INVESTMENT COMMENTARY — Iamgold gets nod for low costs at Sadiola Hill

First Marathon’s Kerry Smith is one of a growing number of mining analysts giving high marks to the financial performance of Iamgold (IMG-T) and the operating success of its Sadiola Hill gold mine in western Mali.

The Toronto-based company holds a 38% interest in the low-cost gold mine operated by partner Anglogold. The open-pit operation is expected to produce about 500,000 oz. of the yellow metal this year at a cash cost of US$135 per oz. Looking further ahead, Smith sees upside in Iamgold’s nearby Yatela deposit and the company’s exploration projects in Africa and South America.

“Iamgold is fortunate to have a solid joint-venture partner,” Smith notes in a research report. “Anglogold is one of the partners of choice in Africa. With a proven low-cost mine at Sadiola, growth from Yatela and excellent exploration potential in Africa, the company is well-positioned.”

First Marathon issued a “focus buy” recommendation for Iamgold’s shares, which were recently trading at about $4 in a 52-week range of $5.70-2.20. The company has 73.3 million shares outstanding, or 78.4 million fully diluted.

Iamgold’s Sadiola Hill mine began commercial production in March 1997, on time and 6.5% below budget, at a capital cost of US$283.8 million. The indicated mine life is eight years, which could be extended as new reserves are delineated.

At last report, the mine hosted proven and probable in-pit reserves (to a depth of 140 metres) of 36.6 million tonnes grading 2.9 grams gold per tonne, roughly equivalent to 3.4 million contained ounces.

The property hosts additional oxide resources (indicated and inferred) of 2.3 million tonnes grading 2.3 grams (to 50 metres below surface), plus sulphide resources (to 100 metres below oxides) of 42.4 million tonnes of 2.3 grams.

“Sadiola is one of the lowest-cost producers worldwide,” Smith writes, “primarily due to the high grade of the deposit, low stripping ratio, very soft, free-digging ore, and the excellent operating skills of Anglogold.”

The next leg of growth will come from Yatela, a 2-million-oz. oxide resource 25 km north of Sadiola that is reported to be similar in grade, metallurgy and minability. The project was acquired earlier this year on a 50-50 basis by Iamgold and Anglogold for US$7.5 million.

The processing options being examined include: processing at Sadiola using existing excess capacity; expanding the Sadiola mill; and processing at Yatela, either at a new mill or by heap-leaching. The preferred option will be selected as part of the feasibility study, which is expected to be completed in mid-1999. Production could start as early as mid-2000 at a rate of 150,000-200,000 oz. per year.

Iamgold and Anglogold are partners on a prospective 50-by-25-km land package surrounding Sadiola. “We anticipate further regional exploration success on this prospective land package,” Smith notes. “Future discoveries might be trucked to Sadiola for processing, or, if large enough, a stand-alone mill could be built.

Iamgold is also a partner with Ashanti Goldfields in jointly exploring for gold deposits in West Africa. The partners have projects in Senegal, Ghana, Niger and Guinea. A US$3-million exploration budget has been set for 1999. On its own, Iamgold plans to spend a similar amount exploring prospective ground in South America, specifically in Ecuador, Brazil, Argentina, Bolivia and Peru.

“A solid management team with an interest in acquisitions and an emerging exploration strategy in South America offers investors further appeal,” Smith concludes.