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UPDATE 3-Iamgold to buy Trelawney Mining for C$608 mln
April 27, 2012 / 11:31 AM / in 5 years

UPDATE 3-Iamgold to buy Trelawney Mining for C$608 mln

* Iamgold offers to pay C$3.30/share for Trelawney

* A 42 pct premium to Trelawney’s closing price on Thursday

* Deal gives Iamgold control of Côté Lake project in Ontario

* Analysts divided on merits of proposed deal for Iamgold

* Iamgold shares close slightly lower; Trelawney shares surge

By Euan Rocha

TORONTO, April 27 (Reuters) - Canadian miner Iamgold Corp said Friday it will buy gold exploration company Trelawney Mining for about C$608 million ($620 million) in cash, in a move aimed at expanding its asset base within a politically safe jurisdiction.

Toronto-based Iamgold, whose largest operations are in Suriname in South America and Burkina Faso in Africa, said the friendly deal offers Trelawney’s shareholders a 42 percent premium and gives Iamgold control of Trelawney’s attractive Côté Lake gold project in northern Ontario.

The acquisition also allows Iamgold to effectively redeploy cash proceeds from the sale of non-core assets into a project that enhances its future production profile.

Last June, Iamgold sold minority interests in the Tarkwa and Damang gold mines in Ghana to Gold Fields Ltd for $667 million in cash. At the time, Iamgold said it intended to use the proceeds to fund exploration and expansion work, along with “accretive bite-sized transactions”.

“We’ve looked at a lot of opportunities over the last year, we’ve kissed a lot of frogs,” said Chief Executive Steve Letwin. “The acquisition of Trelawney Mining deepens our footprint in North America and expands our production pipeline outside of West Africa and South America.”

Although the company said it remains comfortable operating in both Africa and South America, this acquisition will balance out the risk associated with Iamgold’s portfolio, Letwin told a conference call.

Côté Lake, a large-tonnage low-to-medium-grade gold deposit, is believed to hold about 930,000 ounces of gold in the indicated category and 5.9 million ounces of inferred gold.

MIXED REACTION

Bay Street’s reaction to the deal was sharply divided with some analysts cheering the move and others criticizing Iamgold’s choice of target.

“We think Trelawney is an excellent strategic fit in Iamgold’s existing Canadian portfolio,” wrote Bank of America Merrill Lynch analyst Michael Jalonen in a note to clients.

Some analysts backed this view, but others said that Iamgold could have bought something better.

“We believe this is a relatively low-quality project. In this environment, given their large cash position, we believe they were well positioned to acquire a high-quality project,” said TD Securities analyst Steven Green.

“This is a large, low grade deposit which will likely be a large bulk tonnage operation with high capex and operating costs,” Green said in a note to clients. “These are the sort of projects that have been struggling in the current environment due to cost inflation.”

Shares of Iamgold closed 1.3 percent lower at C$12.26 on the Toronto Stock Exchange on Friday, while its U.S.-listed shares closed down less than a percent at $12.53. Trelawney shares closed 41 percent higher at C$3.27.

DEAL DETAILS

Under the terms of the agreement, each Trelawney shareholder will receive C$3.30 in cash for each share held. The transaction price represents a 42 percent premium to Thursday’s closing price on the TSX Venture Exchange.

Net of cash held by Trelawney, Iamgold is paying roughly C$505 million for the company. The deal is expected to close by the end of June, pending regulatory and shareholder approvals.

Iamgold said the transaction has been unanimously approved by the boards of both companies and Trelawney has advised its shareholders to vote in favor of the deal.

Iamgold said its inferred resources will increase by 95 percent and measured and indicated resources will rise by 5 percent after the deal. Iamgold had output from continuing operations of 896,000 ounces of gold in 2011.

Letwin said this deal takes Iamgold a big step closer to its goal of producing between 1.6 million and 1.8 million ounces of gold within five to six years.

“With this proposed acquisition we estimate that we will be producing at the 1.5 to 1.6 million ounce level, which is a more than 70 percent increase from what our current continuing operations produced in 2011,” he said.

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