Peter Marrone, executive chairman and founder of Yamana Gold (TSX: YRI; NYSE: AUY; LSE: AUY), shared his views on the company’s ‘generational’ strategy and assets — mines with several decades of mine life — in a keynote interview at The Northern Miner’s recent Global Mining Symposium.
Marrone, who set up the company in 2003, noted that Yamana, which has five producing mines spread across Argentina, Chile, Brazil and Canada, has proportionally more generational mines than many of its peers and the number of generational mines its portfolio is disproportionate to its size.
“Generational means that we’re there for an extended period time,” he said. “Nothing is ever perfect running a mine. There are always hiccups. And so the longer the life of the asset, the more we can deliver returns and the more we can absorb ‘briar patches.’”
“It gives us the luxury—it affords us the comfort, of being able to say that we have a de-risked company because we don’t have to worry about buying something, we don’t have to worry about developing something new. We don’t have to worry about something coming to the end of its mine life. And God forbid should there be a briar patch period, we can absorb that briar patch period and move on from there.”
Marrone noted that of Yamana’s five operating mines — Cerro Moro in Argentina, El Penon and Minera Florida in northern Chile, Jacobina in Brazil, and the Canadian Malartic mine in Canada, which it co-owns with Agnico Eagle Mines (TSX: AEM; NYSE: AEM), three are generational: Canadian Malartic, Jacobina and El Penon.
Canadian Malartic, in which Yamana acquired a 50% stake in 2014, entered production as an open pit operation in 2011, and will remain in production until at least 2040 based on the underground mine now in development, Marrone said.
“It is Canada’s largest open pit mine and will continue to be there for many, many years to come,” he said. “We come to the end of the mine life in late 2027 or early 2028. But what’s happened since 2014 is we’ve made three discoveries underground, that cumulatively come to just over 14 million ounces at an average grade of 2.5 grams per tonne. These are big ore bodies.”
Yamana and partner Agnico Eagle made a construction decision on the underground mine at Malartic in February. Yamana’s portion of the capex is about $650 million, which will be spent over a roughly seven-year horizon as that project comes into production, Marrone said. The underground mine, some areas of which will be accessed by ramp and some by shaft, is expected to be in full production from 2029 until at least 2039, and produce about 500,000 to 600,000 oz. gold a year.
Much of Yamana’s portion of the capex will be funded by cash flow. “It doesn’t cost us very much — in the range of C$60 to C$80 million per year — for the development of a mine that will be producing 550,000 ounces per year and that will extend at least until 2040 and likely substantially longer than that.”
Marrone also pointed out that not only will the underground mine at Malartic rank as Canada’s largest underground mine once in production, but it also will be highly automated, with electric-powered mobile equipment including trucks, scoops, trams, long-haul drill rigs that can be remotely operated from surface on a 24-hour basis, which means more flexibility and less downtime. Other technology such as on demand ventilation and state-of-the-art analytics are also being looked at.
There is also upside at the underground portions of Malartic, and Marrone noted that they “haven’t touched the bottom of the mineralization yet” and they are already at a depth of about 1.5 kilometres.
Yamana’s Jacobina mine in Brazil, another cash flow generator and generational mine, has more than doubled annual production since 2014 from 75,000 oz. gold to nearly 180,000 oz., and the company is advancing the second phase of expansion at the mine to increase production to 230,000 ounces. A third phase expansion to 270,000 oz. is being evaluated.
“Jacobina has been in production for many, many decades, well before we assumed ownership of it in 2006, but it was production that was done by other companies,” he said. “Its longest production before ours was with AngloGold, and it was being operated with small equipment. And with comparatively low budgets in the course of that period from 2006 until 2014, we’ve been conducting exploration campaigns and trying to get the mine right from 2014 onward. I think that’s the important point to consider here. In the 2014-2015 blueprint we were producing under 80,000 ounces per year at this mine. But it always appeared to us that it had the prospectivity to do more.”
Marrone noted that Jacobina is a conglomerate structure very similar to what one sees in West Africa, and is very unique to the Americas. “To be that type of mine it is a complex of mines. Presently, four mines, likely five mines very soon, with a common plant. And so we have considerable mine faces and mine workings and tonnage is not really an issue.”
Yamana has completed its phase one expansion at the plant, which is now producing at about 7,000 tonnes per day, and the phase two expansion will take the plant to 8,500 tonnes per day. The phase three expansion under consideration would take throughput to 10,000 tonnes per day.
“If we look at its proven and probable reserves alone, based on phase one and moving into phase two at 230,000 ounces per year, we’re already very comfortable saying that we’ve got a couple of decades of mine life. It has become a generational, low-cost [AISCs between US$750 and US$800 per oz.], high-quality and high ounce producing mine in Brazil.”
Yamana’s third generational mine is El Penon in Chile, which has a reserve life index that has never exceeded eight years, yet which has been in production for 22 years. Marrone estimates this mine has at least ten years of mine life in front of it, and with more exploration is likely to contain more ounces.
In terms of ‘generational’ projects, Marrone said its 56.25%-owned MARA copper-gold-molybendum project in Argentina fits into that category, as it is forecast to have a throughput of 115,000 tonnes per day and produce more than 500 million lb. copper a year for roughly thirty years. Yamana is close to completing a feasibility study and is the operator. It is currently in the permitting phase.
Yamana is weighing how it wishes to proceed, that is, whether it want to develop it with its partners and receive its portion of copper production (about 260 million lb. of copper every year), or does it want to bring in another partner.
Marrone also talked about Yamana’s decision in July to build its 100%-owned Wasamac project in Quebec, which it acquired earlier this year, and is a big part of the company’s regional growth strategy in Quebec.
Wasamac, which sits about 100 km west of Canadian Malartic, has reserves of 1.91 million oz. of gold at a grade of 2.56 grams per tonne, and will produce about 169,000 oz. of gold a year over a 10-year mine life, including 200,000 oz. per year in the first four years. Initial capex of C$416 million is low for a 7,000 tonne-per-day underground operation and cash costs would be $640 an oz. and all-in-sustaining costs would total $828 per ounce.
“We have a comparatively shallow underground mine — it’s a shear zone — and is no deeper than about 850 metres so we will have rapid access to the ore body; this is not a shaft, long-hole stoping operation,” Marrone said. “And if you look at the AISCs, we expect it to be in the low- to mid-$800s, and that would be well below the average in the industry.”
Marrone also noted that the goal is through near-mine exploration and exploration on its greater land package to extend Wasamac’s mine life to at least fifteen years. The company recently acquired three other gold deposits within 6 km of Wasamac’s planned mill.
Marrone also touched on other themes, including the company’s approach to cash returns. Yamana increased its dividend by nearly 15% to C12¢ per share in July — the sixth time it has raised dividends since the second quarter of 2019.
Marrone noted that at Yamana, dividends are given equal importance to growth (finding new ounces) and maintaining a robust balance sheet.
“While we don’t have a strict policy that says: ‘this is what we will do with our cash payouts,’ what we’ve said is that since everything in our industry is measured on a per ounce basis, let’s treat a dividend on a per ounce basis. Since we produce a million ounces, it’s easy math. We were paying C$100 million in dividends — that’s C$100 per oz.—and we increased it to C$120 per oz. or C12¢ per share.”
Asked for his forecast on where gold prices are headed, Marrone joked that he was neither “comfortable or smart enough to be able to predict where gold prices are going, and certainly not within a timeframe,” but added, “certainly I believe they are going higher.”
“I’m a believer in cycles and the forever nature of cycles and I don’t think that we’ve seen the top of the cycle,” he said. “And if we look at all the indicators that are good for the gold price, those indicators are still there, notwithstanding what the central banks are telling us…I certainly think gold is going back to above $2,000 an ounce.”
In terms of whether consolidation in the gold sector is needed, Marrone described the industry as fragmented and would benefit from further consolidation.
“It is an industry with a cumulative market capitalization that can’t be more than C$300 billion,” he said. “I’m not current but that’s got to be what the size of probably close to one-eighth of one of the large technology companies like Apple or Google is, or one of those tech behemoths. So it’s not a big industry and it seems to me that some consolidation, with an industry that has so many companies, thousands of companies and such a small market capitalization, does make sense.”
But for consolidation to occur “it has to make sense” he cautioned. “It has to be smart and when is it smart? It’s smart when there is synergy, and that’s pretty rare to find … and it’s also smart when it delivers a return on investment.”
(This article first appeared in The Northern Miner)