Iamgold bids for Euro Ressources

In a move to cut cash costs, mid-tier gold producer Iamgold (IMG-T, IAG-N) is making a cash bid for Euro Ressources (EUR-T, EUR-E), a Paris-based company focused on precious-metal royalties.

The acquisition would eliminate Iamgold’s royalty obligation to Euro on its Rosebel mine, effectively driving down cash costs at the mine by about US$50 per oz.

Euro has a participation right royalty on production from the Rosebel mine in the Republic of Suriname that gives it payments of 10% of the gold price above US$300 per oz. for production from soft rock and above US$350 per oz. for production from hard rock.

In the first six months of this year, Euro received royalty revenues of 6 million (US$9.2 million).

Under the offer, shareholders of Euro would receive 1.20 per share in cash, a 30% premium over the company’s closing price on Euronext on August 28. The offer also represents a 27% premium on Euro’s one-month weighted average share price.

The offer is conditional on Iamgold holding more than 50% of Euro’s total diluted shares, including the 4.9% shares in Euro that Iamgold currently holds.

Iamgold management argues the offer makes sense for Euro as it offers liquidity to shareholders and eliminates “the potential risks of holding shares in what is effectively a single asset company,” Iamgold stated in a press release.

According to Iamgold, as of June 30, Euro had cash of less than 100,000 (US$156,000), debt and deferred settlements of 2.7 million (US$4.2 million), and a hedge position of 22,800 oz. gold at a gold price of US$458.50 per oz.

The deal would offer Euro shareholders an opportunity to “crystallize value now rather than retain an interest in an entity with Euro’s financial position and asset base,” Iamgold’s president and chief executive, Joseph Conway, commented in a prepared statement.

Last year Rosabel produced 276,000 oz. gold. Iamgold’s share was 263,000 oz. gold produced at a cash cost of US$452 per oz. Attributable production this year is forecast to be about 254,000 oz.

In February, Iamgold started a US$18.4 million mill expansion project at the mine that would increase annual life-of-mine production from about 275,000 oz. to roughly 300,000-305,000 oz. and reduce direct cash costs by about US$35 per oz. gold.

The expansion would lift mill throughput from 8 million tonnes of ore per year to 8.9 million tonnes and provide the option of an extra 15%-25% increase, the company writes on its website.

At the end of 2006, proven and probable reserves at Rosabel were pegged at 3.8 million oz. goldenough to sustain a mine for twelve years.

As for Euro, in addition to the Rosabel royalty, the company owns the Paul Isnard gold producing property in French Guinea, according to its website.

It recently entered into a transaction with Golden Star Resources (GSC-T, GSS-X), a gold company with two producing mines in Ghana, which will acquire ownership in exchange for a 10% royalty interest payable to Euro. The royalty would be payable on average gold prices above US$400 per oz.

In mid-day trading in Toronto, Euro’s shares were up 4 apiece, or 28.6%, to C$1.80. The stock has a 52-week trading range of 92-$1.90.

The news also sent Iamgold’s shares up 10 apiece, or 1.5%, to C$6.91. The gold producer has a 52-week trading band of $5.10-$10.25.

Currently Iamgold produces about 1 million oz. gold a year from eight different operations stretching across North America, South America and Africa.