Yamana Gold Inc. YIR-T founder Peter Marrone and the miner’s outgoing CEO Daniel Racine are launching a private equity-style venture, aimed at taking stakes in struggling mining companies with the view to turning them around for a big profit.
The pair, who will joined by a handful of other Yamana executives, plan to invest in early stage gold exploration companies, but the team will also consider taking much bigger bets on companies that already have mines in production.
“If there’s a big whale that comes along, that’s the one,” Mr. Marrone said in interview.
Toronto-based Yamana last year agreed to sell itself to Agnico Eagle Mines Ltd. AEM-T and Pan American Silver Corp. PAAS-T for US$4.8-billion, meaning the Yamana individuals starting the venture will soon be out of a job. While Mr. Marrone said priority number one is making sure the acquisition of Yamana closes next month, he added that he may announce his first investment into a mining exploration company not long after that.
Several well-known Canadian mining executives, including Eric Sprott, Lukas Lundin, Ian Telfer and David Garofalo, have followed the private investment model with varying degrees of success. The billionaire Mr. Sprott, in particular, has had blockbuster returns on some of his investments, including his early bet on Kirkland Lake Gold Ltd., but he’s also had his share of busts, including losing as much as $100-million in Pure Gold Inc. last year.
The Yamana team is entering the private capital market as the mining industry faces additional pressures around funding. Owing to national security concerns, the Canadian government has started to crack down on new investment into the domestic mining sector, particularly from China, thus drying up a key source of traditional funding. The most stark example is Ottawa’s rejection in 2020 of Chinese state-controlled Shandong Gold Mining Co. Ltd.’s efforts to buy TMAC Resources Inc.
Mr. Marrone and other members of the Yamana team will likely hold board seats, management positions or both in the companies they fund, given their investments will be in the range of 10 to 15 per cent. That will give them major influence over the direction of each investment. Mr. Racine in recent years proved himself an adept chief executive officer of Yamana, by successfully paring back its debt and driving up its production.
Mr. Marrone cited Mr. Lundin’s outstanding returns on his early investment into the Fruta del Norte gold mining project in Ecuador as the kind of dream mining investment that he’ll aspire to make. Mr. Lundin, who died last year, invested in the mine at the development stage, when it was trading at a tiny valuation. Fruta del Norte, which went into production in 2020, is now one of the most profitable gold mines in the world, and its valuation has skyrocketed since Mr. Lundin invested.
“It was the elbow grease that really got it to where it got to,” Mr. Marrone said. “It was all the effort in developing it correctly, managing it, and financing it the right way.”
Realizing that returns such as those made by Mr. Lundin on Fruta Del Norte are rare, Mr. Marrone said the team will also look for other opportunities to make more modest but still impressive returns on underperforming assets.
Mr. Marrone said he will be very patient with turnarounds, in an effort to avoid the stumbles that some gold companies have made in recent years by rushing mines into production before they were ready.
He’ll look at introducing technological improvements, cutting costs, or replacing management if need be. He’ll also explore solving the need to constantly raise new money for exploration companies, by potentially doing deals through merging an exploration company with a producer, in the hopes that cash flow from the mine will provide continuous funding for exploration.
Mr. Marrone plans to use his two decades of experience of operating a gold and silver miner in North America and South America to stick to investments in those geographical regions. While not identifying any specific potential investments, he cited Brazil as an example of an attractive mining jurisdiction, where the fiscal rules are particularly stable compared to other foreign mining jurisdictions.