IAMGOLD (IAG, Financial) reported decent numbers for the third quarter with year over year growth in both revenue and earnings. These are hard times for the commodity industry as a whole but the company managed to keep its stand. Moreover, the management is confident of better prospects ahead as the macro economic factors improve.
Improving steadily
The stock in itself improved significantly after touching its 52-week low few months back. If fact it is one of the few stocks that reported some good moves in these challenging market. But the big question reeling in investors mind is whether it will be able to continue this momentum in the future. While analyzing this, we must not forget an important fact that its business is cyclical in nature with a down trend continuing in the present. What this means is that, the trend would reverse and the industry would see a positive environment in the future.
And company is taking various initiatives to prepare itself, so that it can take advantage when the turnaround takes place. As an immediate move in this direction, IAMGOLD decided to reduce the strength of its executive team by 40% and reallocate the responsibilities. Considering the current gold environment this is a decisive step that will reduce its costs and consequently improve the bottom line.
Accelerating its performance
The company is also considering various technological aids that could save on its operating cost. With this in mind, IAMGOLD is planning for battery powered scoops at its sites. This will not only curb its energy bills, but also benefit in ventilation, temperature management, and fuel distribution infrastructure. Such methodologies will strengthen its business in these challenging times.
Apart from this, it has also adopted various other measures to cut back costs, which resulted in saving $62 million by last September. At the same time, it is important to note that these measures are not taken on the cost of ceasing project development or shutting down mines, which in turn is significant for its future growth.
To further improve its financials, IAMGOLD has announced to sell its Niobec mine for cash proceeds of $500 million and is expected to be completed by the end of January 2015. Although it’s a tough move but the sale will improve its liquidity and make its balance sheet more attractive than its peers. It will also open doors to make investments in its own business and consider other growth alternatives such as mergers and acquisitions.
The company saw improved results in production as the metal grades improved at its Essakane and Rosebel mines. However, it also has to face many challenges at Rosebel on account of hard transition rocks and therefore lowered its guidance at this facility. The company is working hard to tackle this situation and managed to achieve significant progress. Moreover, metal grades at the facility increased 14% sequentially, which was driven by the implementation of technical measures. With these initiatives we could see higher production at lower costs in the coming years. Essakane on the other hand remains on track and is expected to deliver at least 835,000 ounces of gold this year.
In addition, Westwood site also delivered strong results with 94% recovery and costing $772 an ounce, which came in line with its estimates. And as operations ramp up, the management expects that, these costs would decline in the days ahead. In fact, Westwood accounted for 15% of the year-to-date cost savings achieved at its operating sites, which further backs the management’s expectations.
Conclusion
IAMGOLD has developed a strong strategy that will boost its business in the future. Although the present macroeconomic factors might weigh on its performance in the near term but its long term prospects seems good. Moreover, the stock is already reacting to its positive numbers and rose considerably in the past few months and considering its plans ahead we could expect more upside to this stock.
