Iamgold Corp. Looks Cheap At The Current Price

Jun.11.13 | About: IAMGOLD Corporation (IAG)

Despite the decline in realized prices for gold, Iamgold Corp. (NYSE:IAG) -- a gold mining company based in Toronto -- has concluded a deal with the government in Suriname to expand the Rosebel gold mine and to extend the development partnership to 2042. Rosebel is one of the company's biggest gold mining operations, producing 385,000 ounces in 2011 and 382,000 ounces in 2012. Despite the falling prices of gold and the increasing costs, Iamgold has reiterated its confidence in the operation. Suriname is located in the northeast of the South American continent and the Rosebel mine is 95% owned by the company and 5% by the government.

First-Quarter 2013 Financials

The company reported a strong performance for the first quarter of 2013. The highlights included gold production of 188,000 ounces with sales of 171,000 ounces and revenues of $305.3 million. Total cash costs were $787 per ounce, which is $63 less than the lowest point of the guidance. Revenues for the quarter were $305.3 million, a decline of 14% year over year. The decline was the result of lower volume of gold sold ($39.1 million) and a lower realized price for gold ($11.5 million). The reduction in volumes was mainly related to lower production because of lower grades being processed at Essakane and the time lag between production and sales. Cost of sales for the quarter were $184.4 million, up 3% from the same quarter of the previous year due to higher than anticipated operating costs related to hauling distances at Rosebel, the mining and processing of harder rock, and higher depreciation charges.

Adjusted net earnings attributable to equity holders for the quarter was $57.7 million ($0.15 per share), down 37 % from $91.6 million ($0.24 per share) in the same quarter of the previous year. Net earnings attributable to equity holders was $10.9 million ($0.03 per share), down from $119.2 million in the prior-year period. The decrease was related to lower revenues and increased cost of sales ($54.4 million), impairment of investments ($22.8 million), losses on derivatives ($17.6 million) and unfavorable foreign exchange rates ($12.7 million). The impairment charge includes an $18.6 million impairment charge for the equity investment in INV Metals (ÌNV).

Cash generated from operations for the quarter was $99.5 million, down 33% from $149.7 million in the same quarter of the previous year mainly a result of lower revenues ($48.8 million). Operating cash flow before changes in working capital was $115.2 million ($0.31 per share), down 36% from $180.8 million ($0.48 per share) in the same quarter of the previous year. Cash, cash equivalents, and gold bullion was $863.3 million at the end of the quarter down $157.3 million from Dec. 31, 2012. The decrease was primarily because of capital expenditures related to mining assets and payment of dividends ($48.6 million), partially offset by cash flow from operations. As of March 31, 2013, there was nothing outstanding against the $750 million total secured revolving credit facilities.

Gold Production

For the Rosebel mines in Suriname, gold production at 89,000 ounces was 4% lower than the first quarter of 2012, though this was compensated for by higher grades and recoveries. Total cash costs were 13% higher year over year at $717 per ounce. Attributable gold production at the Essakane mine in Burkina Faso was 19% lower than the previous year at 65,000 ounces, and total cash costs were up 30% from the previous year at $729 per ounce. The Doyon division in Canada includes the Mouska Mine and the Westwood Mine. The Mouska Mine will close at the end of 2013, while the Westwood Mine started production at the end of the first quarter. The Westwood mine is processing stockpiled ore at the beginning, and the processing of ore will be stepped up through 2013 with commercial production expected to begin in October of this year.

In its first full year of production, the mine is expected to produce between 130,000 ounces and 150,000 ounces. Sadiola in Mali produced 19,000 ounces, 24% less than the prior-year period because of lower grades with cash costs of $1,043 per ounce. The Yatela mine, also in Mali, produced 10,000 ounces. That was 43% higher than in the same quarter of the previous year. Total cash costs were down 26% to $1,196 per ounce when compared with the same quarter of the previous year.

The Bottom Line

The company launched a program of to reduce costs by $100 million annually even before the price of gold crashed, showing that management has been proactive. Another important achievement was to reduce the country risk of West Africa by diversifying into production in the far more stable environment of Canada. The company has been successful in cost reduction efforts and acquiring additional projects to offset country and political risk. Despite the lower realized prices of gold the stock looks relatively cheap and well-run, making it a good buy in the gold miner space.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.