IAMGOLD and Cambior, both large goldminers, announced a friendly all share merger that will create a new one million oz producer, which puts the new company into the top tier.

Immediately after the merger was announced on Sept 4, the IAMGOLD stock tanked (IAG on AMEX and IMG on TSX). This was perceived by the market as a deal similar to Goldcorp's bid for Glamis, which favors the shareholders of the company being taken over " in this case Cambior (CBJ on both AMEX and TSX).

Management (Joe Conway) says the deal is accretive to IAMGOLD's NAV (+2-pct), 2007 forecast production (+5-pct), total reserves/resources (+15-pct), mineable reserves (+19-pct), and 2007 EPS (+21-pct).

Under the terms of this transaction, IAMGOLD is offering 0.42 of an IAMGOLD share for each Cambior share. The bid valued Cambior at C$4.83/sh, representing a 31.5% premium to the last close. The transaction requires the approval of a 75-pct vote of Cambior shareholders on November 7, 2006.

I cannot fathom the transaction not being approved given the 31.5-pct premium paid to Cambior shareholders and the low probability of a competing bid given Cambior's lengthy search for a suitor. But this is also a good fit. I like it like I liked the Goldcorp-Glamis deal, although the IAMGOLD shareholders did get screwed, in my view, just like the Goldcorp shareholders (re Glamis).

Surely these deals could be structured in such a way as to benefit shareholders of both companies, given that the deal is accretive.

The new IAMGOLD would have 313 million shares outstanding after issuing 137 million shares to Cambior shareholders. There would be C$60 million in long term debt and C$211 million of cash. The combined company would also have existing gold hedges of 357,000 oz (ie, US$214 million that was sold forward to cover past expenses), which management claims will be reduced to zero asap.

The new company would be a one million oz gold producer, which puts it at the bottom of the top tier of gold producers. Cash costs are forecast to average ~$320/oz over the next several years, which is an increase of ~$20/oz from current levels.

Gold reserves are forecast to double from 5.0 million to 9.7 million oz. The merged company has an intriguing project pipeline, with Caiman and Buckreef in 2008E start-up, Westwood at Doyon in 2009E, and La Arena and Quimsacocha in 2010E. These projects should allow the company to maintain a one million oz plus production rate past 2010.

For a detailed review by Wall Street analysts, here are some comments:

"We expect IAMGOLD's third quarter results to come in below its strong second quarter results, but in line with consensus expectations. We expect production from the Sadiola and Yatela mines in Mali to return to levels experienced in the first quarter, and production from Tarkwa and Damang is expected to be flat to slightly up from second quarter levels. Production from the Mupane mine, acquired in Q1, should continue to improve, though at a slower rate than was originally expected. We expect Mupane to produce ~65koz to IMG's account in 2006. For Q3 we forecast EPS of $0.13, in line with current consensus expectations; IAMGOLD is trading at 2.32x estimated NAV, a discount to the North American mid-tier producer average of 2.36x. Our US$13.00/sh price objective is based on IAMGOLD trading at 2.5x NAV, well below the 3x peak multiple ascribed for growth gold stocks."

I'm going to stick with the US$13.00 PT. On the one hand, I am more optimistic regarding commodity prices than many (but not all) of the Wall Street analysts, which would boost earnings and resource valuations, but there could be issues facing the company's operations in Ecuador. There is a national election there this week, which is likely to go to the leftist candidate Correa " the friend of Venezuela's Chavez. I'd like to see how that might implicate the affairs of this company.

N any event, the price correction of Sept 4 says it all. The IAMGOLD shareholders feel that Cambior shareholders ended up with the gold and IAMGOLD shareholders got the shaft. That's how these things go.

As mergers and acquisitions in this industry are expected to ramp up, and in this case Joe Conway, like Ian Telfer of Goldcorp, is a deal-maker, expect more to come.

In the long-run, consolidation is excellent for shareholders, but short-term traders often get caught unawares.

Risk of my price objective of US$13.00 for IAG not being attained are unforeseen operating problems, commodity price weakness and/or political issues in Ecuador that may affect the promising Quimsacocha gold deposit.

BTW, I think that Ecuador is potentially the next Nevada " but that is from the perspective of undiscovered (but immensely promising) and undeveloped mineral resources there.

If only countries like Venezuela, Ecuador and the U.S. could manage to get along! The U.S. has the money (and the others have the assets), but investors don't want to walk away with nothing but the experience, as they say.

For readers who are interested in IAMGOLD as an intermediate size goldminer with solid profit growth potential, I urge you to review their 20-minute presentation at the recent Denver Gold Forum. IAMGOLD

Also, the Cambior presentation should not be missed either. Cambior

IAMGOLD [GICS 15]
(IAG: Yahoo Finance file)
(IAG: StockChart chart)
(IAG: Investertech chart)
(IAG: ADVFN Financial Data)
(IAG: ADVFN Financial Data)

Cambior [GICS 15]
(CBJ: Yahoo Finance file)
(CBJ: StockChart chart)
(CBJ: Investertech chart)
(CBJ: ADVFN Financial Data)
(CBJ: ADVFN Financial Data)