Iamgold (NYSE:IAG) (TSE:IMG) has reached a deal to sell its Niobec mine in Quebec, one of the world's three niobium producers, to a group of companies led by Toronto-based Magris Resources, for US$500 million in cash.
Magris is headed by Aaron Regent, a mining veteran who has previously been CEO of two major Canadian miners -- Barrick Gold (TSE:ABX), and Falconbridge, a copper and nickel producer that was later sold to Xstrata.
The sale of the mine, which is located in the Saint-Honore-de-Chicoutimi region, also includes the adjacent rare earth element deposit. Iamgold will get another US$30 million once the rare earths deposit goes into commercial production, making the total value of the Niobec deal worth US$530 million.
The US$500 million cash payment will be payable at closing. A 2 percent gross proceeds royalty will also be paid out on any rare earth element production, Iamgold said.
"This sale unlocks the value of Niobec for our shareholders, positions Iamgold as a pure gold play and significantly improves our liquidity, which provides us with the opportunity to further improve the grade and cost structure of our portfolio of gold assets," said president and chief executive officer, Steve Letwin in a statement released prior to market open on Friday.
Niobec was acquired by Iamgold in 2006 as part of a larger transaction, and has been a steady contributor to its operating cash flow ever since.
Niobium is mainly used in the form of ferro-niobium to produce high strength, low alloy steel, for use in automotive, structural and pipeline applications, and demand is seen increasing as the U.S. currently imports 100% of its niobium needs. Current annual demand is between 80,000 and 100,000 tonnes, growing at a rate of 4 to 6 percent per year.
Iamgold said the sale will give it additional cash to invest in the growth of its gold portfolio, as part of its efforts to be free cash flow positive at its owner-operated gold mines, including capital spending.
However, the gold giant emphasized that it will take a disciplined approach to investment, seeking out only "appropriately-sized opportunities" that improve its overall cost structure and cash flow generation. If there are no such opportunities, the company would instead consider reducing its debt load.
Aside from Magris Resources, the group of buyers of Niobec includes Hong Kong-based investor CEF Holdings, which is owned 50 percent by Cheung Kong Limited and 50 percent by CIBC, and Singapore-based investment manager Temasek.
Iamgold, after receiving the $500 million in proceeds, will have liquid assets of over $800 million, in addition to the $500 million in unused credit facilities.
The company said based on current estimates, the deal is expected to result in a gain of about $50 to $60 million. It is anticipated to close in the fourth quarter, subject to regulatory approvals.
Iamgold shares hit a 52-week low of $2.94 on Thursday and closed just above that at $3.04. Shares fell by almost 1 percent in early deals Friday, to C$3.01 in Toronto.