Gold Fields and Iamgold finally cut deal on Tarkwa

Gold Fields (GFI-N, GFI-J) wants as much control over its key mining assets as it can get, and with an eye towards that end the company is buying out Iamgold (IMG-T, IAG-N) from a project in Ghana.

Gold Fields announced it has a deal in place with Iamgold to acquire its 18.9% minority stake in the Tarkwa and Damang gold mines for US$667 million in cash — taking Gold Fields’ interest up to 90% from 71.1%. The remaining 10% is held by the government of Ghana.

While the acquisition still requires Gold Fields shareholder approval, the company said it expects to have the deal closed by the end of July.

“The two most important guiding principles of our strategy are to grow our free cash flow by growing our margin per ounce and by increasing ounces produced on a per share basis,” Nick Holland, Gold Fields chief executive said in a statement. “This transaction meets those requirements.”

With nearly two decades of mining experience in West Africa, Gold Fields says it is more than comfortable taking a firmer hold of the reigns at Tarkwa. And with the deal being accretive to Gold Fields shareholders on a per share basis, the decision was made all the easier.

By taking out Iamgold, Gold Fields adds another 181,000 oz. of annual production at a cash cost of US$540 per oz. to its already impressive 3.6 million gold equivalent ounces of production per year.

The company has a stated goal of reaching a production base of five million ounces. – made up of either in-production or in-development — by 2015.

But Gold Fields likely wouldn’t have paid such a hefty sum if it didn’t believe such production would carry forward far into the future.

By making the acquisition it will gain an extra 2.14 million reserve ounces at a cost of roughly US$300 per ounce and another 3.27 million resource ounces at a cost of US$198 per ounce.

Beyond those resources Gold Fields says there is a significant resource and reserve upside potential especially at the Damang mine.

But perhaps most importantly of all, at least from a strategic perspective, the move furthers the company’s recent tidying up of its assets. Holland has publicly stated the company wants to own 100% of the assets in its portfolio wherever possible.

Iamgold says it has a similar strategy, and sold its interest in the project precisely because it was the minority stake holder.

“This sale is the first of several strategic initiatives to create value for our shareholders,” Steve Letwin, Iamgold’s president and chief executive said in a statement. “We cannot fully leverage our skills and experience in developing and operating mines if we are not the operator and have a minority interest in the mine.”

Once the deal is finalized Iamgold will be left with over US$1 billion in cash, cash equivalents and gold bullion. The company also has a $350 million undrawn credit facility in place giving it considerable financial flexibility.

Dan Rollins, an analyst with UBS Investment Research said in a note that the deal shows that Letwin is following through on his plans for the company.

“…which should give the market further comfort on his ability to execute on future objectives,” he writes. “Next on the list is a potential sale of a 10% interest in Niobec for between $100 and $150 million by June.”

For Gold Fields the move comes on the heels of its announcement in late March that it was looking to acquire the remaining 19% of the Peruvian company Gold Fields La Cima that it didn’t already hold.

La Cima holds the Cerro Corona project and Gold Fields offered US$1.48 in cash for each La Cima share. When completed the acquisition of all the shares will cost Gold Fields US$420 million.

The Cerro Corona gold and copper mine is in the Cajamarca district of Peru and has gold-equivalent Mineral Reserves of 5.3 million oz. The mine has been in production since 2008 and produces about 400,000 gold-equivalent ounces a year.

The additionally 19% interest would add 1 million oz. of long-life and low cost reserves and an additional 76,000 ounces of gold-equivalent production a year.

Gold Fields currently has eight operating mines in Australia, Ghana, Peru and South Africa.

The company also has four major projects in resource development and feasibility, with construction decisions expected in the next 18 to 24 months.

In New York on Apr. 15 the company’s shares were off 9¢ to $17.88 on 2.7 million shares traded. In Toronto, Iamgold shares were off $1.83 or 9% to $19.27 on 4.9 million shares traded.