Provides QDD Lower West Update

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Provides QDD Lower West Update

posted on Jan 26, 2009 02:02PM

January 26, 2009

Yamana Gold Provides QDD Lower West Update

TORONTO, ONTARIO--(Marketwire - Jan. 26, 2009) - YAMANA GOLD INC. (TSX:YRI)(NYSE:AUY)(LSE:YAU) today announced the results of its studies relating to the mining of Gualcamayo's QDD Lower West underground deposit. Two alternative approaches to mining the deposit were considered with the conclusion that QDD Lower West is feasible as an underground operation under either approach. The approaches were evaluated based on overall project cost, complexity, total gold recovery, value and return maximization and the potential for further upside. Under the first approach, mining would be by shrinkage fill with production targeted to begin in 2011. Under the second approach, a front caving with pillar recovery method would be used with targeted production expected to begin in 2015. The latter approach would effectively extend Gualcamayo's expected mine life from nine years to 13 years.

The Gualcamayo property is located in northern San Juan Province, Argentina, approximately 270 km north of the provincial capital, San Juan City. It consists of three main mineral deposits, the main QDD deposit, the Amelia Ines and Magdalena (AIM) satellite deposits and the QDD Lower West underground zone. The QDD Lower West deposit is located at least 500 metres below QDD, towards the west and continued drilling on the deposit is expected to increase reserves, particularly in the western extension.

The property is situated within a complex structural block of Cambrian/Ordovician carbonate sediments in the Pre-cordillera formed by the Andean deformational east-west compression. Gold mineralization is disseminated within carbonate sediments. The project has been evaluated based on approximately 15,000 metres of drilling, although considerable drilling and other related exploration is ongoing in the western extension, extensive geological, geotechnical and metallurgical test work, feasibility level design and engineering and initial underground development to improve knowledge of the deposit and provide access for underground exploration. The metallurgical testwork supports heap leaching recovery of approximately 80% within 30 days.

The QDD Lower West mineral resource estimate, based on a cut off grade of 1.0 g/t Au using sample data received as of September 30, 2008, includes measured and indicated resources of 8.26 million tonnes grading 2.90 g/t Au containing 769,000 ounces of gold, and inferred resources of 1.60 million tonnes grading 2.66 g/t Au containing 136,000 ounces of gold. This compares to previously announced (March 25, 2008 press release) measured and indicated resources using a cut off grade of 1.0 g/t Au of 4.46 million tonnes grading 2.63 g/t Au containing 376,800 ounces of gold, and inferred resources of 2.81 million tonnes grading 2.59 g/t Au containing 234,100 ounces of gold. The table below shows a breakdown of the currently defined mineral resources using different cut off grades between 1.0 and 2.0 g/t Au.

      ---------------------------------------------------------------------
              Measured               Indicated       Measured and Indicated
---------------------------------------------------------------------------
        Tonnes                 Tonnes                  Tonnes
       greater                greater                 greater
       than or                than or                 than or
Cutoff   equal          in-     equal           in-     equal           in-
(g/t        to    Au   situ        to    Au    situ        to    Au    situ
Au)     Cutoff   g/t ounces    Cutoff   g/t  ounces    Cutoff   g/t  ounces
---------------------------------------------------------------------------
1.0    486,000 3.075 48,000 7,775,000 2.885 721,000 8,261,000 2.896 769,000
1.2    468,000 3.152 47,000 7,684,000 2.906 718,000 8,151,000 2.919 765,000
1.4    443,000 3.253 46,000 7,379,000 2.971 705,000 7,823,000 2.987 751,000
1.6    410,000 3.396 45,000 6,895,000 3.074 681,000 7,304,000 3.092 726,000
1.8    373,000 3.562 43,000 6,264,000 3.212 647,000 6,637,000 3.232 690,000
2.0    341,000 3.719 41,000 5,623,000 3.362 608,000 5,964,000 3.382 648,000
---------------------------------------------------------------------------
            Inferred
----------------------------
        Tonnes
       greater
       than or
Cutoff   equal           in-
(g/t        to    Au    situ
Au)     Cutoff   g/t  ounces
----------------------------
1.0  1,595,000 2.657 136,000
1.2  1,595,000 2.657 136,000
1.4  1,591,000 2.659 136,000
1.6  1,563,000 2.680 135,000
1.8  1,436,000 2.766 128,000
2.0  1,214,000 2.923 114,000
----------------------------

The results of the evaluation using the comparative approaches to mining are
summarized as follows:

                         ---------------------------------------------------
                                 Shrinkage Fill           Front Caving
                         ---------------------------------------------------
                                                                  Au
                            Tonnes  Au g/t      Oz     Tonnes    g/t      Oz
----------------------------------------------------------------------------
Proven                     192,257    2.88  17,775    431,703   2.54  35,254
----------------------------------------------------------------------------
Probable                 3,484,625    2.63 294,671  6,872,156   2.46 543,525
----------------------------------------------------------------------------
Internal Dilution
(Probable)               3,246,574    1.04 108,533  4,167,853   1.05 140,700
----------------------------------------------------------------------------
Total Contained Reserves 6,923,456    1.89 420,979 11,471,712   1.95 719,479
----------------------------------------------------------------------------

--------------------------------------------------------
Mine Life (years)                    4.5               7
--------------------------------------------------------
Capex (US$ MM)                       $62             $62
--------------------------------------------------------
Timing of Construction         2010-2011       2013-2015
--------------------------------------------------------
Cash Costs (US$/Oz)                 $365            $293
--------------------------------------------------------
After-tax IRR                        20%             37%
--------------------------------------------------------

The financial analysis for the studies used a gold price of US$725 per ounce. At the current gold price of US$900 per ounce, the after-tax IRR for the QDD Lower West project using the front caving approach increases to over 50% and the project would have an after-tax net present value (5% discount rate) of approximately US$100 million.

Production expectations under the two alternatives, adding production from the other Gualcamayo operations, would be as follows:

                  PRODUCTION PROFILE (000 oz)(i)
     --------------------------------------------------------
             Shrinkage Fill               Front Caving
     --------------------------------------------------------
      QDD LW   QDD   AIM   TOTAL   QDD LW   QDD   AIM   TOTAL
-------------------------------------------------------------
2009           144    51     195            144    51     195
2010           140    80     220            140    80     220
2011      40   124    39     203            124    39     163
2012      79   156    33     268            156    33     188
2013      95   153    32     279            153    32     184
2014     102   140    32     275            140    32     172
2015      21   181    32     233       54   181    32     267
2016           192     5     197      108   192     5     305
2017           104     1     105       92   104     1     198
2018                                   92                  92
2019                                   92                  92
2020                                   74                  74
2021                                   63                  63
-------------------------------------------------------------
Total    337 1,333   305   1,975      576 1,333   305   2,214
-------------------------------------------------------------
(i)Variance range of plus/minus 7% for total production.

Both mining methods are feasible although the front caving mining alternative increases total minable ounces, reduces costs, provides significantly improved returns, allows for the expansion of resources and better addresses geotechnical constraints and provides for a longer mine life and a higher return and value. The shrinkage fill method would accelerate production from QDD Lower West. Based on these results, the Company has decided to advance the front caving mining method. Further, the Company will continue drilling with the goal of proving up the QDD Lower West western extension which has the potential to significantly expand reserves. With additional drilling and assuming an extension of QDD Lower West, the Company believes that it may accelerate the production schedule under the front caving alternative by beginning mining in the western extremity, thereby advancing production, further increasing the value of QDD Lower West and its return on investment.

Based on results of the study, advantages of pursuing the front caving alternative include:

- improved project returns and net present value;

- improved cash costs relating to the underground mining thereby decreasing the average cash costs for Gualcamayo;

- significant increase in mineable and recoverable reserves;

- higher average head grade; and

- increased mine life for Gualcamayo to approximately 13 years from its current mine life of nine years.

The financial analysis of both alternatives suggests that the value of and the return for QDD Lower West are more sensitive to gold price and operating costs than capital expenditures. As drilling continues, the Company will continue to evaluate opportunities to further enhance project economics including the potential to reduce operating costs, increase mineable reserves through extension to the west and accelerate production.

The current analysis for the front caving approach considers mining beginning in the area below the main QDD open pit which is the area with the most defined resources. The Company continues to evaluate advancing production before 2015 by beginning mining in the western extension using the same front caving mining approach. The Company has allocated almost its entire US $6 million exploration budget for Gualcamayo in 2009 toward further exploration of QDD Lower West. The exploration program includes about 100 metres of underground development and 10,000 metres of diamond drilling to extend the QDD Lower West deposit along strike to the west. Any defined extension at the end of 2009 would allow the Company to further consider the merits of beginning mining operations at QDD Lower West in the western extension, the result of which would be to capture all the benefits of a longer mine life, better costs, more minable ounces, and better value and return from the front caving approach while also adding the benefit of advancing production earlier than 2015.

LOOKING AHEAD

The Company is expecting to deliver an initial feasibility study for the Mercedes project in Mexico and also a scoping study for the Ernesto/Pau-a-Pique project in Brazil in mid-February.

Qualified Person

Evandro Cintra, P. Geo., Senior Vice President, Technical Services of Yamana Gold Inc., has reviewed and approved the contents of this press release and serves as the "Qualified Person" as defined by National Instrument 43-101.

About Yamana

Yamana is a Canadian gold producer with significant gold production, gold development stage properties, exploration properties, and land positions in Brazil, Argentina, Chile, Mexico and Central America. Yamana is producing gold and other precious metals at intermediate company production levels in addition to significant copper production. Company management plans to continue to build on this base through existing operating mine expansions and throughput increases, 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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