IAMGOLD 's Upside Hit By Lower Guidance and Higher Costs

The potential upside in IAMGOLD Corp.'s (IAG) share price shrivelled a touch on Wednesday after the company announced lower-than-expected production guidance and rising cash costs in 2008.

The company forecasted gold production of 920,000 ounces this year and expects increasing cash costs to hit $455 to $470 per ounce, due to higher oil prices, the stronger Canadian dollar, and higher royalties. By comparison, the company preannounced 2007 gold production of 965,000 ounces, while the company's cash cost guidance last year was $410 to $420 per ounce.

Blackmont analyst Richard Gray told clients in a note that IAMGOLD's 2008 production guidance fell short of his 990,000 ounce estimate due to an overestimation of production growth at IAMGOLD's Rosebel mine.

He revised his estimate in line with the company's forecast, and moved his cash cost projection from $443 to $475 per ounce, noting the company's royalties are likely to climb higher, given higher gold prices.

Upon lowering his price target on the stock from C$12.50 to C$12, he wrote:

Our 2008 earnings per share and cash flow per share decrease by approximately 25%, and carrying these higher costs into 2009 results in lower 2009 estimates (approx 11%) as well.

His "buy" rating remains unchanged.

UBS analyst Tony Lesiak also maintained his "buy" rating and lowered his price target on the stock, from C$14 to C$12. His estimated 2008 EPS drops from C$0.50 to C$0.41, and his 2009 estimates falls from C$0.48 to C$0.35.