IAMGOLD (TSE: IMG) has just announced that it will be cutting 32% of its workforce at the Westwood mine in Quebec, Canada, starting this week. Shares of the Toronto-based gold miner are down on the news as it points toward operating bottlenecks at the mine which had hurt the company’s output last year.
IAMGOLD reiterates its production guidance of 100,000 ounces to 120,000 ounces at Westwood for the year. But the mid-point of that range is below the 2018 production of 129,000 ounces. The company was struggling on account of higher costs last year, so it probably had to take this drastic step to keep a handle on its spending.
According to Steve Letwin, the President and CEO of IAMGOLD:
“We concluded that this difficult decision had to be made in conjunction with planned reductions after assessing the balance of production levels and costs. We remain focused on developing a long term plan for Westwood that is both safe and profitable.”
The Westwood mine has a troubled history as a seismic event in May 2015 had impacted production substantially. The mining block affected by that event received regulatory approval for reopening in 2018. However, IAMGOLD seems to be struggling to get this mine back on track as it puts security protocols in place to carry out mining in areas with seismic activity.
At the same time, IAMGOLD is facing production bottlenecks at other mines. The Sadiola mine, for instance, will start witnessing depleted oxide ore stockpiles from mid-2019. This will impact production to the tune of 20,000-30,000 ounces.
Also, IAMGOLD had shelved its plan of constructing the Côté Gold Project in Ontario in January this year. The company said that it will “wait for improved, and sustainable, market conditions in order to proceed with construction.” All these developments seem to be denting investor confidence in IAMGOLD shares as the stock has lost nearly a third of its value over the past year.
It won’t be surprising to see IAMGOLD stock remaining under pressure going forward as well because its annual production is expected to fall from 882,000 ounces last year to a range of 810,000 ounces and 870,000 ounces in 2019. However, a couple of factors could help the company deliver a positive surprise going forward.
First, its all-in sustaining costs for the year were expected to remain flat in 2019 as per the original guidance. The job cuts could probably lead to further reduction in this metric, though investors should note that this isn’t a sustainable method of reducing costs. Next, the price of gold has hovered consistently around the $1,300 an ounce mark this year after rising over 8% in the past six months.
This could give the company’s gold margin a small shot in the arm because last year, IAMGOLD had recorded an average realized price of $1,270 per ounce of gold. But if things go south and gold prices fall, then its margins will take a hit. Additionally, it remains to be seen if there’s any additional fallout from the Westwood retrenchments.
So, it would be wise for investors to stay away from IAMGOLD and instead focus on other lucrative opportunities in the gold mining industry.
