Iamgold bids for Cambior (September 25, 2006)

A friendly deal between Iamgold (IMG-T, IAG-N, IGD-A) and Cambior (CBJ-T, CBJ-X) would see Iamgold take over the Montreal-based gold miner in a paper deal valued at $1.3 billion to form a gold company with assets in South America, western Africa, and Canada.

Iamgold is offering to trade 0.42 of a share for one share of Cambior, a bid that notionally valued Cambior at $4.83 per share using closing prices before the deal was announced. Cambior shareholders would hold about 43% of the company, and Iamgold has agreed to put two Cambior representatives on its board of directors.

The bid placed a 31% premium on Cambior shares based on closing prices, or 33% based on Cambior’s 20-day average of $3.63. At presstime, Iamgold was trading at $9.97 and Cambior at $4.14. The notional offer was $4.19 per share, or about $1.2 billion, the drop in Iamgold shares having cut the premium to about 15%.

Discussions on the merger started in April, at a time when Cambior management was looking for possible bidders. The agreement is unconditional and the two companies have already finished due-diligence investigations. Cambior president Louis Gignac told a conference call that there had initially been a choice between a merger with a comparably sized company or a sale to a large gold producer, and the Iamgold merger won out between three competing proposals.

Iamgold has the right to match any competing offer for Cambior, and if the deal falls through, Cambior would owe a break fee of $45 million. Cambior shareholders are to vote on the plan, which will need 75% approval, at a meeting scheduled for early November, and a closing is scheduled for late November.

“There’s a fairly short fuse on this,” said Iamgold president Joseph Conway.

Iamgold had long been seeking a merger partner. Lately, its strategy has been to acquire operating assets, which is the point of the Cambior bid. “One of the critical things we were missing was operatorship,” Conway said.

The result is that Cambior will largely remain as is in the merged company; “In essence, the entire Cambior team will stay intact,” he said.

The merged company would have annual production of 1.1 million oz. gold, and a production profile scheduled to rise slightly over the next four years as three projects come on-stream: Iamgold’s Buckreef mine in Tanzania and Quimsacocha project in Ecuador, and Cambior’s Camp Caiman project in French Guiana. The companies predicted cash costs in the US$330 range over the same period.

The two have comparable resource bases, and the combined company would have 9.7 million oz. of reserves, 11.1 million oz. in measured and indicated resources, and 8.1 million oz. in inferred resources.

“A lot of those (resource) ounces are on projects that are already up and running,” said Conway, suggesting that they will be more readily converted to reserves.

Iamgold, which took on a 238,000-oz. hedge book when it took over Australian-based Gallery Gold earlier this year, would also take on a vestigial 119,000-oz. hedge position held by Cambior as a consequence of its restructuring. In aggregate, the hedge book is priced around US$380 per oz.; the Cambior contracts expire in 2007 and the Gallery contracts by the end of 2009.

The merged company would also have about US$211 million in cash, including US$91 million in gold held by Iamgold and US$18 million in cash from Cambior. There would be about US$60 million in debt. Cambior has two warrant series outstanding, one of which would bring in $75 million (US$67 million) and the other, $64 million (US$57 million) if fully exercised.

“We do not anticipate . . . doing an equity issue,” Conway said. “We will have more than sufficient capital.”

Another source of cash would be the pending sale of Omai Bauxite, a Guyanese aluminum project in which Cambior holds a 70% interest and the Guyanese government the remaining 30%. Cambior said in June that it was soliciting offers from the aluminum industry to take over its share of the business. Cambior’s most recent balance sheet values Omai Bauxite and the Niobec niobium mine in Quebec — its two non-gold assets — together at US$191.4 million, but Conway told a conference call that he “would see no reason to spin (Niobec) off.”

Cambior made US$16.2 million on revenue of US$189.2 million

in the first half of 2006, while Iamgold made US$49.7 million on revenue of US$113.3 million in the same period.