Some of these stocks are 70 per tonne. So we need to be -- we're being really careful on mining with selectivity with quality, obviously, with safety. And the team is doing an excellent job on those measures. While ramping up, and using the stockpile to blend so we can achieve the recoveries or different ore types and different behavior within the plan. We're learning, it's a new operation, but we're achieving a good result in all metrics.
We have no further questions registered at this time. I would now like to return the meeting over to Mr. Marrone.
So ladies and gentlemen, thank you. I wanted to make some concluding comments, but I will be brief.This call is occurring in some sense a few days early, and that we celebrate our 15th anniversary next Tuesday. In some respects, it would been more fitting to showcase a great quarter on such an event. 15 years ago, we were a startup with only a very small mine purchased from Valley as part of a going public event. And we had an ambitious plan to develop Chapada, grow through development and acquisition, focus on mining jurisdictions in North and South America only and become a significant, perhaps, even a dominant intermediate-sized gold mining company with low costs of production. We set out to create sustainability and constantly improve our management. And as we begin to enter our 16th year next week, we are now -- I hope I can say with some pride, but certainly with reflection on the quality of management a more seasoned and established company with a quality management for it. And I should have mentioned incidentally that our health and safety record is much improved over the course of the last couple years also. And we are a firm believer, the quality operations go hand in glove with the culture that encourages health, safety and environment. And here with us, I should have mentioned them earlier, is Ross Gallinger, who manages our environmental safety and governance efforts.Thank you to many of the stakeholders for their encouragement and support in helping us in this comparatively brief period achieving of what we set out to do from the beginning. And with that, ladies and gentlemen, thank you.
Thank you. The conference call has now ended. Please disconnect your lines at this time. And we thank you for your participation.