A syndicate of Bay Street underwriters is carrying unsold shares in Canadian gold mining company Iamgold Corp. after they mispriced a US$300-million bought deal financing, two sources told The Globe and Mail.
Toronto-based Iamgold announced the equity financing after the close on Tuesday at US$4.17 a share, a discount of 7.1 per cent to its closing price. The company trades on the Toronto and New York stock exchanges.
The bought deal was led by National Bank Financial Inc., BMO Nesbitt Burns Inc. and RBC Dominion Securities Inc.
In this type of financing, the company that issues new stock gets the proceeds, regardless of whether underwriters are able to flip all the shares.
Graeme Jennings, vice-president of investor relations with Iamgold said in an interview that the bought deal had closed on its end, and the company had already received the funds.
“We have good support for shareholders,” he said. “That’s really all we can comment on from our side. You’d have to talk to the brokers for their view.”
The Globe reached out to the lead bankers at National, BMO and RBC for comment but did not receive a reply.
When a bought deal goes well, underwriters are able to sell the shares to institutional buyers in a matter of hours, usually before the stock market opens the next morning.
But almost three days later, the two sources said that around 20 per cent of the Iamgold shares being offered for sale were left unsold.
The Globe is not identifying the sources because they were not authorized to speak publicly.
While it’s not uncommon for the shares of companies that raise money in bought deals to trade down the day after a deal is announced, owing to dilution, if the deal is priced correctly, the stock won’t trade below the bought deal price.
There were immediate signs the Iamgold deal was in trouble because its shares dropped by 10.7 per cent on Wednesday, closing at US$4.01, well below the bought deal price. The shares fell even further on Thursday to US$3.87. On Friday, the stock closed at US$4.00.
Making matters worse for underwriters, gold prices have come under some pressure in recent days.
When bought deals are “hung,” such as this one, underwriters have several options. They can bide their time and wait for the gold market to recover, which may drive Iamgold’s share price above the bought deal price, thus putting the dealers in a position to flip their shares.
They can “break the syndicate,” which means every broker is on its own, and each can decide whether it wants to sell shares at lower prices or hold on to them.
Or underwriters can conduct a “cleanup trade,” which means agreeing en masse to sell what’s unsold at a lower price than the original bought deal price.
Iamgold said it is using proceeds from the bought deal to buy an additional 9.7-per-cent stake in its Côté Gold Project from its joint venture partner, Sumitomo Metal Mining Co. Ltd. Iamgold’s stake will rise to approximately 70 per cent as a result of the transaction, with Sumitomo’s share falling to roughly 30 per cent.
Underwriters were set to earn a 4-per-cent commission on the original bought deal. The other banks in the syndicate are CIBC World Markets Inc., Scotia Capital Inc. TD Securities Inc. Canaccord Genuity Group Inc. and Cormark Securities Inc.