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Summary

  • IAMGOLD recently announced its fourth quarter and full year 2013 earnings, which show a downside in revenue.
  • Golden Star Resources shows some positive signs with its recent earnings announcement.
  • After a very bad performance in the last 52-weeks, the companies have still not bottomed out.

IAMGOLD Corporation (NYSE:IAG) recently announced its fourth quarter and full year 2013 earnings, which show a downside with regards to the revenue. The company reported a 21% decline in revenues during 2013 (compared to 2012). This might have been due to the dive of gold prices during the year as IAG reported a decrease in average realized gold price, which was at $1399, a 16% reduction on the realized price in 2012. Furthermore, all-in-sustaining costs increased by 16% during the year as well, landing at $1,232 per ounce. Compared to the average realized price such a high all-in-sustaining cost leaves the company with very low profit margins at $167 per ounce. Adding to this, IAMGOLD has stopped its operations at the Yatela Mine, Mali which was a joint venture project with AngloGold Ashanti (NYSE:AU) (the company had a 40% stake). This means that we should be expecting lower production levels in the future. IAG reported a decrease in production during the fourth quarter of 2013 by approximately 15% quarter over quarter (inclusive of the JV).

(click to enlarge)

Source: Yahoo! Finance

The reasons for stopping operations at Yatela Mine were high operating costs and the deteriorating price of gold, which was affecting the profit from other mines as well. Yatela had all-in-sustaining costs of $1789, which is $390 per ounce higher than the average realized price. The closure of this mine is a very good move by the company as with a decrease in the reserve levels the cost of operations increases, and Yatela had very low reserve levels, which means that the mine was not worth operating. This closure should bring down the total all-in sustaining costs, which can help the company with better profit margins in the current gold market situation.

Furthermore, IAG decreased its capital expenditure for 2014 by 40% (compared to 2013) as it has completed the Essakane Mine expansion. The company produced 250,000 ounces of gold from the mine last year, and is expecting to produce between 315,000 ounces and 330,000 ounces of gold this year. This mine had all-in sustaining costs of $1,177 per ounce last year, which means that the expansion might prove to be fruitful for the company if the gold prices continue to stay high as the commodity is currently sitting comfortably above the $1,300 ounce level. The decrease in capital expenditure might help the company in improving its cash flows as it reported net cash outflows of $575 million during the year. However, there is some concern regarding the decision to decrease capital expenditure as IAG's total attributable proven and probable gold reserves have decreased by 11%. This means that the company needs more reserves in order to increase its production and produce gold at low costs as lower reserves lead to a low waste to ore ratio, resulting in higher production costs in the long run.

Golden Star Resources (NYSEMKT:GSS) shows some positive signs with its recent earning announcement. The company sold 330,806 ounces of gold during 2013, which is close to the amount in 2012 (331,278 ounces), while its revenues declined by 15% in 2013 due to high volatility in gold prices during the year. Furthermore, it reported a net loss of $311 million due to the huge impairment cost of $355.6 million during the year. These figures show that the company's performance has been relatively better, but its financial statements were badly damaged by the overall fluctuation in gold prices.

Company

Industry

Sector

Quick Ratio

0.59

1.34

2.38

Current Ratio

1.08

2.82

2.96


Golden Star's liquidity position is not very good as the industry's liquidity ratios are more than double the company's. Moreover, the quick ratio is below 1, which means that the company will have issues in paying off its short-term obligations, meaning it might have to put up more debt. However, GSS is determined to improve this position as it announced that it will be focusing on decreasing its cash operating costs from $1049 in 2013 to between $950 and $1000 per ounce in 2014. If the company is successful in achieving this goal, it will increase profit margins and improve the current liquidity position.

Analysis

Both companies have suffered greatly due to volatile gold prices during 2013, as can be seen from the graph below.

(click to enlarge)Source: Ycharts

As gold prices are showing an increasing trend, the share price of GSS has started to rebound, while IAG is still struggling. Furthermore, Golden Star's share price is sitting at $0.80 per share, which we believe is the lowest it can go. As GSS is trying to improve its production from the Bogoso mine by spending $12 million on development and at the same time focusing on decreasing its production costs, we believe that now is the time for it to rebound and give good returns to the investors. However, we still have our doubts regarding IAG, as it has decreased its capital expenditure while its reserves and production are also decreasing. We believe that this company has hit bottom too, but we do not expect growth in its stock price even at current valuations.

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.

Additional disclosure: Equity Flux is a team of analysts. This article was written by our Basic Material and Financial analyst. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers a stock trading at less than $1 per share and/or has less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Golden Star Resources And Iamgold: 2 Miners To Short On Earnings