Iamgold Corp. is hunting for acquisitions and is open to being acquired itself in 2015, fueled by a $500 million cash injection and an industry adjusting to a lower- price reality, according to the Canadian miner’s chief executive officer.
Iamgold could make purchases valued at about $800 million alone or consider larger transactions with a partner, said CEO Steve Letwin, who said he recently met with companies and funds in China that showed interest in partnerships. Iamgold is in active discussions about potential transactions and a deal will probably come next year, he said.
“We would look for an acquisition that adds value, that would change our mix so that we have a lower all-in cost,” Letwin, 59, said in an interview yesterday at Bloomberg’s office in Toronto, where Iamgold is based. “We would look at corporates that would do the same thing. Either we use our paper and cash to create a better entity overall, with a smaller player, or we become part of a bigger player.”
Iamgold, which has mines in Burkina Faso, Canada and Suriname, wants to add assets that produce gold at lower cost than its current operations after the metal’s decline squeezed industry profit margins. The miner will look at companies with assets in the Americas and Africa and is interested in projects that are close to or already in production.
Gold was almost unchanged at $1,179.40 at 8:19 a.m. in New York today, down 1.9 percent this year and remains 39 percent below its 2011 high of $1,923.70 per ounce. The 38-company S&P/TSX Global Gold Sector Index has dropped 53 percent in the past two years.
Iamgold will get $500 million in cash next month after the pending sale of a Canadian mine and could use the money to help pay for a purchase or to develop a project it buys with shares. The company’s cash position will make it more attractive as a buyer or partner, Letwin said.
The miner’s criteria mean the list of potential targets is limited, with “at most” 10 companies that Letwin says he’d be seriously interested in.
“We’re not in any rush,” he said. “I think the longer we wait the more the opportunities will be there.”
Letwin said he expects consolidation will pick up across the industry next year, as managements and boards adjust to the idea that gold prices and equity valuations may be lower for longer. Companies can improve their balance sheets and reduce administrative costs by combining, he said.
For now, some CEOs are still “drinking their own whiskey a little bit on their share price and they haven’t come to the realization that this could last another couple of years,” Letwin said. That’s likely to change over the next year, he said.
“Our reality is gold could stay in the $1,100 to $1,300 range for another five years,” Letwin said.
Iamgold’s shares have fallen 20 percent this year in Toronto through yesterday. The miner’s high-cost assets mean its shares react strongly to moves in the gold price, Letwin said.
Iamgold is targeting assets with all-in sustaining costs of $1,000 per ounce, the CEO said. The company reported costs of $1,115 in the third quarter, 8 percent lower than a year earlier. It also reduced senior management by 40 percent this year to six, cut most of its project development team and withdrew from the World Gold Council to reduce costs, the company said last month.
Letwin said he sees more opportunities to reduce expenses, and is targeting a further $100 per ounce reduction, which equates to almost $100 million a year.
Letwin worked in the oil and gas business for about three decades, including at Enbridge Inc., before joining Iamgold as CEO. He said he learned early on that a strong balance sheet is the key to success in commodities.
“The one thing you learn is you never run out of cash,” he said. “That’s the same here in the gold business. You’ve got to keep a very strong balance sheet because at times like this the banks start to squeeze you.”
Strengthening the balance sheet was a key reason for Iamgold’s sale of its Niobec niobium mine in Quebec to a group led by Magris Resources Inc., a company led by Aaron Regent, the former head of Barrick Gold Corp., Letwin said. Niobium is used to strengthen steel.
“In many respects it’s like playing Texas hold’em, the worst thing that can happen is you have to leave the table,” he said.