By Tom Bradley

It was announced this week that Yamana Gold is buying Extorre Gold Mines for $395 million.

Yamana is one of the power houses in the mining industry, while Extorre is a smaller company that’s struggling to finance and develop a large silver mine in Argentina.

This deal reinforces what we’ve been saying (since 2009) about the balance of power between the strong, well-financed companies and the weaker players. To quote yesterday’s Globe and Mail’s article, “The deal highlights a dichotomy in the mining industry currently. Well-capitalized companies with projects up and running can readily exploit opportunities at a time when development companies have seen their access to financing eroded ...”

The article goes further to say, “Companies like Yamana that are already producing gold are cash-rich and have easy access to credit ... while companies like Extorre struggle to finance development on reasonable terms.”

In these turbulent and uncertain times, strong and weak companies are all being painted with the same brush (i.e. their stock prices are down). It could be argued, however, that the market position and long-term value of the leading players is being enhanced by the current turmoil. It’s a great time for the strong to get stronger.