Commodities & Metals

Will a $1 Billion Capital Raise Lead to More Smaller Gold Company Mergers?

It’s not every day that a $2 billion gold company sets the stage to raise up to $1 billion via new securities sales. IAMGOLD Corporation (NYSE: IAG) has filed a mixed shelf registration statement with the Securities and Exchange Commission for $1,000,000,000. The shelf will allow it to sell series of common stock, first and second preference shares, debt, warrants and also subscription receipts.

IAMGOLD said in its SEC filing that the net proceeds from the sale of securities will be used for general corporate purposes. This was shown to include funding ongoing operation and/or capital requirements, reducing debt outstanding from time to time, discretionary capital programs, and even to fund potential future acquisitions. More specifically, IAMGOLD said that each prospectus supplement will contain specific information concerning the use of proceeds from that sale of securities.

Here is what gets interesting about IAMGOLD’s balance sheet from the end of 2017. The company listed $664 million in cash, another $127 million in short-term investments, and another $111 million in long-term investments. That’s about $900 million combined, without even getting to another $170 million in accounts receivable. IAMGOLD’s total assets were listed as $3.96 billion.

The company has a mere $1.17 billion in total liabilities, and only $391 million is long-term debt. That left a total net tangible assets (assets minus intangible assets and minus all liabilities) of $2.79 billion. Its most recent quarterly report showed a $0.03 per share loss on revenues of $291 million.

IAMGOLD has a market cap of $2.3 billion. It gets pretty easy to imagine that IAMGOLD is about to make an acquisition effort, or even becomes feasible that the company may fend off a deal. That of course discounts any of the ongoing news that many have been released since the start of 2018.

IAMGOLD explores for and operates gold mining properties in North America, South America and in West Africa. The Toronto-based gold miner also explores for copper and silver. Its market cap of $2.3 billion gives it a price-to-book ratio of only about 0.82. Unfortunately, a Finviz screen shows that this is only the 15th largest U.S.-listed gold stock by market cap with another 25 companies smaller. That being said, IAMGOLD is shown to have the lowest price/book ratio of all but one of the larger gold companies — but 8 of the next 25 smaller companies (some of which lose money have a price/book value of under 1.

Back in the first half of February, IAM GOLD issued the following reserves data:

  • Total attributable Proven and Probable gold Reserves increased by 86.0% to 14.5 million ounces at the end of 2017 from 7.8 million ounces of gold at the end of 2016.
  • The addition of 6.7 million ounces was primarily due to conversion of Resources to Reserves at the Côté Gold Project in Ontario, Canada and at the Boto Gold Project in eastern Senegal, West Africa following positive results from the Pre-feasibility Studies, coupled with the previously announced Reserve increase at the Rosebel Gold Mine.
  • These increases were partially offset by depletion during the year given the Company’s attributable gold production of 882,000 ounces.
  • There was no change in the $1,200 per ounce gold price assumption for estimating Mineral Reserves at the company’s owned and operated mines.
  • Total attributable Measured and Indicated gold Resources (inclusive of Reserves) increased overall by 6% or 1.4 million ounces to 24.7 million ounces of gold at the end of 2017.
  • Total attributable Inferred gold Resources increased overall by 44% or 2.7 million ounces to 8.8 million ounces of gold at the end of 2017.

IAMGOLD gave 2018 production forecasts back in January as follows:

  • Attributable gold production between 850,000 and 900,000 ounces.
  • Cost of sales between $765 and $815 per ounce.
  • Total cash costs between $750 and $800 per ounce.
  • All-in sustaining costs between $990 and $1,070 per ounce.
  • All-in sustaining costs and cash costs per ounce expected to trend downwards in second half.
  • Exploration continues to target additional resources at Saramacca, Essakane, Boto, Siribaya, Monster Lake, Nelligan and Eastern Borosi.
  • Capital expenditures of $365 million ±5%, with sustaining capital at a level consistent with 2017 and non-sustaining capital higher mainly due to the development of Saramacca and Essakane’s heap leaching project.

At $4.89 for its U.S.-listed shares, IAMGOLD has a 52-week range of $3.36 to $7.25 and it has a consensus analyst target price of $7.65 in the Thomson Reuters sell-side universe.

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