IAMGOLD (NYSE: IAG) is a mid-tier mining company with four operating gold mines on three continents. A solid base of strategic assets in North and South America and West Africa is complemented by development, and exploration projects and continued assessment of accretive acquisition opportunities. It is in a strong financial position with extensive management and operational expertise and explores for, develops, and operates mining properties in North and South America, and West Africa. In addition, for exploring for gold, copper, zinc, and silver. The company owns an interest in the Rosebel gold mine located in north eastern Suriname, South America; Essakane gold mine in north-eastern Burkina Faso, West Africa; Westwood gold mine south-western Québec, Canada; and Côté gold development project located to the southwest of Gogama, Ontario. It also holds interests in various exploration projects, including Boto gold project in eastern Senegal; and Pitangui project located in Brazil. IAMGOLD Corporation was incorporated in 1990 and is headquartered in Toronto, Canada.
The company has benefited from the rising gold prices this year and should deliver more benefits to shareholders as gold prices rise further as they are expected to. Because of the slow job growth in the US, the Federal Reserve has lowered its expectation for hikes in interest rates and this should serve as a catalyst for both gold prices and the share prices of this company. Apart from constructing a solar plant at Essakane, the company is also improving the way to recovery through cyanide injections and this should show benefits in the long term. The all in sustaining cost at the critical Essakane mine accounting for 46% of production is expected to reduce by 20% from 2018 to 2023, resulting in an improvement in the margins earned.
The outlook for gold prices
Gold prices are driven by the key factors of low interest rates and uncertainty in the markets. As regards interest rates in 2016, the Fed was expected to increase the federal funds rate four times with each increase being a quarter point, but in March, the Fed has scaled down its expectations and now only two hikes are expected with only one hike or no hike in 2016. This is because of a slowdown in job growth in the US, expectations of slower economic growth and stock market volatility. Last month, job growth slowed as only 30,000 jobs were added, which is the lowest number since 2010 and much below the 164,000 jobs, which had been expected. This has also limited the flexibility of increasing interest rates where, once again, expectations have been toned down.
Because interest rates are continuing at low levels, the demand for gold has remained robust and investors are hedging their bets in equities by going into gold, which becomes an attractive alternative investment because of the low yield on Treasuries. Similarly, the volatility in the stock market is driving an increase in demand for gold and, in the wake of the vote on Brexit, gold prices are expected to increase further.
Financial and operating results for the quarter ending 31 March 2016.
The company had a strong start to the financial year with significant improvement in bottom-line over the previous year and net operating cash flow continuing operations growing by 90%. The focus continues to be on increasing operating margins and the all in sustaining cost was $ 1084 an ounce. The throughput at Essakane increased by 9% despite the higher proportion of hard rock and the all in sustaining cost at Rosabel reduced by 8% because of the continued success of the initiative productivity improvement was struck the company is continuing to make progress on securing other sources of soft rock around the operation. At Westwood, the production target was achieved and the rate of underground development is on target at approximately 2100 m a month. Drilling productivity is being improved and the company is confident that the pace can be maintained until the full ramp up in 2019.
The attributable gold production and gold sales for the quarter was 191,000 ounces with an all in sustaining cost of $ 1084 per ounce and total cash costs of $ 746 per ounce. Net earnings from continuing operations were $ 53.1 million, up $ 69.6 million from the same quarter of the previous year, primarily because of the gains in sales of gold bullion. Net cash from operating activities from continuing operations was 90% over the previous year at $ 51.4 million. Cash and cash equivalents and restricted cash stood at $ 658.1 million as at 31. March 2016 and sold investments in 135,148 ounces of gold bullion at an average price of $ 1260 per ounce resulted in net proceeds of $ 170.3 million representing a gain of $ 72.9 million over book value. The company also received $ 30.3 million in net proceeds through the issuance of flow-through shares to finance the development work at Westwood in 2016. The company is maintaining 2016 production guidance of 770,000 to 800,000 attributable ounces at all and sustaining costs of between $ 1000 and $ 1100 per ounce. Subsequently, after the end of the quarter, Resources Québec joined the revolving credit facility with the commitment of $ 38 million and the facility now is $ 138 million with a potential to be increased to $ 250 million.
The bottom line
The company has been focused on increasing recoveries from the mines through higher mill throughput and the same strategy will be followed by optimizing the drilling and blasting process, while reducing the use of explosives. Similarly, to reduce power consumption and the critical Essakane operation, the 15 MW solar plant under construction will bring down electricity costs in the long run. Consequently, these cost production measures are expected to reduce all in sustaining costs to 800 an ounce by 2020. The company has been benefiting from the buoyancy in gold prices and the consequent improvements in gross margin and profits and all the cost containment measures will enable it to take continued advantage of the bullish outlook on gold.
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