Two of the smaller but richer companies in the gold business,
Iamgold and Repadre, both non-operating companies with minority working interests in large gold mines, had both been on the acquisition trail in recent months. The merger, which has elicited good reactions from analysts following the companies, would create a company with a market capitalization of around $800 million.
The new company would have combined annual production of 450,000 oz. and attributable reserves of 3.4 million oz., with a further 1.7 million oz. in resources. It would have about $125 million in cash and gold bullion.
Both Iamgold and Repadre management said the principal rationale for the merger was the “valuation gap” between their companies and larger, mid-tier gold producers, such as
Joseph Conway, Repadre’s president, points out that the merged company’s production would be similar to Meridian’s and its costs competitive with those of Glamis or Agnico. By most measures, the market is giving Iamgold and Repadre lower values per reserve ounce, per production ounce, and per dollar of cash flow or net asset value.
The hope is that the combined company would gain a higher market profile, and that its shares would be more liquid. (Liquidity has been a particular problem for Iamgold, whose co-chairmen, William Pugliese and Mark Nathanson, hold about 26% of the stock.)
Todd Bruce, Iamgold’s chief operating officer, said the merged company would look for additional acquisitions but had no definite targets in mind. While both companies have significant regional strength in West Africa, Bruce said they would consider opportunities anywhere.
Iamgold’s main assets are in western Mali: the Sadiola Hill mine, where it holds a 38% interest, and the Yatela mine, where it holds 40%. Both are operated by
During the nine months up to the end of September, Sadiola poured 354,000 oz. gold at a total cash cost of US$161 per oz., and Yatela had produced 197,000 oz. at US$147 per oz. Iamgold’s share of production was 213,000 oz.
In the third quarter, Iamgold made US$2.6 million (or US3 per share) on revenues of US$24.5 million. This was down from US$2.9 million in net earnings for the corresponding quarter of 2001, when revenues were US$21.6 million. Increased mining costs and exploration expenditures accounted for most of the decline in profits. Sadiola began milling sulphide material, which increased cash costs to US$187 per oz. in the quarter.
The increase in exploration expenditures reflected a shift in the timing of exploration work to the latter half of the year. The year’s exploration budget is still expected to clock in at US$5 million.
For the nine months ended Sept. 30, Iamgold is showing a US$7.9-million profit (US10 per share) on revenues of US$65.1 million.
Iamgold had US$17.3 million in cash and US$30.5 million in gold bullion at the end of September. Iamgold’s Bruce says the merged company would maintain Iamgold’s policy of holding a large part of discretionary cash in gold. The rising gold price has brought the company US$995,000 in additional earnings in the first nine months of 2002.
Tarkwa-Damang
Repadre’s chief holding is an 18.9% stake in the Tarkwa-Damang property in central Ghana, where
Tarkwa has a reserve of 150.7 million tonnes grading 1.4 grams gold per tonne, and Damang, 20.7 million tonnes at an average of 1.8 grams. A feasibility study on a mill expansion for the Tarkwa-Damang complex is expected by year-end. The operations are currently contract-mined, and Gold Fields has proposed owner-mining.
As well as a portfolio of royalties in Canada and Latin America, Repadre owns a 1% royalty on production from the Diavik diamond mine of
Repadre has not yet released its third-quarter results, but, at the end of the first half of 2002, it was showing net earnings of $6 million on revenues of $8.1 million. In the first half of 2001, it made $2.8 million on revenues of $4.6 million.
At the end of June, Repadre had $46.4 million in current assets, including $43.8 million cash and $684,000 in bullion.
Non-hedgers
Both companies are non-hedgers, though Sadiola has a 75,000-oz. position in call options, exercisable at an average of US$385 per oz. The book had a negative mark-to-market value of US$400,000 at the end of September.
The companies’ merger agreement includes a due-diligence period ending on Nov. 29, and Repadre shareholders would be presented with a merger proposal at a special meeting in January. Holding company Dundee Bancorp, which holds a 16.6% interest in Repadre, has already agreed to vote in favour of the merger. Iamgold does not need shareholder approval for the deal.
Conway
Repadre’s Conway would take over as president and chief executive officer of the combined company, with Bruce, Iamgold’s chief operating officer, remaining in his present capacity. Iamgold’s co-chairmen, Pugliese and Nathanson, would become co-chairmen of the new company’s board, which three current Repadre directors would join.
The merger will require regulatory approval, and both boards are getting fairness opinions — Iamgold from RBC Dominion Securities and Repadre from Nesbitt Burns. Should the merger not go through, there are reciprocal break fees of $5 million.
Iamgold has applied for a listing on the American Exchange but has not yet received it.
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