Iamgold’s Q3 profit misses the mark

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

Earnings for the quarter came in at US$78 million, or US21¢ a share. But adjusted earnings 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. gold on production of 205,000 oz. gold, down 13% and 8% from the year-earlier quarter. Revenue declined 10% to US$386.8 million. 

Company president and CEO Steve Letwin said on a conference call that costs and production at operating mines were relatively on track, except for its jointly held operations with AngloGold Ashanti (AU-N) in Mali.

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

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

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

During the third quarter, the 41%-held Sadiola mine produced 26,000 attributable oz. gold, down 13% from the year before.
The company explained that “low-grade ore and processing issues” in the Sadiola plant led to low throughput, making output slip.  

The mine is scheduled to undergo a sulphide expansion program, which requires Anglo’s approval to improve the operation. Under the project time frame, prestripping the Sadiola main deposit to access the underlying sulphides would begin in 2013, with project completion and a new plant starting up in late 2014. 

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

The Rosebel and Essakane mines generated 95,000 oz. and 77,000 oz., roughly 6% less than Haughton expected from each. Compared with 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, and 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 kilograms of niobium, which is the same as the year ago, but at a higher operating margin of US$16 per kilogram, up 14% owing to higher realized niobium prices.

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

With the expansion projects at Essakane and Sadiola progressing slower than anticipated, the miner has reduced its capital expenditure guidance for 2012 from US$800 million to $840 million, to US$750 million to $780 million. It has also trimmed its 2013 gold forecast to 875,000 to 950,000 from 1 million to 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,” Haughton says. The plant expansions at Rosebel and Essakane should be done by 2013.

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

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

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