IAG - IAMGOLD: Cote Gold Is Now Over 73% Completed

Summary

• Quarterly revenues came in at a record $330.1 million, up 12.1% from last year's quarter.
• Attributable Production for 4Q22 was 185K Au oz compared to 153K Au oz produced in 4Q21.
• Côté Gold project was 73% completed at the end of December 2022.
• I recommend buying IAG between $2.4 and $2.25 with lower resistance at $1.84.

Introduction

Canada-based IAMGOLD Corporation ( IAG ) reported its fourth quarter of 2022 and FY22 on February 17, 2023.

Note: I have followed IAG quarterly since 2014. This new article is a quarterly update of my article published on June 27, 2023.

1 - 4Q22 results snapshot and commentary

The company recorded $330.1 million in total revenues (including Rosebel, sold in January) and posted an income per share of $0.05 or a total of $24.0 million. Analyzing the fourth quarter earnings and FY22 is more difficult because the company separated Rosebel from its continued operations.

In this article, I will try to create a complete balance sheet, including Rosebel. The sale of Rosebel to Zinjin was completed on January 31, 2023.

On January 31, 2023 the Company completed the sale of its interests in the Rosebel mine to Zijin Mining Group Co. Ltd. that was announced on October 18, 2022.

The transaction closed on January 31, 2023 and the Company received net proceeds of $371.5 million, consisting of sale proceeds of $360.0 million, plus $15.0 million of cash held by Rosebel on January 31, 2023, less a preliminary working capital adjustment of $3.5 million.

The Company is due to receive approximately $24.8 million by March 31, 2023 consisting of the balance of cash held by Rosebel on January 31, 2023, subject to final working capital adjustments.

Attributable Production for 4Q22 was 185K Au oz compared to 153K Au oz produced in 4Q21.

The elephant in the room remains the completion of the Côté Gold project and the adjacent Gosselin deposit, which was 73% completed at the end of December 2022.

The financing of this massive project has been a concerning issue severely affected in 2022, with a record low in October when uncertainty about financing the Côté Gold project was in a sudden paroxysm.

Since then, IAMGOLD has sold Rosebel and other assets and amended the Joint Venture with Sumitomo, which resolved the financial bottleneck that scared investors in October 2022. In the recent filing :

The Company believes the aggregate proceeds from the sale of its interest in the Rosebel mine, the anticipated proceeds from the sale of the Bambouk assets and funds to be provided by Sumitomo under the Amended JVA, meet the estimated remaining funding requirements for the completion of construction at the Côté Gold Project based on the current schedule and estimate.

Note: the IAG chart shows a bullish cup & handle pattern that suggests a possible future breakout.

The cup and handle is considered a bullish signal, with the right-hand side of the pattern typically experiencing lower trading volume. The pattern's formation may be as short as seven weeks or as long as 65 weeks.

However, with the current funding arrangement with Sumitomo, after December 31, 2022, SMM funded $126.4 million, resulting in the Company’s interest in the Côté Gold project being diluted by 5.0% to 65.0%.

IAMGOLD incurred $681.9 million in project expenditures in 2022, and the company has incurred approximately $1.2 billion since construction.

The estimated attributable cost to complete the construction, on an incurred basis, and the Company’s attributable funding requirement for 2023 is $800 to $875 million, totaling about $2.8 billion since the start of the construction. The IAG 2023 CapEx share will be $460 million to $535 million.

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

Here are some numbers to grasp the Côté Gold:

• Mine life is 18 years, with initial production expected in early 2024;

• Average annual production of 495k ounces (320,500 ounces attributable) during the first six years following commercial production and 365k ounces (236,000 ounces attributable) over the LOM;

• LOM average cash costs of $693 per ounce of gold ("/oz Au") sold, and all-in sustaining costs ("AISC") of $854/oz Au sold;

• Côté Gold LOM plan is based on Mineral Reserves of 7.2 million ounces.

Interim CEO Maryse Belanger said in the conference call:

At Côté Gold, the project saw remarkable progress in 2022. It is now over 70% complete and recently celebrated a major milestone with the deployment of the first autonomous haul trucks, which began mining activities in January. The site celebrated 8.3 million hours without a lost time injury, which is a testament to the skill and dedication of the Côté team.

2 - 4Q22 and FY22 Presentation Highlights

3 - Stock Performance

IAMGOLD dropped precipitously in October, as explained earlier, and is now down 22% on a one-year basis, slightly underperforming the GDX.

4 - Presentation

IAMGOLD is a mid-tier gold mining company operating in three regions: North America, South America, and West Africa. However, starting in 2023, IAMGOLD sold its Rosebel mine in Suriname to Zinjin, with only two producing mines left.

The company also partially owns Canada's Côté Gold construction project (65%). The flagship mine Essakane in West Africa represents 53% of the company's total output in 4Q22.

5 - Investment thesis

The investment thesis for IAG is a complex story. Everything revolves around the Côté Gold project.

It is a great project that will improve the bottom line starting in 2024 but has been a money pit that nearly destroyed the company.

Côté 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.

There is also tremendous potential for future expansion with the Gosselin deposit, located immediately adjacent to the Côté pit containing 3.4 Moz in Indicated Mineral resources and an additional 1.7 Moz in Inferred Resources.

Negative issue: Côté initial CapEx was estimated below $1.2 billion in 2018 when the company decided to go ahead, but it will cost over $2.8 billion , assuming no hiccup in 2023.

One positive is that the financing has been resolved, and the project is now about 75% complete, with production in early 2024.

Hence, I recommend trading about 70% of your short-term LIFO and keeping a small 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 by Fun Trading

Gold Production And Balance Sheet Details

1 - Revenues were $330.1 million in 4Q22

2 - Free cash flow was a loss of $145.9 million in 4Q22

Free cash flow continues to be a recurring issue for IAMGOLD and will persist until the Côté Gold project is completed in the end of 2024.

IAG's trailing 12-month free cash flow is now a loss of $477.2 million and another estimated loss of $145.9 million in the fourth quarter.

3 - Gold Production Details; Total Production Was 185K Au Oz in 4Q22

3.1 - Gold production details

IAMGOLD produced 185K Au oz during the fourth quarter of 2022, compared to 153K Au oz during 4Q21, on continued strong performance from Essakane and Rosebel, as shown in the graph below.

3.2 - Quarterly AISC and Gold price

AISC is now $1,670 per ounce. High AISC is due to Cote Gold construction.

3.3.1 - 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.

4 - The company had $511 million in net debt and strong liquidity of $434 million on December 31, 2022.

Technical Analysis (Short Term) and commentary

IAG forms an ascending channel pattern with resistance at $3.0 and support at $2.31.

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices,

The short-term trading strategy is to trade LIFO for about 75% of your position. I suggest selling between $3.10 and $3 with possible higher resistance at $3.35 and waiting for a retracement between $2.4 and $2.25 with lower resistance at $1.84.

However, the mid-resistance/support is now $2.69 and could be used for trading in correlation with the RSI.

IAG started a steep decline in early February when the Fed hiked interest rates by 25 points and indicated that there would be more hikes in 2023. The market turned bearish after releasing the CPI number for January, which amplified the risk of recession in 2023.

January CPI inflation rate slows to 6.4% but monthly inflation rose by 0.5% Inflation eased for the seventh straight month in January, helped by lower costs for used vehicles and offering some relief to consumers struggling with high prices over the past year.

The gold price sold off and went from ~$1,970 on February 3, 2023, to close last Friday at ~$1,850 per ounce after dropping below $1,820. However, the gold miners were more severely impacted.

I believe it was an overreaction, but it seems evident that the gold price will trade sideways until the market feels confident that the Fed is done with its hawkish action, which will take another quarter or two.

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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