The Iamgold conference call had a fairly long section at the end with analysts’ questions. I have covered Iamgold’s successful cost cutting effort at length (all-in cost reduced $114/oz. over last year), so there is no need to repeat it here. CEO Letwin did confirm that the company is “starting to see benefits of lower fuel costs.” He stated IAG will be free cash flow positive in 2015.

Other new points: “The government of Mali is doing very positive things” to help at Sadiola. I have assigned zero value to that mine.

This call did give clues as to the general thinking of producers. They are still looking at optionality. That’s good because the “market” has assigned zero value to this. The common strategy is to curtail higher cost mines and projects and replace with lower cost. He defined “lower cost” as under $1,000 all-in cost, and “the lower the better.” That would be every hyper-depressed name I have used here. Take note: there are not that many.

Incidentally in looking at various company gold production guidance I get the general impression that global output may already be down by 2-3% (say 60 tonnes).

Letwin also offered a clue as to the companies that would be “opportunistically” targeted (by everyone). Here you have very low hanging fruit producers, like Luna.  Luna needs a very modest capex to finish phase II to increase production and lower costs.

“The perfect storm Doug would be companies that have attractive investment opportunities they can’t fund. And if we combine with them and bring cash to the table, we’re able to provide the cash that would develop a lower cost operation. But physically they can’t achieve because they don’t have the balance sheet.”

He went on to say they are interested in producers or near producers. Again, not too many of those under 1,000 AIC. Personally, with IAG’s cash and liquidity, I think they are the best bulls eye of all for this in the “market.”

But a scarfable producer that would benefit from a cash infusion would most certainly be Allied Nevada. Reducing or refinancing their debt with a stronger entity brings operational breakeven down maybe $200-$250 an ounce (if the debt is eliminated), and leaves the acquirer with a very long-life mine and good expansion economics.

Another would be producer Teranga, which really could be scarfed or stolen without much use of the balance sheet cash at all. The current valuation there makes little sense when viewed through the lens of an Iamgold or other producer.

There is a small, finite group of low-capex high-IRR projects under construction. True Gold, Asanko, Torex and Guyana are underway with production a year out. The first two are my favorite among this breed. Then there are high IRR projects that are permitted, but will need to be built by others, like Victoria’s Eagle Rock. Once Pretium is permitted, that will be the top target in the world.

Letwin indicated they have been “getting lots of calls” from shareholders about what to do with the cash. The natives have been restless for some time, and I believe there is HUGE pressure. The M&A crowd must be swirling, and these constant price attacks on the stock is part of that game. I would call on them to immediately undertake a serious share mop up under two bucks,  to withhold some gold from the market,  and make a low hanging fruit acquisition.

Several analysts were pushing for the idea of buying back debt, which is currently at 80 cents on the dollar, yielding 11%. There is $650 million (valued in market at $520 million) due in 2020. So knocking that down some (if they could buy it) would enhance cash flow.

Letwin was trying to calmly give the impression they were in no rush, but $865 million (just counting working capital and Nibec proceeds, not credit line)  burning a hole in their pocket is no option. He is probably waiting for the $530 million Niobec check to clear in January. Post-Niobec, IAG will have an enterprise value under $500 million, and that’s if you assign full par value to the debt.

But that is negotiating posture for deal making. At the Denver Gold Forum, Letwin revealed he had 20 one-on-one meetings with other companies. The issue: IAG is as much the acquisition target as the acquirer,. This is a snooze-you-lose balancing act with time being of the essence.