UPDATE 2-INTERVIEW-Yamana CEO sees gold rising, costs too

* Sees gold prices continuing to rise over next year

* Sees risk of costs increasing as economy recovers

* Company could produce 1.7 mln oz/year by 2013 (Adds details, background. In U.S. dollars unless noted)

TORONTO, Nov 4 - Yamana Gold's <YRI.TO> chief executive expects gold prices to keep breaking records over the next year, but acknowledges that rising energy prices and a recovering economy could drive mining costs higher too.

In an interview on Wednesday, CEO Peter Marrone wouldn't give a target for the gold price -- which surged to a record high of $1,096.50 -- but said he expected continued gains from current levels.

"It's spectacular, but I'll be saying that next year," he said of gold's recent rise. "I will be saying it because it (will have) gone up again."

The surging price has widened profit margins for miners such as Toronto-based Yamana as the recession has kept a lid on input costs such as oil and chemicals used in the mining process.

Last year at this point, Marrone was singing the praises of lower costs, which followed years of steep inflation.

But the recent increase in the oil price, signs of economic recovery and even higher gold prices -- which raise taxes and royalty payouts -- mean there's a chance that cost inflation could return.

"That is a risk. I don't know how to answer that definitely at this point, but that is a risk," he said, adding that Yamana's exposure to oil prices is limited due to alternative power sources at certain mines, as well as diesel fuel subsidies in Brazil.

BUILT ON M&A

Marrone, a lawyer and former investment banker, built Yamana through a series of buyouts after taking over as CEO in 2003, culminating in the C$4.4 billion acquisition of Meridian Gold and Northern Orion Resources in 2007.

Since then, he has sworn off the idea of large takeovers, and has trumpeted the idea of keeping the company as a mid-tier producer, with a focus on producing low-cost ounces rather than growing production to the point where its is difficult to maintain.

Indeed, in the past two years, he has come down from his 2007 forecast of a long-term annual production level in excess of 2 million ounces.

Instead, the company has sold its higher-cost operations, and said in its earnings statement late on Tuesday it expects to produce 1.7 million ounces a year in the longer term, up from expected output of 1.05-1.1 million this year.

Marrone said production could reach 1.7 million ounces as soon as 2013 by using assets currently owned by the company, meaning it will not have to resort to making acquisitions.

He said any purchases made by the company would be land concessions or undeveloped projects it can develop into producing assets to drive future growth.

"Our focus is on organic growth," Marrone said earlier on a conference call with analysts.

The company's shares, which have risen 33 percent so far this year on the Toronto Stock Exchange, gained 5 Canadian cents to C$12.59 on Wednesday.