BUSINESS

Iamgold to sell Quebec niobium mine to Magris-led group in US$530-million deal

10/03/2014 07:25 EDT | Updated 12/03/2014 05:59 EST
TORONTO - Iamgold Corp. (TSX:IMG) announced Friday it is selling its Niobec mine in Quebec and an adjacent property for about US$530 million, which the Toronto-based company plans to use to reduce costs and overcome a sharp decline in the price of gold.

Stephen Letwin, Iamgold's president and chief executive, told analysts in a conference call that proceeds from the Niobec sale will be used primarily on acquisitions or advances at its mines or, less likely, on debt reduction.

"I believe we can transform Iamgold into a lower-cost producing company," Letwin said. "I don't want to be taking the proceeds from Niobec and investing them in any operation where we're not seeing healthy economic returns."

He said it will be possible, but a challenge, for Iamgold's Rosabel mine in South America and its Westwood development project in Quebec to become "cash neutral" in 2015 but the company hopes its Essakane mine in West Africa will be able to fund Iamgold's overall cash need.

He added that the Cote gold project in northeastern Ontario is a low priority due to a drop in the price of gold since Iamgold bought it in 2012.

"At the time, gold was sitting at $1,700. It's below $1,200 this morning, so we will spend as little money as possible on Cote," Letwin said. "If and when gold prices turn around, we can take a hard look at Cote but right now it's basically on the shelf."

He said Iamgold would prefer an acquisition with an low enough cost structure to bring down the whole group's average.

"It's not a secret that we're in the higher end of the range for costs, so our objective is to get our all-in sustaining costs down," Lewin said.

Carol Banducci, Iamgold's chief financial officer, said that the company has 12 to 18 months under its bond agreements to invest the money from Niobec into a mining business. Otherwise, the unused portion must be returned to bondholders.

But Letwin added that's not the preferred way to go and "there are lots of opportunities out there both within our current asset base, and outside our current asset base, to redeploy the funds."

Banducci also said that the Niobec sale will result in an estimated gain of between $50 million and $60 million and will increase the Iamgold liquid assets to above $800 million. A further $500 million of credit is also available.

The Niobec buyer is a group led by Aaron Regent, a veteran mining executive who has previously been CEO of two major Canadian companies — Barrick Gold (TSX:ABX) and Falconbridge, a copper and nickel producer that was later sold to Xtrata.

Regent now heads Magris Resources, a Toronto-based company that has partnered on the Niobec deal with Hong Kong-based CEF Holdings Ltd (CEF) and Temasek, a Singapore-based investment manager.

The Niobec mine is one of the world's three largest producers of niobium, a silvery metalic element used in steel alloys, arc welding and superconductors.

It will receive an additional US$30 million with an adjacent rare earth deposit, once it goes into commercial production, making the total Niobec deal worth about US$530 million.

Iamgold shares hit a 52-week low of $2.94 on Thursday and closed just above that at $3.04. The stock was at $2.97 at noon on Friday.

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