Yamana Gold sees merit in industry consolidation

Although Yamana Gold CEO Peter Marrone sees merit in industry consolidation, the company will not focus on acquisitions this year, but look at delivering better shareholder value.

NEW YORK (Reuters) - 

Canadian miner Yamana Gold (YRI.TO) is in no hurry to make any acquisitions, although valuations in the sector have fallen from year-ago levels, Chief Executive Peter Marrone said on Wednesday.

"While I'm a proponent of acquisitions, Yamana's focus this year is not on acquisitions," Marrone told the Reuters Global Mining and Steel Summit.

The gold mining company is currently evaluating the shareholder value created by the assets it currently owns and will then determine whether there are assets on the market which could deliver better value to shareholders, said Marrone in a telephone conversation.

Yamana, which has assets in Brazil, Argentina, Chile and Mexico, currently has five development stage projects in the pipeline.

"I continue to believe that there is considerable merit to further consolidation in the industry," said Marrone. "We've not only been a big proponent of it, we've been a principal party in the consolidation side of things."

After shelling out nearly $5 billion in 2007 to take over Meridian Gold and Northern Orion Resources, Marrone put M&A on the back burner last year as soaring gold drove up asset prices and rising oil prices pushed mining costs to record highs.

A year ago, it was very hard to justify any form of acquisition activity, as valuations were rich, capital expenditure costs were high and there was a good chance that costs were likely to move even higher.

"If we look at the landscape this year, then the acquisition cost is substantially below where it was last year," said Marrone, adding that costs are more predictable now and mining equipment is also easier to procure.

Marrone said he was surprised that there hasn't been more M&A activity in the current environment, but said that striking deals sometimes takes longer than anticipated in the sector.

"Everyone will evaluate internally what (assets) they have and then determine whether there is something from an external perspective that could deliver better value to shareholders," said Marrone.

Marrone said he expects junior mining companies to be the first to be scooped up by larger players.

There is a tremendous amount of risk in the world, from a financial and geopolitical point of view, so companies that are single-asset entities face bigger risks and are likely better off being a part of bigger companies, said Marrone.

Yamana is very comfortable operating in the countries where it already has a presence and the company is interested in further expanding its presence in Mexico, said Marrone.

Shares of Yamana closed up 74 cents, or 7.6 percent, at C$10.46 on the Toronto Stock Exchange.

 (Additional reporting by Cameron French in Toronto; Editing by Christian Wiessner) 

© Thomson Reuters 2009 All rights reserved

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