Gold Exploration in West Africa

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IAMGOLD sells Ghana bits to Gold Fields

IAMGOLD sells minority stakes in Ghana mines to Gold Fields, faces uncertainty in Burkina Faso

http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=125186&sn=Detail&pid=102055

In growing its kitty of cash to $1 billion by selling Tarkwa and Damang, IAMGOLD says it wants to move on to mining projects it controls wholly.
Author: Kip Keen
Posted: Friday , 15 Apr 2011

Halifax, NS -

IAMGOLD (TSX: IMG) agreed to sell its 18.9-percent interests in two Ghanaian gold mines, Tarkwa and Damang, to Gold Fields (NYSE: GFI), the majority stakeholder, for $667 million.

IAMGOLD reasoned it hasn't been getting fair value by investors as minority players in mines in which Gold Fields owns the majority stakes. "Our strategy is to invest in mines that we own and operate, as they represent the best return on investment for our shareholders," Steve Letwin, IAMGOLD president and CEO said in a statement.

If divesting minority stakes was IAMGOLD's song, consolidation was part of Gold Fields'. "Through this transaction we will consolidate our ownership in two world-class mines in a stable and mining friendly jurisdiction where we have been operating successfully for almost two decades and have a strong brand," Nick Holland, CEO of Gold Fields, said in a statement.

Meanwhile, in a note to investors following the sale, Canaccord Genuity switched its outlook on IAMGOLD's share price. "We are lowering IAMGOLD's rating to hold from buy and (the) target price to $25.00 from $28.50 following the dilutive sale (@ spot and peak gold) of its 18.9 percent interest in the Damang and Tarkwa mines," Canaccord announced.

For IAMGOLD, according to Gold Fields estimates, the loss of Tarkwa and Damang, will translate into a decrease of 181,000 ounces of annual gold production, or close to a tenth of its overall gold production in 2010. Perhaps in part reacting to that impact on production IAMGOLD's shareprice had fallen about 6 percent to $20.66 at presstime.

Canaccord also warned unrest in Burkina Faso, where the BBC reports President Blaise Compaore is facing mutinous soldiers, could affect IAMGOLD.

"Military protests and civil unrest in Burkina Faso could have negative implications on IAMGOLD. The company‘s flagship asset, the Essakane Mine" - located in Burkina Faso - "is the second largest contributor to our valuation accounting for approximately $6.26/share (28%) of our 5%/peak NAVPS (net asset value per share) estimate and 36% (379,000 oz) of our 2011 production estimate."

Canaccord later added, "The actual impact on operations at Essakane remains uncertain at this stage. However, the possibility of a potential change in government and potentially unfavorable changes to the current fiscal regime and mine ownership rules could cause an overhang on the stock price in the near-medium term, until political stability is restored.

A call to IAMGOLD for comment on its Burkina Faso operations had not been returned as of presstime.

However, IAMGOLD argued the considerable upside of the sale was liquidity. If the transaction gets approval by Gold Field's shareholders - a vote is set for the end of July - IAMGOLD's coffers will grow to more than $1 billion on top of a $350 million undrawn credit facility. Presumably the plan is to sink some or all of that cash into another, as of yet unidentified project, which it can then take the lead on.

The markets were kinder to Gold Fields, which had dropped less than a percent to $17.85. For its part, Gold Fields argued the consolidation was part of its strategy to grow free cash flow and ounces produced per share. "This transaction meets those requirements," Holland said.

The price Gold Fields paid per ounce gold in the ground at Tarkwa and Damang was, according to its calculations, $300 for reserves, which stand at 2.14 million ounces gold, and $198 for resources, which weigh in at 3.27 million ounces gold, the balance being paid for the increased share of production, $20 million in working capital and also what is seen as the considerable upside potential in resource in particular at Damang. Assuming the transaction is completed, Gold Fields will own 90% of the two properties with the Ghanaian government holding the remaining 10%.
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