Iamgold shares fall 15% on higher costs

Iamgold (IMG-T, IAG-N) shares crumbled as the gold producer estimated higher operating costs for 2013, causing analysts to cut their targets. 

For 2013, the Toronto-based firm expects to produce 875,000 to 950,000 attributable oz. gold at cash costs of US$850 to US$925 per oz., including royalties. That cost guidance is about 30% higher than last year’s expectations and above BMO Capital Markets’ estimate of US$730 per oz. gold.

Iamgold attributed the surge in costs mainly to inflation and lower grades and on a lesser degree to the harder ore at its mature mines and rising expenses at the Westwood development project in Quebec.

“The lower grades of ore, combined with the energy-and labour-intensive nature of low-grade deposits, presents a cost challenge in our industry,” the company’s president and CEO Steve Letwin said in a release, noting it is exploring ways to trim operating costs and capital expenditures.

On the news, BMO analyst David Haughton downgraded Iamgold to “market perform” from “outperform,” and cut his target to US$14 from US$16 per share to reflect the lower anticipated earnings per share (EPS) and net present value (NPV).

He reduced his 2013 EPS estimate by 24% to US95¢ and NPV by 10%.

“Iamgold is now trading at 0.9 times estimated NPV using spot prices and a 10% rate, at a significant discount to the senior producer average of 1.2x,” Haughton notes.

Under the less than rosy outlook, Iamgold plunged 14.5% to close Jan. 23 at $9.22.

Along with the forecast for 2013, the gold miner released preliminary numbers for last year’s performance, which were relatively in line with predictions.

Attributable gold production for the last quarter of 2012 was 214,000 oz., bringing its full-year production to 830,000 oz., falling below the 840,000 to 910,000 oz. target.

Annual cash costs are expected to be in the upper end of the US$670 to US$696 per oz. guidance.

Iamgold says the slight miss in last year’s output was caused by poor performances at its jointly held Sadiola and Yatela mines in Mali, where it’s a partner with AngloGold Ashanti (AU-N) and the Malian government.

While the two mines failed to impress, Iamgold notes the operations are unaffected by the ongoing conflict in the country; however, as a precaution it has currently scaled down its exploration efforts in the region.

This safety measure has led Iamgold to forecast spending a little less on exploration this year. It currently has forecasted to spend $142 million, with about 54% of that going towards greenfield exploration, including feasibility work at the Cote Gold project in northern Ontario, where it recently updated resources.

Cote Gold currently has 7.61 million indicated oz. gold and 1.04 million inferred oz.

Iamgold also plans to carry out resource development programs at the Rosebel, Essakane and Niobec mines, as well as at the Westwood project, poised to start production in late March.

The Niobec mine in Quebec should deliver between 4.7 and 5.1 million kilograms of niobium in 2013, while the Rosebel gold mine in Suriname is undergoing an expansion feasibility study, expected in late March.

Along with reducing exploration budgets, the company is trimming its capital expenditures for 2013. While the total amount is yet to be finalized, it estimates spending US$100 million each at Westwood and Niobec, and US$300 million at the Essakane gold mine in Burkina Faso. It has the Sadiola sulphide project under review, which BMO’s analyst doesn’t expect will be developed at this stage.

Despite the weak forecast for 2013, Iamgold’s chief executive says the company is focused on growth and should see results in the coming years.

“Over the next five years, the combination of growth initiatives at our existing mines, the ramp-up to full production at Westwood and the expected start-up of Cote Gold in 2017 should drive production up 80% to 1.4 million to 1.6 million ounces,” Letwin said.