France denies Iamgold permits

The government of France has rejected the final permit applications needed to start open-pit construction at Iamgold’s (IMG-T, IAG-N) Camp Caiman gold project, in French Guiana, a protectorate of France.

The company says that the president’s office gave no technical, environmental or legal reason for denying the permits for Camp Caiman, its most advanced development project.

Iamgold president and CEO, Joseph Conway, says that until now, he had only received positive news from the government and regional officials about the project’s standing.

“We aren’t completely sure what has happened,” Conway says. “We’ve engaged with anti-mining groups. . . We’ve addressed their issues within the context of the World Bank standards.”

Conway says the government verified that Iamgold met all the environmental standards for the project, which is located in the Amazon jungle.

“We are certainly disappointed,” he says.

Conway says he’s trying to set up a meeting with the president of France, Nicolas Sarkozy, to see if there’s anything the company can do, but Iamgold will take legal action if necessary.

Though surprised by the outright rejection, analysts had already been questioning whether Camp Caiman would reach production by 2010, as the company had forecast.

“I delayed the timeline and had been applying a higher discount rate on (the stock) 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 analyst with UBS, says there are many risks to consider for Camp Caiman from politics 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 completed in 2005 estimated that 115,000 oz. gold per year could be produced for the first three years of the project’s 7- year mine life.

In November, Iamgold announced that the permits it expected to be granted that month would be delayed because a delegation of environmental, labour, governmental and commercial interests from France needed to conduct a final visit to the project to ensure that it continued to meet responsible mining standards.

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, allowing production to begin.

Allan, who was surprised the final permit was denied, says his downgrade was based on earlier 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 US$470 per oz. from US$455.

“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 vigour, and certainly (Camp Caiman) was one that fell into that category,” Allan says.

The project 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 at Camp Caiman in 1996. Since then, proven and probable reserves of 12.3 million tonnes grading 2.8 grams gold per tonne, for 1.1 million oz. gold, have been delineated.

Conway estimates that 60-80 million euros ($89-119 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 bought Cambior in 2006. The company has allocated about $3 million of its $87.3-million budget to spend on exploration in French Guiana this year. Conway says the company will proceed as planned.

He adds that the French government has urged its ministries to come up with environmental standards that will allow mining so 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 of 202,000, could use a boost of some sort. According to the CIA World Factbook, in 1998, French Guiana’s per capita gross domestic product was US$6,000. About 24% of the population is employed directly, or indirectly through Europe’s Kourou spaceport, which is the main industry, followed by forestry and fishing.

Allan says the French government’s rejection of the permits is not unlike what’s been happening around the world in places such as Ecuador and Mongolia, where the government wants to have more say and tighter control over 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 tocome out and say no. . . There were no particular reasons given.”