RTGAM
PAV JORDAN
Mid-tier Canadian gold miner Iamgold Corp. will leapfrog into the ranks of top-tier producers with the acquisition of a little-known Ontario exploration company.
Iamgold announced the deal on Friday to acquire Trelawney Mining and Exploration Inc. for $608-million as it pursues a goal to double production in five years and mitigate risk in a portfolio that is Africa-heavy.
"The acquisition of Trelawney creates a larger and more geographically balanced portfolio of long-life gold assets for Iamgold," said Steve Letwin, the company's chief executive officer.
He said Trelawney's Cote Lake gold deposit could be a mine within five years, producing as much as 500,000 ounces of gold a year as an open pit, bulk tonnage mine.
"It will produce from 400,000 ounces to 500,000 ounces a year and will moves us to the 1.5 million-ounce to 1.6 million-ounce range," Mr. Letwin said in an interview.
The all-cash acquisition occurs at a time when junior gold companies have seen their equity valuations beaten down by investors who have shirked the sector for less risky, higher-yield assets. Iamgold paid $3.30 a share for Trelawney, a 37 per cent premium to recent trading activity but a far cry from its year-ago high of nearly $6 a share.
Gold company valuations have become disconnected from near-record prices for gold in recent years, hurt also as investors sought exposure to precious metals through exchange-traded funds rather than through the companies that mine them.
Trelawney's Cote Lake gold deposit in northern Ontario is practically in Iamgold's backyard, just a few hundred kilometers to the north, but it's a few thousand miles away from key producing assets in South America and in Africa, where mines in Mali and Burkina Faso account for half the company's output.
Mr. Letwin, who is regularly accompanied by bodyguards while in Africa, has been looking to diversify the company's portfolio at a time when a separatist mutiny in Mali left half the country in the hands of rebels and Muslim extremists, fuelled by weapons from Libya.
The company has not reported any impact on projects in Mali.
Iamgold is funding the purchase - which cost it $500-million after discounting some $100-million on Trelawney's balance sheet - with cash on hand.
Mr. Letwin would not say how much it would cost to develop the project, but analysts say it would be in the $1-billion range.
