Gold Fields cuts deal with Iamgold

Gold Fields (GFI-N, GFI-J) wants as much control over its key mining assets as it can get, and is buying Iamgold‘s (IMG-T, IAG-N) minority stake in a project in Ghana.

Gold Fields has agreed to acquire Iamgold’s 18.9% stake in the Tarkwa and Damang gold mines for US$667 million in cash – taking Gold Fields’ interest up to 90% from 71.1%. The Ghanaian government holds the remaining 10%.

While the acquisition still requires shareholders’ approval, Gold Fields says it expects to have the deal closed by late July.

“The two most important guiding principles of our strategy are to grow our free cash flow by growing our margin per ounce and by increasing ounces produced on a per share basis,” Nick Holland, Gold Fields’ CEO, said in a statement. “This transaction meets those requirements.”

With nearly two decades of mining experience in West Africa, Gold Fields says it is more than comfortable taking a firmer hold of the reins at Tarkwa. And with the deal being accretive to Gold Fields’ shareholders on a per-share basis, the decision was made all the easier.

By taking out Iamgold’s stake, Gold Fields adds another 181,000 oz. of annual production at a cash cost of US$540 per oz. to its current 3.6 million gold-equivalent oz. of production per year.

The company has a goal of reaching a production base of 5 million oz. – composed of either in-production or in-development – by 2015.

By making the acquisition Gold Fields would gain an extra 2.14 million reserve oz. at a cost of roughly US$300 per oz. and another 3.27 million resource oz. at a cost of US$198 per oz.

Beyond those resources, Gold Fields says there is a significant resource and reserve upside potential, especially at the Damang mine.

Strategically, the move furthers the company’s recent tidying up of its assets. Holland stated the company wants to own 100% of the assets in its portfolio wherever possible.

Iamgold says it has a similar strategy, and sold its interest in the project precisely because it was the minority owner.

“This sale is the first of several strategic initiatives to create value for our shareholders,” Steve Letwin, Iamgold’s president and CEO, said in a statement. “We cannot fully leverage our skills and experience in developing and operating mines if we are not the operator and have a minority interest in the mine.”

Once the deal is finalized, Iamgold would have more than US$1 billion in cash, cash equivalents and gold bullion. The company also has a $350-million undrawn credit facility in place, giving it financial flexibility.

Dan Rollins, an analyst with UBS Investment Research, said in a research note that the deal shows that Letwin is following through on his plans for the company, “…which should give the market further comfort on his ability to execute on future objectives,” he wrote. “Next on the list is a potential sale of a 10% interest in Niobec (a niobium mine in Quebec) for between $100 and $150 million by June.”

For Gold Fields the move comes on the heels of its announcement in late March that it was looking to acquire the remaining 19% of the Peruvian company Gold Fields La Cima that it didn’t already hold.

La Cima holds the Cerro Corona gold-copper project, and Gold Fields offered US$1.48 in cash for each La Cima share. If completed, the acquisition would cost Gold Fields US$420 million.

Cerro Corona is in Peru’s Cajamarca district and has gold-equivalent reserves of 5.3 million oz. The mine has been in production since 2008 and produces about 400,000 gold-equivalent oz. a year.

The additional 19% interest would add 1 million oz. of long-life and low-cost reserves and another 76,000 gold-equivalent oz. of production a year.

Gold Fields currently has eight operating mines in Australia, Ghana, Peru and South Africa.

The company also has four major projects in resource development and feasibility, with construction decisions expected in the next 18 to 24 months.

In New York on April 15 – the day the news was released – the company’s shares were off 9¢ at US$17.88 on 2.7 million shares traded. In Toronto, Iamgold shares were off $1.83 or 9% at $19.27 on 4.9 million shares traded.