France denies Iamgold Camp Caiman permits

Iamgold (IMG-T, IAG-N) wants to know why the French government has rejected the final permit applications needed to start open pit construction at its Camp Caiman gold project located in the tropical rainforest of French Guiana, a protectorate of France.

The company says that no technical, environmental or legal reason was included in the declaration it received from the president’s office.

Iamgold president and CEO, Joseph Conway, says that before now he had only received positive news from the government and regional officials, even regarding anti-mining groups that opposed the project.

“We are certainly disappointed,” Conway says. “The commentary we’ve been receiving (about anti-mining groups) was, ‘Yes, we understand that, but yes your project meets all the environmental standards.'”

Conway says he’s trying to set up a meeting with the president of France within the next 10 days to find out the reason the applications were denied but if that doesn’t work, the company will take legal action.

“If you go into a country and the rules of the game are established, and you invest on the basis that if you meet those rules that you will have a project … If you change the rules at the end then you have recourse,” Conway says.

But analysts were already questioning the Camp Caiman timeline before the news.

“I delayed the timeline and had been applying a higher discount rate on it because I got the feeling that (the project) wasn’t taking the same kind of degree of significance in the company’s agenda,” says Research Capital analyst Barry Allan.

Tony Lesiak, an anlyst with UBS, says there are many risks to consider for Camp Caiman from political to permitting to construction.

“The market had heavily discounted the true value of the asset to reflect the previous permitting delays,” Lesiak says.

A feasibility study was completed in 2005, estimating that 115,000 oz. gold per year could be produced in the first three years of production, which is expected to last for 7 years.

In November, Iamgold announced that the permits due back that month would be delayed because a delegation of environmental, labour, governmental and commercial interests from France needed to conduct a final visit to French Guiana to ensure that Camp Caiman continued to meet responsible mining practices.

The company had also resubmitted permit applications in December 2006 that addressed concerns raised during the public consultation process. At that time Iamgold estimated the permits would be issued by mid-2007.

Allan, who was surprised about the permit denial, says his downgrade was based on the yesterday’s news of rising costs and lower production for Iamgold. The company forecast that production this year would be 5% lower than planned at 920,000 oz. gold while its cost guidance rose to $470 per oz. from $455 per oz.

“You can kind of get a sense that something might not be going the way you think because projects aren’t profiled with the same vim and vigor and certainly this was one that fell into that category,” Allan says of Camp

Camp Caiman would be the first large-scale mining operation in French Guiana, which is wedged between Suriname and Brazil on the northeastern tip of South America. Mineralization was first discovered in 1996 and since then a various companies have delineated proven and probable reserves of 12.3 million tonnes grading 2.8 grams gold per tonne, for 1.1 million oz. gold.

Conway way estimates that 60 million to 80 million euros ($89 million to $119 million) have been spent on the property over the years and that 15 million euros ($22 million) in trucks and mining equipment are sitting on site.

Iamgold acquired Camp Caiman when it acquired Cambior in 2006. The company has allocated about $3 million to spend on exploration in French Guiana this year, and Conway says that as of now, the company will proceed as planned.

Conway says the French government has urged his ministries to come up with environmental standards that will allow mining to occur, so he feels there is still a chance to bring the project forward.

He says Camp Caiman could spur economic development in French Guiana, which is quite poor, but not everyone believes that it’s the right way to do so.

“Is mining an alternative for economic development? Our suggestion is, of course, that it is and we do have a lot of support for the project,” Conway says.

The protectorate, with a population nearly 500,000 strong, could use a boost of some sort. According to the CIA World Factbook, French Guiana’s a gross domestic product per capita was US$6,000 in 1998.

Allan who has visited French Guiana, says the French government’s rejection of the permits is not unlike what’s been happening in around the world in places such as Ecuador and Mongolia, where the government wants to have more say and tighter control on mining projects.

“French Guiana is a very restricted political environment, there’s no doubt about it,” Allan says. “The French government does put a lot of money into it, they do exert a fair bit of control over it, but I do think it’s a little puzzling for somebody just to come out and say no there were no particular reasons given.”

Iamgold shares fell 12% or $1.10 in Toronto today, to $8 each, on a trading volume of more than 7 million shares.