President and CEO Steve Letwin of Iamgold (TSX: IMG; NYSE: IAG) told the Denver Gold Forum that he is confident the company can soon sell its Niobec mine in Quebec for $500 million after taxes.
“We’ve had this asset for sale aggressively for the last six to twelve months, and I would tell you that my optimism for us being able to sell it is high,” he said, adding that “we should be able to have put this to bed” within the next six months.
The mining executive conceded that Niobec is Iamgold’s “best performing mine” and a “great asset” that throws off $100 million to $110 million annually in earnings before interest, taxes, depreciation and amortization, yet has modest sustaining capital costs of between US$25 million and US$30 million a year.
He said the challenge is that it could cost the company $750 million to extend the mine life beyond the current eight years.
“The niobium market hasn’t grown like we had forecast — that’s because the steel market hasn’t grown like we had forecast,” Letwin explained. “Europe is a disaster, as you know, and China continues to struggle with respect to its economy. If we went along the plan that we had developed in 2011 to expand this mine and triple the production we would go from having a 9% market share to a 32% market share for niobium. That will just not work with the major producer that sits in Brazil and holds 80% of the market share. So we’ve backed away.”
Letwin explained that the sale of Niobec “would change the look of the company and give us the opportunity to potentially change our asset mix to a lower-cost structure.”
David Haughton of BMO Capital Markets commented in a research note that as of June 30, Iamgold’s net debt stood at US$520 million, and noted that “the proceeds from a sale of Niobec could potentially be used to partially repay outstanding debt.”
The underground mine is 200 km north of Quebec City and 25 km northwest of Ville de Saguenay (Chicoutimi). It is one of only three major niobium producers in the world and North America’s only source of pyrochlore, the primary niobium ore.
The deposit was discovered in 1967, and commercial production of niobium pentoxide concentrates started in 1976.
During the first 18 years of operation, production was shipped as concentrate to firms in Europe, India, Japan and the U.S., and sold to intermediate processors for conversion into ferroniobium.
Ferroniobium has been produced at the mine site since 1994, and is marketed to the steel industry.
Ferroniobium is used by steel and specialty metals manufacturers as an alloy to enhance the physical, mechanical, chemical and thermal properties of steel products. Steel containing niobium is classified as “high strength low alloy,” and is used in the pipeline, construction, aeronautical and automotive industries.
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