Miner moves past deals
ANDY HOFFMAN
00:00 EDT Thursday, March 22, 2007
globeinvestor.com
Peter Marrone has shown everyone he can make a deal. Now he's out to prove he can build and operate a fast-growing, profitable gold producer.
In the past, the head of Yamana Gold Inc. used a series of rapid-fire acquisitions to increase the size of his company. The former corporate lawyer and investment banker pulled off a triumvirate of deals last year worth $1.2-billion (U.S.), buying RNC Gold Inc. in February, Desert Sun Mining Corp. in April and Viceroy Exploration Ltd. in October.
Yet Mr. Marrone says his main focus these days is achieving Yamana's goal of producing more than one million ounces of bullion by 2008, up from 283,460 ounces in 2006 and a forecast of up to 650,000 ounces in 2007. And while future acquisitions may play a part in realizing that objective, the president and chief executive officer of the Toronto-based company is counting on a mine in Brazil that recently began commercial production, as well as a promising development project in Argentina, to do much of the work.
"Contrary to popular view, I'm not a deal junkie," he said in an interview.
Still, the aggressive acquisition strategy has paid off so far. Yamana shares increased 77 per cent over the past year, and just 3½ years after going public, the company has a market value of more than $5.8-billion (Canadian).
Key to future success is the flagship Chapada mine in Brazil. Mr. Marrone hopes to persuade the market that the gold and copper operation is, as he refers to it, "a big fat cash cow."
Since Chapada started commercial production Feb. 12, Yamana said it has shipped more than 15,000 tonnes of copper and gold concentrate with an approximate value of $29.8-million (U.S.) from the site. The company said it expects to ship 40,400 tonnes of concentrate containing approximately 24.7 million pounds of copper and 34,500 ounces of gold during its first quarter which ends March 31.
It hopes Chapada will produce between 180,000 and 205,000 ounces of gold and between 130 million and 145 million pounds of copper this year. With costs of producing copper of 57 cents a pound, Yamana is estimating cash costs of $140 an ounce of gold for the first five years of the mine's life.
Analysts say Yamana must prove it can efficiently operate the Chapada mine, which contains approximately 5.2 million ounces gold and about 2.3 billion pounds of copper.
"They've got to deliver on Chapada, or the whole thing starts to unravel. Because the rest of it is just lots of rats and mice that they've just cobbled together. In order for this thing to work and be worth what it's trading for, you have to have Chapada up and running as you promised the market," said Victor Flores, a long-time gold analyst with HSBC Securities in New York, who does not formally cover Yamana.
The company now has a stable of six operating mines and four development projects including the Gualcamayo project in Argentina.
Although it has yet to receive all of its necessary permits, Yamana has already begun some construction at Gualcamayo and is expecting the mine to be in production by the middle of 2008. It is hoping to produce about 200,000 ounces of gold a year from the operation.
As well, Mr. Marrone said that Yamana now has the scale needed for significant exploration work, and will spend $32-million looking for gold in Brazil, Argentina and Central America this year.
That's not to say there won't be more acquisitions. Yamana is now considering assets outside of its home base of South America.
Unlike the "sex appeal" created by acquisitions, Mr. Marrone said he considers operations and exploration activities an integral part of building Yamana's "personality."
"While it hasn't been as sexy to talk about, I think it's becoming apparent that that's been a focus of mine. To be truthful, I've actually enjoyed it. We've gone from 12 employees at this company to 3,700."
"If I sound animated or passionate, it's because that part has driven me and excites me as much as being able to say look at the deals that we've done."
Yamana Gold
Q4 2006 2005
Profit (Loss) $6.1-million ($73,000)
EPS 2¢ nil
Revenue $60-million $16.7-million
FIGURES IN U.S. DOLLARS
SOURCE: COMPANY REPORTS |
