Iamgold bids for royalty collector Euro Ressources

In a move to cut cash costs, mid-tier gold producer Iamgold (IMG-T, IAG-N) is making a cash bid for Euro Ressources (EUR-T, EUR-E), a Paris-based company focused on precious metal royalties.

The acquisition would eliminate Iamgold’s royalty obligation to Euro on its Rosebel gold mine, effectively driving down cash costs at the mine by about US$50 per oz.

Euro has a participation right royalty on production from Rosebel, in Suriname, 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 6 million (US$9.2 million).

Under the unsolicited offer, shareholders of Euro would receive 1.20 per share in cash, a 30% premium over the company’s closing price on Euronext on Aug. 28. The offer also represents a 27% premium on Euro’s one-month weighted average share price.

For the deal to go through, enough shares must be tendered to give Iamgold more than 50% of Euro’s total diluted shares, including the 4.9% of Euro shares it currently holds.

Euro management is evaluating the bid and has advised shareholders to take no action in the meantime.

Iamgold management argues the offer makes sense for Euro as it offers liquidity to shareholders and eliminates “the potential risks of holding shares in what is effectively a single-asset company,” Iamgold stated in a press release.

According to Iamgold, as of June 30, Euro had cash of less than 100,000 (US$156,000), debt and deferred settlements of 2.7 million (US$4.2 million), and a hedge position of 22,800 oz. gold at a gold price of US$458.50 per oz.

The deal would offer Euro shareholders an opportunity to “crystallize value now rather than retain an interest in an entity with Euro’s financial position and asset base,” Iamgold’s president and chief executive, Joseph Conway, commented in a statement.

Last year, Rosebel 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, proven and

probable reserves at Rosebel were pegged at 3.8 million oz. gold — enough to sustain a mine for 12 years.

As for Euro, in addition to the Rosebel royalty, the company owns the Paul Isnard gold-producing property in French Guiana.

Euro recently entered into a transaction with Golden Star Resources (GSC-T, GSS-X) that will give the gold producer ownership of Paul Isnard in exchange for a 10% royalty interest. The royalty would be payable on average gold prices above US$400 per oz.

In Toronto at presstime, Euro’s shares traded at about $1.80. The stock has a 52-week trading range of 92-$1.90.

Iamgold’s shares traded at about $6.70. The gold producer has a 52- week trading range of $5.10-10.25. Currently, Iamgold produces about 1 million oz. gold a year from eight different operations spread across North America, South America and Africa.