Marrone is no stranger to acquisitions having initially built Yamana through M&A into a $5 billion company, but he also recognises how some recent transactions such as Barrick Gold and Randgold Resources, and Equinox Gold and Leagold Mining, have created value above the sum of the parts.
"The business combination between Randgold and Barrick perhaps was counter intuitive as one company had a larger scale and much larger production than the other, but it delivered significant results. We have demonstrated we are a consolidator and would be interested where value gets created, but we can afford to be patient and disciplined," he said.
With Yamana trading just under its 52-week high at C$7.96, Marrone believes the company still has room to increase its share price through organic growth of the reserves and resources at its current operations and that it lags some of its peers on valuation metrics. "We have been able to demonstrate we have extensions to the mine life at almost all our mines which implies we have more net asset value and therefore we are trading at a lower multiple than we should be," he said
Listing in London is part of the process of drawing new investors to the stock. "As the investment pools of resources funds has decreased in recent years we have had to look to new markets for investors and came to the conclusion that there are significant pools of funds in London that through mandates require a local listing," Marrone said.
With gold and silver prices continuing to increase, Yamana is generating more cash which it is using to strengthen its balance sheet and fund its dividend policy. A key aspect of the latter is a reserve fund, which is now fully funded, so that the company can maintain dividend payments for at least three years and which will allow the company to increase its dividend. The dividend is currently C6.25c per share.
"We paid our first dividend in late 2006 and since then have paid out $940 million in dividends, among the best of our peer group. More recently we have increased the dividend by more than 213%. On a per ounce basis, we are looking to pay out $50-100/oz in dividends and today we are about $65/oz, so that implies there is significant upside," Marrone said.
"We are getting exceptional successes in finding new resources at almost all our operations and we are looking to grow reserves through the drill bit, not by changing the price assumption"
Yamana generated $735 million in EBITDA and $600 million in cash flow in 2019 when the gold price averaged $1,400/oz. As running the business takes $90-110 million a year and every US$100 per ounce increase in the gold price generates $100 million more in EBITDA for Yamana its free cash flow continues to improve, with about $320 in cash on its balance sheet at the end of the first quarter, more than enough to take the next big bite out of its $992 million in debt.
"Our next scheduled payment is $190 million in 2022. Our intention is not to refinance that but pay it down," Marrone said.
One aspect that the increasing gold price will not change is the company's approach to reserve estimation.
"We will not change [the reference price used in reserve calculation]," Marrone said.
"We will maintain the $1,250/oz price assumption, the same level we have used since 2014. Our reserves were estimated at $950/oz in the last cycle while the price was increasing. It sounds counter intuitive, but we only raised it when the market corrected in 2013 and we saw what the new floor was to make a long-term price assumption. We are getting exceptional successes in finding new resources at almost all our operations and we are looking to grow reserves through the drill bit, not by changing the price assumption."
Shares in Yamana Gold are trading at C$7.96.