The 1 Gold Miner That's Ready to Pounce
Sep 12th 2012 3:59PM
Updated Sep 19th 2012 10:04AM
I can't wait to see what this financing is for! Mid-tier gold producer IAMGOLD (NYS: IAG) -- which has already gained 24% since I highlighted the stock as a remarkable bargain less than one month ago -- recently announced it will raise $500 million via senior unsecured notes.
Coming from one of the best-capitalized operators in the industry, this move piques my Foolish curiosity. Even after completing a transformative acquisition earlier this year, IAMGOLD's treasury remained packed with $615 million in cash and gold bullion as of June 30, 2012. In addition, undrawn credit facilities of $500 million for IAMGOLD and $250 million for the company's niobium-mining subsidiary Niobec yielded extraordinary liquidity of $1.37 billion. With the addition of these senior notes, IAMGOLD will now command a massive liquidity position equivalent to 35% of the company's market capitalization.
Where to invest all this capital
Now, IAMGOLD does have several major growth initiatives in the works that will require some meaningful capital investment over the next few years. The Westwood mine in Québec remains on track for first production in early 2013, and major expansions under way at the company's existing Essakane and Rosebel mines underpin the nearer-term portion of IAMGOLD's bullish production growth profile. Impressively, at current gold prices, IAMGOLD expects cash flow from operations to suffice for funding the combined $1.7 billion price tag for capital expenditures from 2012 through 2014.
So if IAMGOLD's operating cash flow is poised to cover medium-term growth capex, and a $500 million undrawn credit facility is standing by as a powerful cushion for any potential cost overruns, what on earth prompted the company to raise another $500 million at this time? Although the miner has hit the ground running with an aggressive exploration campaign at the newly acquired Côté gold project in Ontario -- with 12 rigs on-site that have already completed 189 holes since February -- this whirlwind of new activity will result in a total 2012 exploration budget of $157.3 million. With construction-related expenses for both the Côté gold project and the Niobec expansion still a few years away, I have been unable to pinpoint the source of IAMGOLD's perceived need for a fresh capital infusion of $500 million.
Burning a hole in IAMGOLD's pocket
That is, of course, unless the company is mulling another major acquisition to follow hot on the heels of its recent purchase, and further expanding an already enticing growth profile. Given the sudden return of momentum to the industry after mining stock valuations reached a 15-year low as priced in gold, I will not be surprised to find mining executives chomping at the bit to make comfortably accretive purchases before these valuations return to a more rational range. Among the mid-tier producers, IAMGOLD appears in the best position to take advantage of these opportunities. Eldorado Gold (NYS: EGO) already pounced earlier this year with its landmark $2.4 billion acquisition of European Goldfields, and rival New Gold (NYS: NGD) is constrained by a relatively small cash position of only $230 million. AuRico Gold fumbled a golden opportunity to enjoy substantial cash flow from its flagship Ocampo mine, and is likely out of the running for a near-term acquisition.
In fact, I'm not sure I've ever seen the mid-tier gold pack as a group so constrained in its ability to take advantage of deeply compelling acquisition opportunities. Perhaps this industrywide condition explains why nobody has made a move yet for the remarkably promising assets of Paramount Gold and Silver (NYS: PZG) .
Within that backdrop of a mid-tier gold patch that appears to lack the necessary liquidity to mount a meaningful consolidation push while valuations remain near these historical lows, IAMGOLD sticks out like a golden thumb. Yamana Gold (NYS: AUY) does retain substantial liquidity even after its recent acquisition of Extorre Gold, but that miner's strong geographical focus upon South American assets makes it an unlikely source of direct competition, as I consider IAMGOLD likely to focus its own acquisitive efforts upon Canadian assets.
With far too many compelling opportunities to choose from, I'll stop short of speculating on a particular potential target (though you are welcome to do so in the comments section below). But, as a long-standing shareholder whose bullish CAPScall has already outperformed the S&P 500 by 62%, I'm content to wait and see what Steve Letwin and his team have in store. To continue tracking IAMGOLD and all the precious metal miners as the market breathes new life into these stocks, please bookmark my article list or follow me on Twitter.
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The article The 1 Gold Miner That's Ready to Pounce originally appeared on Fool.com.Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of AuRico Gold, Eldorado Gold, IAMGOLD, and Paramount Gold and Silver. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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