IAMGOLD Stock Is in for Tough Times Ahead

IAMGOLD [stock_market_widget type="inline" template="generic" color="default" assets="IAM.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock plunged big time after the company released its first-quarter results and the forward-looking outlook, which didn’t turn out to be as per Wall Street’s expectations. Let’s take a closer look at how IAMGOLD performed last quarter and why the market is so downbeat about its prospects.

The Numbers Aren’t Pretty

IAMGOLD produced 185,000 ounces of gold last quarter, while its sales came in at 190,000 ounces. By comparison, the company had produced 229,000 ounces of gold in the year-ago period and sold 235,000 ounces.

The massive 19% decline in the company’s output was a result of the operational challenges IAMGOLD faced at its mines. IAMGOLD witnessed lower grades at Essakane and at its joint venture operations, while an increase in seismic activity at the Westwood mine also impacted its production negatively.

But a weak production profile was not the only problem for IAMGOLD. The lower production volumes increased its cost base, with total cash cost per ounce increasing 20% year over year to $884. Also, all-in sustaining costs increased 14% year over year to $1,086 an ounce. Meanwhile, IAMGOLD’s all-in sustaining costs dropped to $424 an ounce as compared to $594 an ounce in the year-ago period.

Not surprisingly, IAMGOLD swung to an adjusted net loss of $2.2 million as compared to a profit of $40.4 million a year ago. But more bad news was in the offing for IAMGOLD investors as the company’s guidance didn’t turn out to be as per expectations.

What Next for IAMGOLD?

Given the way the year has started, investors shouldn’t be surprised to see IAMGOLD missing earnings targets as its production profile has taken a hit.

IAMGOLD management said that the company is maintaining its full-year production guidance of 810,000 to 870,000 ounces. All-in sustaining costs are expected in the range of $1,030 to $1,080 an ounce.

Also, the company has maintained its guidance for full-year cost of sales as well as total cash costs. But at the same time, IAMGOLD management issued a warning that it will review its guidance in the current quarter and provide an update if necessary.

This has sent investors in panic mode, as the company’s press release clearly stated that “a number of cost and productivity improvement initiatives are underway to mitigate the risk that these two targets may not be achieved by the end of the year.”

Not surprisingly, the stock has taken a big beating after releasing its results as there’s uncertainty about how the company will perform going forward.

At present, analysts expect the company’s top line to remain flat year over year, while earnings are expected to increase by a penny. But given the way the year has started, investors shouldn’t be surprised to see IAMGOLD missing those targets as its production profile has taken a hit.

But there’s an upside for IAMGOLD because gold prices could improve on the back of the ongoing trade tensions between the U.S. and China. However, to take advantage of that, IAMGOLD will need to improve its production as the year progresses, otherwise it will miss out on potential improvement in the price of gold.

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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