IAMGOLD (NYSE: IAG)
IAMGOLD is a mid-tier gold producer based in Canada with five operating gold mines spread on three different continents. The company also has four development projects (Westwood in Quebec, a Cote Gold project in Ontario, Rare earth elements in Quebec, and Camp Caiman in French Guiana).
This article is an update of the preceding article published on November 4, 2015, about the 3Q'15 results.
Company financial snapshot:
|Full Year 2015||Q4 2015||Q3 2015||Q2 2015||Q1 2015|
|Revenues in $million||207.6||226.5||244.7|
|Cost of sales $million||227.6||228.8||231.7|
|AISC gold mine in $||1,050-1,105||1,050-1,105||1,027||1,076||1,113|
|Attributable gold production inclusive of the JV operations in K Oz||806||199||197||202||208|
|Net cash flow from operations in $million||-||-||34.9||31.7||30.0|
|Impact on Westwood event||-||-||5.4||-|
|EPS attributable to stockholders of IAG||-||-||(0.12)||(0.05)||(0.07)|
|Cash and Cash equivalent $million||700||700||783.4||836.4||889.1|
|Capital expenditures $ million||240||-||-||13.6||54.0|
|Long-term debt $million||635||635||635||645||636.7|
|Shares outstanding in million||391.4||391.4||391.4||391.3||391.3|
|Gold price $/ Oz||1,160~||1,104 Estimated||1,121||1,194||1,222|
Gold production per mine:
|Mines||2016 Outlook||2015|| |
K Oz 4Q'15
K Oz 3Q'15
K Oz 2Q'15
K Oz 1Q'15
|Sadiola (JV 41%)||70||69||16||17||17||19|
|Yatela (JV 40%)||7||2||1||2||2|
|Boto Gold - Senegal||-||-||-|
|Pitangui - Brazil||-||-||-|
|Monster Lake - Canada (JV)||-||-||-|
|Siribaya - Mali (JV)||-||-||-|
|Eastern Borosi - Nicaragua (Agreement with Calibre Mining)||-||-||-|
IAMGOLD released preliminary production for 2015 and 2016 production outlook, on January 18, 2015. It is difficult to blame the news for the recent big sell off, because it seems that the entire gold mining sector and precious metals industry crashed as well.
However, the street was not impressed with the news. The PPS dropped to an all time low at $1.15 breaching the $1.25 support.
In short, the situation is quite simple to analyze here. IAMGOLD relies basically on three main gold mines:
Note: I will not comment on the two JVs (40%~) -- Sadiola and Yatela -- which are secondary.
Beside, Essakane mine which is a first class producing mine and recently produced at record level, the company had numerous technical problems with Rosebel and Westwood, which represent 56% of the production.
On December 3, 2015, I commented on the situation at the Rosebel mine.
IAG, the Canadian gold miner announced the following:
Workers at Iamgold Corp's Rosebel gold mine in Suriname have gone on strike over the company laying off about 10 percent of the mine's employees, Iamgold said on Wednesday. The mid-sized Canadian-based miner said Rosebel had followed the process required by law for the lay-offs, offering a fair severance package, which more than 50 percent of affected employees have accepted.
Iamgold announced the layoffs in October as part of efforts to reduce costs at Rosebel. In the first nine months of 2015 Rosebel produced 217,000 ounces of gold on an attributable basis at an all-in sustaining cost of $1,082 per ounce. The gold price was last at $1,053.
Iamgold said it still expects Rosebel to produce between 290,000 and 300,000 ounces of gold this year but this could be re-assessed depending on the length of the strike.
Rosebel mine is quite an important peace of the puzzle for IAG, and represents roughly 1/3 of the total production. During the 3Q'15 the mine experienced labor issues, and also lower grade as well as throughput. Due to the exceptional production at Essakane the situation was mitigated. During the last conference call the company indicated:
The decline in grade year-over-year was due to pit sequencing which offset the benefits from better dilution control through our RC
The mine seems to have an "hiccup" history -- recurrent Labor issues and dilution -- which adds risk of another miss in 2016 production outlook again.
Furthermore, the Westwood mine has been a big set back after the mine was shut down after a "localized seismic event" in July 2015. The company completed a comprehensive review after the earthquake event, and revealed a plan of action this year.
As a result, Iamgold lowered the midpoint of its company-wide 2015 forecast by 5% or 42,500 oz. It now expects to churn out between 780,000 and 815,000 oz. gold, down from 820,000 to 860,000 oz. The new guidance includes an increase of 10,000 oz. gold, mainly from its joint-venture Sadiola mine in Mali, slightly offsetting the lost ounces at Westwood.
Mr Steve Letwin, CEO, said in the conference call the following:
We are going to make sure that balance sheet stays strong. And as you heard from Gord there is a lot of optimism about our mine plans going forward, which we are going to be communicating in January with specific emphasis on Westwood.
I did not see any extra optimism about Westwood, leaking through this press release and I wonder really what will happen if another earthquake occurs again in the area?
The second issue, is the continual AISC problem for IAMGOLD. The 2016 Outlook is again indicating $1,000-$1,100/ Oz, which is too high and well above what most of the majors in the industry are achieving now. With a gold at around $1,100/ Oz the company is producing mine and sell it under the breakeven point.
I have commented on this issue in 2015 and will probably continue in 2016. This is a fundamental problem that management will have to study seriously and decide immediately a structural change to lower significantly the AISC in the $800-$900 range, as soon as possible.
On a final note, I will talk about the gold outlook for 2016.
This issue is of a paramount importance for actual shareholders and investors. The gold price continues to trade below $1,100/ Oz and basically, very few mines are making a sufficient profit in this depressed condition. However, I see some bottoming forming between $1,050-$1,150/ Oz which will help the industry in 2016.
IAMGOLD is not my favorite miner in the gold mining sector, because of a few intrinsic problems, as I explained above. IAG is unable to lower sufficiently its AISC and thus, the credibility of its 2016 production outlook is questioned, due to Rosebel and Westwood, which have been a clear disappointment in 2015 and may disappoint further this year.
However, I still believe the stock is attractive at $1.15 for trading only. IAG trades in an oversold territory now and could be seen as a trading opportunity.
Disclosure: I/we 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: I am trading IAG frequently.