Iamgold to scoop Trelawney

In a move to expand its Canadian portfolio, Iamgold (IMG-T, IAG-N) has agreed to buy junior Trelawney Mining and Exploration (TRR-V) for its Cote Lake gold project in northern Ontario. 

The mid-tier gold producer intends to acquire all of Trelawney’s outstanding shares through a plan of arrangement, where Trelawney shareholders will receive $3.30 in cash for each share held. 

Both companies’ boards have approved the transaction, which provides Trelawney shareholders a healthy 36.6% premium based on its 20-day volume weighted average price ended April 26, 2012.

By Friday afternoon, Trelawney shares moved up 41% to $3.20 on heavy traffic as 37.8 million shares changed hands. (The company touched a 52-week high of $5.91 on July 15, 2011.)

For Iamgold, which has been looking to make an acquisition in the Americas, this transaction “creates a larger and more geographically balanced portfolio of long-life gold assets,” Stephen Letwin, the company’s president and chief executive, said in a statement. He adds it allows the company to redeploy the cash it raked in from selling its non-core assets last year in a project that supports future growth.

The debt-free company has about $1.4 billion in cash and aims to increase it annual production to 1.6 million-1.8 million gold oz. by 2017.

With the Trelawney acquisition, Iamgold will up its inferred gold resource by 95% and measured and indicated resources by 5%. Canadian projects will account for 35% of Iamgold’s resource base compared to 18% pre-acquisition.

Over the past three years, Trelawney’s has been proving up its Cote Lake deposit, which is part of the Chester project, some 20 km southwest of Gogama, Ont.

The company has grown the project’s resource to 35 million tonnes grading 0.82 gram gold per tonne for 930,000 oz. gold in indicated. It has another 204 million tonnes at 0.91 gram gold for 5.94 million oz. in inferred.

Step-out drilling continues to expand mineralization, which has been intersected over a strike length of 1.2 km, a horizontal wide of 100 to 300 metres and a depth extent of more than 500 metres.

“The project has the potential to become a large bulk tonnage operation, with significant economies of scale at competitive cash costs,” notes Iamgold’s executive vice-president and chief operating officer, Gordon Stothart, in a statement.

Construction at Cote Lake should start in 2015.

The deal, which still needs Trelawney shareholders’ and regulatory approvals, should close by the end of June.

If Trelawney chooses to walk away from the agreement, it would need to pay Iamgold a $21-million break fee.

In an April 27 note, Northern Securities analyst Kwong-Mun Achong Low says he didn’t expect Iamgold to acquire Trelawney.

“We are a bit surprised at the transaction given that the Cote Lake deposit has the lowest grade of the low-grade, bulk tonnage Ontario deposits.”

He adds Iamgold make look for another acquisition to produce up to 1.8 million oz. gold per year by 2017. Since, the Trelawney transaction takes Iamgold’s annual production to 1.5 million to 1.6 million oz., leaving room for another takeover to fill the shortfall of 200,000 oz. a year.

Earlier this week, Achong Low suggested a list of possible targets, including Belo Sun Mining (BSX-T), Probe Mines (PRB-V), Prodigy Gold (PDG-V), Rainy River Resources (RR-T), Sandspring Resources (SSP-V) and Sulliden Gold (SUE-T).

But following the Trelawney transaction, he says based on Iamgold’s available capital and foothold in Ontario, it could look for another takeover there for synergies.