Iamgold used to relish its status as an upstart mining junior. You'd see motorcycles parked at the head office.
But recent acquisitions of cash-starved juniors have Iamgold on the edge of senior status among gold players, an evolution that has enormous upside for the stock price.
Iamgold's latest deal is a $139-million (U.S.) all-stock takeover of Orezone Resources, a company with a promising African property, but no money to develop a mine.
The transaction makes sense on its own merit, with Scotia Capital analyst David Christie weighing in Friday with a view that the purchase will add to Iamgold's net asset value and reserves and should be accretive to earnings per share and cash flow per share, if financing costs can be kept in line.
But the more important point is that adding Orezone's properties should change the way the market perceives Iamgold, moving the company up the ranks of gold producers. With a targeted output of 1.8 million ounces of gold each year, Iamgold joins the mid-tier and senior players in precious metals, and could start to command a far higher valuations, due to a perception of lower risks on gold production and reserves.
For perspective, industry leader Barrick Gold produced 8 million ounces last year. And at the end of the day, Barrick enjoys a premium in its valuations simply because it's big. Portfolio managers will pay more for gold plays that are large and liquid.
"We believe Iamgold will get re-rated due to the production growth from good quality assets," said Mr. Christie, who moved his target price on the stock from $7 to $8.50. Iamgold shares are changing hands Friday at $5.90.
Iamgold's financial adviser was Canaccord Adams, while Fraser Milner Casgrain provided legal advice. Orezone looked to BMO Capital Markets and Stikeman Elliott for advice on this transaction.
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