Iamgold Corp. (IAG, Financial) reported a 12% year-over-year increase in gold production for the first quarter of 2017, prompting President and CEO Steven Letwin to say “it was an outstanding quarter.”
The Canadian midtier gold mining company closed the quarter with gold production of 214,000 ounces of gold at an all-in sustaining cost (AISC) of $992 per ounce of gold sold, down nearly 8.5% on a year-over-year basis. This volume of ounces produced also includes the outcome from Joint Ventures, which was 17,000 ounces in the quarter.
The company says the increase “was due to higher throughput and grades at both Westwood (15,000 ounces) and Rosebel (6,000 ounces) and higher throughput at Essakane (5,000 ounces).”
In contrast, at Sadiola mine (41% interest stake) in Mali, the company reported a lower gold production of 16% on a year-over-year basis in the first quarter because of lower grades.
Let’s have a quick look at the first-quarter 2017 operating results mine by mine:
- At Essakane mine (90%) in Burkina Faso, the company produced 93,000 ounces of gold in the first quarter versus 88,000 ounces of gold produced in the comparable quarter of 2016. The 6% increase on a year-over-year basis is attributed by Iamgold to increased throughput thanks to the introduction of a new semiautogenous grinding (SAG) mill liner design. The throughput was affected, even though only partially, by lower recoveries and grades because of mine sequencing.
The company aims to enhance recoveries through a geometallurgical study that should be completed in the second quarter and the addition of an oxygen plant to the circuit. Compared to the same quarter of one year ago, the company reported for the first quarter a higher cost of sales per ounce of gold sold ($793 versus $754), a higher total cash cost per ounce of gold produced ($766 versus $691) and a lower AISC per ounce of gold sold ($973 versus $1,116). The increase in the proportion of hard rock processed from 79% to 83% was the main cause for cost of sales per ounce of gold sold to increase while lower sustaining capital expenditure was the main reason for reduced AISC per ounce of gold sold.
- At Rosebel mine (95%) in Suriname, the company produced 74,000 ounces of gold in the first quarter versus 68,000 ounces of gold produced in the comparable quarter of 2016. The 8.8% increase on a year-over-year basis is attributed by Iamgold to increased grades and throughput. The first was a consequence of mine sequencing and higher grade stockpiles while the second reason was mainly the result of a secondary crusher’s installation at the site.
Compared to the same quarter of one year ago, the company reported for the first quarter a lower cost of sales per ounce of gold sold ($737 versus $815), a lower total cash costs per ounce of gold produced ($727 versus $768) and a lower AISC per ounce of gold sold ($886 versus $955). The increase in sales was the main cause for cost of sales per ounce of gold sold to increase while lower sustaining capital expenditure was the main reason for reduced AISC per ounce of gold sold, combined with lower cost of sales.
Not far from Rosebel mine, the company is conducting drilling activities, the so-called Saramacca project, where the Canadian miner is shaping a high-grade gold deposit for further expanding the possibilities of the area.
- At Westwood mine (100%) in Canada, the company produced 30,000 ounces of gold in the first quarter versus 15,000 ounces of gold produced in the comparable quarter of 2016. The 100% increase on a year-over-year basis is attributed, says Letwin, to “the continuing ramp-up of Westwood production, buoyed by regulatory approval of the reopening of the mining block affected by the fall of ground two years ago.”
Compared to the same quarter of one year ago, the company reported for the first quarter a lower cost of sales per ounce of gold sold ($792 versus $1,236), a lower total cash costs per ounce of gold produced ($759 versus $768) and a higher AISC per ounce of gold sold ($965 versus $890). The increase in sales was the main cause for cost of sales per ounce of gold sold to increase while higher sustaining capital expenditure was the main reason for increased AISC per ounce of gold sold, together with lower normalization. The company says it “does not expect to continue normalizing total cash costs and all-in sustaining costs as the operations reached normal production levels at the beginning of the second quarter 2017.”
- From its joint venture in Mali –Â Sadiola mine (41%) –Â the company reported a gold production of 16,000 ounces in the first quarter versus a production of approximately 19,000 ounces of gold in the first quarter of 2016. Compared to the same quarter of one year ago, the company reported for the first quarter of 2017 a higher AISC per ounce of gold sold ($1,016 versus $821). The decrease in sales was the main cause for AISC per ounce of gold sold to increase.
Thanks to higher sales volume –”‹ 212,000 ounces of gold sold in the first quarter versus 191,000 ounces of gold sold in the first quarter of 2016 – and helped also by a modest increase in realized gold prices ($1,230 per ounce of gold sold in the first quarter versus $1,188 per ounce of gold sold in the first quarter of 2016), Iamgold reported an 18.6% increase on a year-over-year basis in revenue that for the first quarter came in at $260.5 million.
Therefore, the company beats analysts’ expectations on first-quarter revenue by $12.1 million and on first-quarter earnings per share by 3 cents. Iamgold closed the quarter with an adjusted-to-one-time charge EPS of 1 cent. The difference between actual EPS and forecasted EPS produced a positive surprise of 150% since analysts forecasted that the Canadian midtier gold producer would have reported a negative figure of 2 cents on average for EPS at the end of the first quarter.
Source: Yahoo Finance
For the same reasons as mentioned before, the gross profit and the operating cash flow also increased on a year-over-year basis. The first item increased by 438% from $6.5 million in the first quarter of 2016 to $35 million in the comparable quarter of 2017, and the second item, before changes in working capital, increased by nearly 66% from $51.7 million in the first quarter of 2016 to $85.8 million in the first quarter.
The improvement in the operating cash flow plus the completion of a $489 million corporate loan redemption and the issue of a new $400 million corporate loan that extends the long-term debt’s maturity to 2025, has enabled Iamgold to strengthen a balance sheet that also boasts an amount of approximately $680 million in cash on hand and securities. The latter is net of funds used by the miner to extinguish the old corporate loan.
Iamgold maintains its guidance on 2017 production and costs.
Iamgold is trading at $3.72 per share with a price-sales (P/S) ratio of 1.83 and a price-book (P/B) ratio of 0.76. The gold stock has been downtrending again since mid-April and has lost 3.4% year to date.
The EV/EBITDA ratio is 5.11.
The average target price per share is $5.27 which represents a 41.7% upside from the current share price. This is a mean of 13 analysts’ estimates on Iamgold’s target price per share. The recommendation rating is 2.8, which ranges between 1.0 (Strong Buy) and 5.0 (Sell).
During the last quarter of 2016, Donald Smith increased his position in Iamgold by 42.50% to a total held volume of 45,163,382 shares of the Canadian miner as of Dec. 31, 2016, while First Eagle Investment sold out.
Disclosure: I have no positions in Iamgold.
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