Yamana Gold said it has started production at its Mercedes mine in Mexico and it expects to start commercial production in the second quarter of 2012.

The Toronto-based company, which owns projects in Chile, Argentina, Brazil and Mexico, said it expects a production rate of about 1500 tonnes of ore per day at the Mercedes mine.

In August Yamana said it expects 2011 output of 1.04-1.14 million gold equivalent ounces, but warned of a rise in capital expenditure over the next three years.

Yamana on Friday said it expects initial production of 120,000 gold equivalent ounces per year from the new mine.

The company said it has stockpiled 114,000 tonnes of ore, with an average grade of 7.84 grams per tonne (g/t) of gold and 114.9 g/t of silver.

Shares of Yamana closed at C$15.94 on Thursday on the Toronto Stock Exchange.