IAG - Iamgold: Cote Gold Is 85.7% Completed

2023-08-11 13:35:50 ET

Summary

• Iamgold Corporation recorded $238.8 million in total revenues and posted an income per share of $0.19.
• The attributable gold production from continuing operations was 107K Au ounces, compared to 170K Au oz produced in Q2 2022.
• I recommend buying Iamgold Corporation stock between $2.35 and $2.25 with lower resistance at $2.

Introduction

Canada-based Iamgold Corporation ( IAG) reported its second quarter of 2023 on August 10, 2023.

Note: I have followed IAG quarterly since 2014. This new article is a quarterly update of my article published on May 14, 2023.

1 - 2Q23 results snapshot and commentary

The company recorded $238.8 million in total revenues and posted an income per share of $0.19 or $92.6 million in 2Q23. The adjusted net loss attributable to equity holders is $3.3 million, or $0.01 per share .

The attributable gold production from continuing operations was 107K Au ounces, compared to 170K Au oz produced in 2Q22. The sale of Rosebel can explain the difference. Attributable gold sales were 111K ounces .

The cost of sales per ounce sold from continuing operations was $1,376 , cash cost per ounce sold from continuing operations was $1,372, and AISC per ounce sold from continuing operations was $1,912 per ounce.

The company indicated the 2023 Guidance in its press release (emphasis added):

Attributable gold production guidance for 2023 is unchanged and is expected to be in the range of 410,000 to 470,000 ounces . Full year costs are expected to come in at the top end of the guided ranges of between $1,125 and $1,175 per ounce sold for cash costs and between $1,625 to $1,700 per ounce sold for AISC.

The Côté Gold project was now 85.7% completed at the end of June 2023. The cost incurred so far was $1.56 billion , with estimated funding for IAG alone of $465-$515 million, a slight change from 1Q23 guidance. CapEx for Côté Gold in 2Q23 was $189.1 million. The CapEx necessary for constructing Côté Gold explained the large negative free cash flow estimated at $197.1 million in 2Q23.

As a reminder, the first gold at Côté Gold is expected in late 2023 or early 2024.

Côté Gold is expected to produce 495K Au oz per year in its first six years and 365K Au oz over the life of the mine. It will be above 320K Au ounces net for IAG.

Also, the Gosselin deposit , located immediately adjacent to the Côté pit, contains 3.4 Moz in Indicated Mineral resources and an additional 1.7 Moz in Inferred Resources.

The financing of this huge project has been a thorny issue that impacted the stock significantly in H2 2022 when the company was showing financial distress that nearly put the company in financial jeopardy.

To resolve the financing burden of the Côté Gold project, IAMGOLD sold the Rosebel mine and its Bambouk Assets, and the Boto Gold project was completed on April 25, 2023.

Also, on August 1, 2023, the Company agreed to sell its 100% interest in the Pitangui Project , a greenfield exploration property located in Brazil, and its interest in the Acurui Project to Jaguar Mining Inc. via a share purchase agreement (emphasis added):

the issuance to the Vendor of 6,331,713 common shares in the capital of the Company, having an aggregate value of $9 million based on the volume weighted average closing price per share for the thirty (30) calendar days preceding the date of the Agreement, which was CAD$1.873 per share.

In December 2022, IAMGOLD amended the Joint Venture with Sumitomo, securing $340 million against an extra stake of 10% to Sumitomo, reducing the Company's interest in the unincorporated joint venture to 60.3% .

The company kept its Nelligan Gold Project in the Chibougamau District, Quebec, Canada.

2 - Stock Performance

The stock recovered significantly and reached over $3.20 recently. However, IAG retraced when the FED raised interest rates by 25 points in July, which affected the gold price greatly.

Furthermore, the continued deteriorating security in Burkina Faso, where the Essakane mine is located, compelled IAG to issue a warning in its recent press release:

The continued deteriorating security situation in Burkina Faso continues to be a focus for the Company. Terrorist related incidents continue unabated in the country, the immediate region of the Essakane mine and, more broadly, the West African region. The Company was able to return to full mining and milling capacity during the quarter, however, the security situation in Burkina Faso and its neighboring countries continues to apply pressures to supply chains and continued security incidents and concerns could have a material adverse impact on future operating performance

Note: Essakane mine is the flagship mine for IAMGOLD, and any potential trouble can significantly affect the stock price.

3 - Investment thesis

The investment thesis for Iamgold Corporation is bullish after the company managed to resolve the Côté Gold project financing situation. However, we should be on the alert now due to the FED's recent action and elevated instability surrounding the Essakane Mine in Burkina Faso.

After years of struggle, the Côté Gold project in Quebec is nearly completed, meaning IAG will significantly improve its balance sheet in 2024. Also, I am more optimistic about the gold price entering 2024, expecting a pause from the FED.

However, I expect more volatility as we enter H2 2023. As I said in my preceding article, It is time to use the stock weaknesses to accumulate IAG, expecting higher highs as we approach the completion of the Côté Gold.

Hence, I recommend trading about 60% of your short-term LIFO and keeping a medium-core long-term position for a much higher target. Trading LIFO is the most adapted strategy that allows you to profit while waiting for a significant uptrend.

IAMGOLD Corp. - Financial history Snapshot ending 4Q22 - The Raw Numbers

Data Source: Company release .

* estimated or indicated by the company.

Gold Production And Balance Sheet Details

1 - Revenues were $238.8 million (Continued operations only) in 2Q23

Renaud Adams, President, and Chief Executive Officer of Iamgold, said in the press release:

We have seen remarkable progress and a transformation of Côté Gold as project activities begin the critical transition from bulk construction to finishing activities and operational readiness, including a steady ramp up of autonomous mining activities towards production early next year. The project is now over 86% complete and the remaining capital outlay is in line with our estimates.

2 - Free cash flow was estimated at a negative $197.1 million in 2Q23

Free cash flow is again a significant negative this quarter for Iamgold, and this trend will persist until the Côté Gold project is completed at the end of 2023.

IAG's trailing 12-month free cash flow is now a loss of $548.7 million and another estimated negative $197.1 million in the second quarter.

3 - Gold Production Details: Total Production Was 107K Au Oz in 2Q23

3.1 - Gold production details

Iamgold produced 107K Au oz during the second quarter of 2023, compared to 170K Au oz during 2Q22, as shown in the graph below. The production is now lower due to the sale of Rosebel.

3.2 - Quarterly AISC and Gold price

AISC is now $1,912 per ounce . The high AISC is due to the Westwood mine, which reached an AISC of $2,903 per ounce in 2Q23, lower by 8% YoY. The Westwood mine should be put on care and maintenance with such elevated AISC.

In the press release, the company said that heavy wildfire smoke at the Westwood mine impacted operations.

Mining activity in the second quarter 2023 was impacted by heavy wildfire smoke in the vicinity of the mining operations requiring for multiple underground shifts to be cancelled to ensure the continued safety of the workforce. Despite the impact on mining activity, the underground ore tonnes mined exceeded the same prior year period due to the continued progress in rehabilitation and development of underground activities.

3.3 - 2023 Guidance

Total production is expected to be between 410K and 470K Au ounces in 2023. AISC is expected to be between $1,625 and $1,700 per ounce.

As we look to the end of this year, we see IAMGOLD is well on track to meet its gold production guidance targets of 410,000 to 470,000 ounces. We are currently forecasting costs to come in on the upper end of our guidance ranges, due to sustained higher costs of doing business from cooling, yet still present, inflationary pressures and associated complexities in the regions in which we operate. (press release)

4 - The company had $89.6 million in net debt and strong liquidity of $1,200.2 million on June 30, 2023.

Technical Analysis (Short-Term) and commentary

IAG forms a Descending Channel Pattern with resistance at $2.82 and support at $2.35.

Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. The descending channel pattern is often followed by higher prices, but only after an upside penetration of the upper trend line.

The short-term trading strategy is to trade LIFO for about 60% of your position. I suggest selling between $2.72 and $2.90 with possible higher resistance at $3 and waiting for a retracement between $2.35 and $2.25 with lower resistance at $2.

Watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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