On Aug. 3, IAMGOLD (IAG) reported its financial and operational results for the second quarter 2016:
- Adjusted net earnings from continuing operations attributable to equity holders of $5.9 million or 1 cent per share, up from an adjusted net loss of $30.8 million or 8 cents per share compared to the second quarter of 2015. The results beat analysts' estimates by 3 cents.
- Revenues from continuing operations of $232.5 million, up $6 million or 3% compared to the second quarter of 2015, and missed by $13.18 million analysts' estimates for Q2 2016.
The 3% increase in revenues was mainly due to a higher realized gold price, up 3% year over year from $1,194 per ounce in Q2 2015 to $1,269 in Q2 2016.
Higher sales volume at Essakane that contributed to the sales increase by $6 million was partially offset by lower sales volume at Rosebel ($2.2 million) and Westwood ($12.3 million), where the ramp-up of underground development is on track and full production is expected to be reached in 2019.
Furthermore as production ramps up at Westwood, IAG’s all-in-sustaining costs are expected to drop further.
AISC of $1,114 per ounce sold, was up $38 per ounce from Q2 2015. The increase was primarily due to an increase in sustaining capital and lower sales, partially offset by lower cash costs.
The increase in the net cash from continuing operating activities ($71.2 million in Q2 2016), up 125% from Q2 2015 and 39% from Q1 2016, was mainly due to a positive support from a higher gold price during the whole quarter that together with lower cash costs, drove margins up 36% from Q1 2015.
Considering the capital spending needs for the development work at Westwood and the secondary crusher at Rosebel mine, the miner expects a return to profitability in the second half of 2016 if gold prices will stay above $1,300 an ounce. At these levels of gold price and operating costs, Rosebel and Essakane are generating free cash flow.
For 2016 IAMGOLD expects AISC per ounce of gold produced to be between $1,000 and $1,100. The attributable production of gold is expected to be between 0.77M and 0.8M ounces.
Low or negative interest rate environments around the world and political uncertainty in the U.S. will continue to push the gold price higher, and this will help the company to contribute positively to its bottom line:
“I think you could see easily $1,400 by the end of the year and $1,500 in 2017 and for us, that’s another $120 million a year in cash flow,” the company CEOÂ said.
IAMGOLD, a mid-tier gold mining company, is high-cost operating leverage and this implies that a certain increase in the price of gold leads to a higher percentage in IAG's earnings, and as a consequence we see larger common stock increases of IAG compared to Barrick, a low cost mine company.
As you can see from the chart below, after a certain level of gold price, IAMGOLD outpaced Barrick on the stock market, likely when gold price started to trade around $1,275 per troy ounce on May 5:
The average realized gold price increased 6.8% from Q1 2016 to Q2 2016:
The postponement of interest rate hikes by the Fed is putting more pressure on the price of gold and IAG’s share price will increase as gold trades higher.
Disclosure: I have no positions in IAMGOLD Corp.
