Believing gold to be significantly undervalued, junior producer
The company, which holds non-operating interests in the Sadiola Hill and Yatela mines in western Mali, both of which are operated by
The move is being made, in part, to appeal to “gold bug” retail investors and to institutions that may be looking to protect assets against possible pressure on the U.S. dollar. The current policies of the U.S. Federal Reserve Bank, which has been increasing the money supply to offset recessionary trends in the American economy, are widely seen as a source of weakness in the greenback once the economy turns.
At the close of the third quarter, Iamgold had US$33.5 million in cash, US$6.4 million in inventory, and US$9.8 million in receivables, including gold. The US$9 million converted to cash so far represents about a fifth of Iamgold’s unrestricted current assets.
The company plans to keep about one month’s operating expenses in cash, and to convert the remaining cash reserves into gold gradually.
Most of the gold the company buys will be kept in allocated accounts, where the bank effectively operates as custodian of the gold. A limited amount may go into unallocated accounts, which the bank circulates as deposited gold. Generally banks can lend out up to 80% of the unallocated gold they hold on deposit.
Iamgold’s president, Todd Bruce, says the cost of maintaining an allocated account was minimal (the account now receiving Iamgold’s metal purchases charges 0.3% annually). He compares the charges to the cost of currency volatility and says that with present low interest rates on cash deposits, the costs of remaining with a long physical position in gold were small, around 2%.
Iamgold owns 38% of Sadiola Hill and 40% of Yatela, identical interests to AngloGold’s. Iamgold receives its cash flow from the mines in U.S. dollars, and this will not change under the new policy; the company will not be taking its gold directly from the Malian operations. Bruce says the Malian government, which owns an 18% interest in Sadiola and a 20% interest in Yatela, is obliged by law to ensure the maximum return to public revenue from the Sadiola operation. That forces Sadiola to sell production on the open market and pay dividends to the joint-venture partners in cash.
Bruce adds that the company would buy gold on the open market with its share of the dividends from Sadiola and Yatela, and that he does not expect transaction costs for those purchases to be steep.
A part of the Sadiola production is hedged, partly to satisfy requirements of original project loans. AngloGold and Iamgold closed out a large part of the project’s hedge book in 2001, and the last of the mine’s forward sales should be closed out no later than June.
The company recently declared a 5-per-share dividend with a record date of Dec. 24. The dividend will be payable on Jan. 25.
Iamgold plans to offer shareholders the choice of taking any future dividends in gold or in Canadian dollars.
Shareholders that elect to take gold either will receive chartered-bank gold certificates or can have the company deposit funds into an online gold account. The mechanics of that arrangement are still being worked out, but Iamgold expects it to be in place for the next dividend.
In a separate development, a court case between Iamgold and junior explorer
Kinbauri brought the action after a failed 1990 merger agreement between it and Iamgold’s private predecessor company. Kinbauri shareholders would have held about a 2% interest in the amalgamated company.
In May 1999, the trial court judged Iamgold’s 1991 refusal to complete the merger to be in breach of the merger agreement. It did not set damages or costs. The Ontario Court of Appeal sustained the trial verdict, and the Supreme Court of Canada refused to hear Iamgold’s subsequent appeal. The damage hearings are expected to continue for two weeks.
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