IAMGOLD: Reasons to Stay Cautious

IAMGOLD (IAG) hasn’t performed well due to weakness in gold pricing. Last quarter, a slight decline in the company’s top line was primarily driven by the poor realized gold price of approximately $15.1 million and disappointing royalties received post sales of the Diavik royalty asset for nearly $2.3 million. This was somewhat balanced by improved gold sales volume from owner-operated mines of about 12,000 ounces priced at $12.3 million. However, a slight growth in adjusted net earnings for the quarter was mainly due to better net earnings gained from joint ventures and relevant associates of approximately $13.3 million

What next? 

IAMGOLD is seen to be reacting quickly and prudently towards the declining global commodity pricing environment by successfully optimizing its operations and minimizing non-core expenditures to deliver on its continued commitment to offer improved shareholder returns.

The company’s quarter-over-quarter integrated gold production trend across each of its mines is positive.
The Westwood mine in Canada, which is completely owned by the company, produced 23,000 ounces of gold during the second quarter of 2015 and matched the production for first quarter. Net cash costs were $837 per ounce delivered and all-in sustaining costs of $1,044 per ounce sold.

IAMGOLD has 95% interest in Rosebel mine in Suriname producing 71,000 attributable ounces of gold during the second quarter 2015 as against 76,000 ounces in the previous quarter, primarily driven by reduced throughput. The production from the mine grew 6% over the second quarter of 2014, depicting improved grades and recovery, somewhat balanced by reduced throughput.

The gold mining major is focused on optimizing its operations by strategically growing gold production while minimizing non-core expenses across the Westwood mine in Canada and Rosebel mine in Suriname.

But, the advantages of expanding throughput were somewhat offset by poor grades.

The grades are declining

IAMGOLD has 41% operational interest in Sadiola mine in Mali where the company’s gold production was recorded at 17,000 ounces during the second quarter 2015 as against 19,000 ounces during the first quarter of 2015 with slight lowering of production attributable to lower grades of the mined ore, somewhat offset by enhanced throughput and recoveries. The production when compared to the second quarter of 2014 was reduced by 7,000 ounces primarily due to an 18% fall in grade to 1.1 g/t Au and a 3% lowering of throughput, somewhat offset by  enhanced recoveries.

The increase in gold production at Falagountou deposit nearby Essakane main pit was partially offset by the lowering of gold production from the Sadiola mine in Mali.

Recently, IAMGOLD completed nearly 14,400 metres of diamond mining by the end of the second quarter of 2015 on the Malikoundi deposit at its Boto project, primarily for upgrading the resource. The company also updated its infill drilling program at Pitangui project in Brazil and concluded infill drilling within the key area of the São Sebastião deposit. The major gold mine at Siribaya in Mali is the company’s joint venture with Merrex Gold Inc. which continues to expand brilliantly through the 2015 infill and growth delineation schedule by the end of this year.

IAMGOLD timely entered into an options agreement with TomaGold Corporation for developing its Monster Lake project in Quebec, Canada.

The planned diamond drilling program on the Malikoundi deposit at Boto project and infill drilling program at Pitangui project in Brazil are believed to deliver superior production results for the quarter, increasingly contributing to the company’s successful joint venture agreements signed during the period.

Conclusion

Thus, on account of uncertainty in the gold market and weak grades, IAMGOLD looks like a risky investment that investors should avoid. Thus, it will be prudent to stay away from the stock until an improvement in its operations takes place.
Published on Oct 24, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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