IAMGold: The Time for Action is Now

Thanks to the French government's decision not to permit the Camp Caiman project, the future production decline at Iamgold Corp. (IAG) "has steepened considerably over the next few years," according to Dundee Securities analyst Mark Smith. He figures that some sort of corporate action needs to be taken to reverse that declining production profile. But what to do?

Management has indicated that it is looking to make an acquisition in the Guyana shield, and Mr. Smith is not certain that is a great idea.

In a note to clients he wrote:

The company's recent history of making accretive acquisitions has been less than stellar. We would anticipate it would not use script, given [Iamgold's] undervalued paper. Thus if it were to make an acquisition, the company would likely opt for cash.

Mr. Smith pointed out that the current C$250-million in cash and bullion is "insufficient" for a meaningful purchase, but Iamgold could have up to C$800-million available if it used a credit line and sold non-core assets such as its Diavik diamond royalty and Niobec mine. The problem is that such a move would leave it cash-strapped. All the same, Mr. Smith believes Iamgold could take a run at a company such as Guyana Goldfields Inc., or it could make use of its C$600-million tax pool in Quebec and bid for Aurizon Mines Ltd. (AZK) or Osisko Exploration Ltd.[OSK/TSX].

However, Mr. Smith also offers another solution: instead of blowing the bank on an acquisition, Iamgold could invest heavily in exploration on its Rosebel property in Suriname to convert some of the 5 million ounces of additional resources into reserves.

He wrote:

A home-grown success at Rosebel could reverse sentiment towards [Iamgold], allowing the company to strengthen its share price and then to utilize its paper for subsequent acquisitions and growth.

Iamgold needs to do something soon. Otherwise, Mr. Smith figures its valuation gap with its peers will widen further and the company will become a potential takeover candidate.