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For Iamgold Corp., the $608-million acquisition of a little-known Ontario gold explorer is a step toward two key company goals – offsetting an Africa-heavy portfolio and propelling it toward a goal of doubling production in five years.
Toronto-based Iamgold is offering $3.30 a share for Trelawney Mining and Exploration Inc., which gives it control of a large gold deposit practically in its backyard, thousands of kilometres from Iamgold’s key producing assets in South America and Africa.
“The acquisition of Trelawney creates a larger and more geographically balanced portfolio of long-life gold assets for Iamgold,” Steve Letwin, the company’s chief executive officer, said Friday.
The all-cash acquisition comes as gold companies’ equity valuations flounder, sliced in half in some cases from year-ago levels by investors abandoning the sector in favour of less risky, higher-yielding assets. Ballooning costs for everything from raw materials to skilled labour are also fuelling investor concerns.
Iamgold’s offer for Trelawney is a 37-per-cent premium to recent trading activity but a far cry from its year-ago high of nearly $6 a share.
Even as gold trades at near all-time highs, gold company valuations have also been hurt as investors seek direct exposure to precious metals through exchange-traded funds rather than through the companies that mine them.
Companies operating in some emerging nations have been especially punished, analysts say, because investors want to avoid political risks which in extreme cases can see them lose their mines altogether.
Some say the Iamgold deal could be the start of a trend of Canadian gold companies looking for more acquisitions at home. Jennings Capital suggested in a research note that a rival bidder could even emerge for Trelawney.
“We believe there remains a strong possibility of a competing offer for Trelawney,” Jennings said.
Iamgold produces most of its gold from mines in South America and in Africa, where operations in Mali and Burkina Faso account for half its output.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/globe-investor/iamgold-acquires-trelawney-mining-in-608-million-deal/article2416039/