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Yamana's Peter Marrone says gold miners will keep merging and tin is the next big thing

Key Executives at the 27th annual Gold Forum in Colorado Springs, CO
Key Executives at the 27th annual Gold Forum in Colorado Springs, CO

Yamana Gold Inc.’s Peter Marrone said the sale of the company he founded two decades ago to two Canadian rivals heralds a wave of gold mergers as executives and investors seek to maintain margins amid higher production costs and declining grades of the metal.

Marrone, currently Yamana’s executive chair, oversaw the company’s sale to Agnico Eagle Mines Ltd. and Pan American Silver Corp. last year for about US$4.8 billion. Marrone will leave the company when the deal closes, which is likely to take place next month.

The “gold price today is roughly where it was in late 2020 … but interestingly the margins have decreased quite substantially for almost all of the companies,” said Marrone. “It seems to me that we are going into universally, lower grades, higher costs, inflationary impacts,” he continued, meaning “any form of consolidation is a smart one.”

Marrone’s comments echo the views of other grandees of the gold industry, including Tom Palmer, who heads the world’s largest gold miner, Newmont Corp. Palmer told the Prospectors and Developers Association of Canada conference in June that gold miners would need to consolidate if they wanted to survive a future that will involve getting by with mines that yield low-grade ores and higher expenses related to climate change.

Resource industries are on the front lines of the climate challenge, whether it be coping directly with extreme weather, or indirectly through rising costs associated with adjustment and policies such as carbon taxes. Gold miners face an additional layer of difficultly because their deposits are yielding less ore that’s dense with gold. Lower grade mines can still be profitable, but only if extraction costs are lowered.

 Deposits are yielding less ore that’s dense with gold.
Deposits are yielding less ore that’s dense with gold.

Marrone experienced the mining industry’s impulse to consolidate first hand. The announcement of Yamana’s sale dominated headlines last year due to the multiple offers it received. South Africa’s Gold Fields Ltd. had initially agreed to buy the company in May, despite a backlash from some of its investors. Six months later, Agnico and Pan American proposed a superior offer which Gold Fields decided not to match.

Aside from the sale of Yamana, which has properties and mines in Canada, Brazil, Chile and Argentina, there have been at least eight notable combinations since 2018, when Barrick Gold Corp. and Randgold Resources Ltd. announced an $18-billion, zero-premium, all-share merger.

Tin man

At 63, Marrone isn’t ready to retire. He said he is keen to continue looking for mining projects that he believes he can turn around for a profit or optimize. He said he is also open to exploring the critical minerals sector, despite having worked in the gold industry for the last two decades.

“Some of the critical metals have supply chains that I do not understand well enough at this point,” he said. “I would certainly dip my toe in to start to get to know them.”

Still, Marrone has already committed to working with a company that he said he believes owns one of the largest silver-tin deposits in the world. Tin might not be a shiny as gold, but it’s one of the 31 critical minerals listed in Canada’s new critical minerals strategy, a sign the metal will be in demand as the world shifts to a greener economy. Tin is needed for soldering and will play a crucial role in the world’s shift to electrification from fossil fuels.

 A miner displays silver deposits from which tin, zinc and silver are extracted in Bolivia.
A miner displays silver deposits from which tin, zinc and silver are extracted in Bolivia.

“It’s one of those metals that will have high prices going deep into the next decade,” Marrone said.

About 35 countries mine tin, and about half of the current supply comes from Southeast Asia, according to the United States Geological Survey, an agency of the U.S. government. That concentration could present opportunities, as countries such as the U.S. and Canada have made clear they are keen to generate supply of such metals outside of China’s orbit.

‘Very impressive value’

Marrone added that he also expects the prices of other metals such as copper, gold and silver to “significantly rise” in the next five to 10 years due to electrification and inflation.

After decades of weak price pressures, inflation around the world has surged over the past couple of years, and some economists think elevated inflation could be here to stay. That could rekindle interest in traditional stores of value, as investors seek hedges against rising prices.

“Central banks are doing what they can and the best that they can, but I think in the next five to 10 years we will see an explosive increase in the prices of many of the metals that are out there,” Marrone said. “That will be true because of electrification but also true because central banks cannot continue to manage the way that they are. Things are beginning to break.”

Marrone has been conducting a series of exit interviews to talk about his future, making sure the industry to which he’s devoted his working life knows that he’s still in the game despite the sale of Yamana. He described Yamana as his child, but stressed the importance of not “falling in love” with your business ventures.

“Looking at it (the deal) dispassionately, it became very clear to me and to our board of directors that we can deliver some very impressive value by engaging in a corporate transaction and that makes me happy,” Marrone said.

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