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Iamgold's Q3 misses, but Westwood mine key to long-term outlook, says Dundee

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Iamgold (TSE:IMG) shares fell sharply Thursday, a day after the company reported third quarter adjusted earnings below estimates, hurt by lower gold prices and higher cash costs.

The company swung to a third quarter loss of 19 cents a share from a profit of 7 cents per share a year earlier. On an adjusted basis, earnings were breakeven, below consensus estimates of 4 cents per share.

Dundee Capital Markets said that despite the miss, its first impression of the results are slightly positive. The gold miner reported third quarter equity production of 225,000 ounces, 5 percent below Dundee's estimate, while total cash costs were $851 an ounce, in line with the brokerage firm's view.

The company said operating results were largely impacted by weaker production at its Essakane mine due to harder ore processed, and at Rosebel on account of lower grades, a problem which Dundee says is concerning.

Iamgold also reduced the upper end of its annual guidance, and now expects production in the range of 835,000 to 855,000 ounces, down from 835,000 to 900,000 ounces previously. The company stood by its total cash costs guidance of $825 to $875 per ounce.

"We calculate Iamgold generated its first quarter of positive free cash flow since 1Q12 ($13.8MM), although this was aided by temporary lower capital spending, higher consolidated gold sales than production, and low cash taxes," Dundee analyst Josh Wolfson wrote in a report released to clients this morning.

"Net debt improved to $480MM (2Q:$530MM), benefiting from FCF, but also materially due to a working capital inflow of $26MM, and investing income of $15MM (excl. capex). 

The analyst said that key to the company's long-term outlook is its ability to successfully ramp-up production at its Westwood mine, and sustain financial liquidity.

"While we continue to forecast material cash consumption at current gold prices (corp. fully loaded costs are $1,250-$1,300/oz), Westwood initial commercial production results and aggressive cost cutting measures in our view are incrementally positive," he added.

Total cash costs at Westwood were $772 per ounce during the quarter, 7 percent below Dundee's estimate of $808 an ounce, and at the low end of second half 2014 total cash cost guidance. As development ramp up continues, costs are expected to trend downwards, Wolfson said.

The Dundee analyst has a sell rating on the stock, and a price target of C$2.75. Shares fell 5.5 percent on Thursday to C$2.05 in Toronto as of 12:55pm ET. 

Quick facts: IAMGOLD Corp

Price: 4.75 CAD

TSX:IMG
Market: TSX
Market Cap: $2.22 billion
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