Will IAMGOLD Capitalize on Rising Gold Prices in 2019?

Mining Company IAMGOLD's (IAG) production guidance shows it likely won't capitalize on rising gold price.
Do you remember what to look for in gold production results? Check out our guide for a refresher on how to assess mining companies’ earnings and guidance.

2018 Gold Production and Cost Highlights

  • IAMGOLD (NYSE: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”IAG” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) recently announced preliminary results for 2018 and also issued guidance for 2019. The company’s 2018 gold production of 882,000 ounces will be at the higher end of its forecasted production range of 850,000 to 890,000 ounces.
  • IAMGOLD management made it clear that cash costs and all-in sustaining costs are expected to be at the higher end of its guidance range. The company expects cash costs between $750-$800 per ounce of production for 2018, while all-in sustaining costs are expected between $990-$1,070 per ounce of gold sold.
  • The Essakane mine is expected to deliver another record production year for 2018. The company also made progress on other milestones last year, such as carrying out feasibility studies at Côté Gold and Boto Gold, reserve declaration at Saramacca, and investments in short payback projects requiring low capital expenses, among others.

2019 Production Guidance

  • IAMGOLD expects to produce between 810,000 and 870,000 ounces of gold this year. That’s down nearly 5% from 2018’s estimated production.
  • Lower grades at the Essakane mine will hurt IAMGOLD’s production profile this year. The company sees a drop in the availability of high-grade zones at this mine, which supplied nearly 46% of its 2018 attributable gold production.
  • IAMGOLD also plans to cease operations at the Sadiola joint venture this year as oxide ore stockpiles are expected to deplete at the mine in the first half of 2019.
  • The company expects a 12% increase in production from the Rosebel mine, while there will be a slight drop at Westwood as IAMGOLD continues to ramp up mining and development activity at the site.
  • The depleting grades at IAMGOLD’s mines, as well as the ongoing infrastructure development, will negatively impact IAMGOLD’s cost profile this year. It expects cash costs between $765 per ounce and $815 per ounce for 2019, which is slightly higher than last year’s levels. Similarly, all-in sustaining costs are expected to increase slightly to a range of $1,030-$1,080 per ounce.
  • The company expects costs to decline in the second half of 2019 thanks to a potential increase in higher grade gold production from Rosebel, as well as an increase in gold recoveries.

IAMGOLD Unprepared for Gold Price Increase

  • IAMGOLD investors have been disappointed with the company’s 2018 performance and 2019 guidance, as evident from the 11% crash in the stock price post guidance announcement. That’s not surprising as the company’s 2018 production remained flat starting from 2017, and will then decline this year.
  • Gold prices have risen for four months in a row now and they are likely to trend higher in the future thanks to the Federal Reserve’s indication that it would be pausing interest rate hikes. IAMGOLD doesn’t look like it is in a position to take advantage of the price increase thanks to the potential drop in production anticipated this year.
  • However, IAMGOLD believes that its problems won’t last forever. The company has established a long-term plan to boost production to a range of 1.2 million to 1.3 million ounces by 2022 and decrease the all-in sustaining costs to less than $850 an ounce. But investors aren’t buying into that prospective growth just yet, so IAMGOLD shares will continue to remain under pressure until its operational execution improves.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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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