In a move to expand its Canadian portfolio, Iamgold (IMG-T, IAG-N) has tabled an offer to buy junior Trelawney Mining and Exploration (TRR-V) for its Côté Lake gold project in northern Ontario.
The mid-tier gold producer intends to acquire all of Trelawney’s outstanding shares for $3.30 in cash for each share held, or $608 million in total
The friendly deal provides Trelawney shareholders a healthy 36.6% premium based on its 20-day, volume-weighted average price ended April 26, 2012.
By late afternoon on the day of the bid, Trelawney shares moved up 41% to $3.20 on heavy traffic as 37.8 million shares changed hands. However, the company had 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,” says Stephen Letwin, the company’s president and CEO.
It allows the company to redeploy the cash proceeds from selling its non-core assets last year into a project that supports future growth.
The debt-free company has $1.4 billion in cash and aims to increase its annual production by 1.8 million gold oz. before 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 has been proving up its Côté Lake deposit, which is part of the Chester project 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.
Stepout drilling continues to expand mineralization, which has been intersected over a strike length of 1.2 km, a horizontal width of 100 metres 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,” Iamgold’s executive vice-president and chief operating officer Gordon Stothart notes in a statement.
Construction at Côté Lake should begin in 2015.
The deal, which needs Trelawney shareholder and regulatory approvals, is expected to close by the end of June.
If Trelawney walks 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 hadn’t expected this bid from Iamgold.
“We are a bit surprised at the transaction given that the Côté Lake deposit has the lowest of the low-grade, bulk-tonnage Ontario deposits.”
He adds that Iamgold may look for another acquisition to produce up to 1.8 million oz. gold per year by 2017. The Trelawney transaction would take 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.
Prior to the Trelawney deal, 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).
He predicts Iamgold can pursue another “synergy takeover” following the transaction, based on available capital and its foothold in Ontario.