Will IAMGOLD Find a Buyer or Crash Again?

IAMGOLD [stock_market_widget type="inline" template="generic" color="default" assets="IMG.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock has received a nice shot in the arm over the past month, rising more than 20% as rumours that the gold miner is looking for a buyer emerged. Citing people familiar with the matter, Bloomberg reported a month ago that the company is “exploring a possible sale of all or parts of the gold miner business.”

IAMGOLD stock has been flying higher ever since the Bloomberg report came out. But it remains to be seen if the company actually manages to find a buyer given the problems it is facing.

IAMGOLD is Struggling on Several Fronts

IAMGOLD’s first-quarter 2019 performance was terrible, to say the least, because of a massive decline in the company’s output. The gold miner was able to produce only 185,000 ounces of gold during the quarter as compared to the prior-year period’s output of 229,000 ounces.

Lower grades at Essakane and higher seismic activity at Westwood impacted the company’s output to the tune of 19% year over year. This weak production profile also impacted the company’s cost profile.

More specifically, its cash costs per ounce shot up 20% year over year during the quarter and all-in sustaining costs were up 14%. Because of this combination of lower production and weak pricing, IAMGOLD delivered a net loss of $2.2 million in the quarter, substantially lower than the year-ago period’s profit of $40 million.

Given IAMGOLD’s weak operational profile, it might be difficult for it to get a buyer. Of course, the company has deployed “cost and productivity improvement initiatives” so that it can meet its annual guidance numbers, but it remains to be seen if they are going to work or not.

What’s more, IAMGOLD has been taking steps to scale back its operations. In March this year, the company slashed nearly a third of its workforce at the Westwood mine because of production bottlenecks at the mine. But this was not the only problem IAMGOLD is facing.

It has shelved the construction plan of the Côté Gold Project in Ontario, blaming poor market conditions.

Given the challenges that IAMGOLD is reporting, it will be surprising to see the company find a buyer. Any potential buyer will first have to take care of the bottlenecks that IAMGOLD is facing, so it won’t be surprising to see IAMGOLD receiving a poor bid.

What Can Go in IAMGOLD’s Favour?

Anyone looking to take advantage of IAMGOLD’s potential buyout needs to be careful because the rumours of acquisition might not materialize.

There’s only one thing that could encourage a bigger player to scoop up IAMGOLD – higher gold prices. The price of gold has spiked of late in light of the global macroeconomic uncertainty and the U.S.-China trade war. If the end-market conditions continue, the price of the yellow metal could rise further.

In such a scenario, IAMGOLD could get a buyer, though the challenges that the company is facing don’t give us a guarantee. As a result, anyone looking to take advantage of IAMGOLD’s potential buyout needs to be careful because the rumours of acquisition might not materialize.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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