Earnings Call Transcript - PAAS Q1 2020

Operator, 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 earlier this morning, announcing first quarter 2020 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'll now turn the call over to Mr. Daniel Racine, President and CEO.

Daniel Racine, President and CEO

Thank you, operator. Good morning everyone and welcome to our First Quarter Conference Call. With me today is Jason LeBlanc, our CFO. These are challenging times for everyone and I hope that you and your loved ones are healthy and safe. Here at Yamana, we are doing everything we can to protect our employees and their families, and working closely with our host communities to support their needs during this challenging period. On this slide, you are seeing some examples of the efforts that the company’s operations are making to support our host communities. Hundreds of thousands of dollars have been allocated to setting up support funds for communities in the coming weeks and months. You can find more detail in our MD&A. There are currently no confirmed or suspected cases of COVID-19 at any of our operations, but the pandemic has impacted our business. Two of our mines, Canadian Malartic and Cerro Moro, were temporarily impacted late in the first quarter due to government restrictions related to COVID-19. The suspensions and the gradual ramp-up of mining post-suspension had impacted our 2020 outlook. We are now forecasting gold production for the year at 786,000 ounces, silver production has been revised with 10.25 million ounces. And GEO ounces are projected at 890,000 ounces. On a mine-by-mine basis, our 50% share of gold production at Canadian Malartic is now expected to be 275,000 ounces. We are projecting 2020 gold and silver production at Cerro Moro of 96,000 ounces and 6.2 million ounces of silver, with GEO production now seen at 160,000 ounces. I'll explain the difference in the next slide. I would like to note that we are taking a conservative approach to our revised guidance for Cerro Moro and Canadian Malartic and believe there is potential upside. I'm pleased to report that we are increasing our 2020 production forecast for Jacobina to 168,000 ounces of gold. The increase comes after the mine posted yet another record for quarterly production due to higher grade and increased throughput. El Peñón is forecasting to produce 162,000 ounces of gold and 4.3 million ounces of silver. GEO production is forecast at 202,000 ounces, the changes entirely attributable to our revised GEO guidance ratio, which is due to their relative outperformance of gold price to silver price. Production guidance for Minera Florida has been revised slightly to 85,000 ounces of gold. The revision reflects the temporary workforce reduction that was implemented in March in conjunction with local authorities and unions related to workers who are not from the region to enhance social distancing and reduce the possibility of community infection. Please note that our revised guidance is being provided based on what is currently known. There continue to be uncertainties that may impact our operation and affect production and costs. Like El Peñón, our updated GEO ratio impacted GEO guidance for Cerro Moro, reducing our GEO production forecast by 11,000 ounces. The government restriction introduced on March 20 resulted in periods when production at Cerro Moro was limited or nil. This restriction included a travel ban and mandatory social isolation order. Even after restrictions on mining are lifted, production was limited due to the consultation with the government around reinstating travel to Cerro Moro, the implementation of precautionary measures and the overall workforce remobilization. The ramp-up of operations began late this month and will continue to early May with a gradual increase in production. The suspension and subsequent ramp-up required a change in mine plan as expected to extend into mid-June. As part of this, the stockpile will be accumulated and for certain periods this will limit the processing of ore. While the stockpile is not immediately needed, it will enable future processing flexibility. Due to the suspension and gradual resumption of operations, higher grade ore that we have planned to mine and process late in 2020 will be deferred to future periods as part of normal mine sequencing. As mentioned, production guidance is being conservatively estimated and we believe with strong execution and efficient ramp-up that we may do better. Canadian Malartic was temporarily suspended on March 24 and resumed operations on April 15 after the Quebec government lifted the restriction on mining. Processing operations resumed within a few days and remobilizing the work crew. The ramp-up is expected to take two to four weeks with full attention to health and safety protocols, including temperature checks and enhanced screening for anyone seeking entry through the mine. Mandatory social distancing and enhanced screening and disinfecting; our revised guidance assumes conservative ramp-up. Due to the temporary suspension and gradual ramp-up, we will be deferring the processing of high-grade ore that has originally been planned for Q4 as part of the updated plan. In addition, a scheduled mill shutdown maintenance shutdown is expected to require more than the typical holding period to complete to accommodate social distancing protocol. To the extent that maintenance can be performed more efficiently, it will benefit production. Despite the impact and challenges caused by the COVID-19 pandemic, we had a very strong first quarter. Our total recordable injury frequency rate was 0.39 at quarter-end and after one year of measurement on our Social License to Operate Index, results show strong trust and acceptance across our operation. During the quarter, we continued to monetize our non-producing assets to improve our financial flexibility and provide optionality. We entered into a definitive purchase agreement to sell a portfolio of royalty interests, and the contingent payment to be received upon declaration of commercial production at the Deep Carbonates Project at Gualcamayo mine for total consideration of $65 million. Following the completion of the market merger between Leagold and Equinox as subsequent to quarter-end, we closed the sale of 12 million units of Equinox for C$120 million. Each unit includes one common share and one-half of a common share purchase warrant of Equinox. If all warrants are exercised, the total gross proceeds to Yamana would be C$201 million. As you may have seen, we announced an agreement earlier this week to option up to 40% interest in our Suyai gold project to a highly respected Argentina portfolio management and capital markets company based in Argentina. We're excited about this agreement and the potential to advance the project. During the quarter, we have decreased net debt by a further $20 million due to positive cash flow from operations. At quarter-end, net debt was $869.1 million. Taking into account the receipt of funds from the aforementioned Equinox unit sale, our net debt balance at quarter-end would have been approximately $786 million on a pro forma basis. This time last year, our net debt was $0.77 billion and with our significantly improved financial flexibility, we have increased our dividend for the third time in the past year, competitively increasing it by 213%. Net increases during the quarter were $45 million or $0.5 per share, adjusted net earnings were $47.2 million, also $0.5 per share. Cash flow continued to be very robust with cash flow before change in net working capital of $164.6 million. Normalized cash flows from operating activities before net change in working capital of $168.1 million and free cash flow before dividend and debt repayment of $38.9 million. We produced 192,238 ounces of gold during the quarter, notwithstanding the temporary suspension at Canadian Malartic and Cerro Moro. Jacobina, El Peñón, and Minera Florida all had exceptional quarters exceeding their production targets. Silver production was 2.73 million ounces following a strong performance from El Peñón. While GEO production of 221,746 ounces was in line with plan. Cash cost of $694 per GEO and all-in sustaining costs of $1,032 per GEO were better than plan, despite the GEO ratio being higher at 94.23 than the original guidance of 86.10. Costs were positively impacted by foreign exchange movement, as a result of the Canadian dollar, Brazilian Real, Argentine Peso, and the Chilean Pesos all weakening against the U.S. Dollar. Jacobina achieved its objective for the Phase 1 expansion of 6,500 tonnes per day, a full quarter ahead of schedule. And it did so without the benefit from the installation of further plant modifications scheduled for completion in mid-2020. Phase 1, in short, has gone better than planned and we are currently evaluating whether there's an opportunity to further optimize daily throughput above 6,500 tonnes per day as part of this phase. With respect to Phase 2, the pre-feasibility study which evaluates an increase in throughput to 7,500 to 8,500 tonnes per day is now complete. Preliminary results indicate that the total capital cost of $57 million, with $35 million related to the processing plant, $14 million for underground mining, and $8 million for infrastructure. The Phase 2 expansion would increase Jacobina’s annual production to 230,000 ounces and reduce operating costs with a positive impact on cash flow. More comprehensive and detailed information relating to the Phase 2 pre-feasibility study will follow in a separate announcement early next month, and a 43-101 report will also be published in May. I should also note that additional production from Phase 2 is not included in our guidance. As mentioned, our Q1 results were very strong, despite the temporary suspension at Cerro Moro and Canadian Malartic; if they were not impacted in total, we would have finished Q1 on track to be at our original guidance since at the beginning of the year. We are encouraged by the early 2020 performance of our mine. We had decided to provide you with our internal budget numbers for the quarter, so you can see each operation tracked. Production, as you can see, only Canadian Malartic and Cerro Moro were below budget, while Jacobina, El Peñón, and Minera Florida all exceeded our budget. Production of 222,000 GEO ounces was exactly in line with budget. On cost, we actually tracked better than our Q1 budget. On Cerro Moro, only Cerro Moro saw costs higher than our budget, and again this was due to the government restrictions during the quarter.

Jason LeBlanc, CFO

Thank you, Daniel, and good morning everyone. Turning now to our financial performance. Revenue in the first quarter was $356.5 million, compared to $407.1 million in the same period of 2019. The decrease reflects the company's current portfolio of five mines this quarter, compared to the first quarter of 2019, which included contributions from six mines, including Chapada. However, this was partly offset by higher gold and silver prices, as well as increases in sales volumes from Jacobina, El Peñón, and Minera Florida. And despite the year-over-year decrease in revenue, gross margin exceeding DD&A increased slightly to $202.2 million. G&A expenses decreased by $5.7 million or 27% compared to the same period in 2019, due to corporate overhead reductions as we scaled our cost structure to our current portfolio of assets following the sale of Chapada. Net earnings were $45 million or $0.05 per share; the net effective adjusting items were neutral in the quarter, so we also had adjusted earnings of $0.05 per share as well. Quarterly cash flow performance reflected the impact of both strong production and gold prices, as well as the positive impact of foreign exchange movement on cost structure. Cash flows from operating activities during the quarter were $129.4 million and cash flows from operating activities before net change in working capital were $164.6 million. Free cash flow before dividends and debt repayments during the quarter was $38.9 million and we've reduced net debt during the quarter by a further $20 million to just under $870 million. With the recent proceeds of the Equinox sale, pro forma net debt was $786 million at March 31. If we go back one year to the end of Q1 2019, our net debt was sitting at about $1.77 billion. So we've been able to reduce net debt by about $1 billion in 12 months. The majority of that follows the proceeds from the Chapada sale, but more recently that has been from the free cash flow generation of the company. Given the uncertainty of the COVID pandemic, we drew down $200 million of our $750 million revolving credit facility as a precautionary measure in March, but we do not expect to utilize any of these funds. Before I get into our revised outlook, it is important to note the impact of how the gold equivalent ratio has moved since earlier this year. Gold has performed exceptionally well year-to-date relative to silver, which has significantly increased the GEO ratio observed in the market compared to the ratio assumed in initial 2020 guidance. With our revised 2020 guidance, we have updated the assumed ratio to better reflect that movement. In our original guidance, we assumed a ratio of 86.10; we are now assuming a ratio of 98.85 for the full year. The result is that silver production accounts for fewer ounces in gold equivalent terms following that change. The impact to our 2020 production guidance from our new ratio assumption is approximately 17,000 GEO from this change in the GEO ratio only from our mines that produce silver. The remainder of the reconciliation of the change in our guidance is from the COVID impacts at Cerro Moro and Malartic, and the guidance increased at Jacobina. Turning to additional items in our guidance, we are continuing to assess the impact of COVID-19 on costs in relation to guidance assumptions previously provided in February. So for now, we wanted to provide a directional update on costs and to say our costs are expected to be higher, but we will provide a further update, more detailed update at a later date. For now, we are providing some indications of the impacts we are experiencing and anticipating ahead of that further update. As a result of the aforementioned GEO ratio assumed, we estimate an increase of approximately $20 per GEO on our AISC. A larger GEO ratio results in total costs being divided over fewer GEO ounces and increasing the overall cost per unit reported. The second impact is a positive tailwind from foreign weaker foreign exchange rates than those assumed in our original guidance, which represents about $35 per GEO at current FX rates. Finally, in association with COVID-19, costs are also expected to be impacted primarily by the lower GEO levels and unit cost impacts from the re-guided production, but also the demobilization, ramp-ups, and workforce safety measures put in place. While costs will be most significantly impacted during Q2, we expect consolidated AISC for the full year to be in the range of 5% higher than previously guided. We also expect capital to be scaled to the new guidance level, as we will have natural deferrals in capital spend in association with delays related to COVID-19, both from a sustaining and expansionary capital perspective. The expected reduction in capital spend for the year is between $15 million and $20 million. Lastly, total DD&A is being re-guided to $470 million for 2020 in association with the reduction in quantities sold. Overall, when thinking about our 2020 outlook, despite the impact to production and cost from COVID, the company's margins and cash flow generation will benefit from the positive response to gold prices during this unprecedented uncertainty. So cash flows remain healthy this year despite the COVID impacts. As we look out to next year and beyond, our cash flow platform has improved meaningfully due to the higher gold price and the weaker operating currencies and reductions in other cost inputs we're seeing over the longer-term.

Daniel Racine, President and CEO

Thank you, Jason. While these are unprecedented times for everyone, we believe our business may be in a better position than it has ever been. Our cash flow and financial flexibility continue to rise against the backdrop of a favorable gold price environment. Our balance sheet and liquidity is strong and getting stronger, while net debt continues to decline. Our growing financial strength is underpinned by a strong asset portfolio that is performing exceptionally well. A testament to our people with despite the uncertainty and challenge posed by COVID-19 have risen to the occasion and done a remarkable job. And with that, we'll be happy to take your question.

Operator, Operator

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

Ralph Profiti, Analyst

Good morning, everyone. Thanks for taking my questions. Daniel, I have two on Jacobina please. Firstly, the presentation talks about moving this to feasibility study stage in the middle of 2021, and I’d only think it as too far, but can you tell us a little bit about what studies you're looking at? And maybe what gets you most excited is exploration side and things like reserve grade most of the optionality going forward or is there a processing optimization as well?

Daniel Racine, President and CEO

Well, like we said, you're going to see next week we're going to release a lot more detail on the pre-feasibility study. So the pre-feasibility study is completed; we’re going to wait before releasing anything really special about it. We want to stabilize the operation at the end of June as you know Phase 1 will be completed by then. We want to know what the base case at Jacobina, stabilize the operation, then after that, put that in our study and complete a feasibility study. So right now the purpose pre-feasibility study shows, it's a no-brainer to go ahead with this. What we want to continue really, you mentioned a good point, we had many successes in exploration at Jacobina, right now, all the drilling is stopped, but we're slowly restarting. We have – as you all know, we have very good grade going deeper at Jacobina, the zone extends. So we want to make sure that we capture all the potential to put in the study. More drilling, transferring more inferred into reserve will operate now, with this study, we don't really extend our 16 years of mine life. We want that to happen before we go ahead with a project. Anyway, there was no capital spend this year, so that's a good thing. And then nothing has to be spent before mid next year. So that gives us plenty of time to complete the feasibility study before that.

Ralph Profiti, Analyst

Okay. And when it comes to the pace backfill plant, it sounds like this was a separate study going on outside of any pre-feasibility study or feasibility study. Can you just maybe touch on the process and the timing on when we could see an update on that? And by my estimates, if you get approved for 2,000 tonnes per day, that would take the TSF above 20 years. Is that the right way to think about it at the 8,500 ton per day scenario?

Daniel Racine, President and CEO

Yes, you’re right; the backfill plant is a separate study. It's not big capital, but we want to keep it separate from the expansion. It will be roughly a 2,000 ton per day backfill plant. And you're absolutely right, that will extend the mine life of the trailing facilities quite longer. So we had already over 16 years of mine life putting 2,000 ton per day back into the underground will extend the mine life. So basically the backfill will help to extend the mine life of the trailing facilities.

Ralph Profiti, Analyst

That's it for me. Thanks very much.

Daniel Racine, President and CEO

Thank you, Ralph.

Operator, Operator

Thank you. The next question is from Josh Wilson with RBC. Please go ahead.

Josh Wilson, Analyst

Thank you. Just wanted to ask a question on the dividend policy going forward. I recognized there's been a significant increase over the last year. But just thinking going forward with the level of net debt, where it is and also gold prices where they are. How do you see the dividend policy changing, going forward and what is it sort of based on?

Daniel Racine, President and CEO

Good morning, Josh, good question. So yes, last year when we first increased the dividend, we said that we have targets to where we want to bring the dividend. At the end of this last year, it was about $50 million per year total; now it's going to be $60 million per year in total. We said we want to be between $50 million and $100 million. So that's the first step to go towards the $100 as we generate more free cash flow this year with our interest going down; that’s what we’re seeing. We want to give it back to our shareholders; they’ve been patient in the past few years and then nothing has changed. We announced that we wanted to be between $50 million and $100 million per year; we're getting towards that target.

Josh Wilson, Analyst

Okay. So when you're stress testing, I guess, downside risks for the company, what sort of price assumptions are you using within that sort of base case where the dividend can still be fully covered?

Daniel Racine, President and CEO

That’s only a $10 million increase, but Jason can give you the detail.

Jason LeBlanc, CFO

Yes, Josh. I guess the way to look at it, as we're definitely not basing decisions on current spot prices in America today. We budget at much lower gold prices, sensitize it to the downside. And I think the further compliment to that is the dividend reserve fund that will build up overtime. I think the recent disposition of Equinox shares is another step towards just backstopping that approach with the dividend as well.

Josh Wilson, Analyst

Okay, great. Thank you very much.

Operator, Operator

Thank you. The next question is from Fahad Tariq with Credit Suisse. Please go ahead.

Fahad Tariq, Analyst

Hi, good morning. Thanks for taking my question. Just one from me. In the release, you mentioned you're still targeting leverage, the lower one-time net debt-to-EBITDA, and part of that will be monetization of non-producing assets. Maybe tell us, does Agua Rica fit into that?

Daniel Racine, President and CEO

Well, good morning, Fahad. We're going to reach the one without Agua Rica, only what we have done so far and then the free cash flow generated from the company, the mines, the operation will reach that target of one. We said before that by the end of 2021, we think we're going to reach the net debt below one by the end of this year. So if we bring Agua Rica or some money from Agua Rica, we’ll then bring that leverage ratio lower than one. We don't need Agua Rica to reach one.

Fahad Tariq, Analyst

Okay, that's clear. Thank you.

Operator, Operator

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

Anita Soni, Analyst

Good morning everyone. So first, thanks for all the detail in this presentation; it really helps with some guidance going forward. Secondly, Josh asked my questions about dividends, so I'm going to address debt. Yes, are there any plans to potentially refinance your debt given the favorable terms that are out there at this point?

Daniel Racine, President and CEO

Good morning, Anita. Jason?

Jason LeBlanc, CFO

Yes, good morning Anita. No, I think what we've said is that in the short-term it's going to be a net-net debt story. We don't have any debt of significance due until 2022. So I think the things we'd be doing between now and then would be building that cash balance, building that cash reserve fund, and seeing that net debt levels reduced; ultimately reducing gross debt as we get up there as well. So no, we don't see this as a refinance story. We want to see the gross debt deeply reduced.

Anita Soni, Analyst

Okay. And then a second question, I guess tying in what I think are sort of the big picture themes that two-quarter we are looking at, which is basically if gold prices stay where they are, there is generally a lot of free cash flow coming the way of the senior producers and the intermediates. What do you think of your capital allocation priorities, so you've addressed dividends, debt. And then, in terms of the projects after Jacobina, could you remind us what the highest priority projects are for you?

Daniel Racine, President and CEO

Yes. There is – we have Canadian Malartic, but it’s not before three or four years from now. We might tight the ramp later this year, but it’s small capital. We might increase – we might – we'll probably increase drilling at East Gouldie, as we have success. We released our resources and reserves; the resources there in February, but the close was in November. So we drilled November, December, January, February, and March and we had very good results. The resources have continued to increase there, we're doing an internal PA, so that's one priority with Jacobina for us. Agua Rica is the other one; we’re advancing the feasibility study. It's been delayed a bit because of COVID-19, so now the fee study will be completed more early next year, first quarter or second quarter, first half of next year, but it's also a priority, as you all know, we – I like the project; we like the project; we are 56% owner of it; we'll develop it, probably no, but we would like to be involved in the development. So on capital allocation, basically there is no big capital except if we go ahead with Jacobina, and that’s – you saw that amount is $57 million; nothing before mid next year. So it's basically end of next year, and then in 2021. After that, the next one will be net up-tick in three to four years from now. So this is why free cash flow is going up and with gold prices going up, all that free cash flow will reduce the debt – the net debt and the debt and then give more to shareholders with the dividend.

Anita Soni, Analyst

All right. Thanks for that. And I'll leave it at that. Thank you.

Daniel Racine, President and CEO

Thank you, Anita.

Operator, Operator

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

Tanya Jakusconek, Analyst

Yes, good morning everybody. Just maybe circling back, Jason, you talked about the all-in sustaining costs moving up about 5% or thereabouts. Can you just talk a little bit about your hedging philosophy? Have you done any hedging in currency and/or fuel that can help offset some of that?

Jason LeBlanc, CFO

Sure, yes. Thanks Tanya. We have done some Canadian dollar hedging. I guess, we announced that when we put out our prelim production results a little while ago. So I think we put on about $90 million of hedges at a collar from 138 to 145. So that just protects that Canadian dollar cash flow exposure; Canadian dollar is our largest exposure. We didn't have any hedges on the result that was a good idea. We do have existing hedges in place for both the Brazilian real and the Chilean peso stretching through this year as well. So I think it's always been an important part of our philosophy to try to lock in those cash flows, and we continue to do that. By doing that, I think with the rising gold price, we're seeing the margins improve as well.

Tanya Jakusconek, Analyst

Okay. So since announcing that 90 million on the Canadian dollar, nothing else has been done in the Canadian dollar...

Jason LeBlanc, CFO

No, I think you asked about fuel as well. We haven't done anything there. I would say we are obviously seeing a benefit from fuel at the larger open pit operation in Malartic, a little bit at Cerro Moro because of the diesel generated power down there, probably $5 million to $10 million of total savings that would be embedded in the comments on the cost.

Tanya Jakusconek, Analyst

Okay. So maybe just your hedging philosophy, how do you look at it right now?

Jason LeBlanc, CFO

Well, definitely nothing on the top line. I think no interest to hedge the precious metals. We're comfortable in our cost structure. We'll continue to manage our costs; this year is more challenging. You saw we had a good start to Q1; COVID kicks in. The story from COVID is really more a story of the unit effect; there's dollar cost as well, but it's mainly the units that are gone down and the costs in total dollars haven't gone down as much. So I think that's the way to think about it. There will be some incremental costs for us to deal with those operations as we deal with demobs, remobs, ramp-ups; just in saying employee safety. But this is going to be a 2020 story as we get out to 2021, there may be some marginal impacts, but I would see our cost structure improve from next year. So margins look good, and unless – maybe even think about hedging the top line. We will continue to hedge operating currencies when we see the opportunity to lock in the cash flow. I think we've been very consistent in that for the last number of years. So I would say that is still the philosophy.

Tanya Jakusconek, Analyst

Okay. And maybe just on Daniel, continuing on the cost side. I appreciate the impacts with the lockdown on the operations as you bring up the operations to their full capacity. But can you talk about whether you are seeing any inherent costs that are going to be in place going forward from the COVID-19 impact? Maybe this social distancing comes with additional costs; do you see maybe loss in productivity? Can you comment on what in the cost structure you see longer term from all of this, if any?

Daniel Racine, President and CEO

Yes. Good morning, Tanya. Thanks for the question. We saw in Q1, we reported in our MD&A, the impact of COVID was $3.5 million in Q1. So we lost about eight, nine days at Malartic and about the same at Cerro Moro. Q2 will be the most impacted. As you all know, we started both operations late this month; Malartic will take two to four weeks to be fully ramped up. It's going fairly well; nearly is at full capacity. Just a mine to bring back to full operation will take some time. Cerro Moro, the challenges is bringing the people to the site. 35% to 40% of our employees are onsite from Santa Cruz. So it's challenging to bring people from other provinces. So there's cost associated with that. They're all embedded in the guidance. We have said before this year on COVID; so yes, there are costs. I don't remember, Jason, maybe you can help me. What's the amount that we expect? I think it's $10 million to $15 million impact. We don't see that impact coming being there for next year; we will revise when we do our budgets for 2021 and 2022. Right now, our guidance is not changed for both years. As we have mentioned, we see now some of the Q4 production that will be pushed to Q1 next year. Q4 is always our best quarter; it's still going to be a very good quarter, but some of the good grade is going to be pushed to 2021. So that will help our costs that way. So yes, we have included in our actual forecast costs generated that related to COVID. Malartic is a big example; there are 2,000 people working there. So you can imagine respecting the two-meter distancing is a challenge. Each day a thousand people go to site; they have to go to trailers before they even get to site to have temperature checks, questionnaires, and it's even more for the people delivering goods to the sites. We're lucky at all our mines without exception, there's no cases, so Malartic Val-d'Or, where 99% of our employees come from, there's no cases. Same at Jacobina, 80,000 people living in town, no cases. So that helps to maintain our sites free and our local communities. But there's a cost to do that. We're lucky; by nature, mining, you go underground; the jumbo operator is alone, the scoop operator is alone, same with big open pit. There’s is only one person per truck, shovels, rail. So we reduce costs there. We don't increase costs there. It's mostly to transport the people; we’ll bring our employees to the job and then accessing the site where we see some inefficiency. But we think with time, and we're seeing that at Malartic right now, that people are getting more used to being checked and then the process is going faster.

Tanya Jakusconek, Analyst

Yes. I guess, maybe I wasn't clear. I understand what's happening in Q2 with all the ramp-up; it was more, do you believe that longer term, so beyond Q2, do we have costs that are going to have to stay within the cost structure because of social distancing and/or lower productivity that we're going to have to forecast in 2021 and beyond let's say.

Daniel Racine, President and CEO

No.

Tanya Jakusconek, Analyst

No, okay. Thank you.

Daniel Racine, President and CEO

Yes, one good example is charging. We're not charging at all right now. All our offices are closed. People are working from home. We closed this quarter without having anyone in our office since early March, so that shows that this saving, maybe we won't – we don't need the full space we have here. We don't need to travel as much. We found out that we can do a lot with the internet, same at each out sites. Almost everyone that's working in admin job, finance job, they're all working from home. So that helps distancing too when you don't have employees from offices working and you have only the mine people. For this, I’m saving to debt, so like Jason said, yes, this extra cost, but we have not put that in our saving yet, but we see some savings coming from opportunities with this.

Tanya Jakusconek, Analyst

That's good to hear. Thank you.

Daniel Racine, President and CEO

Thank you.

Operator, Operator

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

Daniel Racine, President and CEO

Well, thank you, operator. Thank you everyone for joining us. We hope you are able to join us for our AGM at 11:00 this morning Eastern Time, and we look forward to updating you on our second quarter result in July. Please take care and stay safe. Thank you.

Operator, Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.