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IAMGOLD Corporation (IAG)

Q4 2009 Earnings Call

February 17, 2010 11:00 AM ET

Executives

Peter C. Jones - Acting Chief Executive Officer, Director

Carol T. Banducci - Chief Financial Officer, Executive Vice President

Gordon Stothart - Chief Operating Officer, Executive Vice President

Analysts

Paul Burchell - Dundee Securities Corporation

Heather Douglas - Thomas Weisel Partners

Steven Butler - Canaccord Adams

Sarah Hassan - ASA Limited

David Christie - Scotia Capital

Isudu Sanive - Equinox Partners

Peter Jones

Good morning and welcome to IAMGOLD's Fourth Quarter and Year-end Financial Results Conference Call. I am going to be going over the highlights of the fourth quarter and full year results followed by a question and answer period. I would like to remind you to please take note of our standard cautionary statement.

Joining me this morning are Gordon Stothart, our Chief Operating Officer, Carol Banducci, our Chief Financial Officer and Mike Donnelly, Vice President of Exploration. They would be here to answer questions at the end when we have the Q&A session.

In terms of our highlights, the fourth quarter was a solid quarter in a very good year. Adjusted net earnings of $0.11 a share represent 152% increase over Q4 of last year. Excluding the impact related to changes in asset retirement obligations for certain closed properties and impairment of the carrying value of marketable securities, adjust net earnings for the quarter were $0.15 a share.

We've maintained a strong balance sheet and have over $420 million in available funds. The Sadiola deeps pre-feasibility study was approved by the Sadiola joint venture board in the fourth quarter and the feasibility study is now in progress. This is another illustration of the company's continued commitment to organic growth and maintains our focus on Sadiola as a long-term asset.

We definitely had a great year in terms of our stock performance. The rising gold price helped, but looking back at the full year, you can see that IAMGOLD out performed the gold index by nearly 150% delivering leading shareholder value compared to many of our peers.

Some of the ways that IAMGOLD consistently delivered results throughout 2009 included exceeding our original production guidance by 7% and achieving record production on Rosebel.

We acquired, integrated and advanced the Essakane project. Just 7 months after assuming control, we now think we would advance commercial production, which is now expected in August this year versus the end of 2010.

We completed the expansion of the Rosebel mill, increasing through put from 8 million tons a year to a nameplate 11 million tons a year, which was exceeded for most of the second half of the year.

We increased our growth pipeline through exploration success and announced the paste backfill and mill expansion at Niobec. And all this time, we continued our commitment to zero harm.

On both our gold and non-gold operations, we saw record margins in 2009. In the fourth quarter we produced 234,000 ounce of gold, bringing the year's production total to 939,000 ounces, inline with our most recent guidance and exceeding original guidance set in January 2009 by 7%. Production was down from 2008 due to the closure of the Sleeping Giant mine.

Our operating team worked to contain costs throughout the year with an average cash cost of $461 an ounce for 2009. Though fourth quarter cash costs of $488 an ounce are more in line with our forecast for this year.

The average realized gold price for 2009 was $960 an ounce contributing to a record margin of $499 an ounce. Operating results to our niobium operation in Quebec remained strong and we achieved fourth quarter production of 1.2 million kilograms of niobium.

This resulted in full year production of 4.1 million kilograms at a record operating margin of $20 a kilogram. The Q4 operating margin per kilogram was $4 lower than Q4 of 2008 primarily due to the stronger Canadian dollar. However, on a full year basis the operating margin increased to $20 a kilogram as a result of a favorable Canadian dollar and higher sales volume.

Turning to financial results, Q4 adjusted net earnings rose to $41 million or $0.11 a share after taking into account unusual items. Fourth quarter gold sales of 233,000 ounces at an average price of $1096 an ounce and strong niobium production drove revenues of $265.3 million in the quarter as compared to $209.6 million in 2008.

In 2009 full year adjusted net earnings of $212.2 million nearly doubled from $107.5 million in 2008. On an annual basis 2009 adjusted net earnings included a positive impact from foreign exchange gain due to a strengthening Canadian dollar and a gain on sale of gold bullion, partially offset by Doyon ended of mine asset retire retirement costs.

Annual operating cash flow from 2009 activities was $257 million, almost identical to 2008 though it was delivered from a higher margin on fewer ounces produced. Taking a look at our balance sheet you can see we're definitely positioned for growth and could easily accommodate our capital needs.

Cash and bullion of $300 million and an available credit facility of a $123 million, leaves us with a total of $423 million in available funds. The cash draw down during the fourth quarter was a result of capital expenditures primarily at Essakane and Westwood.

The graph on the right illustrates that even in a lower gold price environment, say except in a $100 gold price, we're certainly still well funded to develop our current growth pipeline. This allows us the financial flexibility to take advantage of opportunities such as the Essakane project, which would likely one of the best priced deals in 2009.

The next slide gives you a sense of where we operate and of the longstanding presence in each of our key regions, North America, South America and Africa. I think it's important to note that not only do we have 15 to 20 year history in these regions but we're developing projects in each region that will ensure we're also there for at least the next 15 or 20 years.

Speaking about growth pipeline, the next slide shows you that our projected production will continue to grow in the coming years.

The development projects that we already have in-house provide significant growth, which we start to see as early as August when Essakane is due to come online. Further more we continue to investigate additional organic growth projects at our existing assets beyond those included here.

Another outstanding achievement in 2009 is the growth in our proven and probable gold reserves, which including depletion, have increased by 17% to 14.5 million ounces. This was primarily due to an additional 1.3 million ounces from Rosebel, 1.1 million ounces from the Essakane and 0.9 million ounces from Sadiola, all or which include the application of a higher gold price.

We also achieved excellent results at Niobec where total proven and probable mineral reserves at niobium increased by 32% to 181.3 million kilograms of contained niobium oxide. This was the result of infill drilling that allowed the conversion of inferred to indicated resources and then to probable mineral reserves in blocks five and six.

Let’s take a look at the operating mines in more detail, beginning with Rosebel. Rosebel continue to deliver in the fourth quarter with production of 99,000 attributable ounces, bringing the total for the year to a record 412,000 ounces or 392,000 ounces to our account, a 24% increase over 2008. These great results were due to the completion of the mill expansion project, which resulted in higher productivity.

Cash costs were up slightly in the fourth quarter by about 4% compared to the prior year. This was due to higher wages and higher energy costs. However, on a full year basis, cash cost declined by $70 an ounce or 15% lower than 2008.

For 2010, we estimate similar production levels at Rosebel at between 380,000 ounces and 400,000 ounces but we do plan on mining a higher proposition of hard ore impacting throughputs and of course cost.

However, IAMGOLD controlled operations at Doyon in Quebec and Mupane in Botswana are nearing the end of their lives. The Doyon mine closed in December 2009 after seeing an impressive extension achieved through the efforts of a very experienced operating team.

We are fortunate for being able to offer opportunities to many of our employees from Doyon at both our neighboring Westwood project and at our French West Africa Essakane project.

The Mouska mine has been extended into early 2012 that reduced outputs. The Doyon division contributed an impressive 190,000 ounces at a cash cost of $524 an ounce in 2009.

At Mupane, we produced 51,000 ounces at a cash cost of $735 an ounce last year. This was a result of lower melt throughput due to a breakdown at the ball mill affecting the second half of the year combined with lower grade.

The ball bill was back up and operational from December onwards. We've appointed a new and very experienced General Manager at Mupane with looking on a new mine plan to improve operating results.

Next I would like to talk about our African joint ventures. We recently held an analyst to our Sadiola in order to highlight what we see as an exciting extension to our original mine namely the Sadiola deeps project. Our recent reserves and resources update identified an estimated 7-year extension at Sadiola due mainly to the deeps project.

Sadiola produced 32,000 attributable ounces at $616 an ounce during the fourth quarter resulting in 2009 total production of $135,000 attributable ounces, up $483 an ounce.

In terms of exploration, we’re optimistic about the preliminary results from the $18 million exploration program at Sadiola and Yatela. The 18-month exploration program is due for completion mid this year. The results seen so far lead us to believe there will be an estimated 15-month increase in the mine life at Yatela.

Production at Yatela was positively impacted by higher grades, and during Q4 increased 75% over the prior year period to 28,000 attributable ounces at a cash cost of $323 an ounce. This resulted in a full year production of 89,000 attributable ounces at $339 an ounce.

Tarkwa and Damang production was inline with our most recent guidance at a 125,000 and 38,000 attributable ounces respectively for the full year 2009. We remain optimistic about the exploration potential of Damang and will keep you informed of progress there. Additionally at Damang, we’re currently adding a secondary crushing circuit to that plant, which will allow them to treat a higher proportion of higher grade but hard ore.

We have great success at Niobec this year, we announced the mill expansion and paste backfill projects and more recently the increase in reserves by 32% to a $181 million kilograms of contained niobium oxide.

Niobium continued to deliver strong operating results in both the fourth quarter and for the full year. Fourth quarter revenue was higher compared to the same period in 2008 primarily due to higher sales volumes.

Revenue for the full year increased as a result of higher realized niobium prices still in the mid to high purchase range and increased sales volumes. The operating margin improved slightly on a full year basis compared to 2008 as a result of a favorable Canadian dollar and higher sales volumes. The paste backfill and mill expansion project remain on track and are expected to be completed in the second and third quarters of this year respectively.

Now turning to our future our development projects and explorations properties. This slide gives you an idea of our solid growth pipeline. We Essakane coming into production later this year after which we expect the next development milestone to be Sadiola deeps due to start after mid 2012 and then Westwood in early 2013 followed by Quimsacocha.

With continued success, other exploration properties will be coming on line. Essakane is really the story of 2010 for us. The recent analyst tour highlighted both the progress of construction and the depth of the operation scheme on site.

We have been very busy during 2009 and after closing the transaction we were able to quickly integrate the project and announced that we have advanced the construction schedule. The project is now several months ahead of the original schedule and on budget.

All major construction milestones have been met and we have confidence in our estimated August commercial production date. The minerals, trucks, crusher and generators are all onsite and installed or being installed.

Earthworks are substantially complete, structural steel construction is on track and approximately 80% complete and the equipment, piping and electrical is onsite and being installed.

Our drilling results at Essakane continue to confirm the potential upside of the project. We just announced a 1.1 million ounce increase in reserves as a result of the inclusion of the Falagountou deposit, updated models and a higher gold price.

Our exploration and mine geology teams remain focused and they're optimistic about the 50,000 meter, $9 million delineation and resource expansion drilling program and the $4 million regional exploration program planned for this year.

During 2009, we announced the acceleration of early years production, which was a result of increase in the processing rate and advancing pre-stripping allowing access to higher grade ore sooner and optimizing the mine plan.

We effectively transferred costs from the operating stage to preproduction stage thereby improving operating cash flow during the critical early years. The estimated capital budget for Essakane remains at $443 million. The next slide shows a few photographs to give people a sense of the progress.

Westwood also had a positive fourth quarter and year. It remains on scheduled and on budget. The shaft was advanced to 500 meters, the head frame steel structure was completed along with many surface infrastructure buildings.

In terms of our drilling activity, we completed the 84,700 meter drill program in 2009. The updated scoping study released in the fourth quarter, showed our increased confidence in the resource and when we get to depth and are able to drill, we’re confident that significant resource will start to be converted into reserves.

With respect to Quimsacocha in Ecuador, during the fourth quarter, we continued the advancement of engineering to the concentrator. As you are all aware President Correa signed the mineral law agreement and regulations during the fourth quarter. As expected we’ve seen others receive their authorizations to resume and we remain optimistic the process will continue.

In terms of our exploration activity, we remain focused on aggressive organic growth as seen by our planned 2010 Greenfield exploration expenditure of $35 million.

2009 was certainly a successful year for our exploration group. We announced the addition of the Kalana joint venture in Mali, where we see an opportunity for a modest underground mine to be potentially turning into a large bulk tonnage opportunity.

At the Siribaya joint venture with Merrex, another advance exploration project in Mali, we increased our confidence in the mill mineralization. Additional promising features have been identified through an airborne magnetic survey and termite geochemistry, so we are moving forward.

In terms of our overall drilling activity including development projects, we drilled approximately 235,000 meters during 2009, excluding the drilling at Sadiola and Yatela. The results seen in 2009 were impressive and we anticipate continued good news from these programs in the coming years.

Our next slide highlights our continued commitment to achieving zero harm. 2009 saw us achieve outstanding health and safety improvements, no significant environmental incidents, and continued accolades in our many sustainability and community relation programs.

We saw a 31% reduction in accident severity and frequency year-over-year and that’s on the back of a 25% reduction in 2008. I say we are doing very well. We have the opportunity to show analyst the great success we've had with the relocation of the villages at Essakane during my visit.

They were able to see firsthand, the differences would been able to affect in the lives of the local people to such things as improved housing, water supply, education, and agricultural plus. In conclusion, we remain committed to delivering positive results.

In 2009, we saw recognition of this with our share price outperforming the index by 149%. We recorded adjusted net earnings of $0.60 a share and strong operating cash flow of $0.73 a share for 2009 continued the trend.

We also remain focused on controlling our cost and maintaining a solid balance sheet while striving to achieve zero harm. The start of Essakane later this year would further solidify IAMGOLD as a company that can acquire, develop, and run operations well.

I would like to thank you for listening to the call. I'd also like to thank the shareholders for their support. And equally importantly I'd like thank our employees for their great efforts during 2009 and congratulate them on the results they have achieved.

And with that, I'll turn you back to the operator. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Paul Burchell - Dundee Securities Corporation.

Paul Burchell - Dundee Securities Corporation

Couple of questions. First of all, I note that your Niobec margins are expected to decline in 2010 somewhat. I was just wondering if you could give us a little bit more information as to whether that’s based on your outlook for niobium prices or are you expecting cost to continue to increase a little bit?

Peter Jones

Actually 2010 is a bit of anomalous year for us. The price has stayed pretty steady but as we start to put in the paste backfill, initially those costs are going to climb and then later on you'll see an increase in production, which will bring the cost back down again. But it's just the reflection of the increased costs of the initial paste backfill.

Paul Burchell - Dundee Securities Corporation

Okay that makes sense, great thank you. And I guess somebody have to ask the question since I'm up first, I will. Just can you give us any update on the CEO search?

Peter Jones

I certainly can, we retained probably well-known search firm to do the work for us. They’re busy producing a long list at the moment. We met with them last week. They will have a short list ready for interview, they say, by the beginning of March.

Operator

(Operator Instructions). Our next question comes from Heather Douglas - Thomas Weisel Partners.

Heather Douglas - Thomas Weisel Partners

You had a great result exploration wise at Rosebel in 2009. Can you tell us what you expect? Will we get a repeat in 2010? And which are the most promising targets at the offset?

Peter Jones

Well, I’ll stop by saying I always look for increasing good results. But I’ll let Gordon answer that question.

Gordon Stothart

Hi Heather. The drilling program for 2010 is approximately the same in scope as we saw in 2009. Targets we are looking at continue to infill the Roma area, both on strike and at depth between the Royal Hill and the Mayo deposit.

We’re looking to continue Mayo to the west as well. We’ve started at the end of the year to see some good results at (inaudible) and in the (inaudible) gap. So we’re not drilling in exactly the same areas we were last year. Obviously we are looking for similar or better results if we can achieve them.

And additionally we're going to have a strong regional exploration program as well this year looking to identify potential new ore bodies beyond the identified one.

Heather Douglas - Thomas Weisel Partners

And to change continents, with Westwood what are the milestones for this year in terms of -- as we watched the project progression? And you mentioned in your comments about -- I think it was the explorations allowing you to convert resources to reserves, when would we expect to see that?

Gordon Stothart

Going to the milestones we're expecting this year, we're looking to add another 800 meters to shaft depth during 2010, which will take us below the 84-0 level and get us into some new explorations.

With respect to resource to reserve conversion, we're going to start to see some of that in the 84 level area this year but not significant amounts. I think 2011 will really be the major year to start to see significant conversion.

We're going to continue this year, another approximately 75,000 meters of drilling during 2010 and some of that is for delineation purposes, about 45% of that is delineation purposes and another 55% of that more or less, is for exploration purposes really looking to join up some of the lower zones where we fully expect to see continuity but haven't yet proven it through the drill bit.

Operator

Your next question comes from Steven Butler - Canaccord Adams.

Steven Butler - Canaccord Adams

Peter, a question for you on the resilience -- you're still seeing it appears, about $36 a kilogram on niobium pricing. Any comments on the continued strength of the market guys?

Peter Jones

I think market is pretty well balanced at the moment. As you know the biggest producer is in Brazil and they’ve shown a lot of restraint and we see real upside once the steel market picks up further.

So, we are very comfortable with the price and see some upside potential once macro economics improve around the world.

Steven Butler - Canaccord Adams

Peter or Gordon, is it the 25% or so expansion expected to be completed by the sort of Q3 end or is that already near the middle of the year and is Q3 type time frame?

Gordon Stothart

The actual base I believe is in September. But we are looking to complete that expansion project and then we’ll look a ramp up period through the end of the year, to be in full production at the end of the year.

Steven Butler - Canaccord Adams

And Gordon on Quimsacocha, what’s the, just as Heather was asking about sort of deliverables on the Westwood, Quimsacocha, would we expect an updated sort of capital and operating cost number at some point this year or is it perhaps dependent upon final negotiations on the stability agreements with the government or how does this, how do we get refreshed on this asset?

Gordon Stothart

Well we continue to sort of say what we have consistently said in the past, is once we get the approval to be back on site, we expect sort of a 12 to 15 months period during which we can complete the feasibility study. I would doubt that we would release any interim cost figures during that period.

An important aspect of what needs to be done during that period in addition to the feasibility study in EISI work is the negotiation of the final mineral agreement and fiscal terms with the government. Obviously we can't demonstrate feasibility until those are nailed down. But I wouldn’t anticipate seeing a lot of new numbers on Quimsacocha this year.

Operator

(Operator Instructions) Your next question comes from Sarah Hassan - ASA Limited.

Sarah Hassan - ASA Limited

Regarding the CEO search, I was wondering if you could share with us any specific parameters you've laid out in looking for a candidate.

Peter Jones

We're obviously for somebody with experienced, that has experience in overseas properties and prior experience in running a company of similar size to this.

Operator

Your next question comes from David Christie - Scotia Capital.

David Christie - Scotia Capital

Just quickly Carol maybe on your tax rate for 2010, what are you looking further?

Carol Banducci

We are expecting somewhere in the mid 30's David.

David Christie - Scotia Capital

Mid 30s, like 35?

Carol Banducci

In that range.

David Christie - Scotia Capital

And do you have any deferred taxes you would be deferring in 2010? What's your deferred rate?

Carol Banducci

Let me get back to you on that one because that’s something that we are currently reviewing right now.

David Christie - Scotia Capital

Of your total exploration budget, what portion will be expensed?

Carol Banducci

$39 million.

David Christie - Scotia Capital

That’s the expense portion?

Carol Banducci

Right.

Operator

Your next question comes from Isudu Sanive - Equinox Partners.

Isudu Sanive - Equinox Partners

A quick question on Rosebel, can you give us a sense of when Rosebel grades will come down to the reserve grade and what kind of grades are you expecting in 2010?

Peter Jones

The expectation this year is we'll see a bit of dip in grades compared to 2009, much closer to the reserve rate. It does flux up and down over the life of a mine but it doesn't get too far off of the life of mine reserve grade from here to the end. But we’re expecting it to be slightly lower this year.

Operator

Mr. Jones there are no further questions at this time. Please continue.

Peter Jones

In that case, thank you very much ladies and gentlemen and we look forward to speaking with you again next quarter. Have a good day.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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Source: IAMGOLD Corporation Q4 2009 Earnings Call Transcript

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