Why This Penny Gold Stock Cracked Today
What happened
Actions of IAMGOLD (NYSE: IAG) fell sharply today – down to 13.6% as of 10:15 a.m. EDT. Gold title gained ground as the day wore on, but was still down 9.8% as of 1:25 p.m. EDT. The Canada-based gold miner released its preliminary second quarter numbers this morning, and they are clearly disappointing. To make matters worse, IAMGOLD also expects to spend significantly more than initially planned on a key project under development.
So what
IAMGOLD expects its Q2 gold production to be just 139,000 ounces, down just over 10% from the previous year. In addition, it expects its all-inclusive sustaining cost (AISC) for the quarter to be $ 1,422 per ounce sold compared to $ 1,189 per ounce spent in the second quarter of 2020.
Image source: Getty Images.
Granted, the price of gold has fallen slightly over the past few weeks, but that’s not why IAMGOLD is forecasting such a weak second quarter. The low production at its Westwood mine in Canada and the Rosebel mine in Suriname is to blame. IAMGOLD has three mines in operation, so it’s worrying to see production hiccups and cost overruns at two of its mines at the same time. Rosebel, the larger of the two mines, faced several headwinds during the quarter, including inclement weather conditions, COVID-19-related restrictions and a union-led work stoppage finally resolved in May by the through a collective agreement.
Thanks to a weaker-than-expected second quarter, IAMGOLD has also downgraded its guidance for the full year, and this is a fairly steep downward revision. Here’s a preview.
| Metric | Original orientation | Revised guidelines |
|---|---|---|
| Gold production (ounces) | 630,000-700,000 | 565,000-605,000 |
| Cash cost (per ounce sold) | $ 930 to $ 980 | $ 1,115 to $ 1,150 |
| AISC (per ounce sold) | $ 1,230 to $ 1,280 | $ 1,395 to $ 1,435 |
Data: IAMGOLD. Table by author.
Even halfway through, IAMGOLD’s revised forecast for the full year translates to a 10% drop in production and a nearly 15% jump in AISC from 2020.
To add to investor grief, IAMGOLD now estimates its total spending on the Côté gold project in Ontario at $ 930 to 980 million compared to its previous estimate of $ 875 to 925 million. IAMGOLD owns a 64.75% stake in the project and its venture capital partner Sumitomo Metal Mining holds the remainder. Côté is a promising low-cost gold mine. IAMGOLD plans to begin full production at Côté by 2024, which could increase its annual gold production capacity to one million ounces.
Now what
At a time when most gold mining companies are expected to post solid numbers for their final quarters thanks to the recent rally in the price of gold, IAMGOLD’s disappointing outlook has surprised investors. While Côté is still years away from commercial production and IAMGOLD’s AISC increases, gold investors may want to look for better gold stocks.
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