DOING SOME DIGGING Stirring the Ashes of the Wheaton/IamGold Deal

Not every idea soars skyward in the corporate world. Shot down by IamGold shareholders, the planned merger of WHEAT...
Not every idea soars skyward in the corporate world. Shot down by IamGold shareholders, the planned merger of WHEATON RIVER MINERALS and IAMGOLD CORP. has crashed and burned. Let's sift through the ashes in the hope of finding where the deal went wrong.

When IamGold and Wheaton River announced at the end of March 2004 that they intended to combine their enterprises and create a 1-million-oz/year gold producer, the deal looked like the perfect fit. The new company (to be named Axiom Gold) would have operating interests in seven gold mines in the America, West Africa and Australia. It forecast total cash operating costs would be less than US$100/oz for 2004. Supporting it would be reserves in all categories of nearly 24 million oz and US$300 million in cash and gold bullion.

Wheaton had made itself a notable gold miner over the previous 15 months. It bought into the Alumbrera gold/copper mine in Argentina, the Los Filos and El Limon gold deposits in Mexico, and the Amapari gold project in Brazil. Profits were rocketing upward, notably an increase of 700% during the first quarter of 2004, on top of 2003 earnings that jumped 900% over the previous year. Cash costs per ounce were down, production more than tripled, and the Wheaton share price had risen from a few cents in Jan 2002 to bounce around the $4-mark during the first quarter of this year. Wheaton was the classic success story.

Meanwhile, IamGold shares which had been trading at about $4 in January 2002, bounced around until they hit a high of almost $11 in November 2003, which management lauded with a 20% increase in its annual dividend. The share price has continued to bounce, closing recently at almost $9. Since June 2003, the company had entered into exploration joint ventures in Brazil, Ecuador, Argentina and Africa. Its interests in the Sadiola and Yatela gold mines in Mali were making money. IamGold was headed for success in its own right.

I saw nothing to dislike about the proposed Wheaton/IamGold merger. Here was a Canadian success story and an up-and-comer ready to join forces and create a powerful international gold producer.

As media attention turned its attention to the deal, I wasn't the only one who noticed. COEUR D'ALENE MINES entered the fray, offering to purchase control of Wheaton. GOLDEN STAR RESOURCES jumped in with an offer for IamGold. Thus began six weeks of jockeying for positionoffers followed by rejections, management supporting the Wheaton/IamGold merger (which they did right to the end), counteroffers and improved offers, analysts taking positions on both sides of the idea, a shareholder vote and revote, postponed meetingsand finally IamGold investors said "No" to the merger.

That does not mean either Wheaton or IamGold management endorses the proposed takeovers. Late last week Wheaton said it does not intend to negotiate with Coeur d'Alene; instead, Coeur is going ahead with a hostile takeover. IamGold has struck a special committee to pursue alternatives to a combination with Golden Star, and has adopted a short-term shareholder rights plan in a bid to slow down its unwanted suitor.

I consider operations and mineral output as important criteria in assessing a mining company. I don't follow the share prices because I have no money riding on the bottom line. But shareholders think differently; to them it is the money. If Wheaton and IamGold investors are patient, a more lucrative offer will probably come along.


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