IAMGOLD Stock Faces a Litmus Test Ahead

Will IAMGOLD's 2018 Earnings Help or Hurt Stock? (TSX: IAG)

Surging gold prices and the rumours of a buyout have sent IAMGOLD [stock_market_widget type="inline" template="generic" color="default" assets="IMG.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock flying over the past couple of months, but it remains to be seen if that rally could continue once the company releases its second-quarter results on Aug. 7.

Let’s take a closer look at what’s expected of IAMGOLD and if its results are better than what the market expects.

IAMGOLD Is Expected to Deliver a Decent Performance

IAMGOLD’s revenue is expected to remain flat year over year. However, analysts expect that it will report break-even earnings per share as compared to a loss of $0.06 in the year-ago period. That’s not surprising as IAMGOLD could benefit from improved gold pricing this time around.

In the second quarter of 2018, IAMGOLD had produced 214,000 ounces of gold. Its production this time around could be near the same level as the company’s 2019 guidance calls for a production of 810,000 ounces to 870,000 ounces. At the mid-point of the guidance range, IAMGOLD should produce around 210,000 ounces of gold each quarter.

However, given that IAMGOLD produced 185,000 ounces during the first quarter, there’s a chance that its output could improve in the second quarter. If that happens, don’t be surprised to see IAMGOLD beating Wall Street’s estimates this time, especially considering the improvement in gold prices.

IAMGOLD had clocked an average realized gold price of $1,299 an ounce in the second quarter of 2018. Now, gold prices spent the final month of the second quarter well above the $1,300 an ounce mark and even at a level over $1,400 an ounce.

So, IAMGOLD looks all set to benefit from improved gold prices this time around.

How Will the Way Forward Look?

IAMGOLD’s performance going forward depends a lot on the way gold prices are going because the company’s production profile is not in the best shape right now due to weak grades and seismic activity.

During the first quarter, IAMGOLD’s cost performance left a lot to be desired. Its cash costs per ounce of gold went up 20% from the prior-year period, while all-in sustaining costs increased 14%. This led IAMGOLD to a loss of $2.2 million in the first quarter as compared to a profit of $40 million in the year-ago period.

Because of the grade-related problems, IAMGOLD’s output was down 19% year over year. If such a problem persists once again during the second quarter, don’t be surprised to see the company’s performance take a nice beating. In that case, the impressive rally that IAMGOLD has witnessed of late will also come to an end.

As such, investors shouldn’t raise their hopes just yet because execution issues at IAMGOLD could bring an end to the rally that the stock has seen of late.

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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