Don’t confuse today’s quiet gold market with being boring. There appears to be a consolidation movement afoot, much of which seems to be out of necessity. Companies such as Newstrike Capital (TSXV: NES) and AuRico Gold (TSX: AUQ) have decided it’s better to combine forces than try to go at it alone.
Joining this trend could be IAMGOLD Corporation (TSX: IMG). In less than four years, its share price has slid from $23 to a little more than $2.50 and is now considered a small cap. IAMGOLD has become more appealing to a suitor after its recent sale of the Niobec mine and Diavik royalty, which gives it a cash balance of approximately $712 million.
One might think with that kind of money IAMGOLD would be looking to making a big splash of its own. Given its $600 million Côté Lake acquisition in 2011, however, which is uneconomic at today’s gold price, IMG might be reluctant to make another deal of that size.
A more prudent course of action in today’s environment would be to merge with another gold miner or be bought out. Based on its 2014 results, IMG is mining gold at all-in sustaining costs of US$1,100 per ounce sold, barely economic at today’s price for the precious metal. As well, the company has been operating at a loss for the past two years.
To make itself more enticing, IAMGOLD should consolidate its interests at both Côté Lake in northern Ontario as well as in Mali, West Africa. To that end, Reuters reported on April 1, 2015, that Iamgold is in talks with AngloGold Ashanti to buy AngloGold’s stakes in the Sadiola and Yatela gold mines in Mali.
If Mali really is IAMGOLD’s priority then a logical first step would be to buyout its joint venture partner there, Merrex Gold Inc. (TSXV: MXI). Merrex’s market cap of $23 million makes for an inexpensive acquisition as IMG already owns 16% of the company, with its stake potentially exceeding 20% to settle an outstanding exploration debt.
Merrex Gold’s flagship Siribaya Gold Project in Mali is 50% owned by IAMGOLD, and has an Indicated resource of 303,900 ounces grading 2.34 g/t, as well as 301,400 ounces grading 2.17 g/t in the Inferred category. Siribaya’s 760 square kilometres of contiguous gold exploration permits represents the largest gold exploration land package in Mali, according to the company. A 2014 discover at the Diakha zone, it contends, shows mineralization similar to IAMGOLD’s Boto gold deposit. And, the fact that US$3.8 million worth of drilling is planned for 2015, shows the type of potential both companies believe exists there. A resource estimate for Diakha is also budgeted for some time in 2015.
In addition, Merrex owns 100% of the Karita permit area in Guinea, which is adjacent to the Boto deposit. For Merrex Gold, then, the consolidation trend could be its best friend as well given the current challenging environment for resource project financing.
