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TABLE OF CONTENTS Aug 3 - 9, 2009 Volume 95 Number 24 - 0 comments

Iamgold Plots Growth, Ounce By Ounce


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By: Alisha Hiyate


PARAMARIBO, SURINAME -- White tents dot a grassy field at Iamgold's (IMG-T, IAG-N) Rosebel gold mine, about 100 kmsouthof Suriname's capital, Paramaribo. In the tropical mid-day heat, groups of employees at the company's largest mine are gathered in the shade under each tent, learning about Iamgold's other operations around the world and brainstorming on how to increase production and lower costs at their own.

It's part of the growing mid-tier company's Ounce by Ounce business literacy and employee engagement program, and Iamgold believes it's one of the keys to delivering value to its shareholders and running a tighter ship all round.

Accounting for more than a third of Iamgold's production, Rosebel is already one of its flagship operations. The 95%-owned mine, with a workforce of 1,260, churned out 331,000 oz. gold last year at a cash cost of US$466 per oz., including royalties. But in April, in a presentation to analysts in an air-conditioned conference room at the mine site, Rosebel Gold Mines vice-president and general manager Renaud Adams said that the company's aims are much more ambitious.

"We're soliciting input from employees on how to do what has never been done before," Adams said.

At the time, the company's official production target was a total of 343,000 oz. gold at cash costs of US$466 per oz. Unofficially, however, the company was aiming for better.

Since then, higher productivity in mine operations and a mill expansion that is yielding higher rates than the design criteria have lifted total forecast production for 2009 to 385,000 oz. gold (365,000 attributed oz.) at cash costs of US$407 per oz. That's 42,000 oz. gold and US$35 per oz. better than expected only a few months ago.

Iamgold wouldn't likely be making such strides without a steady focus on continuous improvement stemming from its 2006 acquisition of Cambior. Until then, the company had only been a junior partner at mines in West Africa. But along with a takeover of Gallery Gold that closed earlier in 2006 and gave the company the Mupane gold mine in Botswana, the Cambior deal put Iamgold on the map as an operator, netting it Rosebel, plus gold and niobium mines in Quebec.

With the company's bulked-up portfolio, president and CEO Joseph Conway quickly realized that it needed to focus on efficiency.

"The old Iamgold. . . didn't have the right focus or culture as an operating vehicle and we needed to change that and basically focus people on getting results and being accountable for that," Conway says.

So to help make the psychological and logistical leap to operator, the company introduced a cultural engagement program -- an offshoot of which is Ounce by Ounce -- about two years ago, Conway says.

Along with the introduction about one year ago of a more technically- focused continuous improvement program, based on the tenets of the Six Sigma business management strategy (which aims to eliminate waste, cut costs and improve efficiency), Iamgold believes Ounce by Ounce will help it achieve its goal of 1.8 million oz. gold production per year by the end of 2012.

Last year, the company produced 997,000 oz. gold from eight gold mines in the Americas and Africa. This year, it will be producing 910,000-920,000 oz. from its seven gold mines -- the decline mainly due to the sale of the Sleeping Giant gold mine in Quebec last fall.

Its Essakane project in Burkina Faso, acquired through its takeover of Orezone Resources earlier this year, is expected to help get Iamgold closer to its 1.8-millionoz. goal. Essakane will add more than 300,000 oz. gold per year for nine years starting in late 2010.

But in the meantime, Rosebel will continue to be the backbone of Iamgold's production profile.

Bigger And Better

Since it began production in 2004, Rosebel has seen two expansions.

Processing at the mine involves crushing and grinding using two-stage semi-autogenous grinding and ball milling, gravity separation -- which recovers more than a quarter of the coarse gold -- a cyanidation circuit and a carbon-in- leach plant.

The third-phase expansion, currently under way, will bring mill throughput up to more than 10 million tonnes per year in 2009 and to 11 million tonnes in 2010 from 8.9 million tonnes last year. Most of the latest expansion -- which includes adding a second ball mill and extra leach tanks -- was in place at the end of 2008, and is now substantially complete, well ahead of schedule.

Aside from making improvements in efficiency at Rosebel that decreased mining costs by 3.6% to $1.62 per tonne last year, Iamgold also moved to get costs under better control with the acquisition of Euro Ressources in late 2008. Euro held a participation royalty in Rosebel and Iamgold expects the move will save US$40-50 per oz. on cash costs this year, and boost reserves by allowing the company to use a lower cutoff grade for reserve calculation.

Production is still subject to a 2% royalty to the government of Suriname, which also owns 5% of the mine, a 0.25% royalty to a local natural resources development fund, and a 6.5% price participation royalty that kicks in when the price of gold exceeds US$425 per oz.

Calculated at US$700-per-oz. gold, reserves currently stand at 101.4 million tonnes grading 1.1 grams gold per tonne for 3.7 million oz., and measured and indicated resources add another 9.6 million attributable oz. in 160.7 million tonnes grading 1.1 grams gold and 138.6 million tonnes at 1 gram gold.

The current mine life is 9.6 years with average production estimated at 375,000 oz. a year, but there appears to be plenty of room for expansion - both in existing deposits and at other targets on the 170-sq.-km property.

There are seven defined deposits, plus multiple targets that occur along three separate trends at Rosebel. The Pay Caro, East Pay Caro, Koolhoven and J-Zone deposits, plus the Spin and Mamakreek prospects are located on the Northern trend, which extends for 12 km of strike; the Rosebel deposit lies on the eastern end of the 11-km-long Central trend; and the Mayo and Royal Hill deposits, plus the Roma and Monsanto Hill, Eriaan Hill and Blauwe Tent targets are situated on the 10-km-long Southern trend. Production is currently coming from Pay Caro, Koolhoven, Royal Hill, and most recently, Mayo.

Of the $66 million Iamgold is spending at Rosebel this year, $8 million will go toward finishing the mill expansion, $10 million for equipment, and $14 million toward a 90,000-metre core drilling campaign to include infill drilling to convert resources to reserves, plus exploration and condemnation drilling.

The property is in the Lower Proterozoic Guiana Shield, with mineralization hosted in quartz and quartz-carbonate veins that vary from a few centimetres to 2 metres wide. The veins are generally restricted to lithological contacts, fold closure and sub-vertical shear corridors. Gold mineralization is principally found in sub-vertical zones near contacts between sedimentary and volcanic rocks, and shows good continuity and thickness, the company says.

Being a tropical environment, the mineralization is highly weathered and ore consists of a mixture of soft, transitional and hard rock. There is no dilution in the saprolite material, whereas transitional and hard rock have a dilution rate of 5-15%.

Wedged between Guyana to the west, French Guiana to the east, and Brazil to the south, on the northern coast of South America, Suriname was a Dutch colony until it gained independence in 1975. While the country has flirted with socialism in the past and saw a military coup in 1990, a democratic coalition has ruled peacefully since 1991.

Adams is extremely proud of the fact that more than 90% of employees at Rosebel are Surinamese, a figure that the company has managed to double over the past few years. Iamgold employs about 350 people from seven local villages - one of which, Nieuw Koffiecamp, with a population of 750, is actually located on Iamgold's concessions, between the Monsanto Hill and Eriaan Hill prospects.

While the population of Suriname is diverse - with its roughly 500,000 citizens tracing their heritage to India, Africa, Java, China and Europe, plus a substantial population of Amerindians - most of the villages in the interior rainforest of Suriname are maroon settlements. The descendants of escaped slaves brought from Africa to South America to work colonial plantations, the maroons managed to establish a separate and independent existence in Suriname.

Gold mining has become a way of life for some maroons, and Iamgold isn't the only party to have benefited from the rising price of gold over recent years. Adams says there are about 200 small-scale miners in the area; all have been offered jobs with Iamgold, but at current gold prices, they can make more money in business for themselves. So to provide an alternative to using harmful mercury in their small-scale mining activities, Iamgold has offered to let artisanals mine on some parts of its property, and to treat the material in its processing facility.

While the site seems remote, Rosebel is accessible by road or plane from Paramaribo and has a power transmission line that taps into a nearby hydropower-generating station. Iamgold has power-supply agreements for 15 to 19 megawatts of power.

Further potential in Suriname exists deeper in the interior at the company's Sarakreek and Tapaphony projects about 100 km south of Rosebel. Drilling at Sarakreek last year returned as much as 222.2 grams gold per tonne over 7.5 metres and 31.2 grams gold over 12 metres. Iamgold plans 4,000 metres of drilling there this year.

New Growth

As a company, Iamgold doesn't shy away from setting high standards and difficult goals for itself. But that has got the company into trouble before - chiefly with a friendly but ultimately failed bid for Wheaton River Minerals in 2004 that set off rival hostile bids for both would-be merger partners.

"In that scenario, we were actually bidding for a company twice our size," says Iamgold president and CEO Joseph Conway, adding that the amount of shares Iamgold would have had to issue was very significant. "It would have been a truly transformational transaction."

While it didn't work out, and neither did another deal with Gold Fields (GFI-N, GFI-J) that year, Iamgold did avoid being swallowed up in a hostile takeover by Golden Star Resources (GSC-T, GSS-X). And it went on to do what Conway calls a "small-t transformational" transaction with Cambior in 2006.

However, since then, Conway has been looking at more modest acquisitions, seeking to add 100,000 to 300,000 oz. gold with each deal.

"Since that time, we've been doing more incremental-style things - buying out costs, buying a project like Essakane - things that would have a meaningful impact on our production, but isn't necessarily in itself a one-time transformational transaction," Conway says.

The company is always looking for further acquisition opportunities in its three key focus regions: the Guiana Shield, Quebec, or West Africa, and in June snagged a 17% stake in Oromin Explorations (OLE-T, OLEPF-O). The investment in Oromin, which holds a 43.5% interest in the Sabodala gold project in eastern Senegal, adds further promise to Iamgold's already impressive portfolio.

Iamgold recently traded at $11.92 in a 12-month range of $2.93-12.54. The company has a market cap of $4.4 billion.

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Overlooking an open pit at the Royal Hill gold deposit, one of seven that make up Iamgold's flagship Rosebel mine in Suriname.
Overlooking an open pit at the Royal Hill gold deposit,...

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