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Iamgold retains “sell” rating at Dundee on cash flow challenges at current higher gold prices

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Iamgold (TSE:IMG), a producer of gold in Suriname and Burkina Faso, had its “sell” rating and C$3.00 price target retained at Dundee Capital Markets in the wake of reporting fourth-quarter operating results that were better than expected, and providing 2015 guidance that met estimates.

“Following 2014's cost reduction initiatives and the ramp up of Westwood, we forecast Iamgold has the potential to realize a declining cost profile,” analyst Josh Wolfson wrote in a research note to investors today.

“Although we still project Iamgold will be challenged to generate net cash at current higher gold prices, the company is comfortably positioned in the interim with a healthy cash balance.”

In the fourth-quarter, Toronto-based Iamgold achieved production of 241,000 ounces, 4 percent above Dundee’s estimate of 231,000 ounces, largely driven by better realized results at Rosebel (estimated 94,000 ounces versus 86,000 ounces).

Preliminary fourth-quarter costs of $825 per ounce were 3 percent below Dundee’s estimate of $849 per ounce.

For the full 2014 year, Iamgold produced 844,000 ounces at total cash costs of $845-865 per ounce, achieving revised guidance of 835,000-855,000 ounces (previously 835,000-900,000 ounces) at $825-875 per ounce.

Iamgold provided 2015 guidance for 820,000-860,000 ounces at total cash costs of $850-900 per ounce. Dundee’s previous estimates had been 842,000 ounces at $839 per ounce.

Despite a greater proportion of lower cost Westwood production in 2015, Iamgold said it is forecasting a modest 2 percent rise in costs year-over-year. Dundee said this forecast is driven by higher costs at Essakane and Rosebel, where harder rock is being processed.

With successful ramp-up of the Westwood mine, Iamgold has the potential to deliver lower future costs. Dundee said it forecast Iamgold's fully loaded costs of $1,350 per ounce in 2015, decreasing closer to $1,300 per ounce thereafter.

Despite the tailwind of recently increasing gold prices, Dundee estimates Iamgold will be challenged to generate net cash.

“Nonetheless, we forecast no near term financial challenges for Iamgold, given its healthy liquidity of a reported $333 million in cash and bullion as of year-end,” Wolfson wrote.

“We note that although Iamgold will realize $500 million from the sale of Niobec, bond covenants require IMG to utilize $450 million of sale proceeds towards business development or acquisitions within 12 months, otherwise remaining funds must be utilized to redeem outstanding bonds at par (currently trading at 79.00).”

Also today, National Bank downgraded Iamgold to “sector perform”, saying fourth-quarter operational results and 2015 guidance were largely in line but “broader valuation-driving tailwinds” have eased.

Separately, the miner said late yesterday that a rock burst at its Westwood mine in Quebec caused an underground collapse, but no employees were injured and production continues uninterrupted.

Shares of Iamgold were down 9 percent at C$3.51 at 2:22 p.m. in Toronto.

Quick facts: IAMGOLD Corp

Price: 4.77 CAD

TSX:IMG
Market: TSX
Market Cap: $2.23 billion
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