Filed by Yamana Gold Inc.

pursuant to Rule 425 under the Securities Act of 1933

Subject Company: Meridian Gold Inc.

Commission File Number: 001-12003

Date: August 6, 2007

 

	NEWS RELEASE
YAMANA GOLD REPORTS SECOND QUARTER 2007 RESULTS: RECORD REVENUE AND EARNINGS

 

Toronto, Ontario, August 7, 2007 - YAMANA GOLD INC. (TSX: YRI; NYSE: AUY; LSE: YAU) is pleased to announce its financial and operating results for the quarter ended June 30, 2007.

Second Quarter Highlights from the period of April 1, 2007 to June 30, 2007 include the following:

Operational

·                  Total production of 115,843 ounces of gold for the quarter and 236,450 ounces on a year to date basis.

·                  Average cash cost of $(434) per ounce after by-product credits representing an improvement of 313% in cash costs from the first quarter.

·                  Total concentrate production from Chapada of 50,304 tonnes for the quarter, an increase of 13.2% over the first quarter.

·                  Recovery improvements and decrease in mining costs per tonne at the Chapada Mine.

·                  Continued development plan at Jacobina focusing on the Canavieiras mine development with two ramps to accelerate development.

·                  Pyrite sulphuric acid scoping study at Chapada completed with feasibility study advancing.

·                  Gualcamayo feasibility study pending with expected production to begin in mid-2008.

Financial

·                  Record quarterly sales of $183.7 million, an increase of 339% over the comparative quarter ended June 30, 2006 and an increase of 27% over the first quarter ended March 31, 2007.

·                  Mine operating earnings of $106.7 million for the quarter, an increase of 829% over the comparative quarter and 40% over the first quarter.

·                  Adjusted earnings for the quarter of $85.2 million before income tax effects and $76.4 million after income tax effects or $0.22 per share.

·                  Net earnings for the quarter of $52.8 million or $0.15 per share (the primary difference between accounting net earnings and adjusted net earnings is non-cash mark-to-market copper hedge losses).

·                  Cash flow from operations of $90.9 million before changes in non-cash working capital, representing $0.26 per share.

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·                  Cash balance of $89.0 million as at June 30, 2007. Accounts receivable of $72.1 million as at June 30, 2007 of which $49.7 million is expected to be collected by mid August and will further increase available cash.

·                  Declared further quarterly dividend of $0.01 per share.

Exploration

·                        Continued exploration efforts with significant exploration successes.

·                        At the Gualcamayo project, the Amelia Ines and Magdalena deposits are showing the potential to be much larger and higher grade than originally anticipated.

·                        Deep drilling program at São Francisco underway to investigate the potential resource expansion.

·                        Resources expected to increase at Jacobina as exploration and development continue.

·                        Intensive 20,000 metre drilling program in 174 holes ongoing at C1-Santa Luz, with the feasibility study expected by the end of 2007.

·                        Additional land acquired near C1-Santa Luz expanding the target.

·                        Continued exploration on the Pillar de Goias Greenstone Belt.

Other

·                        Subsequent to the quarter end, the Company announced it had signed a definitive business combination agreement with Northern Orion Resources Inc. and concurrently filed a formal offer to acquire all the outstanding shares of Meridian Gold Inc.

·                        Subsequent to the quarter end, the Company entered into copper forward contracts intended to hedge copper prices.  Yamana’s strategy relating to copper is to secure a low-cost structure for gold production and increase the Company’s leverage to gold.

“During this quarter we realized major financial and operational milestones with revenue, earnings and cash flow that are multiples of prior quarters,” said Peter Marrone, chairman and chief executive officer of Yamana Gold Inc.  “Our high growth strategy through internal development, acquisitions and exploration is further demonstrating our commitment to providing value.  We remain focused on these three legs to deliver further growth in production, profitability and cash flow.  We have delivered strong financial results, with our major mine still ramping up production after construction completed and one of our mines not in full operation.”

Financial and Operating Summary

Net earnings for the quarter were $52.8 million compared to a loss for the comparative quarter ended June 30, 2006 of $58.3 million, representing an improvement of $111.1 million. Net earnings on a year to date basis were $80.2 million compared to a loss of $64.2 million for the six months ended June 30, 2006, representing an improvement of $144.4 million.  The increase in earnings is primarily due to commencement and ramp up of operations at the Chapada Mine since the beginning of this year.

Net earnings for the three and six months ended June 30, 2007 included certain non-cash and non-recurring charges in respect of stock-based compensation, foreign exchange gains or losses, unrealized losses on derivatives, loss on impairment of the Fazenda Nova Mine, non-production costs during business interruption (sill pillar failure costs) and a future income tax expense on foreign currency translation of inter corporate debt.

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Adjusted earnings for these non-cash and non-recurring items was $85.2 million before income tax effects and $76.4 million after income tax effects for the quarter ended June 30, 2007 compared to $13.1 million for the comparative quarter.

Basic earnings per share were $0.15 and diluted earnings per share were $0.14 for the three months ended June 30, 2007.  For the six months ended June 30, 2007 basic earnings per share were $0.23 and diluted earnings per share were $0.22.  This compares to a basic and diluted loss per share of $0.21 and $0.27 for the comparative three and six month periods ended June 30, 2006, respectively.

Earnings per share adjusted for certain non-cash and non-recurring items were $0.22 per share for the quarter. This compares to adjusted earnings per share of $0.05 for the comparative quarter, representing an increase of 340%.

Revenue for the quarter was $183.7 million, an increase of 27% over the preceding quarter and approximately 339% increase over the comparative quarter ended June 30, 2006. Revenue on a year to date basis was $328.8 million, an increase of 458% over the comparative six month period ended June 30, 2006.

Revenue for the quarter included sales of 120,022 ounces of gold and 31.7 million pounds of copper.  Revenue for the six months included sales of 242,723 ounces of gold and 55.6 million pounds of copper.

The Company’s average net realized gold price during the quarter was $660 per ounce, an increase of 5% from an average net realized price of $628 per ounce during the comparative quarter. This also compares to an average spot price of $668 per ounce for the quarter. On a year to date basis, the company has realized an average net gold sale price of $653 per ounce, consistent with a spot price of $659 per ounce for the period.

Mine operating earnings were $106.7 million and $183.0 for the three and six month periods ended June 30, 2007, respectively. Mine operating earnings for the six months include earnings from the six mines.  Mine operating earnings for the comparative six month period were $16.7 million and included earnings from the Fazenda Brasileiro Mine, the Fazenda Nova Mine and the San Andrés Mine and Jacobina Mines as of the date of acquisition.

A total of 115,843 ounces were produced during the quarter.  On a year to date basis, the Company produced 236,450 ounces of gold. A total of 83,089 and 158,047 ounces of gold were produced by the Company’s mines during the comparative three and six month periods ended June 30, 2006 including pro forma adjustments for pre-acquisition production from existing mines.

Additionally, production for the quarter and on a year to date basis included 31.5 million pounds of copper within 50,304 tonnes of concentrate and 59.0 million pounds of copper within 94,734 tonnes of concentrate, respectively.

Gold production for the balance of the year is expected to exceed 300,000 ounces of gold and up to 350,000 ounces of gold, largely depending on accelerating the production increase at the Jacobina Mine and processing planned higher grade material at the Sao Francisco Mine.  Copper production for the balance of the year is expected to exceed 70 million pounds of copper. The Company will assess its production expectations from

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time to time and as it continues to gain production experience from its mines recently placed into production and will update its production schedule accordingly.

Average cash costs for the quarter were $(434) per ounce compared to $332 per ounce for the comparative quarter ended June 30, 2006 and $(105) per ounce for the previous quarter ended March 31, 2007.  Average cash costs for the six months ended June 30, 2007 were $(267) per ounce compared to $325 for the comparative six month period ended June 30, 2006.  Cash costs for the three and six month periods for the Fazenda Nova and Jacobina mines are not reflective of ongoing operations as Fazenda Nova operations are being discontinued and Jacobina operations are gradually resuming after the sill pillar failure in the first quarter. Average cash costs for the quarter excluding Fazenda Nova and Jacobina were $(557) per ounce.  On a co-product basis cash costs for the quarter were $0.72 per pound of copper and $305 per ounce of gold (excluding Fazenda Nova and Jacobina).

The Company recorded a non-recurring loss from non-production costs during business interruption of $10.4 million as a result of sill pillar failures at its Jacobina Mine during the six months ended June 30, 2007 of which $4.4 million was recognized during the second quarter. The Company has filed an insurance claim with respect to these business interruption losses. Any insurance recovery will be credited to net earnings in the period that the claim is settled with the insurance company.

Inventory as at June 30, 2007 was $62.3 million compared to $61.0 million as at March 31, 2007 and $51.3 million as at December 31, 2006.

Cash as at June 30, 2007 was $89.0 million compared to $69.8 million as at March 31, 2007 and $69.7 million as at December 31, 2006.  As at June 30 2007, the Company had accounts receivables in the amount of $72.1 million, compared to $49.5 million as at March 31, 2007 and $6.0 million as at December 31, 2006. This increase is due to concentrate receivables as at the quarter end from Chapada Mine sales and of ordinary course as production increases at the Chapada Mine and concentrate sales increase accordingly.

Working capital as at June 30, 2007 was $120.6 million compared to $97.4 million as at March 31, 2007 and $53.0 million as at December 31, 2006. The increase in working capital is primarily related to the start up of operations at the Chapada Mine.

Cash flow from operations before changes in non-cash working capital items was $90.9 million for the quarter compared to $15.1 million for the comparative quarter ended June 30, 2006. Cash flow from operations before changes in non-cash working capital items was $159.8 million for the six month period ended June 30, 2007 compared to $22.9 million for the comparative six month period ended June 30, 2006. The increase in cash flow from operations is primarily due to start-up of operations at the Chapada Mine.

General and administrative expenses were $10.7 million and $18.9 million for the three and six month periods ended June 30, 2007 compared to $5.3 million and $8.7 million for the comparative three and six month periods ended June 30, 2006. The increase in general and administrative expenses reflects the Company’s growth from operations and acquisitions and the growing infrastructure to support its production growth.

The Company recorded unrealized derivative losses of $19.9 million and $28.7 million for the quarter and six months ended June 30, 2007 consisting of mark-to-market gains and losses on commodity contracts, currency contracts and warrants held.

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Exploration Success

Yamana continues to actively explore its exploration targets around existing mines and additional regional exploration targets located on four major greenstone belts in South America.

São Francisco, Brazil

Yamana has begun its previously announced deep drilling program to investigate the potential resource extension in depth at São Francisco gold mine, Mato Grosso, Brazil. When construction began at São Francisco in 2006, Yamana indicated that a deep drilling program would begin some time after the start up of operations.

Drilling to date has continued to identify mineralization.  Drill hole SF-487 returned two mineralized intervals grading 7.17 g/t Au over 1.5m (true width) and 6.08 g/t Au over 8.9 metres (true width), including 30.1 g/t Au over 1 metre (true width).  Results from SF-486 returned 4.82 g/t Au over two metres, within a zone of 1.33 g/t Au over true width of 18 metres, at a depth of 778 metres (514 metres below the final pit bottom).  The two deep holes drilled to date extend the mineralization 300 metres deeper than the current resources. Drilling will continue to investigate the deep zone to the east of the deposit.

Measured and indicated resources at São Francisco as at December 31, 2006 total 88.1 million tonnes at 0.66 g/t gold, containing 1.87 million ounces of gold (total measured resources of 366 million tonnes at 0.73 g/t gold and total indicated resources of 51.5 million tonnes at 0.61 g/t gold).  Additional inferred resources total 110.6 million tonnes at 0.40 g/t Au, containing 1.436 million ounces of gold. This represents a significant increase from the original feasibility study predominantly along strike of the open pit mine. Extension drilling along strike continues as well as in-fill drilling to upgrade resources to reserves.

These results continue to demonstrate the potential at São Francisco for further open pit mine life and a possible underground deposit.

C1-Santa Luz, Brazil

C1-Santa Luz is located on the Rio Itapicuru Greenstone Belt north of the Fazenda Brasileiro mine. The most recent resource estimate update for the C1 and Antas 1 contiguous deposits, completed in February 2007, is summarised in the following table:

C1/Antas 1 Mineral Resource Estimates

(0.5g/t Au cut-off)

 

		Indicated						Inferred
Deposit		Tonnes (000s)		Au (g/t)		Ounces (000s)		Tonnes (000s)		Au (g/t)		Ounces (000s)
C1		17,859		1.62		927		8,167		1.4		374
Antas 1		1,749		2.02		114		419		2.1		28
Total		19,608		1.65		1,041		8,586		1.5		402

(1)             The Mineral Resources for the C1/Antas 1 deposits as set out in the table above have been prepared by Chris Arnold, principal resource geologist of GRD Minproc Limited, under the direction of Ross Oliver, manager mining & geology, GRD Minproc Limited.

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Year to date, a total of 8,745 metres in 59 diamond drill holes were completed primarily on Antas 3 North, which is an adjacent target to C1 with potential to increase the known resource up to 1,200 metres of strike length. Three holes were initially drilled in Antas 2; a smaller and higher grade drill target located 800 metres southwest of C1. Drill results received so far have confirmed the expansion of the open pitable resource as shown in the table below.

The most significant results from drilling at Antas 3 North and Antas 2 include:

Hole		Area		From		To		Interval		Gold Grade
				(m)		(m)		(m)		g/t Au
AT-6		Antas 3		105.9		113.0		7.1		2.38
				135.1		149.0		13.9		1.58
AT-7		Antas 3		169.9		173.0		3.1		2.65
AT-8		Antas 3		130.4		136.3		5.9		2.88
AT-9		Antas 3		148.1		166.1		17.0		1.77
AT-11		Antas 3		154.0		180.0		26.0		1.32
AT-41		Antas 3		85.6		103.0		17.4		2.52
AT-138		Antas 3		32.0		35.6		3.6		1.08
ANTR202		Antas 2		8.0		30.0		22.0		8.09
ANTR205		Antas 2		15.0		21.0		6.0		2.98
ANTR191		Antas 2		0.0		2.0		2.0		1.15
				7.0		16.0		9.0		1.84

 

Drill core samples from C1-Santa Luz  were analyzed for fire assay at SGS-Geosol, an ISO 9001, 2000 laboratory, in their Jacobina facility, and checked by ACME Laboratory, based in Goiania, Brazil.  Accuracy and precision of results is submitted to a systematic quality control protocol, following industry standards.

All of these results are near surface and Yamana believes that the open pit resource is likely significantly larger at grades higher than originally anticipated.

An intensive drilling program of 20,000 metres in 174 holes is currently ongoing at C1-Santa Luz, targeting an open pitable resource expansion to the south. Nine drill rigs are currently on site and Yamana expects to complete the drilling program by early October.  Drill targets included in this program are:  C1-Antas 1 in-fill, Antas 3 North, Antas 2, Antas 3 South, Mansinha and Marí which are all located within 12 km of the planned mill facilities.

The feasibility study is expected by the end of 2007 with operations beginning in early 2009.

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C1-Santa Luz is significant as it further demonstrates Yamana’s commitment to organic, internal growth. Originally targeted for drilling in late 2004, C1-Santa Luz was taken to a scoping study which indicated an initial reserve although continued drilling was recommended. The February 2007 resource estimate significantly increased the known resource in the scoping study. Current and planned drilling suggest a larger deposit and at higher grades than contemplated in February.

Gualcamayo, Argentina

The feasibility study for the main Quebrada Del Diablo (QDD) deposit is pending.  In addition, a resource update for the Amelia Ines and Magdalena (AIM) satellite deposits at Gualcamayo, located approximately 1.0 and 1.5 km northwest of QDD, is in progress.

Drilling results since the 2004 resource estimate as previously disclosed include the following: Hole QD-400 (4.90 gpt Au over 149.15 m), Hole QD-403 (6.61 gpt Au over 45.22 m), Hole QD-399 (10.00 gpt Au over 21.50 m), Hole QD-389 ( 2.65 gpt Au over 78.67 m)  and Hole QD-397 ( 2.58 gpt Au over 63.96 m).  The pending resource update will account for this information.

Some of the more recent significant drill core length intercepts include QD-411 (51 metres at 2.25 g/t Au), QD-412 (114 m at 4.73 g/t Au), QD-414 (72 m at 4.4 g/t Au), QD-415 (36m at 1.58 g/t Au), QD-416 (44m at 1.22 g/t Au), QD-427 (71m at 1.99 g/t Au, including 36m at 2.70 g/t Au), QD-435 (17.7m at 3.98 g/t Au), QD-436 (32.4m at 3.23 g/t Au) and QD-439 (28 m at 4.12 g/t Au). The additional higher grade oxides outcrop along the eastern edge of the Amelia Ines deposit are easily accessible with existing road infrastructure and could therefore have a significant impact on the Gulacamayo project’s economics in the initial years of production as the average grade is more than 2.5 times that of the main QDD deposit.  These results will be included in a new AIM resource estimate used to complete an AIM feasibility study by the end of September 2007.

Yamana’s commitment to resource expansion includes further defining and increasing resources at properties or mines that become part of Yamana through acquisition. The Gualcamayo project was acquired only in late 2006 and since then significant efforts have been made at advancing the feasibility study and expanding the size of the deposit.

San Andrés, Honduras

Yamana continues to significantly expand the resource base at San Andrés. Since acquiring the property, Yamana has increased the measured and indicated resources and the resource base is expected to increase further by the end of 2007 as drilling continues. Further efforts are also underway to upgrade resources to reserves as Yamana intends to develop a mine plan providing for production of 100,000 ounces per year (currently 65,000 ounces) for a ten year period (currently approximately five years).

Pillar de Goias, Brazil

Drilling is in progress on the Pillar de Goias Greenstone Belt in central Brazil to further delineate targets. To date, there are 28 drill holes including 19 historical and 9 recently drilled by Yamana with results pending on two initial targets.

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Nicaragua Exploration

Geological mapping and sampling is underway at two main targets in Siuna District, Nicaragua. Cerro Potosi has a known resource and historical drilling results. At Cerro Aeropeurto, located 1.1 kilometres south of Cerro Potosi, a historical RC hole intersected 49 metres at a grade of 2.3 g/t Au including 9 metres at 11 g/t Au, 4.5 metres at 56 g/t Au and 3 metres at 10% Zn. Cerro Potosi and Cerro Aeropeurto are early-stage targets, and may be part of the same structure.

Yamana Exploration in 2007

Yamana will continue its existing and new exploration programs for the remainder of 2007 having allocated a total budget of approximately $32 million focusing primarily at and around Gualcamayo in Argentina, on the Bahia Gold Belt near and north of Jacobina mine, on the Itapicuru Greenstone Belt north of Fazenda Brasiliero mine, on the Pillar de Goias Greenstone Belt and on the Guapore Greenstone Belt south of the São Francisco mine.  Yamana will continue to provide regular exploration updates throughout the year.

The exploration programs are being supervised by Dr. Evandro Cintra, P. Geo., vice president, exploration of Yamana Gold who is a Qualified Person as defined by National Instrument 43-101.  Dr. Cintra has verified the data disclosed and has reviewed and approved the contents of this press release.

A conference call and audio webcast has been scheduled for August 8, 2007 at 11:00 a.m. E.T. to discuss the results.

Conference Call Information:

 

Conference Call REPLAY:

Replay Call:	416-640-1917 Passcode 21241412#
Replay Toll Free Call:	877-289-8525 Passcode 21241412#

 

The conference call replay will be available from 1:20 p.m. E.T. on August 8, 2007 until 11:59 p.m. E.T. on August 15, 2007.

About Yamana

Yamana is a Canadian gold producer with significant gold production, gold development stage properties, exploration properties, and land positions in Brazil, Argentina and Central America. Yamana is producing gold at intermediate company production levels in addition to significant copper production. Company management plans to continue to build on this base through the advancement of its exploration properties and by targeting other gold consolidation opportunities in Brazil, Argentina and elsewhere in the Americas.

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For further information, contact:

 

IMPORTANT NOTICE:  This press release does not constitute an offer to buy or an invitation to sell, any of the securities of Yamana, Northern Orion or Meridian. Such an offer may only be made pursuant to a registration statement and prospectus filed with the U.S. Securities and Exchange Commission and an offer to purchase and circular filed with Canadian securities regulatory authorities. Yamana has filed with the U.S. Securities and Exchange Commission a Registration Statement on Form F-10 as well as a Schedule TO tender offer statement both of which include the offer and take-over bid circular relating to the Meridian offer and is mailing the offer and take-over circular to Meridian shareholders. Investors and security holders are urged to read the Registration Statement, the offer and take-over bid circular and any other relevant documents filed wit the SEC and Canadian securities regulators, regarding the proposed business combination transaction because they contain important information. Investors may obtain a free copy of the offer and take-over bid circular and other documents filed by Yamana with the SEC at the SEC’s website at www.sec.gov. The offer and take-over bid circular and other documents may also be obtained for free on Yamana’s website at www.yamana.com or by directing a request to Yamana’s investor relations department.

Persons who are resident in the United Kingdom should note the following points:

(i)                                    the formal offering and takeover-bid circular to be issued to Meridian shareholders (“Offer and Circular”) will not constitute a prospectus for the purposes of the Prospectus Rules (“Prospectus Rules”) published by the Financial Services Authority of the United Kingdom (the “FSA”).  Accordingly, the Offer and Circular has not been, and will not be, approved by the FSA or by London Stock Exchange plc.  No action has been or is intended to be taken by Yamana or by Genuity Capital Markets or Canaccord Capital Corporation, or any of their affiliated entities, that would permit a public offer of Yamana Common Shares to be made in the United Kingdom, which would require an approved prospectus to be made available to the public in the United Kingdom (in accordance with the United Kingdom Financial Services and Markets Act 2000 (“FSMA”) and the Prospectus Rules before such an offer was made.

(ii)                                 The Offer will be made to or directed at, and deposits of Meridian shares will be accepted from, only those shareholders in the United Kingdom who are (or who are acting on behalf of), and who are able to establish to the satisfaction of Yamana that they are (or are acting on behalf of): “qualified investors” within the meaning of section 86(7) of FSMA, and who are also persons falling within Article 19(5) or Article 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.  UK shareholders receiving the Offer and Circular should consult with their legal advisors to determine whether they are eligible to receive and accept the Offer.

FORWARD-LOOKING STATEMENTS: This news release contains certain “forward-looking statements” within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended and “forward-looking information” under applicable Canadian securities laws.  Except for statements of historical fact relating to the company, certain information contained herein constitutes forward-looking statements.  Forward-looking statements are frequently characterized by words such as “plan,” “expect,” “project,” “intend,” “believe,” “anticipate”, “estimate” and other similar words, or statements that certain events or conditions “may” or “will” occur.  Forward-looking statements are based

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on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements.  These factors include possible variations in ore grade or recovery rates, fluctuating metal prices, prices for sulphiric acid and currency exchange rates, changes in project parameters, the possibility of project cost overruns or unanticipated costs and expenses and general risks of the mining industry, failure of plant, equipment or processes to operate as anticipated, unexpected changes in mine life of Chapada, availability of a local market for the sale of sulphiric acid, as well as those risk factors discussed or referred to in the Company’s annual Management’s Discussion and Analysis and Annual Information Form filed with the securities regulatory authorities in all provinces of Canada and available at www.sedar.com, and the Company’s Annual Report on Form 40-F filed with the United States Securities and Exchange Commission.  Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended.  There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.  The Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change.  The reader is cautioned not to place undue reliance on forward-looking statements.

CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES

This news release uses the terms “Measured”, “Indicated” and “Inferred” Resources.  United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them.  “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility.  It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category.  Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies.  United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves.  United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.

CAUTIONARY LANGUAGE REGARDING RESERVES AND RESOURCES

Readers are advised that National Instrument 43-101 of the Canadian Securities Administrators requires that each category of mineral reserves and mineral resources be reported separately. Mineral resources are not mineral reserves and have not demonstrated economic viability.  Other than as disclosed, the effective date, details of key assumptions, parameters and methods used in the foregoing estimates and other information is disclosed in the Annual Information Form of Yamana for the year ended December 31, 2006 available under Yamana’s profile at www.sedar.com, for this detailed information, which is subject to the qualifications and notes set forth therein.

 

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Yamana Gold Inc.

For the Second Quarter Ended June 30, 2007

Management’s Discussion and Analysis of Operations and Financial Condition

(US Dollars unless otherwise specified, in accordance with Canadian GAAP)

A cautionary note regarding forward-looking statements and non-GAAP measures follows this Management’s Discussion and Analysis of Operations and Financial Condition.

1.             HIGHLIGHTS

Operational

·                  Total production of 115,843 ounces of gold for the quarter and 236,450 ounces on a year to date basis.

·                  Average cash cost of $(434) per ounce after by-product credits representing an improvement of 313% in cash costs from the first quarter.

·                  Total concentrate production from Chapada of 50,304 tonnes for the quarter, an increase of 13.2% over the first quarter.

·                  Recovery improvements and decrease in mining costs per tonne at the Chapada Mine.

·                  Continued development plan at Jacobina focusing on the Canavieiras mine development with two ramps to accelerate development.

·                  Pyrite sulphuric acid scoping study at Chapada completed with feasibility study advancing.

·                  Gualcamayo feasibility study pending with expected production to begin in mid-2008.

Financial

·                  Record quarterly sales of $ 183.7 million, an increase of  339% over the comparative quarter ended June 30, 2006 and an increase of 27% over the first quarter ended March 31, 2007.

·                  Mine operating earnings of $ 106.7 million for the quarter, an increase of  829% over the comparative quarter and 40% over the first quarter.

·                  Adjusted earnings for the quarter of $85.2 million before income tax effects and $76.4 million after income tax effects or $0.22 per share.

·                  Net earnings for the quarter of $52.8 million or $0.15per share (the primary difference between accounting net earnings and adjusted net earnings is non-cash mark-to-market copper hedge losses).

·                  Cash flow from operations of $  90.9 million before changes in non-cash working capital.

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·                  Cash balance of $  89.0 million as at June 30, 2007. Accounts receivable of $72.1 million as at June 30, 2007 of which $49.7 million is expected to be collected by mid August and will further increase available cash.

·                  Declared further quarterly dividend of $0.01 per share.

Exploration

·                  Continued exploration efforts with significant exploration successes.

·                  At the Gualcamayo project, the Amelia Ines and Magdalena deposits are showing the potential to be much larger and higher grade than originally anticipated.

·                  Deep drilling program at São Francisco underway to investigate the potential resource expansion.

·                  Resources expected to increase at Jacobina as exploration and development continues.

·                  Intensive 20,000 metre drilling program in 174 holes ongoing at C1-Santa Luz, with the feasibility study expected by the end of 2007.

·                  Additional land acquired near C1-Santa Luz expanding the target.

·                  Continued exploration on the Pillar de Goias Greenstone Belt.

Other

·                  Subsequent to the quarter end, the Company announced it had signed a definitive business combination agreement with Northern Orion Resources Inc. and concurrently filed a formal offer to acquire all the outstanding shares of Meridian Gold Inc.  Details provided in section 4 “Business Acquisitions”.

·                  Subsequent to the quarter end, the Company entered into copper forward contracts intended to hedge copper prices at a weighted average forward price of $2.97 per pound of copper for a total of 124.9 million pounds of copper for 2008, 2009 and 2010 ($3.33 for 2008, $3.00 for 2009 and $2.67 for 2010) and $2.37 per pound of copper for a total of 35 million pounds of copper for 2011.  One of the benefits of these hedges is that it increases the impact of gold to the Company’s unhedged revenue and as such increases the Company’s leverage to gold.

2.             OVERVIEW OF FINANCIAL RESULTS

Net earnings for the quarter were $52.8 million compared to a loss for the comparative quarter ended June 30, 2006 of $58.3 million, representing an improvement of $111.1 million. Net earnings on a year to date basis were $80.2 million compared to a loss of $64.2 million for the six months ended June 30, 2006, representing an improvement of $144.4 million.  The increase in earnings is primarily due to commencement and ramp up of operations at the Chapada Mine since the beginning of this year.

Net earnings for the three and six months ended June 30, 2007 included certain non-cash and non-recurring charges in respect of stock-based compensation, foreign exchange gains or losses, unrealized losses on derivatives, loss on impairment of the Fazenda Nova Mine, non-production costs during business interruption (sill pillar failure costs) and a future income tax expense on foreign currency translation of inter corporate debt.

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Adjusted earnings for these non-cash and non-recurring items was $85.2 million before income tax effects and $76.4 million after income tax effects for the quarter ended June 30, 2007 compared to $13.1 million for the comparative quarter.  The following table summarizes adjusted net earnings for the three and six month periods ended June 30, 2007 with comparative figures for the three and six month periods ended June 30, 2006:

		Three months ended						Six months ended
A non-GAAP Measure (in thousands of dollars)		June 30, 2007			June 30, 2006			June 30, 2007			June 30, 2006
Net earnings (loss) per consolidated financial statements		$	52,761		$	(58,312	)	$	80,186		$	(64,219	)
Adjustments:
Stock-based compensation		137			37,540			561			37,540
Foreign exchange loss (gain)		5,275			(2,100		)	6,693			(5,593		)
Unrealized loss on derivatives		19,931			11,390			28,700			20,286
Loss on impairment of the Fazenda Nova Mine and sill pillar failure expense		4,440			—			12,286			—
Future income tax (recovery) expense on foreign currency translation of inter corporate debt		2,680			(122		)	7,863			1,548
Debt repayment expense		—			24,750			—			24,750
Adjusted earnings before income tax effects		85,224			13,146			136,289			14,312
Income tax effect of adjustments		(8,795		)	—			(10,986		)	—
Adjusted net earnings		$	76,429		$	13,146		$	125,303		$	14,312
Adjusted net earnings per share		$	0.22		$	0.05		$	0.35		$	0.06

 

Basic earnings per share were $0.15 and diluted earnings per share were $0.14 for the three months ended June 30, 2007.  For the six months ended June 30, 2007 basic earnings per share were $0.23 and diluted earnings per share were $0.22.  This compares to a basic and diluted loss per share of $0.21 and $0.27 for the comparative three and six month periods ended June 30, 2006, respectively.

Earnings per share adjusted for certain non-cash and non-recurring items were $0.22 per share for the quarter. This compares to adjusted earnings per share of $0.05 for the comparative quarter, representing an increase of 340%.

Revenue for the quarter was $ 183.7 million, an increase of 27% over the preceding quarter and approximately 339% increase over the comparative quarter ended June 30, 2006. Revenue on a year to date basis was $328.8 million, an increase of 458% over the comparative six month period ended June 30, 2006.

Revenue for the quarter included sales of 120,022 ounces of gold and 31.7 million pounds of copper.  Revenue for the six months included sales of 242,723 ounces of gold and 55.6 million pounds of copper.

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The Company’s average net realized gold price during the quarter was $660 per ounce, an increase of 5% from an average net realized price of $628 per ounce during the comparative quarter. This also compares to an average spot price of $668 per ounce for the quarter. On a year to date basis, the company has realized an average net gold sale price of $653 per ounce, consistent with a spot price of $659 per ounce for the period.

Mine operating earnings were $ 106.7 million and $183.0 for the three and six month periods ended June 30, 2007, respectively. Mine operating earnings for the six months include earnings from the six mines.  Mine operating earnings for the comparative six month period were $16.7 million and included earnings from the Fazenda Brasileiro Mine, the Fazenda Nova Mine and the San Andrés Mine and Jacobina Mines as of the date of acquisition.

A total of 115,843 ounces were produced during the quarter.  On a year to date basis, the Company produced 236,450 ounces of gold. A total of 83,089 and 158,047 ounces of gold were produced by the Company’s mines during the comparative three and six month periods ended June 30, 2006 including pro forma adjustments for pre-acquisition production from existing mines.

Additionally, production for the quarter and on a year to date basis included 31.5 million pounds of copper within 50,304 tonnes of concentrate and 59.0 million pounds of copper within 94,734 tonnes of concentrate, respectively.

Gold production for the balance of the year is expected to exceed 300,000 ounces of gold and up to 350,000 ounces of gold, largely depending on accelerating the production increase at the Jacobina Mine and processing planned higher grade material at the Sao Francisco Mine.  Copper production for the balance of the year is expected to exceed 70 million pounds of copper. The Company will assess its production expectations from time to time and as it continues to gain production experience from its mines recently placed into production and will update its production schedule accordingly.

Average cash costs for the quarter were $(434) per ounce compared to $332 per ounce for the comparative quarter ended June 30, 2006 and $(105) per ounce for the previous quarter ended March 31, 2007.  Average cash costs for the six months ended June 30, 2007 were $(267) per ounce compared to $325 for the comparative six month period ended June 30, 2006.  Cash costs for the three and six month periods for the Fazenda Nova and Jacobina mines are not reflective of ongoing operations as Fazenda Nova operations are being discontinued and Jacobina operations are gradually resuming after  the sill pillar failure in the first quarter. Average cash costs for the quarter excluding Fazenda Nova and Jacobina were $(557) per ounce.  On a co-product basis cash costs for the quarter were $0.72 per pound of copper and $305 per ounce of gold (excluding Fazenda Nova and Jacobina).

The Company recorded a non-recurring loss from non-production costs during business interruption of $10.4 million as a result of sill pillar failures at its Jacobina Mine during

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the six months ended June 30, 2007 of which $4.4 million was recognized during the second quarter. The Company has filed an insurance claim with respect to these business interruption losses. Any insurance recovery will be credited to net earnings in the period that the claim is settled with the insurance company.

Inventory as at June 30, 2007 was $62.3 million compared to $61.0 million as at March 31, 2007 and $51.3 million as at December 31, 2006.

Cash as at June 30, 2007 was $89.0 million compared to $69.8 million as at March 31, 2007 and $69.7 million as at December 31, 2006.  As at June 30 2007, the Company had accounts receivables in the amount of $72.1 million, compared to $49.5 million as at March 31, 2007 and $6.0 million as at December 31, 2006. This increase is due to concentrate receivables as at the quarter end from Chapada Mine sales and of ordinary course as production increases at the Chapada Mine and concentrate sales increase accordingly.

Working capital as at June 30, 2007 was $120.6 million compared to $97.4 million as at March 31, 2007 and $53.0 million as at December 31, 2006. The increase in working capital is primarily related to the start up of operations at the Chapada Mine.

Cash flow from operations before changes in non-cash working capital items was $90.9 million for the quarter compared to $15.1 million for the comparative quarter ended June 30, 2006. Cash flow from operations before changes in non-cash working capital items was $159.8 million for the six month period ended June 30, 2007 compared to $22.9 million for the comparative six month period ended June 30, 2006. The increase in cash flow from operations is primarily due to start-up of operations at the Chapada Mine.

General and administrative expenses were $10.7 million and $18.9 million for the three and six month periods ended June 30, 2007 compared to $5.3 million and $8.7 million for the comparative three and six month periods ended June 30, 2006. The increase in general and administrative expenses reflects the Company’s growth from operations and acquisitions and the growing infrastructure to support its production growth.

The Company recorded unrealized derivative losses of $19.9 million and $28.7 million for the quarter and six months ended June 30, 2007 consisting of mark-to-market gains and losses on commodity contracts, currency contracts and warrants held.

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The table below presents selected quarterly financial and operating data:

(Unaudited)		June 30, 2007			March 31, 2007			December 31, 2006			September 30, 2006
Financial results (in thousands of dollars)
Revenue (i)		$	183,667		$	145,133		$	59,950		$	50,299
Net earnings (loss) for the period		$	52,761		$	27,426		$	6,140		$	(12,085	)
Per share financial results
Basic earnings (loss) per share		$	0.15		$	0.08		$	0.02		$	(0.04	)
Diluted earnings (loss) per share		$	0.14		$	0.07		$	0.02		$	(0.04	)
Financial Position (in thousands of dollars)
Total assets		$	2,407,179		$	2,267,075		$	2,181,192		$	1,433,890
Total long-term liabilities		$	430,303		$	384,455		$	364,141		$	181,535
Gold sales (ounces): (iv)
Brazil
Chapada		47,427			33,723			—			—
São Francisco		25,622			34,880			33,723			21,828
Jacobina		9,451			9,676			19,867			20,221
Fazenda Brasileiro		20,992			20,799			20,574			19,835
Fazenda Nova		1,704			5,272			6,816			6,140
Total Brazil		105,196			104,350			80,980			68,024
Central America
San Andrés		14,826			18,349			16,260			14,578
		120,022			122,699			97,240			82,602
Copper Contained in Concentrate sales (in millions of pounds):
Chapada		31.7			23.9			—			—
Copper Concentrate sales (tonnes):
Chapada		56,183			40,615			—			—
Gold production (ounces):
Commercial production:
Brazil
Chapada		44,027			38,954			—			—
São Francisco		24,988			31,261			37,089			20,789
Jacobina		11,447			7,076			20,880			19,321
Fazenda Brasileiro		19,060			22,317			20,443			18,569
Fazenda Nova		2,380			4,047			7,853			6,548
Total Brazil		101,902			103,655			86,265			65,227
Central America
San Andrés		13,941			16,952			18,298			14,685
Commercial production		115,843			120,607			104,563			79,912
Pre-operation production:
Chapada		—			—			7,881			—
São Francisco		—			—			—			8,869
Total production		115,843			120,607			112,444			88,781

 

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(Unaudited)		June 30, 2007			March 31, 2007			December 31, 2006			September 30, 2006
Copper Contained in Concentrate production (in millions of pounds):
Chapada		31.5			27.4			—			—
Copper Concentrate production (tonnes):
Chapada		50,304			44,430			—			—
Non-GAAP Measures (v)
Cash costs per ounce produced: (iii),(iv)
Brazil
Chapada		$	(1,789	)	$	(1,077	)	$	—		$	—
São Francisco		$	340		$	328		$	284		$	314
Jacobina		$	448		$	470		$	332		$	317
Fazenda Brasileiro		$	418		$	330		$	357		$	356
Fazenda Nova		$	589		$	551		$	305		$	306
Average Brazil		$	(547	)	$	(181	)	$	315		$	325
Central America
San Andrés		$	391		$	359		$	349		$	386
Average production cost per ounce		$	(434	)	$	(105	)	$	321		$	337
Average gold price realized per ounce: (i),(iv)
Brazil
Chapada		$	664		$	652		$	—		$	—
São Francisco		$	657		$	637		$	620		$	613
Jacobina		$	666		$	650		$	619		$	620
Fazenda Brasileiro		$	655		$	639		$	618		$	615
Fazenda Nova		$	654		$	648		$	628		$	610
Average Brazil		$	660		$	644		$	620		$	615
Central America
San Andrés		$	662		$	652		$	614		$	615
Average price realized per ounce		$	660		$	645		$	619		$	615
Average copper price realized per pound
Chapada (excluding hedge contracts)		$	3.59		$	2.81		$	—		$	—
Operating statistics (iv)
Gold ore grade (g/t):
Brazil
Chapada		0.54			0.57			—			—
São Francisco		0.52			0.52			0.74			0.58
Jacobina		1.59			1.76			1.91			1.72
Fazenda Brasileiro		2.47			2.93			2.80			2.54
Fazenda Nova		0.52			0.46			0.57			0.63

 

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(Unaudited)		June 30, 2007		March 31, 2007		December 31, 2006		September 30, 2006
Central America
San Andrés		0.58		0.58		0.63		0.63
Copper ore grade (%)
Chapada		0.51		0.47		—		—
Concentrate grade
Gold (g/t)		27.2		27.3		—		—
Copper (%)		28.4		28.0		—		—
Gold recovery rate (%):
Brazil
Chapada		79.2		66.6		—		—
São Francisco (ii)		76.7		104.1		67.2		60.6
Jacobina		95.1		95.1		95.3		93.6
Fazenda Brasileiro		93.9		93.9		93.6		93.0
Fazenda Nova		117.6		89.7		93.3		70.0
Central America
San Andrés		94.0		88.4		79.3		80.0
Copper recovery rate (%):
Chapada		88.9		83.6		—		—

 

(Unaudited)		June 30, 2006			March 31, 2006			December 31, 2005			September 30, 2005
Revenues		$	41,882		$	17,074		$	16,655		$	10,749
Net earnings (loss) for the period		$	(58,312	)	$	(5,907	)	$	(73	)	$	3,246
Per share financial results
Basic and diluted earnings
(loss) per share		$			$	(0.03	)	$	0.00		$	0.02
Financial Position (in thousands of dollars)
Total assets		$	1,448,069		$	529,954		$	468,446		$	345,206
Total long-term liabilities		$	186,389		$	134,426		$	122,030		$	118,557
Gold sales (ounces): (iv)
Brazil
Fazenda Brasileiro		19,803			15,109			19,257			16,137
Fazenda Nova		6,044			9,484			15,463			8,809
Jacobina		24,014			—			—			—
Total Brazil		49,861			24,593			34,720			24,946
Central America
San Andrés		17,319			6,327			—			—
Sales from operations held for sale
La Libertad		6,508			—			—			—

 

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(Unaudited)		June 30, 2006			March 31, 2006			December 31, 2005			September 30, 2005
		73,688			30,920			34,720			24,946
Gold production (ounces):
Commercial production:
Brazil
Fazenda Brasileiro		19,658			17,743			17,810			19,558
Fazenda Nova		5,893			9,549			12,740			10,364
Jacobina		22,333			—			—			—
Total Brazil		47,884			27,292			30,550			29,922
Central America
San Andrés		17,082			6,727			—			—
Commercial production		64,966			34,019			30,550			29,922
Pre-operation production:
São Francisco Pilot Plant		12,194			1,187			1,212			1,033
		64,966			34,019			30,550			29,922
Pro forma adjustments:
Pre-acquisition production
San Andrés		—			13,987			—			—
Jacobina		—			18,974			—			—
Post acquisition production from operations sold - La Libertad		5,929			6,791			—			—
Total pro-forma production		5,929			39,752			—			—
Total production		83,089			74,958			31,762			30,955
Non-GAAP Measures (v)
Per ounce data:
Cash costs per ounce produced: (iii),(iv)
Fazenda Brasileiro		$	334		$	353		$	357		$	332
Fazenda Nova		$	392		$	216		$	177		$	215
Jacobina		$	331		$	—		$	—		$	—
Average Brazil		$	340		$	305		$	282		$	291
Central America
San Andrés		$	311		$	271		$	—		$	—
Average Production cost per ounce		$	332		$	290		$	282		$	291

 

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(Unaudited)		June 30, 2006			March 31, 2006			December 31, 2005			September 30, 2005
Average gold price realized per ounce: (i),(iii)
Fazenda Brasileiro		$	628		$	552		$	483		$	436
Fazenda Nova		$	633		$	567		$	487		$	433
Jacobina		$	628		$	—		$	—		$	—
Average Brazil		$	629		$	557		$	485		$	435
Central America
San Andrés		$	626		$	553		$	—		$	—
Average price realized per ounce		$	628		$	555		$	485		$	435
Operating statistics (iv)
Gold ore grade (g/t):
Fazenda Brasileiro		2.80			2.40			2.31			2.47
Fazenda Nova		0.60			0.89			0.87			0.86
Jacobina		2.03			—			—			—
Central America
San Andrés		0.68			0.74			—			—
Gold recovery rate (%):
Fazenda Brasileiro		93.0			88.2			88.3			89.6
Fazenda Nova		65.0			80.0			90.0			78.0
Jacobina		93.8			—			—			—
Central America
San Andrés		98.1			88.6			—			—

(i)             Revenues consist of sales net of sales taxes. Revenue per ounce data is calculated based on net sales.

(ii)         Fazenda Nova recovery rate for the quarter ended June 30, 2007 and São Francisco recovery rate for quarter ended March 31, 2007 is in excess of 100% due to draw down of gold contained in ore on heap leach pads. Recovery grade calculated as recovered ounces divided by the quantity of ounces stacked in the month.

(iii)     Certain mine general and administrative costs have been reclassified from mine operating earnings and cash costs to general and administrative expenses.

(iv)       During commercial production.

(v)           A cautionary note regarding non-GAAP measures follows below.

3.             NON-GAAP MEASURES

The Company has included certain non-GAAP Measures including cost per ounce data, adjusted net earnings and adjusted net earnings per share to supplement its financial statements, which are presented in accordance with Canadian GAAP. Non-GAAP measures do not have any standardized meaning prescribed under Canadian GAAP, and therefore they may not be comparable to similar measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP.

The Company has included cost per ounce information data because it understands that certain investors use this information to determine the Company’s ability to generate earnings and cash flow for use in investing and other activities. The Company believes

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