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Iamgold takes aim at the gold mining big leagues

Aerial view of the Essakane gold mine in northern Burkina Faso, owned by Iamgold Corp. of Toronto.

Geoffrey York/The Globe and Mail/Geoffrey York/The Globe and Mail

Steve Letwin, chief executive officer of midtier gold miner Iamgold Corp. , practically rubs his hands in glee as he talks about plans to propel the company into the major leagues in as little as five years.

With his Toronto-based company sitting on $1.4-billion in cash and with zero debt on the balance sheets, Mr. Letwin lays out a plan to nearly double production by 2017 from the current 850,000 ounces, with most of that to come from acquisitions, including one in coming months that will likely be worth between $400-million and $500-million.

"If we can't pull the trigger on something in the next three months that makes sense for our shareholders we haven't done our job," said Mr. Letwin, a 30-year resource industry veteran who has broken ground from Canada to Colombia to deepest Africa.

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"And if we're going to buy, we're going to buy now. These equities are ridiculously cheap, some of them."

Mr. Letwin said his mantra is to buy in the down cycles, especially when he's cash-rich while rivals are not, and there is less competition for assets even as equity valuations retreat.

Even with gold prices near record highs, gold company stocks have taken a beating in the past year, hurt by investor concerns that the industry is having a hard time adding value in a world where new deposits are increasingly rare.

The start of a slide in gold equity can be traced to the period shortly after Barrick Gold Corp.'s $7.3-billion takeover of Equinox Minerals Ltd. last summer. Investors say the bid for a copper miner by the world's largest gold miner sent a scary signal that there might not be much room left for growth in gold. That was compounded by woes at Toronto-based Kinross Gold Corp. , which forced to write down $2.94-billion on its flagship Tasiast mine project in Africa just a year after acquiring the asset.

Ballooning costs for everything from raw materials to skilled labour are fuelling investor concerns, leading some to look to other metals or asset classes.

Barrick shares are now trading at around $40 a share, compared with $55 in September, while stock in Kinross has been sliced in half in the same period, to $9 from about $18 in September.

"What I am saying is, what an opportune time to buy equities, to buy companies, and pay cash," said Mr. Letwin, who is looking to buy undeveloped gold assets in the Americas that can be developed for about $1-billion.

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"You've had juniors fall off 45 per cent to 50 per cent, some 70 per cent from a year ago," Mr. Letwin noted in an interview. "And when you look at the cost to acquire gold in the ground that has been pretty well-identified, you can buy an ounce of gold, pre-development, at around $65 to $70 an ounce. That's attractive."

Stock of Iamgold has also been battered, trading at about $12 now compared with almost $24 last November. He hopes this will not make his company a target and distract him from what he is describing as a "transformational" growth plan.

Mr. Letwin would not say much more about what he plans to buy, except that he wants to add between 400,000 and 500,000 ounces through acquisitions, and that there are likely five candidates worth looking at in his target geographies of North and South America.

Iamgold has operations in Canada, South America and Africa, with half its output coming from mines in Mali, and neighbouring Burkina Faso.

"From a risk-management standpoint, I like the idea of having a little more balance," said Mr. Letwin, noting that Iamgold production has not been affected by unrest in Mali, where a separatist mutiny has left half the country in the hands of rebels and Muslim extremists, fuelled by weapons from Libya. A military coup in Mali's capital has further exposed the fragility of the region.

Of $1.5-billion to be spent on a company-wide expansion of operations over the next five years – to add up to 300,000 ounces of annual gold production – more than half will go to the African mines, he said.

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Iamgold's cash-rich position, helped by the sale last year of stakes in two other African gold mines, could be further bolstered if it manages to divest its niobium asset in Quebec, which supplies it with $75-million to $90-million a year in cash flow.

The unit is sitting next to a massive deposit of largely light rare earth minerals and is already one of the world's largest producers of niobium, used to lighten and strengthen steel for the auto industry.

Mr. Letwin said he has already hired bankers to run a parallel process to either take the so-called Niobec unit public, in Toronto or Hong Kong, or sell it outright. He said Iamgold was at the table with prospective buyers a year ago when European debt woes saw equity markets spiral again.

"If somebody came along and said, 'Here's $1.5-billion for this,' probably we'd sell it and use that to fund more gold production," he said. Alternatively, the company is pursuing a $1-billion expansion of the mine to triple output.

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