Iamgold unveils its white knight (August 23, 2004)

South Africa’s Gold Fields (GFI-N) has agreed to combine its foreign assets in a $2.1-billion all-share deal with takeover target Iamgold (IMG-T).

Under the deal, the world’s fourth-largest gold producer would receive 351.7 million shares of Iamgold in return for all of its assets outside of the “Southern African development community,” which includes Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe.

The number of shares issued would be adjusted to reflect Gold Fields’ spending on its offshore assets before closing; this amount is capped at US$50 million.

When the dust settles, Gold Fields would own about 70% of the new Gold Fields International, with Iamgold shareholders holding the remainder. Iamgold shareholders would also receive a special cash dividend of 50 per share ($75 million in all) on closing.

Iamgold CEO Joseph Conway says the deal offers a premium in that the total net asset value of Iamgold’s contributions is somewhat less than the 70:30 exchange ratio, in addition to the 50 dividend.

The new plan effectively trumps Golden Star Resources‘ (gsc-t) hostile bid for Iamgold, which currently rings in just short of $1 billion. Golden Star CEO Peter Bradford says his company had no intention of upping its offer, and that if a superior bid surfaced, it would withdraw.

Conway also says that based on closing share prices on Aug. 10, Golden Star’s bid represents an 11%, or 70-per-share, discount to his company’s market price. He says the new deal is accretive to Iamgold, whereas the Golden Star bid is dilutive. Iamgold will also benefit from geographically diversifying its holdings, while enjoying increased potential for a higher valuation.

Conway also favours the Gold Fields proposal, as it includes four operating assets, two development projects, a significant exploration portfolio, a large cash position, and a strong management team.

“We’ve said many times we see significant development and operating risk in [Golden Star], and the bid is financially inadequate,” he adds.

In a press release, Iamgold states: “Given the clearly superior transaction available with Gold Fields, the board strongly advises shareholders not to tender to the Golden Star offer and to await further instructions regarding the Gold Fields transaction.”

Golden Star’s bid expires on Aug. 16.

On the other side, Gold Fields CEO Ian Cockerill says that with the new company tentatively headquartered in Denver, Colo., he expects greater access to North American equity markets. “The creation of this new vehicle is going to allow the market to evaluate what we have in South Africa and what we have on the international side.”

Under the agreement, Chris Thompson would resign as Gold Fields chairman, to assume the reins as the new entity’s president and CEO; Gordon Parker will swap his seat on Gold Fields’ board for the chairman’s throne; and Iamgold chairman William Pugliese will become deputy chairman.

The new company’s board of directors will comprise 10 seats; three filled by Iamgold nominees, the remainder being Gold Fields appointees, including current CEO Cockerill and Chief Financial Officer Nick Holland. Conway will not join the new board.

Gold Fields International would boast six operating mines with combined production of 2 million oz. per year — enough for the new company to rank as the world’s seventh-largest gold producer. Operating costs are forecast at around US$250 per oz. The producing assets include the Tarkwa-Damang complex (which would be 90%-owned) in Ghana, where the two are already paired; the 38%-owned Sadiola and 40%-owned Yatela mines in Mali (from Iamgold); and Gold Field’s wholly owned St. Ives and Agnew mines in Australia.

Combined gold reserves reportedly tip the scales at 14.7 million oz., with additional measured and indicated resources totalling 26 million oz., excluding the 12-million-oz. Arctic platinum project in Finland. Resources in all categories weigh in at 45 million oz.

The market cap would come to US$350 million, and operating cash flow for 2005 is pegged at about US$265 million, based on a gold price of US$400 per oz.

Gold Fields has already obtained regulatory approval in South Africa. The company will be required to maintain at least a 50.1% stake in the new vehicle.

The scheme requires approval of at least 50% of each company’s group of shareholders; closing is slated before year-end.