IAMGOLD (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”IMG.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) has been in trouble in recent months thanks to the weakness in its production profile and a potential increase in costs. These problems are clearly evident in the company’s recently released fourth-quarter earnings report, which didn’t do much to inspire investor confidence.
The stock started sinking after the results were released as IAMGOLD missed analysts’ earnings expectations, and saw its revenue drop in the mid-single digits as compared to the prior-year period. Let’s take a closer look at how IAMGOLD performed in the fourth quarter and for the full year.
IAMGOLD Faced Cost and Gold Price Trouble
IAMGOLD’s fourth-quarter revenue was down nearly 6% year over year to $274.3 million. However, its cost of sales remained flat from the prior-year period. This led IAMGOLD to report a net loss of nearly $35 million as compared to the year-ago quarter’s net loss of $17.7 million. On an adjusted basis, IAMGOLD’s net loss was flat year over year at $0.03 per share.
IAMGOLD’s fourth-quarter results were impacted by a lower gold price. The company reported an average realized gold price of $1,233 an ounce for the fourth quarter as compared to $1,277 in the prior-year period. Its production also fell from 231,000 ounces last year to 228,000 ounces during the fourth quarter.
Additionally, IAMGOLD’s all-in sustaining costs rose to $1,123 per ounce from $1,071 an ounce in the year-ago period. Not surprisingly, its gold margins dropped 17% annually as the company had to contend with lower gold pricing and higher costs.
However, IAMGOLD’s revenue increased slightly on a full-year basis on account of better gold pricing. But flat gold production of 882,000 ounces during the year and a 5.3% increase in all-in sustaining costs to $1,057 an ounce meant that its adjusted net earnings were flat.
Future Success Relies Heavily on Gold Price
IAMGOLD expects to deliver between 810,000 and 870,000 ounces of gold this year at all-in sustaining costs of $1,030 an ounce to $1,080 an ounce. The company’s production profile will take a hit this year on account of lower grades at some of its mines. For instance, the depletion of oxide ore stockpiles at the Sadiola mine by the middle of 2019 will dent production by 20,000-30,000 ounces.
However, IAMGOLD expects head grades to improve at some of its key mines such as Rosebel in the second half of 2019 thanks to its efforts to optimize production. But clearly, that’s not going to be enough to boost the company’s production, though it can expect some respite from a potential improvement in gold prices.
The price of gold recently shot up to 10-month highs to more than $1,340 an ounce. More importantly, it is expected that the gold will be able to maintain a price level in excess of $1,300 an ounce this year thanks to several macroeconomic factors and the Federal Reserve’s decision of keeping a handle on interest rate hikes.
A $1,300-plus gold price level could help IAMGOLD offset the negative impact of the lower production to some extent given that its average realized price last year was $1,270 an ounce. But that might not be enough to help it post top and bottom line growth this year thanks to a 5% drop in gold production and a flat cost profile.
