Iamgold completes sale of Tarkwa and Damang stake

Flush with US$667 million in cash from the sale of its 18.9% stake in the Tarkwa and Damang projects in Ghana to Gold Fields (GFI-N), Iamgold (IMG-T, IAG-N) could be on the lookout for other acquisitions in West Africa, Canaccord Wealth Management says.   

“With the completion of the deal Iamgold now has US$1.2 billion in cash and could be looking to make an acquisition, particularly in West Africa where it has several working mines,” Canaccord outlined in its June 24 “Morning Coffee” note to clients.

Citing comments from an anonymous “Bay Street analyst,” Canaccord wrote that Keegan Resources (KGN-T, KGN-N) and Orezone Gold (ORE-T) could make sense for Iamgold. Keegan’s Esaase project is fairly close to Iamgold’s operations in Ghana, while Orezone Gold’s Bombore project is in Burkina Faso, a country where Iamgold is already operating.

“If Iamgold were to make a bid for Orezone it would cement their status as the largest employer in Burkina Faso and may give them an advantage in retaining high quality personnel,” Canaccord stated. “Both Keegan and Orezone would be very achievable for Iamgold, as they potentially could be paid for with cash, which would not cause any share price dilution and would still leave IMG with a solid balance sheet.”

The sale of Iamgold’s interest in Tarkwa and Damang in Ghana was part of the mid-tier gold producer’s strategy — unveiled in January — to focus on developing and operating mines that it owns and operates. (Iamgold currently produces about one million ounces of gold a year from six gold mines, including joint ventures, on three continents.)

“Although we have not yet allocated the proceeds of this transaction to a specific purpose, we are focused on initiatives that will generate long-term returns to our shareholders, including expansion plans at our existing mines, completion of the Westwood Project, exploration and accretive bite-sized transactions,” Iamgold’s president and chief executive, Steve Letwin, explained in a prepared statement on June 22.

The same day, Iamgold reported in a separate news release that despite lower gold production in the second quarter, it will increase its annual dividend payment by 150% from 8¢ per share to 20¢ per share.

“The dividend increase reflects the confidence the board and management have in the current and future cash flows for the company,” Letwin said. “We have a superior combination of existing assets, empowered people, a strong balance sheet and attractive expansion opportunities. Our growth outlook is very positive.”

Gold production in the second quarter was “less than expected” and average cash costs were “higher than expected” — impacted by a change in mining sequence at the Rosebel mine in Suriname that resulted in lower than planned gold grade as well as a slower than expected crusher ramp up and some downtime at the Essakane mine in Burkina Faso due to a brief water shortage just before the rainy season, the company explained.

Despite those challenges, however, Gord Stothart, executive vice president and chief operating officer, said the company expects improved production in the second half of the year, which will enable the company to meet its prior production guidance.

Stothart also noted that even with the cost inflation that is hitting the industry across the board (higher prices for fuel, consumables, and labour, as well as higher royalties) and at a conservative gold price assumption of US$1,200 per oz., Iamgold’s projected cash flow from operations combined with its cash position “will fund our significant three-year US$1.2 billion investment to expand production at our existing gold mines and further strengthen our balance sheet.”

At presstime in Toronto Iamgold was trading at $17.78 per share within a 52-week range of $15.82 and $22.79. The company has about 374.96 million shares outstanding.