Here's the main problem for VSR. IT'S IAMGOLD
Today's biggest gainer among Canadian gold miners was indisputably Maryse Belanger's Iamgold Corp. (IMG), which surged 61 cents to $3.11 on 7.2 million shares. Iamgold did have news, as it closed what analysts have called a "funding gap" regarding construction of the massively over budget Cote mine in Ontario. Cote was a $1.15-billion (U.S.) project when it cleared feasibility in 2018. The budget has been bumped several times since then and with construction continuing, the latest estimate puts the full cost at about $3-billion (U.S.).
So, late yesterday, Ms. Belanger, chairman and interim president and chief executive officer, revealed that the company is trading a 10-per-cent interest in the Cote joint venture to Sumitomo Metal Mining Inc. in exchange for Sumitomo covering an estimated $340-million in cash calls next year from the joint venture company, owned by Iamgold and its 30-per-cent co-venturer, which of course is Sumitomo.
The good news is that this is not an irrevocable transfer. Iamgold will have several opportunities to buy back its interest over the next three years -- essentially repaying what it receives from Sumitomo and covering all cash calls pertaining to the transferred 10-per-cent portion of Cote, plus -- naturally -- a significant amount of interest.
Ms. Belanger says that it is the intent of both Iamgold and Sumitomo "for Iamgold to return to a 70-per-cent interest in the project," adding that she and her crew are also working concurrently on other possible financing alternatives to "strengthen its business, improve its liquidity and reduce amounts drawn on [its] credit facility." These new alternatives would place the company in a strong position to return to a 70-per-cent interest in Cote, she says.
Just hours later -- also before the open -- Ms. Belanger dropped her other shoe. Iamgold is selling its interest in exploration and development projects in Senegal, Mali and Guinea, known collectively as the Bambouk assets. In return, the company will receive $282-million (U.S.) -- providing Iamgold with enough cash, Ms. Belanger cheers, to cover Iamgold's remaining capital expenses to complete Cote.
And why is Iamgold so doggedly pursuing Cote, you ask? Well, in August, Ms. Belanger applauded a new life-of-mine plan for Cote that she described as "transformational for Iamgold." She was right, but so far at least, not in a good way -- just take a glance at Iamgold's stock chart for the past two years. The study credits Cote with a discounted net present value of $1.1-billion (U.S.) after taxes and an internal rate of return of 13.5 per cent -- not counting all the sunk costs so far.
When complete, and Cote is about 70 per cent complete, the mine is projected to run for 18 years, averaging nearly 500,000 ounces of gold per year, purportedly with all-in sustaining costs of about $850 (U.S.) per ounce. And when will this start? Ms. Belanger cheers that the mine is "on track for production in early 2024," leaving plenty of time for further cost overruns.