Iamgold’s Q3 profit misses the mark

Iamgold (IMG-T, IAG-N) took a hit after posting a weak third-quarter profit thanks to lower gold production and sales.

Earnings for the quarter came in at US$78 million or US21¢ a share, but when adjusted dropped to US$60 million or US16¢ per share, below the consensus of US24¢ per share, and down from last year’s US30¢ a share, mostly due to declining sales.

Attributable gold sales came in at 188,000 oz. on production of 205,000 oz., down 13% and 8% respectively from the year-earlier quarter. Revenue declined 10% to US$386.8 million. 

The company’s president and CEO Steve Letwin said on a conference call the production and costs for the mines that it operates were relatively on track, but not for its jointly held operations with AngloGold Ashanti in Mali.

“Performance at the mines where we are not the owner-operator, for example Sadiola and Yatela, have been disappointing,” he said.

As a result, Iamgold expects consolidated production for the year to be at the lower end of its 840,000 to 910,000 oz. forecast, with cash costs to be within plus or minus 3% of the high end of US$670-$695 per oz.

 “I’m not happy about that,” conceded Letwin, adding there’s little the company could do about it.   

During the third quarter, the 41%-held Sadiola mine produced 26,000 oz. of attributable gold, down 13% from the prior year.

The company explains “low grade ore and processing issues” in the Sadiola plant led to low throughput, causing production to slip.  

The mine is scheduled to undergo a sulphide expansion program, which requires Anglo’s approval to improve the operation. Under the current project timeframe, pre-stripping of the Sadiola main deposit to access the underlying sulphides should begin in 2013, with project completion and the new plant slated to start up in late 2014.

BMO Nesbitt Burns analyst David Haughton reports output from Iamgold-operated mines, such as Rosebel in Suriname and Essakane in Burkina Faso, also didn’t perform too well due to lower throughput at Rosebel and dipping grades at Essakane.

The Rosebel and Essakane mines generated 95,000 oz. and 77,000 oz. respectively, roughly 6% less than Haughton expected from each. Compared to the year earlier period, Rosebel produced roughly the same, while Essakane was off by 11%.

Total cash costs increased by 5% to US$710 per oz. gold from a year ago. Operating cash flow before changes in working capital dropped to US$144.3 million from US$174.1 million.

The Niobec niobium mine in Quebec produced 1.2 million kg of niobium, the same as the year ago, but at a higher operation margin of US$16 per kg, up 14% owing to higher realized niobium prices.

As a result, Iamgold has maintained its 2012 target for niobium production of 4.6-5.1 million kg and operating margin of US$15-US$17 per kg.

With the expansion projects at Essakane and Sadiola progressing slower than anticipated, the miner has reduced its capex guidance for 2012 from US$800-$840 million to US$750-$780 million. It has also trimmed its gold forecast for 2013 to 875,000-950,000 from 1-1.1 million oz. and lowered capex, without specifying the amount.

The company plans to bring its Westwood gold project in Quebec online in early 2013, and has started a prefeasibility study on its recently acquired Côté Gold asset in northern Ontario, a key growth project.  

“The BMO Research outlook for Iamgold suggests little growth without the development of Côté Gold, despite the construction of Westwood and expansions at Rosebel and Essakane,” says Haughton. The plant expansions at Rosebel and Essakane should be done by 2013.

The Westwood project should add 190,000 oz. gold a year to the company’s annual production at an average cost of US$533 per oz., notes Haughton. 

“Within five years, we expect to reach 1.4-1.6 million ounces and nearly double our current level of production,” said the company’s CEO.

Iamgold closed Nov. 16 at $11.75 a share in Toronto, down 21% since it released the financial results after market close Nov. 13.