Yates was involved in a crash towards the end of the stage and he finished over five minutes behind eventual stage winner, and new race leader, Caleb Ewan.
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His team-mate Daryl Impey came second and sits third in the overall standings.
Mitchelton-Scott directeur-sportif Matt White told CyclingNews: "It was a bittersweet day for the team.
“Daryl got a good result and gained a few seconds but to lose Simon wouldn't be good. It's early days; it could be fine or it might not be,
"He's not so good at the moment. He's lost some skin in a couple of other places but his left knee is the real concern. He could barely pedal to the finish line.
"The doctors will make a decision on if he'll start tomorrow and we'll adjust our plan accordingly. It could swell up and with a bunged knee, you're not going anywhere."
2018 Vuelta a Espana winner Yates is co-leader with Impey in Australia in the traditional season opener.
He will miss the Tour de France this year and instead target the Giro d’Italia and the Tokyo Olympics.
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