Iamgold Completes $489 Million Corporate Loan Redemption

The improvement in its capital structure will enhance company's ability to sustain its pipeline of projects

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Iamgold Corp. (IAG, Financial) informed the stock market April 2 that its old corporate loan of $489 million, made of 6.75% bearing interest rate senior notes and with maturity in October 2020, has been refunded to its bondholders.

It has been possible for Iamgold to extinguish the old 6.75% corporate loan thanks to the net proceeds that came in from the issuance of a new corporate loan of $400 million. The new corporate loan is made of 7% bearing interest rate senior notes with maturity in 2025. For the redemption of the old corporate loan, Iamgold has also used some of its liquidity from cash on hand.

The completion of the new corporate loan offering was announced by the Canadian midtier gold producer through its web site on March 16.

The business of Iamgold, like any other gold mining company, depends on the price of gold, which is becoming more and more difficult to predict due to the uncertainty of the financial markets. Therefore the company's decision – expressed by Carol Banducci, Iamgold’s executive vice president and chief financial officer, with her comment on the $489 million corporate loan redemption – to "support its ability to fund its growth pipeline" over the coming years through an improvement in the capital structure of Iamgold is understandable.

If the price of gold will not increase as expected and to the extent that Iamgold will mine its reserves at profit, in the presence of an overly aggressive capital structure, the company will not be able to ensure sufficient financial resources to be invested in projects it is advancing and on which Iamgold's successful completion the future production depends.

By extending the maturity of its long-term debt from 2020 to 2025, the Canadian miner decreases the annual portion of free cash flow to be set aside and used for the repayment of long-term debt of $400 million so that it will have more resources that can be used to upgrade its assets base should the future internally generated cash flow be stressed too much by a low gold price.

Iamgold is carrying out a series of gold projects with the intention to increase future gold production, to reduce the cost to extract and process one ounce of gold and to enhance the quality of its mineral resources.

Recently, the Canadian gold producer provided the market with an update concerning the development of the Saramacca project (Suriname), where “Iamgold is shaping a high-grade deposit at Saramacca,” I wrote for GuruFocus, and a National Instrument 43-101 will be available to investors before the end of the third quarter of 2017.

In the northeastern part of Ontario, Canada, Iamgold is laying the foundation for a highly profitable asset with its Côté Gold Project.

In line with its strategy to hold a broader range of mineral resources in the prolific Kayes Region in Mali, West Africa, Iamgold completed the acquisition of Merrex Gold Inc. (TSXV:MXI), a gold, lead and zinc exploration company headquartered in Canada, on Feb. 28.

In addition, at its Boto Gold Project located in the eastern part of Senegal (West Africa), drillings are proceeding as planned and Iamgold is defining another high-grade gold deposit.

Iamgold is currently trading at $4.21 per share with a price-sales (P/S) ratio of 2.02 and a price-book (P/B) ratio of 0.86. The gold stock is uptrending again since mid-March after a sizable pullback and gained 9.35% year to date.

The EV/EBITDA ratio is 5.47.

Disclosure: I have no positions in any stock mentioned in this article.

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