Update: IAMGOLD Commences Commercial Production At Westwood

Jul.31.14 | About: IAMGOLD Corporation (IAG)


IAMGOLD announced that it has commenced commercial production at its Westwood Project along the Abitibi Gold Belt in Quebec.

The project adds nearly 200,000 ounces of gold production, or about 25% to IAMGOLD's total while reducing total average production costs and geopolitical risk.

This was not an issue that I discussed in either of my IAMGOLD articles.

The company still has high costs and interest expenses, but it now has two pillars of stability--Westwood and Niobec--making the stock a compelling high beta gold play.

IAMGOLD (NYSE:IAG) just announced that it has achieved commercial production at its Westwood Project in Quebec. The project is going to produce about 180,000 - 190,000 ounces of gold per year for 19 years. While it is going to have cash-costs of about $800/oz. this year--in line with the rest of the company--this number is expected to drop to around $600/oz., which will make it the company's most efficient gold mine. Furthermore, the project is in a low-risk mining jurisdiction--Quebec--which means that the company's political risk comes down with this announcement. While the company will still get most of its gold production from Burkino Faso and Suriname it now has two low cost, long life mines in Canada (Niobec the niobium mine being the other) that give it a pillar of stability.

IAMGOLD remains a high risk play given that it has a lot of expenses and $640 million in debt. The company recently cut its dividend in order to save money and to give management the capital it needed in order to bring projects such as Westwood to the point of commercial production. In my two articles on IAMGOLD I didn't discuss this project although I was aware of it. In the first one I focused on the company's Niobec niobium project which was the one stable cash-flow generating asset in the company's portfolio. I argued that Niobec made IAMGOLD a compelling gold speculation stock: despite the fact that the company was losing money mining gold it was making money mining niobium, and if you wanted to bet on rising gold prices IAMGOLD offered incredible leverage with downside protection. In the second I suggested that the company's dividend cut was foreshadowing a big announcement regarding one of the company's development properties, although this never came to fruition.

With Westwood in production the company has a long-life low cost producing mine that can generate over $70 million in operating cash-flow per year for nearly 20 years. Considering that this is the smallest of the companies 3 major gold mines and considering that the company has a valuation of just $1.4 billion this is a considerable addition, and it speaks to the company's potential upside once the gold price resumes its ascent. However investors should keep in mind that this is a risky bet considering the heightened political risk of mining in Suriname and in Burkino Faso, as well as the company's high debt load and high costs.

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