IAMGOLD Corp. (IAG) has recently completed the acquisition of Trelawney Mining and Exploration Inc, a Canadian junior mining and exploration company, focused on the development of a significant mineral deposit in northern Ontario. As per the agreement, each Trelawney shareholder will receive $3.30 in cash for each common share of Trelawney held.
In April 2012, IAMGOLD had announced its intent to acquire Trelawney.
The acquisition gives IAMGOLD control over Trelawney’s Côté Lake Project located near the Swayze Greenstone Belt in northern Ontario, Canada. As per Trelawney’s updated mineral resource estimate, announced in February this year, Côté Lake comprised 35 million tonnes of gold at 0.82 grams per tonne for 0.93 million ounces of indicated resources and 204 million tonnes at 0.91 grams per tonne gold for 5.94 million ounces of inferred resources. Mineralization at Côté Lake has been intersected over a strike length of 1,200 meters, a horizontal width of 100–300 meters and a depth extent of more than 500 meters.
The Côté Lake Project will add to IAMGOLD’s mineral resources by approximately 30%. The acquisition will significantly expand IAMGOLD’s operating footprint in Canada, considered a stable jurisdiction. Canada will now account for 35% of the company’s resource base.
It is expected that the Côté Lake deposit has the potential to become a mine in five years. The deposit will produce between 400,000 ounces and 500,000 ounces a year and will catapult IAMGOLD’s production to 1.5 million ounces to 1.6 million ounces. The targeted production of 1.6 million ounces doubles IAMGOLD’s current production of 850,000 ounces a year. This is expected to be realized within the next five years.
The company ended its first quarter with cash and cash equivalents of $1.3 billion. The cash transaction has been made possible by IAMGOLD’s strong liquidly position which was further strengthened by the inflow of over $700 million in cash from divestiture of non-core assets last year. The acquisition is expected to be accretive to return on invested capital. The acquisition syncs in with the company's strategy of investing in development projects that it owns and operates so that the maximum benefit can be derived from harnessing existing operational and development expertise.
IAMGOLD has a pipeline of development and exploration projects and continues to tap accretive acquisition opportunities. The company’s growth plans are strategically limited to certain regions in Canada, and select countries in South America and Africa. The Trelawney acquisition will lower IAMGOLD’s geographic risk profile. However, the Côté Lake Project is currently at an early stage, and runs the risk of high operating costs, and technical and permitting challenges.
Toronto-based IAMGOLD is a leading mid-tier gold mining company with an annual production of approximately one million ounces from five gold mines across three continents. In the Canadian province of Québec, the company also operates Niobec Inc., which produces more than 4.5 million kilograms of niobium annually, and owns a rare earth element resource close to its niobium mine. It competes with the likes of Barrick Gold Corporation (ABX), Newmont Mining Corp. (NEM) and Randgold Resources Limited (GOLD). The stock retains a quantitative Zacks #3 Rank (short term Hold rating) over the near term.
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