TickerTrax Values TRR Buyout at $125/oz From report on junior valuations posted Friday PM: "I have been hoping that this level of pessimism signals a grossly oversold condition and we would see a bottom very soon. What may help is news this morning that Iamgold has launched a takeover of Trelawney in Ontario. The stock hit rock bottom last month and the takeover came once a resource report was released along with annual financials.
Gold valuation paid is important to note
The fully diluted in-the-money value of the transaction is approximately $608-million with an enterprise value of $505-million net of cash.
Even assigning 50% to the Inferred gold resources, the $505 million enterprise value (after removing cash held by TRR) values TRR's gold at approx. $125 per ounce. It is difficult to estimate fair value per ounce because Inferred resources require significant capital (drilling) to move them into a proven category.
Internally the companies obviously have a formula they have used but this April 27th acquisition is important because it helps set a benchmark on high-quality undeveloped gold assets in Canada. Other than capitalized expenditures on acquisitions and exploration, Iamgold was paying for little other than ounces in the ground (see below their reasons for the acquisition).
In our monthly gold valuation table we only give a company credit for 20% of their Inferred resources. If we gave them a higher percentage it would make the current average valuation per ounce even worse because we would then be diluting their enterprise value by a larger number of ounces.
The acquisition target was located in Ontario, Canada. TRR had an indicated resource of 35 million tonnes averaging 0.82 gram per tonne for contained gold of 930,000 ounces and an inferred resource of 204 million tonnes averaging 0.91 g/t for 5.94 million ounces of contained gold. The company also had approx. $100 million in cash with 140 million shares outstanding.
It is important to note Iamgold reasons for the acquisition
- Increases Iamgold's inferred resources by 95 per cent and measured and indicated resources by five per cent;
- Attractive location in northern Ontario's highly prospective gold-producing region;
- Expands geographic footprint in one of the world's friendliest mining jurisdictions;
- Provides a more geographically balanced portfolio, where Canada will account for 35 per cent of the resource base compared with preacquisition of 18 per cent;
- Significant exploration/expansion potential near current resource;
- Large 516-square-kilometre land package;
- Step-out drilling continuing to expand mineralization;
- Financial strength;
- Iamgold and Trelawney with strong balance sheets with minimal debt;
- Timing of the potential development allowing project to be financed from internal cash flow and available credit facilities;
- All-cash transaction provides significant gold resource leverage with no dilution to Iamgold shareholders."