OREANDA-NEWS. Fitch Ratings has affirmed Yamana Gold Inc.'s (Yamana; TSE:YRI, NYSE:AUY) Issuer Default Rating (IDR) and senior unsecured debt at 'BBB-'. Roughly \$2.6 billion in principal amount of debt and commitments are affected by this action. A complete list of ratings follows at the end of this release.

The Rating Outlook is Stable.

Yamana's ratings reflect its sizeable reserves, low cash cost position, average geopolitical risk, and potential for solid future growth combined with Yamana's commitment to maintain a conservative capital structure given its exposure to gold prices. In weak gold markets, the company has the ability to defer development and exploration and focus on preservation of its capital structure.

The Stable Outlook reflects Fitch's expectation that total debt/EBITDA will not exceed 3.0x on a sustained basis, and will generally trend to below 2.0x. Should internal cash generation fall behind expectations, Fitch expects expansion capex will be cut or will be supported by new equity issuances or non-core asset sales.

KEY RATING DRIVERS
Yamana is a low-cost producer compared to peers, benefitting from a comparatively large percentage of by-product sales coming from silver and copper. In 2014, the company had production of 1.2 million gold and 10.1 million ounces of silver, at an all-in sustaining cost of \$807 per gold-equivalent ounce (GEO) on a copper by-product basis and \$899 per GEO on a co-product basis, compared to \$814 per GEO and \$947 per GEO, respectively, in 2013. Incorporating the impact of all by-products, Fitch estimates Yamana's cash costs to produce gold for the latest 12 months (LTM) period ended March 31, 2015, were \$437 per gold ounce of production. The high concentration of by-products also increases Yamana's revenue diversification relative to peers, with roughly 75% of estimated revenues attributable to gold sales, allowing the company to benefit from strengthening global copper demand, but also leaving it more sensitive to large declines in by-product prices.

The company has a high percentage of production from core, low cost operating mines, low capital requirements, and solid long-term growth prospects. For its size, production by mine is fairly diversified, with the Cerro Moro project as the only foreseeable large risk from new mine construction cost overruns or delays, as mines outside of Brio Gold are currently in commercial production. Construction at Cerro Moro is expected to start in late 2015 with completion and first production expected in 2017.

Yamana operates in Brazil, Chile, Canada, Argentina, and Mexico. At Dec. 31, 2014, proven and probable gold reserves were 19.6 million oz. which is 16.4x 2014 gold production of 1.2 million ounces. This compares to gold reserves of 16.3 million oz. of gold in 2013, with the increase mainly due to the acquisition of the Canadian Malartic mine, which contributed 4.33 million ounces of gold to the reserve base.

After falling short of expectations on some expansion projects and turnaround efforts at some producing non-core mines, the company recently placed certain development stage assets and non-core mines (Fazenda Brasiliero, Pilar, and C1 Santa Luz) into a newly formed wholly-owned subsidiary, Brio Gold Inc. With a dedicated management team at the new subsidiary, the company will continue its efforts to improve and optimize the assets, and it has stated that a going public event is the optimal approach to realizing value of the assets for Yamana. Plans are progressing for the event in the third quarter of 2015. Fitch believes that while the sale will result in a reduction in overall size of Yamana's production base, it should lower overall cash costs of production, improve liquidity as proceeds will be used for repayment on the revolver, and could possibly bolster cash balances with additional proceeds.

Production from the divested mines and projects could be replaced in the coming years as the company has announced it will proceed with construction of its Cerro Moro gold and silver project in the Santa Cruz province of Argentina. The project is expected to produce over 100,000 ounces of gold and 5 million ounces of silver annually over the life of the mine. Formal ground breaking is expected in the second half of 2015, with a majority of construction spending to occur in 2016. Production is expected in the second half of 2017. Assuming expectations are accurate, Fitch views the construction of the mine as a positive, as it contains high grade deposits and cash costs are expected to be very low, at \$380 to \$400 per ounce of gold.

KEY ASSUMPTIONS
--Production at management guidance;
--Long-term gold price of \$1,200 per oz.;
--No material debt-funded acquisitions;
--Brio Gold: conservatively estimated to be sold over course of next few years, with proceeds used to repay outstanding balance on revolving facility and for general corporate purposes.
--Cerro Moro construction and projected production start on schedule, with first commercial production guidance of second half of 2017.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Gold prices and internally generated cash flow deteriorate without an equal management response in the form of reduced spending, asset sales or the raising of equity;
--Expectations that total debt/operating EBITDA will be greater than 3.0x on a sustained basis.

Positive: Not anticipated given size and sensitivity to metals prices but future developments that may lead to a positive rating action include:

--Significant reduction in borrowing and positive free cash flow on a sustained basis.

LIQUIDITY
The company has total liquidity of \$910 million as of March 31, 2015, with \$121 million in cash on the balance sheet and a \$1 billion revolving credit facility due March 2019, of which \$790 million in available for borrowings. The revolver has a maximum total net debt-to-LTM EBITDA covenant of 3.5x and a maximum total net debt-to-net worth covenant of 0.75x. Total debt to latest LTM operating EBITDA was 2.7x and net debt-to-LTM operating EBITDA was 2.5x.

Liquidity should remain adequate to support Yamana's capital spends, which are expected to be between \$400 million and \$500 million in 2015 and 2016. Fitch expects Yamana to generate free cash flow beginning in 2015 depending on working capital swings. Additionally, liquidity would be bolstered with the monetization of the Brio Gold assets, which is projected by management to occur in 2015. The proceeds of the divestiture will be used fully used to pay down the outstanding balance of the revolving credit facility.

Fitch expects Yamana to remain in compliance with its covenants and have sufficient liquidity to support its operations.

Fitch estimates schedule maturities of debt, including debt assumed from the 50% interested in Canadian Malartic, as of March 31, 2015, of \$27 million in 2015, \$98 million in 2016, \$47 million in 2017, \$112 million in 2018, \$398 million in 2019, and \$1.2 billion thereafter.

The senior notes benefit from the same upstream guarantees as the credit facility and rank equally with existing private notes aggregating \$1.1 billion. Yamana's proportionate share of Osisko Mining Corporation's (Osisko) long-term debt at March 31, 2015 is \$91 million and is non-recourse to Yamana. The Osisko debt has a priority claim on Osisko's cash flows.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the ratings for Yamana as follows:

--IDR at 'BBB-';
--Revolving credit facility at 'BBB-';
--Senior unsecured notes at 'BBB-'.