We gained exposure to IAMGOLD (IGD) through the merger with our long term holding Gallery Gold in early 2006. Following completion of the merger, the Canadian domiciled IAMGOLD listed on the ASX via Chess Depository Interests (CDI). Given our bullish view on gold, we valued this exposure to a quality mining company, otherwise unavailable domestically.
| "Although the long-term upward trend remains in place, this failure to rally on the back of firmer gold prices does raise questions about the strength of investor support for the stock." |
At the time of listing on the ASX, the CDIs represented 18 percent of IAMGOLD's share capital. Since then many CDI holders have converted to common stock. In addition, the recent Cambior merger (covered in FAT 297) has almost doubled the share capital. Consequently, the CDI portion of IAMGOLD's share capital is now only 1 percent.
Not only are the CDIs a small weight of issued capital, the trading volumes are also very low. The result being management do not feel the additional expense and administration required by an Australian listing is justified. IAMGOLD will therefore delist from the ASX effective 30 March.
By now, investors holding the CDIs will have received an information pack detailing the available options. In summary, these are:
1. Sell through normal channels up to the suspension date (March 23rd).
2. Sell via an IAMGOLD facility during the 3 months following delisting.
3. Allow IAMGOLD to bear the costs of transferring the registration to Canada.
4. Do nothing.
While we continue to believe IAMGOLD represents an attractive exposure to the ongoing gold bull market and in particular the high growth African gold sector, for ease of portfolio management we recommend Members sell their stock on market.
In recent weeks, we would have expected to see a stronger share price performance from IAMGOLD given the significance of the break in the gold price above US$650 an ounce.
Viewing the primary Canadian listing, the stock continues to drift sideways between initial resistance at C$10.63 and support at C$9.50. Although the long-term upward trend remains in place, this failure to rally on the back of firmer gold prices does raise questions about the strength of investor support for the stock.
As an alternative, we recommend switching into Lihir Gold (LHG). We recommended Lihir last week and while the price is slightly higher than our recommended buy price, for longer term investors we remain comfortable buying around $3.25.
To reiterate, we recommend selling IAMGOLD around $1.10. The company will be removed from the Fat Prophets Portfolio.
Interests associated with Fat Prophets disclose a holding in IGD
DISCLAIMER
Fat Prophets has made every effort to ensure the reliability of the views and recommendations expressed in the reports published on its websites. Fat Prophets research is based upon information known to us or which was obtained from sources which we believed to be reliable and accurate at time of publication. However, like the markets, we are not perfect.
This report is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each recommendation for their own specific circumstances and realise that not all investments will be appropriate for all subscribers.
To the extent permitted by law, Fat Prophets and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information within the report whether or not caused by any negligent act or omission. If the law prohibits the exclusion of such liability, Fat Prophets hereby limits its liability, to the extent permitted by law, to the resupply of the said information or the cost of the said resupply.
As at the date at the top of this page, Directors and/or associates of the Fat Prophets Group of Companies currently hold positions in ABB Grain (ABB), Aurora Minerals (ARM), Austal (ASB), Australian Wealth Management (AUW), Avoca Resources (AVO), Avexa (AVX), Argo Exploration (AXT), BHP Billiton (BHP), Babcock & Brown Japan Property Trust (BJT), Boart Longyear (BLY), Biota Holdings (BTA), Catalpa Resources (CAH), Catalpa Resource Options (CAHO), Coeur D'Alene Mines (CXC), Fat Prophets (FAT), Fat Prophets Options (FATO), Fosters Group (FGL), Global Mining Investments (GMI), Lihir Gold (LGL), Lion Selection (LST), Macarthur Coal (MCC), Maryborough Sugar Factory (MSF), Mundo Minerals (MUN), Mineral Securities (MXX), Mineral Securities Options (MXXO), Newmont Mining (NEM), Oil Search (OSH), Oz Minerals (OZL), Progen Options (PGLO), Platinum Australia (PLA), QBE Insurance (QBE), Rio Tinto (RIO), Roc Oil (ROC), St Barbara (SBM), Sirtex Medical (SRX), Territory Iron Ord (TFE), Telstra Corporation (TLS), Tox Free Solutions (TOX), View Resources (VRE), View Resources Options (VREO), Walter Diversified (WDS), Woodside Petroleum (WPL), Merrill Lynch Gold Fund, Platinum Japan Fund, Gold Bullion. These may change without notice and should not be taken as recommendations.
The above disclaimer does not apply to investments held by the Fat Prophets Australia Fund Limited ACN 111 772 359 (FPAFL).