Image: Burkina Faso - Essakane gold mine
IAMGOLD (NYSE: IAG) is a leading mid-tier gold producer based in Canada with five operating gold mines spread across three different continents. The company also has four development projects (Westwood in Quebec, rare earth elements in Quebec, Saramanca in Guyana and Camp Caiman in French Guiana).
Iamgold presents a very simple production model based on three main gold mines. The company has good liquidity and no net debt, which is paramount for a successful investment long-term.
However, I consider IAG still too pricey albeit it has gone down significantly since its high in September, and I recommend waiting for the test of its immediate support to begin accumulating for the long-term.
Steve Letwin, the CEO, said in the conference call:
as I've described a number of times now, our business model is built around growth opportunities in both short cycles and long cycles. And it's putting us on a very deliberate path as we move towards 2020 and 2022 of 1.5 million ounces in production and a very significant reduction in our costs, all-in costs to production as we target an $800 all-in sustaining costs.
IAMGOLD financial snapshot:
|Total Revenues in $ Million||226.5||207.6||238.2||219.7||232.5||282.4||252.5||260.5||274.5||268.8|
|Net Income in $ Million||-19.7||-83.8||-675.9||53.1||-12.2||17.0||-5.3||-18.0||506.5||30.8|
|EBITDA $ Million||62.1||0.5||-629.9||128.3||74.4||111.1||67.9||59.7||638.5||101.0|
|Profit margin % (0 if loss)||0||0||0||24.2%||0||6.0%||0||0||184.5%||11.5%|
|EPS diluted in $/share||-0.05||-0.21||-1.73||0.13||-0.03||0.04||-0.02||-0.04||1.08||0.07|
|Cash from operations in $ Million||31.7||13.9||-37.3||51.4||71.2||126.6||65.2||68.3||88.7||77.0|
|Capital Expenditure [TTM] in $ Million||250.5||219.1||213.0||232.1||260.2||299.1||300.9||277.3||249.1||211.5|
|Free Cash Flow (Ychart) in $ Million||-27.4||-29.5||-97.3||-18.2||-16.0||44.3||3.4||22.3||29.7||32.3|
|Cash and short term investments $ Million||679.2||633.1||481.2||587.2||554.5||627.6||652.2||1073.1||776.2||810.6|
|Long term Debt in $ Million||637.0||627.8||698.1||628.5||628.9||484.8||485.1||899.2||392.2||388.7|
|Dividend per share in $||0||0||0||0||0||0||0||0||0||0|
|Shares outstanding (diluted) in Million||391.40||391.40||391.70||398.00||405.90||432.20||456.00||457.50||469.30||469.30|
Source: Company filings and Morningstar.
Gold Production details and Balance sheet commentary:
1- Production details.
|Sadiola (41%) - Sadiola(40%)||18||18||17||15||16|
Source: IAG filings.
1 - Essakane production was down 11% from 3Q'16 (please see table above). The 3Q'16 quarter was atypical and had high grades, therefore it is not surprising that this quarter had lower grades which were partially offset by higher throughput -- up 8% despite increasing proportion of hard rock content reaching 90% compared to 77% last year -- and recoveries.
The heap leach pre-feasibility study is well on track and the company expects that it will be completed by the 2Q'2018. AISC at Essakane were $944 an ounce this quarter about 16% higher than a year ago.
At Saramacca, permitting work is progressing well including the environmental and social impact study, expected to be completed before mid-2018. Preliminary engineering work on the mine design and infrastructure is underway. Iamgold expects to begin new mine design soon based on the new resource model published on September 5, 2017, and to integrate scheduling with the main Rosebel resources.
The resource estimate comprises 14.4 million tonnes of indicated resources averaging 2.20 grams of gold per tonne for 1,022,000 ounces and 13.6 million tonnes of inferred resources averaging 1.18 grams of gold per tonne for 518,000 ounces. Approximately 60% of the resources are contained within shallow, softer laterite and saprolite hosted mineralization. The Saramacca depositremains open along strike in both directions and at depth and has significant potential for expansion.
Saramacca production is expected to start in 2019.
2 - Rosebel production (attributable) was 75K ounces in 3Q'17 was 2.7% up from the same quarter in 2016. While the percentage of hard rock in the mill feed increased to 44% from 37% the year before, mill throughput increased 5% due to the major mill improvements completed in 2016.
AISC was $898 per ounce in the third quarter 2017 or 24% lower than the same period last year. However, AISC is expected to go higher in 4Q'17.
3 - Westwood production was more than double compared to 3Q'16. The company continues to ramp up with the volume of tonnes mined and milled. The grade mined underground is much higher than total reported head grade; the company is processing marginal surface ore stockpiles to take advantage of available mill capacity. Excluding the marginal surface ore, the underground head grade in the 3Q'17 is 7.4 G/T. AISC for the 3Q'17 was $907 per ounce were down 9% in the second quarter. This is an encouraging development and we can see that AISC quarterly is trending lower (see graph below).
4 - Sadiola 41% joint venture, gold production continues to decline with the lower grades partially offset by higher throughput. Retrenchment plan at Yatela is expected to be completed by early 2018.
5 - Siribaya project in Mali, core logging, and sampling activities were completed in the quarter for the drill holes completed throughout the year.
6 - Cote Gold project which is a JV with Sumitomo, the feasibility study is scheduled to be completed in early 2019 with commercial production in first half of 2021.
Under the terms of the Investment Agreement, on closing, Sumitomo will acquire a 30% undivided participating joint venture interest in IAMGOLD's ownership interest in the Côté Gold Project for an aggregate $195 million, of which $100 million is payable upon closing.
7 - Greenfields projects, at Boto Gold project in Senegal, drilling continued throughout the quarter to evaluate potential extensions of the Malikoundi deposit and to determine the potential for additional resources within the Boto 5 and 6 zones.
8 - Pitangui in Brazil, the company focused on the up-plunge extension of the São Sebastião deposit where there is potential for additional resources.
9 - Finally, Eastern Borosi JV project in Nicaragua, 22 holes were drilled this year for approximately 7,300 meters.
10 - Monster Lake project in Quebec. On August 14, IAG acquired approximately 20% equity interest in TomaGold which is the joint venture partner with whom IAG share 50% interest in the project.
IAMGOLD subscribed for 27,777,777 Common Shares of TomaGold from treasury (the "Acquisition"), representing approximately 19.98% of the outstanding Common Shares of TomaGold. The Common Shares were purchased at a price of $0.09 per Common Share, for an aggregate purchase price of $2,500,000. Prior to the Acquisition, IAMGOLD did not hold any Common Shares of TomaGold.
The company maintained production guidance at 845K to 885K ounces for the full year 2017 and is on track to meet its cost guidance. Iamgold expects to meet the guidance due to better AISC for the full year of 2017 than anticipated at the beginning of the year. The company lowered the top end of AISC guidance by $40 an ounce, which narrows the range to $1,000 to $1,040 per ounce.
2 - Revenues.
3 - Free Cash Flow.
One important financial element that deserves some serious attention is the ability of the company to deliver sufficient free cash flow. On a yearly basis, IAG FCF is now $87.7 million, which is quite decent and trend up since 4Q'16.
Free cash flow is an important hint that should be always evaluated carefully when looking at a long-term investment. Basically, FCF should be sufficient and of course positive, if the business model is to be considered sound to fit a long-term investment.
IAG is passing the FCF test.
4 - Net Debt.
IAG has no net debt and this is considered as a strength for the company. This situation and the fact that IAG is positive free cash flow should push the company to start paying a dividend, in my opinion.
Iamgold is quite an interesting gold miner in my opinion because it presents a solid balance sheet with no net debt and plenty of liquidity. Cash and investment represent $810.6 million while long-term debt is $388.7 million. Many companies in this sector alone would be happy to show a similar financial position. Project pipeline provides a potential future growth with exciting near-term production such as Saramacca in Guyana.
IAG is forming a symmetrical triangle pattern at the moment. The symmetrical triangle usually forms during a trend as a continuation pattern.
In case of a positive breakout, assuming at $6.20 (trendline resistance), we can assume a jump of $2.20 or $8.40. This is the long-term target with a bullish gold price.
On the negative side, IAG may re-test the support line $3.50.
A symmetrical triangle pattern is considered bullish in an uptrend which is the case here, but IAG is highly correlated to the gold price and any trading strategy must include the gold element to be credible.
I recommend to cautiously add at or below $5 and eventually take profit off the table around $6.20. If a breakout looks possible and IAG is within the pattern range it makes sense to either buy (positive breakout) or short (negative breakout).
Important note: Do not forget to follow me on IAG and other gold stocks. Thank you for your support, it is appreciated.
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 may start a long position in December.