Iamgold agrees to take on Orezone for Essakane gold mine
Iamgold Corp has agreed to buy Orezone Resources in an all stock deal worth about $139 million, which will boost its West African production base and lower its mining costs.The deal between the two Canadian miners pushed Orezone’s shares up by nearly 170 percent on the Toronto Stock Exchange.Iamgold said the takeover -- which will give it control of Orezone’s Essakane project in Burkina Faso -- would push it further along toward its goal of doubling its annual gold output to 1.8 million ounces by 2012."It represents an accretive transaction which lowers our costs and allows us to acquire a quality reserve and resource base," Iamgold Chief Executive Joseph Conway said on a conference call.Orezone’s exploration properties not related to Essakane will be spun out into a new exploration company called New Orezone, in which Iamgold will hold a 16.6 percent stake.Orezone shareholders will receive 0.08 percent of an Iamgold share and a pro rata share of New Orezone for each Orezone share. Iamgold said the deal represents a value of about 49 Canadian cents for each Orezone share based on Wednesday closing prices.The transaction sent Orezone shares as high as 48.5 Canadian cents in Toronto before they eased slightly 46.5 Canadian cents, and pushed the shares up by 27 cents to 38 cents on the AMEX exchange.Toronto-based Iamgold has been seeking acquisitions in West Africa and is in the process of wrapping up a takeover of Euro Resources for about C$125 million.The company currently operates eight mines in Africa and the Americas. Essakane currently has reserves of 3 million ounces and should produce 300,000 ounces a year when it reaches production in about two years, Iamgold said.Barry Allan, an analyst at Research Capital, said he was lukewarm on the deal, noting the high premium paid and the fact that Iamgold does not have much experience building new mines."They certainly paid up fully for the asset. We can understand why, because it’s consistent with their West African strategy, but we have some questions about their execution."The mine will require $350 million to bring it to production. Iamgold has $216 million in available cash, an existing $140 million credit facility, and is in advanced discussion with lenders to provide $160 million to $220 million in project financing.The mine’s expected cash costs of $358 an ounce should bring Iamgold’s average costs down by $40 to $50 an ounce by 2010, it said.Gold prices were at $830 an ounce on Thursday, down about 15 percent from July.Orezone CEO Ron Little said a takeover was necessary to keep the project funded and moving forward.Shares of Ottawa-based Orezone had fallen 85 percent coming into the session, as volatile gold prices and tight credit markets have prompted heavy selling of exploration-stage mining companies.As part of the deal, Iamgold will give Orezone an immediate cash injection of C$20 million by way of a private placement of 71.4 million shares at 28 Canadian cents each.