Iamgold cuts power rates in Suriname, builds solar-power project

In August Iamgold (TSX: IMG; NYSE: IAG) reached an agreement with the Republic of Suriname to cut its power rate at the Rosebel mine from 20¢ per kilowatt hour to 14¢ per kilowatt hour.

The Toronto-based miner said at the time that the lower power rates could lead to cost savings, as the company transitions from mining soft rock to harder rock at Rosebel. (Harder rock requires more power to crush and grind.)

As part of the deal, Iamgold said it would build a solar-power project at the mine that would have another 5 megawatts of generating capacity, or enough to meet one-fifth of Rosebel’s required 25 megawatts. The project would free up power capacity for use by other customers in Suriname, a South American country on the northeastern Atlantic coast.

Iamgold has revealed that the $12-million to $14-million solar-power project will be operational in the third quarter of 2014.

Steve Letwin, Iamgold’s president and CEO, noted that adapting technologies like solar power to the mining business is “exactly the type of innovation this industry requires to succeed in the future.”

The power deal follows an earlier agreement Iamgold reached with the government in April that established a joint venture (70% Rosebel, 30% government) targeting softer ore in areas surrounding the mine.

The agreement provides for up to 300 x 106 kilowatt hours per year of additional power for 11¢ per kilowatt hour, and applies to any production from the joint-venture area — which has been defined as a circular area extending 45 km from the Rosebel mill, excluding the Gross Rosebel concession — for a net joint-venture area of 16,190 sq. km.

The joint venture could convert another 200 sq. km to new rights of exploitation within the joint-venture area for processing at Rosebel. Under the deal, all future production from the joint-venture area will be allocated to the joint venture on a 100% basis.

When Iamgold released its third-quarter results on Nov. 5, management noted that the new power rates reached this year are expected to cut costs at the site by up to $50 per oz.

In the third quarter, Iamgold’s attributable gold production from Rosebel rang in at 95,000 oz., unchanged from the year-earlier quarter, as slightly higher throughput was offset by lower recoveries. Total mine production rose 7% year-on-year, as the expanded mining fleet was put into production.

Total cash costs at Rosebel of US$729 per oz. produced were 6% higher than the third quarter of 2012, mostly due to increased labour costs, higher consumables and higher fuel costs from longer hauls, which were offset by the lower realized power rates.

All-in sustaining costs of US$979 per oz. sold were 6% higher than the same period a year ago, mainly due to higher cash costs and sustaining capital expenditures, which were offset by higher sales volume related to the timing of sales.

Iamgold announced a $100-million cost-reduction program in the first quarter of 2013 to trim annual operating costs at sites by $54 million, exploration expenditures by $40 million and corporate general and administrative costs by $6 million.

At the end of the third quarter, the company met 77% of its planned reductions, saving $38 million in operations, $35 million in exploration and $4 million in corporate.

Over the last year Iamgold shares have traded in a range of $4 to $12.14 per share. At press time they traded at $4.40.

Iamgold has nearly 377 million shares outstanding.