Iamgold wins control of Euro Ressources

Mid-tier gold producer Iamgold (IMG-T, IAG-N) has won control of 71.6% of Euro Ressources and plans to re-open the tender process for another ten days to up its share.

The tender period will re-open from Dec. 4-17 at the same price of 1.20 Euros for each share of Euro Ressources, a Paris-based company focused on precious metal royalties. Euro holds a royalty on Iamgold’s Rosebel mine in Suriname.

Iamgold believes its acquisition will cut cash costs significantly at the mine, about 100 km south of Paramaribo, Suriname’s capital. Euro has a participation right royalty on production from Rosebel that gives it payments of 10% of the gold price above US$300 per oz. for production from soft rock and above US$350 per oz. for production from hard rock. In the first six months of this year, Euro received royalty revenues of about  US$9.2 million.

“At the current gold price this acquisition will effectively decrease our cash cost by about US$45 per ounce of gold,” Joe Conway, Iamgold’s president and chief executive, said in a prepared statement. “This cost benefit will be further enhanced in a higher gold price environment.”

In addition, Iamgold says it has taken advantage of fluctuating exchange rates to lock in the cost of the transaction. Since Iamgold made its all-cash offer for Euro in August, the Toronto-based company has bought Euros at an average USD-Euro exchange rate of 1.27, which is “a favorable level” and close to the current exchange rate, the company explains.  At the time of the offer, the USD-Euro exchange rate was 1.47.

Last year, the Rosebel mine produced 276,000 oz. gold. Iamgold’s share was 263,000 oz. gold produced at a cash cost of US$452 per oz. Attributable production this year is forecast at about 254,000 oz.

In February, Iamgold started a US$18.4-million mill expansion project at the mine that would increase annual life-of-mine production to roughly 300,000-305,000 oz. from about 275,000 oz. and reduce direct cash costs by about US$35 per oz. gold.

The expansion would lift mill throughput to 8.9 million tonnes of ore per year from 8 million tonnes and provide the option of an extra 15-25% increase, the company says.

At the end of 2006, Rosebel’s proven and probable reserves were 3.8 million oz. gold — enough to sustain a mine for 12 years.

Apart from its royalty on Rosebel, Euro owns a old-producing property in French Guiana.

At press-time, Euro was trading at the top of its range at $1.80 per share. The company has a 52-week trading window of 92¢-$1.80 per share and has 60.6 million shares outstanding.  

Iamgold’s shares are trading at $5.00. The gold producer has a 52- week trading range of $2.93-10.25. Iamgold has 295.6 million shares outstanding.