FORM 6K Q3 REPORT

FORM 6-K

  UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
  Report of Foreign Private Issuer
 
  Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For the month of November 2005
Commission File Number 001-31880

Yamana Gold Inc.
(Translation of registrant's name into English)
 
150 York Street
Suite 1902
Toronto, Ontario M5H 3S5
(Address of principal executive offices)
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
 
 Form 20-F
  ....[ ].....  Form 40-F  ....[X]....
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____ 
 
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
 
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
 
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
 Yes
  ....[ ]....
 No
  ....[X]....
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________
 
 
  Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
     
      YAMANA GOLD INC.
 
 		  
 
 

 
Date: November 15, 2005    /s/ Charles Main
 
Name: Charles Main
  Title: CFO
 
Yamana Gold Inc.
          
Consolidated Balance Sheet
          
As at the periods ended
          
(In thousands of US dollars prepared by management and unaudited)
          
           
 
    
September 30,
2005 
    
December 30,
2004
  
 
              
Assets
              
Current
              
Cash and cash equivalents
  
$
107,790
  
$
87,054
  
Accounts receivable
   
161
    
1,177
  
Inventory (Note 3)
    
8,485
    
5,862
  
Advances and deposits
    
4,214
    
2,068
 
Income tax recoverable
    
1,363
    
-
  
     
122,013
   
96,161
  
               
Capital
              
Property, plant and equipment (Note 4)
    
25,077
    
18,315
  
Assets under construction (Note 5)
    
92,748
    
12,085
  
Mineral properties (Note 6)
    
61,511
    
43,292
 
     
179,336
    
73,692
  
               
Other
              
Restricted cash (Note 7)
    
30,815
    
-
  
Other assets (Note 8)
    
11,464
    
5,797
  
Future income tax assets
   
1,578
    
1,456
  
 
  
$
345,206
  
$
177,106
  
Liabilities
              
Current
              
Accounts payable and accrued liabilities
  
$
16,525
  
$
7,225
  
               
Long Term
              
 Notes payable (Note 9)
    
104,121
    
-
  
Asset retirement obligation (Note 10)
   
5,874
    
4,972
  
Future income tax liabilities
   
8,562
    
4,600
 
 
    
135,082
   
16,797
 
 
Shareholders’ Equity
              
Capital stock
              
Authorized
              
Unlimited number of first preference shares without par value issuable in series
    
Unlimited number of common shares without par value
              
Issued and outstanding
              
165,338,348 common shares
(December 31, 2004- 122,286,716
             
common shares) (Note 11 i)  
    
205,483
    
147,407
  
Share purchase warrants (Note 12)
    
3,740
    
10,864
 
Contributed surplus (Note 11 ii)
    
4,676
    
1,775
  
               
(Deficit) retained earnings
   
(3,775
)
  
263
 
 
    
210,124
    
160,309
 
   
$
345,206
  
$
177,106
  

The accompanying notes are an integral part of the financial statements.

Approved by the Board       

SIGNATURE
 
 SIGNATURE
/s/ Peter Marrone /s/ Victor H. Bradley
Director Director
 
 
 
 
Yamana Gold Inc.
Consolidated Statements of Operations and Retained Earnings
  
For the periods ended
(In thousands of US dollars pepared by management and unaudited)
 
 
 
    
September 30,
2005
(Three months)
   
September 30,
2004
(Three months
)
  
September 30,
2005
(Nine months
 
)
  
September 30,
2004
(Ten months
)
                 
       
Sales
  
$
10,749
  
$
8,827
  
$
29,383
  
$
32,446
  
Cost of sales
    
(7,453
)
  
(4,670
)
  
(20,952
)
  
(17,433
)
Depreciation, amortization and depletion
    
(1,732
)
  
(1,293
)
  
(4,570
)
  
(4,337
)
Accretion of asset retirement obligation (Note 10)
    
(94
)
  
(80
)
  
(258
)
  
(353
)
                           
Mine operating earnings
    
1,470
    
2,784
    
3,603
    
10,323
  
 
          
   
       
Expenses
                          
General and
administrative
    
(2,243
)
  
(1,552
)
  
(6,314
)
  
(5,222
)
Foreign exchange gain
    
4,728
    
1,387
   
3,426
    
666
 
Stock-based compensation (Note 13)
    
(304
)
  
(1,316
)
  
(2,303
)
  
(2,418
)
                           
Operating earnings (loss)
    
3,651
    
1,303
    
(1,588
)
  
3,349
  
                           
Investment and other business income
    
1,041
    
(51
)
  
1,419
    
716
  
                           
Earnings (loss) before income taxes
    
4,692
    
1,252
    
(169
)
  
4,065
  
                           
Income tax recovery (expense) (Note 14)
                          
Current income tax recovery (expense)
    
532
    
(379
)
  
(28
)
  
(1,355
)
Future income tax recovery(expense)
   
(1,978
)
  
(867
)
  
(3,841
)
  
(92
)
     
(1,446
)
  
(1,246
)
  
(3,869
)
  
(1,447
)
                           
Net earnings (loss)
   
3,246
    
6
    
(4,038
)
  
2,618
  
                           
(Deficit) retained earnings, beginning of period
   
(7,021
)
  
(547
)
  
263
    
(3,159
)
                           
                           
Deficit, end of period
  
$
(3,775
)
$
(541
)
$
(3,775
)
$
(541
)
                           
Basic and diluted earnings (loss) per share
  
$
0.02
  
$
0.00
  
$
(0.03
)
$
0.03
  
 
Weighted average number of shares outstanding
(in thousands)
    
144,069
    
95,817
    
129,654
    
94,660
  
 
The accompanying notes are an integral part of the financial statements.
 
Note:
In the opinion of management of Yamana, all adjustments of a normal recurring nature have been included in these financial statements to provide a fair statement of results for the periods presented. The results of those periods are not necessarily indicative of the results for the full year.
 
  
 
Yamana Gold Inc.
Consolidated Statements of Cash Flow
For the Periods Ended
(In thousands of US dollars prepared by management and unaudited)
   
   
 
 
    
September 30, 2005
(Three months)
    
September 30,
2004
(Three months
)
  
September 30,
2005
(Nine Months
)
  
September 30,
2004
(Ten months
)
Operating Activities
          
         
 
Net earnings (loss) for the period
  
$
3,246
  
$
6
  
$
(4,038
)
$
2,618
  
Asset retirement
obligations realized (Note 10)
    
(77
)
  
(43
)
  
(201
)
  
(155
)
Items not involving cash
                          
Services paid in common shares(adjustment)
    
-
    
-
    
-
    
(566
)
Depreciation, amortization and depletion
    
1,732
    
1,293
    
4,570
    
4,337
  
Stock-based compensation(Note 13)
    
304
    
1,316
    
2,303
    
2,418
  
Future income taxes(Note 14)
    
1,978
    
867
    
3,841
    
92
  
Foreign exchange loss
   
(556
)
  
350
    
-
    
36
  
Other
    
(254
)
  
15
    
924
    
834
  
                           
     
6,467
    
3,884
    
7,657
    
9,967
  
Net change in non-cash working capital (Note 15 ii)
    
(3,024
)
  
(868
)
  
(2,629
)
  
(1,601
)
                           
     
3,443
    
3,016
    
5,028
    
8,366
  
 
Financing Activities
                          
Issue of common shares and warrants for cash
(net of issue costs)
    
48,561
    
-
    
50,177
    
20,142
  
Deferred financing charges
    
(1,352
)
  
-
    
(3,533
)
  
-
  
Proceeds from notes payable
    
-
    
-
    
100,000
    
-
  
Interest expense on convertible notes (adjustment)
    
-
    
-
    
-
    
37
  
                           
     
47,209
    
-
    
146,644
    
20,179
  
                           
Investing Activities
                          
Expenditures on mineral properties
    
(6,085
)
  
(2,714
)
  
(16,352
)
  
(9,628
)
Acquisition of  property, plant and equipment
    
(1,924
)
  
(2,135
)
  
(4,187
)
  
(2,654
)
Expenditures on assets  under construction
    
(42,986
)
  
(1,040
)
  
(78,183
)
  
(6,405
)
Decrease (increase) in restricted  cash
   
69,523
    
-
    
(30,815
)
  
-
  
Business acquisition of Fazenda Brasileiro
    
-
    
-
    
-
    
(933
)
Other
    
446
    
(819
)
  
(1,399
)
  
(1,219
)
                           
     
18,974
    
(6,708
)
  
(130,936
)
  
(20,839
)
                           
Increase (decrease) in cash and cash equivalents
    
69,626
    
(3,692
)
  
20,736
    
7,706
  
Cash and cash equivalents, beginning of Period
    
38,164
    
27,658
    
87,054
    
16,260
  
                           
Cash and cash equivalents, end of period
  
$
107,790
  
$
23,966
  
$
107,790
  
$
23,966
  
                           
Cash and cash equivalents are comprised of the following
                          
Cash
  
$
16,397
  
$
2,574
  
$
16,397
  
$
2,574
  
Bank term deposits
    
91,393
    
21,392
    
91,393
    
21,392
  
   
$
107,790
  
$
23,966
  
$
107,790
  
$
23,966
  

Supplementary cash flow information (Note 15 i).

The accompanying notes are an integral part of the financial statements. 
 
Yamana Gold Inc.
Notes to the Consolidated Financial Statements
For the three month and nine month periods ended September 30, 2005
(with comparatives as at December 31, 2004 and for the three month and ten month periods ended September 30, 2004)
(Tabular amounts in thousands of US dollars, prepared by management and unaudited)
 
1.  
Basis of presentation
  The accompanying consolidated interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) for the preparation of interim financial statements and include the assets, liabilities and operations of the Company and its wholly-owned subsidiaries. These consolidated interim financial statements do not contain all the information required by generally accepted accounting principles for annual financial statements and therefore should be read in conjunction with the most recent annual financial statements of the Company. These interim consolidated financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements.
 
2.  
Change in year end
  The Company changed its year end from February 28/29 to December 31. As such, the third quarter for fiscal December 31, 2005 is for the three month period ended September 30, 2005 with comparative figures as at December 31, 2004 and for the three month period ended September 30, 2004. Below is a summary of the quarterly periods for the current fiscal year and comparative periods:
 
For the Period
Ending
Comparative Period
Ending
 
  
 
Q1
 
March 31, 2005
 
February 29, 2004
  
Q2
June 30, 2005
June 30, 2004 
    (i)
Q3
September 30, 2005
September 30, 2004 
    (ii)
Q4
December 31, 2005
December 31, 2004
   (iii) 
       
(i)     Four month period; seven months year-to-date
(ii)  Three month period; ten months year-to-date
(iii)  Three month period; ten months year-to-date
 
3.  
Inventory

 
    
September 30, 
    
December 31,
  
 
    
2005
    
2004
  
               
               
Metal in circuit and gold in process
  
$
2,462
  
$
2,729
  
Product inventories
   
3,291
    
996
  
Materials and supplies 
    
2,732
    
2,137
  
               
 
              
   
$
8,485
  
$
5,862
  
 
 
4.  
Property, plant and equipment

       
September 30,
      
December 31,
  
           
2005
          
2004
  
                           
 
          
Accumulated 
 
 
Net
 
 
Net
 
 
 
 
Cost 
    
      Amortization
 
 
Book Value
 
 
Book Value
  
                           
Land 
  
$
1,147
  
$
-
  
$
1,147
  
$
1,053
  
Buildings  
    
12,088
    
2,588
    
9,500
    
6,439
  
Machinery and Equipment
    
13,606
    
2,797
    
10,809
    
7,306
  
Vehicles  
    
2,500
    
642
    
1,858
    
2,134
  
Furniture and office
                         
   equipment
   
1,608
    
356
    
1,252
    
958
  
Computer equipment
   
677
    
166
    
511
    
425
  
   and software
                         
                           
   
$
31,626
  
$
6,549
  
$
25,077
  
$
18,315
  


5.  
Assets under construction

 
     September 30,     
December 31,
  
 
    
2005
    
2004
  
               
Fazenda Nova (i) 
  
$
-
  
$
6,949
  
São Francisco
    
48,580
    
1,915
  
Chapada (ii)
    
44,168
    
3,221
  
               
   
$
92,748
  
$
12,085
  
            
             Construction and preproduction revenues will be transferred to property, plant and equipment and mineral properties for each property upon commencement of commercial production.

(i)  
The Fazenda Nova Mine commenced commercial production effective May 1, 2005.

(ii)  
Net interest capitalized during the period was $2.2 million (December 31, 2004 - $Nil).
 
6.  
Mineral properties

 
    
September 30,
    
December 31,
  
 
    
2005
    
2004
  
 
              
               
Fazenda Brasileiro (i)
  
$
22,003
  
$
13,158
  
Santa Elina (ii)
    
19,258
    
13,319
  
Chapada  
    
14,480
    
11,523
  
Argentine properties (iii)
    
5,168
    
5,036
  
Other
    
602
    
256
  
 
              
               
   
$
61,511
    
43,292
  
 
(i)  Fazenda Brasileiro
     Balance is net of accumulated amortization in the amount of $4.4 million
    (December 31, 2004 - $2.8 million).

(ii) Santa Elina
     alance is net of accumulated amortization in the amount of $1.5 million
    (December 31, 2004 - $0.7 million).

(iii) Argentine properties
The Company received a third party offer to purchase the Argentine properties for consideration comprised of a combination of cash proceeds and an equity interest in the capital of the purchaser.
In the event the transaction closes, the purchaser will pay Yamana $350,000 and deliver 8.0 million common shares in the capital of the purchaser and 4.0 million common share purchase warrants of the purchaser and provide additional consideration in late 2006. The Company does not expect to record a significant gain or loss upon the conclusion of this transaction, which is still subject to the completion of due diligence and documentation.
 
 
7.  
Restricted cash
 
Restricted cash consists of funds held in escrow advanced under the loan facility for the development and construction of the Chapada copper-gold project and interest earned on those funds. During the period, $70 million of the total loan proceeds of $100 million were released from escrow and the remaining $30 million was released subsequent to the period end. Interest earned on the balance held in escrow is credited to assets under construction.
 
8.  
Other assets
 
 
      September 30,    
December 31,
  
 
    
2005
    
2004
  
               
Deferred financing charges (i)
 
$
8,724
  
$
5,191
  
Deferred equity issue costs (ii)
   
198
    
-
  
Long term tax credits (iii)
    
1,924
    
-
  
Other
    
618
    
606
  
               
   
$
11,464
  
$
5,797
  

(i) Deferred financing charges relate to a $100 million debt financing for the  development of the Chapada copper-gold project. Financing charges are amortized  over the life of the loan as of the funding date April 29, 2005. Amortization is  capitalized to property development costs. Balance is net of accumulated amortization  of $613,000 (December 31, 2004 - $Nil).

(ii) Deferred equity issue costs consist of expenses relating to the closing of a public  offering on October 5, 2005 resulting in the issuance of 26 million common shares.  These costs will be netted against the proceeds from the equity financing.

(iii) Long-term tax credits consist of Brazilian sales taxes which may be recoverable  against other taxes payable.

9.  
Notes payable

The notes payable consist of $100 million for the development and construction of the Chapada copper-gold project plus accrued interest of $4.1 million of which $1.5 million has been capitalized to the loan balance. The Company drew down the full $100 million under the loan facility on April 29, 2005. The secured notes are for a term of six years and bear interest at an annual rate of 12.45%. Principal is repayable upon maturity of the notes. The Company has elected to defer interest payments for the first two years. The loan proceeds were held in an escrow account for the benefit of the Company pending perfection and registration of security. During the period, $70 million of the loan proceeds were released from escrow and subsequent to the period end, the remaining $30 million was released and the Company paid accrued interest and financing fees in the amount of $2.1 million.

10.  
Asset retirement obligation 

     The asset retirement obligation relating to reclamation and closure costs relates primarily to the Fazenda Brasileiro Mine, the São Vicente project and the Fazenda Nova Mine and is calculated as the net present value of estimated future cash flows required to satisfy the obligation at a discount rate of 7%. Reclamation and closure costs of the mines and projects are incurred in Brazilian Reais thus subject to translation gains and losses from one reporting period to the next in accordance with the Company’s accounting policy for foreign currency translation of monetary items.
    The following is an analysis of the asset retirement obligation:
 
    
September 30,
    
December 31,
  
 
    
2005
(9 months)
    
2004
(12 months)
  
               
Opening balance
 
$
4,972
  
$
4,943
  
Accretion incurred in the current period
    
258
    
364
  
Liabilities accrued (reduction)
    
-
    
(429
)
Foreign exchange loss and other
    
845
    
331
  
Expenditures during the current period
    
(201
)
  
(237
)
               
   
$
5,874
  
$
4,972
  
 
11.  
Capital stock

     (i) Common shares issued and outstanding:
 
   
Number of
     
 
    
Common Shares 
    
Amount
  
               
Balance as at December 31, 2004
   
122,287
  
$
147,407
  
Exercise of options and share
             
appreciation rights (1)
    
1,281
    
1,972
  
Shares issued pursuant to an early
              
exercise of publicly traded warrants
              
net of costs (2)
    
41,286
    
55,938
  
Shares issued pursuant to an exchange
             
of publicly traded warrants (2)
    
476
    
131
  
Shares issued on the exercise of warrants
    
8
    
35
  
 
              
               
Balance as at September 30, 2005
    
165,338
  
$
205,483
  

(1)  
The Company issued 1.3 million shares to optionees on the exercise of their share options and appreciation rights for cash proceeds of $1.6 million. Previously recognized compensation expense in the amount of $0.3 million on options exercised during the period was charged to share capital with a corresponding decrease to contributed surplus.
 
(2)  
As of July 29, 2005, the Company effected an amendment of the terms of its 40,567,656 publicly traded warrants, each of which were exercisable at C$1.50 per common share and expiring July 31, 2008, that entitled warrant holders to receive an additional 0.0356 of a common share upon the exercise of their warrants during a 30-day voluntary early exercise period that expired August 29, 2005. An aggregate of 41,285,875 common shares were issued for net proceeds of $48.5 million pursuant to the early exercise of the warrants. An additional 476,198 common shares were issued pursuant to the automatic exchange of the remaining 701,021 warrants subsequent to closing of the early exercise period, without payment of the exercise price or any additional consideration.
 
    (ii) Contributed surplus
 

   
September 30,
 
December 31,
 
   
2005
  
2004
  
   
(9 months)
  
(10 months)
  
Balance as at beginning of period
  
$
1,775
  
$
633
  
Transfer of stock based compensation
              
on the exercise of stock option and
              
share appreciation rights  
      (324)      (25)  
Expired warrants
    
927
      -  
Stock based compensation
              
on options granted
    
2,298
    
1,167
  
               
Balance as at end of period
  
$
4,676
  
$
1,775
  
 
12.  
Share purchase warrants
 
    As at September 30, 2005 there were 5.3 million (December 31, 2004 - 43.4 million) share purchase warrants outstanding with an average exercise price of Cdn$4.43 (December 31, 2004 - Cdn$1.78) and an average outstanding life of 4.12 years (December 31, 2004 - 3.65 years).
    As of July 29, 2005, the Company effected an amendment of the terms of its 40,567,656 publicly traded warrants, each of which were exercisable at C$1.50 per common share and expiring July 31, 2008, that entitled warrant holders to receive an additional 0.0356 of a common share upon the exercise of their warrants during a 30-day voluntary early exercise period that expired August 29, 2005. A total of 39,866,635 warrants were exercised during the exercise period. Upon the expiry of the voluntary exercise period, the remaining 701,021 warrants were exchanged, without payment of the exercise price or any additional consideration, for 476,198 common shares.
 
13.  
Stock options

     The following is a summary of the issued stock options to acquire common shares under the Company’s Share Incentive Plan as at the period end and the changes thereof during the period:
 
September 30,     
2005      
(9 months)      
 
December 31,  
2004  
(10 months)  
   
                   
 
  
Number of
Options 
    
Weighted Average
Exercise Price
(Cdn$
)
  
Number of
Options
    
Weighted Average
Exercise Price
(Cdn$
)
                         
                         
Outstanding,
beginning of period 
  
6,660
  
$
2.04
    
5,453
  
$
1.73
  
Issued
 
2,785
    
3.78
    
1,250
    
3.38
  
                         
Exercised
  
(1,485
)
  
1.97
    
(41
)
  
2.25
  
Expired and cancelled
  
(6
)
  
2.93
    
(2
)
  
2.93
  
                         
                         
Outstanding, end of period 
  
7,954
  
$
2.67
    
6,660
  
$
2.04
  
                         
                         
Exercisable  
  
7,954
  
$
2.67
    
6,535
  
$
2.03
  
                         
 
The Company has expensed the value of share purchase options granted to employees during the nine month period ended September 30, 2005 as compensation expense in the amount of $2.3 million with a corresponding increase in contributed surplus. The share purchase options were recorded using the fair value based method of accounting which was estimated at the time of grant using the Black-Scholes option pricing model with the following assumptions:

   
September 30,
  
September 30,
  
     
2005
    
2004
  
 
    
(9 months)
    
(10 months
)
               
               
Dividend yield
    
0
%
  
0
%
Expected volatility
    
34
%
  
35%-40
%
Risk-free interest rate
    
3.4
%
  
3.5
%
Expected life
    
3 years
    
3 years
  
Forfeitures
    
Nil
    
Nil
  
 
14.  
Income taxes
 
      The following table reconciles income taxes calculated at statutory rates with the income tax expense in the period end consolidated financial statements:
 
 
  
Period ended 
Fiscal year-to-date
 
    
September 30,
2005
(3 months)
    
September 30,
2004
(3 months
)
  
September 30,
2005
(9 months
)
  
September 30,
2004
(10 months
)
Earnings (loss) before income taxes
  
$
4,692
  
$
1,252
  
$
(169
)
$
4,065
  
Statutory rate
    
36.12
%
  
38.00
%
  
36.12
%
  
38.00
%
Expected income tax expense (recovery)
  
$
1,695
  
$
476
  
$
(61
)
$
1,545
  
Effect of lower effective tax rates in foreign jurisdictions
    
(1,346
)
  
(321
)
  
(1,306
)
  
(1,084
)
Unrecognized (recognized) tax benefits in Canada and United States
    
(957
)
  
200
    
(723
)
  
816
  
Non-taxable items
    
(913
)
  
891
    
(17
)
  
170
  
Foreign exchange on inter-corporate debt
    
3,679
    
-
    
5,972
    
-
  
Other
    
(712
)
  
-
    
4
    
-
  
                           
Income tax expense
 
$
1,446
  
$
1,246
  
$
3,869
  
$
1,447
  
                           
Current income tax recovery (expense)
    
532
    
(379
)
  
(28
)
  
(1,355
)
                           
Future income tax (expense) recovery
  
$
(1,978
)
$
(867
)
$
(3,841
)
$
(92
)

 
15.  
Supplementary cash flow information

  (i)Supplementary information regarding other non-cash transactions

 
  
Period ended 
Fiscal year-to-date
 
    
September 30,
2005
(3 months)
    
September 30,
2004
(3 months
)
  
September 30,
2005
(9 months
)
  
September 30,
2004
(10 months
)
Financing Activities
                          
Common shares issued on
the exercise of stock
options and share
appreciation rights
  
$
65
  
$
-
  
$
324
  
$
2
  
 
Transfer of contributed
surplus on the issue of
stock options and share
appreciation rights
  
$
(65
)
$
-
  
$
(324
)
$
(2
)
 
Expired warrants
  
$
(927
)
$
-
  
$
(927
)
$
-
  
 
Increase in contributed
surplus on the expiry
of warrants
  
$
927
  
$
-
  
$
927
  
$
-
  
 
Issue of common shares
to management
  
$
-
  
$
1,021
  
$
-
  
$
1,021
  
 
Stock-based compensation
recognized on the issue
of common shares to
management
  
$
-
  
$
(1,021
)
$
-
  
$
(1,021
)
 
Interest expense accrued
on loan facility
  
$
2,641
  
$
-
  
$
4,121
  
$
-
  
 
Amortization of deferred
financing fees
  
$
376
  
$
-
  
$
613
  
$
-
  
 
Investing Activities
                          
 
Accrued interest
capitalized to assets
under construction
  
$
(2,641
)
$
-
  
$
(4,121
)
$
-
  
 
Amortization of deferred
financing fees
capitalized to assets
under construction
  
$
(376
)
$
-
  
$
(613
)
$
-
  
 
 
(ii) Net change in non-cash working capital
 
 
  
Period ended 
Fiscal year-to-date
 
    
September 30,
2005
(3 months)
    
September 30,
2004
(3 months
)
  
September 30,
2005
(9 months
)
  
September 30,
2004
(10 months
)
Net decrease (increase) in
                         
Accounts receivable
 
$
1,468
  
$
(898
)
$
1,016
  
$
(1,210
)
Inventory
    
(1,188
)
  
(1,694
)
  
(2,623
)
  
(750
)
Advances and deposits
    
(1,382
)
  
34
   
(2,147
)
  
(1,382
)
Income tax recoverable
    
(946
)
  
(982
)
  
(1,363
)
  
(982
)
Net increase (decrease) in
    
                   
Accounts payable and   
accrued liabilities
    
(1,309
)
  
2,672
    
9,298
    
2,723
  
Less: Accounts payable
relating to assets
under construction
    
333
    
-
    
(6,810
)
  
-
  
                           
   
$
(3,024
)
$
(868
)
$
(2,629
)
$
(1,601
)
                           
 
16.
Segmented information

     The Company considers its business to consist of three geographical segments primarily in Brazil, Argentina and corporate head office in Canada.

 (i) Capital assets referred to below consist of land, buildings and equipment and mineral properties.
           
 
    
September 30,
    
December 31,
  
     
2005
    
2004
  
               
Mineral properties, assets under
             
construction and property, plant and equipment
 
 
 
 
 
 
 
plant and equipment
              
               
Brazil
 
$
173,639
  
$
68,163
  
Argentina
   
5,520
    
5,413
  
Corporate
    
177
    
116
  
               
 
              
   
$
179,336
  
$
73,692
  
(ii)
 
 
  
Period ended 
Fiscal year-to-date
 
    
September 30,
2005
(3 months)
    
September 30,
2004
(3 months
)
  
September 30,
2005
(9 months
)
  
September 30,
2004
(10 months
)
Mine Revenues
                          
Brazil
 
$
10,749
  
$
8,827
  
$
29,383
  
$
32,446
  
                           


17.
Related party transactions

     The Company had the following transactions with related parties:

 
  
Period ended 
Fiscal year-to-date
 
    
September 30,
2005
(3 months)
    
September 30,
2004
(3 months
)
  
September 30,
2005
(9 months
)
  
September 30,
2004
(10 months
)
Directors fees (i)
  
$
38
  
$
36
  
$
161
  
$
155
  
                           

(i) Included in accounts payable and accrued liabilities is $39,400 (Dec 31, 2004 - $39,100) in this regard.

These transactions occurred in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties based on their estimate of fair market value.

18.
Contractual commitments 
 
Year
    
2005
    
2006
    
2007
    
2008
    
2009
  
                                 
Office leases
 
$
83
  
$
332
  
$
288
  
$
152
  
$
-
  
Mine operating and
                               
service contracts
    
4,093
    
6,540
    
1,148
    
-
    
-
  
Chapada construction
                             
service contracts
   
30,905
    
35,817
    
1,320
    
289
      -  
São Francisco construction
                               
service contracts
   
7,129
    
900
    
-
    
-
    
-
  
                                 
   
$
42,210
  
$
43,589
  
$
2,756
  
$
441
  
$
-
  
                                 
 

19.
Subsequent Events

      (i) On October 5, 2005, the Company completed a public offering for 26 million  common shares at a price of C$5.00 per share for net proceeds of $110.9 million.

     (ii)  Subsequent to the period end, the Company implemented a copper hedging  program that provides a forward price of $1.37 per pound of copper for a total of 50.2  million pounds of copper in 2007, representing approximately one half of planned  copper production for that year. The program includes long call options at an average  strike price of approximately $1.67 per pound of copper thereby providing further  upside in the event that copper prices exceed that threshold level. No cash has been  paid for the call options as the price has been deducted from the hedge price,  providing a net hedge price of $1.27 per pound. The program requires no cash  margin, collateral or other security from the Company.

     (iii) Subsequent to the period end, the Company purchased a portfolio investment in  the amount of $2.3 million.
 
20.
Contingency
 
     During the period, a sales tax audit was completed by Brazilian state tax authorities which could result in a liability or a potential loss of recoverable Brazilian sales tax credits that have been recorded as receivables as at September 30, 2005 of approximately $1.7 million including penalties. The Company has not recorded an accrual at September 30, 2005 as it is the Company’s view that the total amount of sales tax credits are recoverable. The Company is currently undergoing an appeal process and while it is not possible to determine the ultimate outcome of such process at this time, the Company believes that the ultimate resolution will not have a material effect on the Company’s financial condition or results of operation.
 
21.
Comparative figures
 
     Certain of prior years’ figures have been restated to conform with current period’s presentation.
 
 
YAMANA GOLD INC.
For the third quarter ended September 30, 2005

Management’s Discussion and Analysis of Operations and Financial Condition
(US dollars, 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.


Change in Year End
The year end of the Company was changed from February 28/29 to December 31. As such, the third quarter for the current fiscal year is for the three month period ended September 30, 2005 with comparative figures for the three month period ended September 30, 2004. Below is a summary of the quarterly periods for the current fiscal year and comparative periods:
 
 
 
For the Period
Ending
Comparative Period
Ending
 
  
 
Q1
 
March 31, 2005
 
February 29, 2004
  
Q2
June 30, 2005
June 30, 2004 
    (i)
Q3
September 30, 2005
September 30, 2004 
    (ii)
Q4
December 31, 2005
December 31, 2004
   (iii) 
       
(i)     Four month period; seven months year-to-date
(ii)  Three month period; ten months year-to-date
(iii)  Three month period; ten months year-to-date
 
Overview of Financial Results
The Company recorded net earnings for the quarter ended September 30, 2005 of $3.2 million or $0.02 per share. This compares to net earnings of $6,000 for the comparative quarter ended September 30, 2004 or $0.00 per share.
The Company recorded revenue in the amount of $10.7 million for the quarter ended
September 30, 2005 from the sale of 24,946 ounces of gold from the Fazenda Nova and the Fazenda Brasileiro mines.
Mine operating earnings for the quarter were $1.5 million compared to mine operating earnings of $0.6 million for the quarter ended June 30, 2005 and $2.8 million for the comparative quarter ended September 30, 2004. Mine operating earnings on a year-to-date basis were $3.6 million for the nine months ended September 30, 2005 compared to $10.3 million for the comparative 10 month period ended September 30, 2004. Mine operating earnings for the quarter consist of earnings from the Fazenda Brasileiro and the Fazenda Nova mines.
 
Net earnings for the quarter include a foreign exchange gain in the amount of $4.7 million, interest income of $1 million, general and administrative expenses of $2.2 million and an income tax expense of $1.4 million.
The exchange gain of $4.7 million arises primarily from the Company’s decision to hold higher levels of Reais and Canadian dollars rather than US dollars. During the quarter, the Company transferred US$70 million into Brazil and converted it into Brazilian Reais. This created a net monetary asset position in Brazil that resulted in a foreign exchange gain for the quarter on the translation of that amount to US dollars at the period end exchange rate.
The Company took advantage of the high interest rates in Brazil, earning interest income at an average rate of 19.6% during the quarter on cash held in Brazil. Total interest and other business income for the quarter was $1 million compared to $140,000 for the quarter ended June 30, 2005.
The Company has not hedged its currencies. However, the Company has adopted a policy of holding funds in Reais as a means of mitigating the effects of the appreciation of the Real as against the US dollar as most of its costs are incurred in Reais. The Company earns interest in Reais denominated accounts at rates that are among the highest in the world and the interest earned on these funds offsets some of the effects from the appreciation of the Real as against the US dollar.
General and administrative costs for the quarter were $2.2 million, representing a decrease of 8% relative to the prior quarter ended June 30, 2005. General and administrative costs for the comparative quarter ended September 30, 2004 were $1.6 million.
  As the Real continued to strengthen during the quarter, an income tax expense arose on the revaluation of the US dollar denominated inter-corporate debt. The tax expense was offset by the recognition of a tax asset during the quarter from Brazilian tax losses. The income tax provision for the quarter was $1.4 million comprised of a current income tax recovery of $0.5 million and a future income tax expense of $1.9 million.
Cash and cash equivalents at the end of the period were $107.8 million reflecting the release from escrow of $70 million of the proceeds under the $100 million loan facility and the net proceeds of $48.5 million on the warrant early conversion program in August 2005. Subsequent to the quarter end, the remaining $30 million of proceeds advanced under the loan facility were released from escrow, transferred to Brazil and converted to Brazilian Reais.
Also, subsequent to the quarter end, the Company closed a C$130 million equity financing. This brought the Company’s cash and cash equivalents balance to $222 million as at October 16, 2005.  
Cash flow generated from operations was $6.5 million before working capital changes and $3.4 million after non-cash working capital changes for the quarter ended September 30, 2005. This compares to $3 million for the comparative quarter ended September 30, 2004 after changes of $0.9 million to non-cash working capital items. Cash flow from operations on a year-to-date basis was $5.0 million compared to $8.4 million for the comparative ten month period ended September 30, 2004.
  Production increased from the prior quarter both at the Fazenda Nova Mine and the Fazenda Brasileiro Mine. Total production for the quarter was 30,955 including commercial production of 29,922 ounces at combined cash costs of $291 per ounce which is below combined cash costs for the previous quarter. Production for the quarter was comprised of 10,364 ounces from the Fazenda Nova Mine and 19,558 ounces from the Fazenda Brasileiro Mine. An additional 1,033 ounces were produced at the São Francisco pilot plant.
Total production on a year-to-date basis including pre-operating production from the Fazenda Nova Mine and production from the São Francisco pilot plant was 83,810 ounces. Commercial production on a year-to-date basis was 72,800 ounces at combined cash costs of $291 per ounce of which 16,040 ounces were produced from the Fazenda Nova Mine and 56,760 ounces were produced from the Fazenda Brasileiro Mine.
The following chart summarizes commercial production and cash costs per ounce for the quarter ended September 30, 2005:

 
Quarter ending September 30, 2005
Quarter ending September 30, 2004
 
Production (oz.)
Cash costs per oz.
Production (oz.)
Cash costs per oz.
         
 
Fazenda Nova
 
10,364
 
   $ 215
 
-
 
$ -
Fazenda Brasileiro
 
19,558
 
    $ 332
 
23,214
 
    $ 215
 
TOTAL COMMERCIAL
 PRODUCTION
 
 
29,922
 
 
    $ 291
 
 
23,214
 
 
    $ 215
 
Fazenda Nova
Pre-operating
 
-
 
$ -
 
104
 
$ -
 
São Francisco Pilot Plant
 
1,033
 
$ -
 
1,157
 
$ -
 
TOTAL PRODUCTION
 
30,955
 
$ -
 
24,475
 
$ -
         
 
For the nine months ended September 30, 2005
For the ten months ended September 30, 2004
 
Production (oz.)
Cash costs per oz.
Production (oz.)
Cash costs per oz.
 
Fazenda Nova
 
16,040
 
    $ 233
 
-
 
$ -
Fazenda Brasileiro
 
56,760
 
    $ 308
 
83,257
 
    $ 208
 
TOTAL COMMERCIAL
PRODUCTION
 
 
72,800
 
 
    $ 291
 
 
83,257
 
 
    $ 208
 
Fazenda Nova
Pre-operating
 
 
7,379
 
 
$ -
 
 
104
 
 
$ -
 
São Francisco Pilot Plant
 
3,631
 
$ -
 
2,251
 
$ -
 
TOTAL PRODUCTION
 
83,810
 
$ -
 
85,012
 
$ -
         
 
  Average cash costs at the Fazenda Nova Mine declined from $265 per ounce during the quarter ended June 30, 2005 to $215 per ounce during the quarter ended September 30, 2005. This represents a decrease of 19% despite a 5.6% increase in the Real vis-à-vis the US dollar during the quarter. Cash costs were $169 per ounce for the month of September. The reduction in cash costs per ounce is accounted for by increased production and a reduction in Reais denominated costs from cost reduction measures, offset by an increase in exchange rates with a strengthened Brazilian currency during the quarter.
Cash costs for the quarter at the Fazenda Brasileiro Mine were in line with a mine of its stage of operations at $332 per ounce. However, cash costs incurred in Reais were below those of the prior quarter and consistent with the prior quarter’s US dollar reported costs as the US dollar further weakened against the Real. Reais denominated cash costs per ounce decreased by 4.4% during the quarter due to the implementation of cost control measures.
Capital expenditures for the quarter on property, plant and equipment and mineral properties were $51 million, of which $43 million was spent on the construction of the São Francisco project and the Chapada copper-gold project (net of the change in accounts payable and accrued liabilities) and $4.3 million was spent on exploration.
Construction of the São Francisco Mine is near completion. Start-up of mine operations is expected in late 2005. Average annual production from the São Francisco Mine is targeted at 108,000 ounces with an initial mine life of approximately 71/2 years. Almost all of the capital costs for the construction of the São Francisco Mine are denominated in Brazilian Reais. Total estimated capital cost estimate of R$165.3 million is in line with the range of capital costs as shown in the feasibility study.
Considerable advancements have been made in the construction of the Chapada copper-gold Mine, with commencement of production expected in the fourth quarter of 2006. Production from the Chapada copper-gold Mine is forecast at an average of 130 million pounds payable copper and 134,000 ounces payable gold per year in concentrate for the first five years of operation. Total life of mine production is forecast at 2.0 billion pounds of copper and 1.3 million ounces of gold.
Subsequent to the quarter end, the Company implemented a copper hedging program to help secure a less than two year payback at its Chapada copper-gold Mine, to increase cash flow from feasibility study levels without removing the upside from significantly higher copper prices and to mitigate against certain cost increases primarily resulting from the appreciation of the Brazilian currency to the US dollar by increasing forecast revenue.
The hedging program provides a forward price of $1.37 per pound of copper for a total of 50.2 million pounds of copper in 2007, representing about one half of planned copper production for that year. The program includes long call options at an average strike price of approximately $1.67 per pound of copper thereby providing further upside in the event that copper prices exceed that threshold level. No cash has been paid for the call options as the price has been deducted from the hedge price, providing a net hedge price of $1.27 per pound.
 
The copper hedging program will increase the value of the Chapada copper-gold Mine and thereby the net asset value per share of the Company and will better position the Company as a significant gold producer as copper will be monetized into cash that will be available for development and acquisition of other gold projects. Gold production at the Chapada copper-gold Mine will remain unhedged ensuring that the Company fully participates in any future increases in gold prices.
The third quarter was also highlighted by strong exploration results. Exploration during the quarter focused on advancing three new mineral properties, C1 Santa Luz on the Itapicuru Greenstone Belt region, São Vicente and Ernesto on the Santa Elina Gold Belt region. The Company believes that C1 Santa Luz and Ernesto merit scoping and feasibility studies and that São Vicente merits an updated feasibility study.
A reserve estimate at the Fazenda Brasileiro Mine as at August 31, 2005 revealed an increase of 122,000 ounces in resources from the beginning of the year. Measured and indicated resources (including reserves) as at August 31, 2005 were 509,300 ounces and inferred resources were 103,600 ounces. An aggregate of 56,760 ounces were produced during the nine months ended September 30, 2005. The new reserve and resource estimate supports a mine life of another six years at current production levels. The objective at the Fazenda Brasileiro Mine is to continue to add resources and convert resources to reserves to provide production levels of approximately 90,000 ounces per year.


The table below presents selected quarterly financial and operating data:
 
 
    
September 30, 2005 
 
 
June 30,
2005
 
 
March 31,
2005
 
 
December 31,
2004
  
Financial results(in thousands of dollars)
                          
Revenue (i)
  
$
10,749
  
$
10,785
  
$
7,850
  
$
10,305
  
Net earnings(loss)for the period
  
$
3,246
  
$
(7,576
)
$
292
  
$
804
  
                           
Per share financial results
                          
Basic and diluted earnings (loss)
per share
  
$
0.02
  
$
(0.06
)
$
0.00
  
$
0.01
  
                           
Financial Position (in thousands of dollars)
                          
Total assets
  
$
345,206
  
$
289,433
  
$
177,902
  
$
177,106