January 23, 2013
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of gold and niobium miner IAMGOLD (NYSE: IAG ) careened 10% lower Wednesday morning after the company reiterated 2013 production guidance for between 875,000 and 950,000 ounces, while revealing a substantial increase in projected total cash costs of between $850 and $925 per ounce (including royalties).
So what: Although industry analysts had prepared for some cost escalation after the miner revealed a range of operating challenges last November (see related article: "A Touch of Tarnish at IAMGOLD"), this cost escalation proved worse than expected. BMO Capital Markets had forecast 2013 costs of $730 per ounce, while Credit Suisse had anticipated costs of $652 per ounce. Given what we now know regarding prevailing cost dynamics after low-cost operators Goldcorp (NYSE: GG ) and Yamana Gold (NYSE: AUY ) began reporting an all-in cost metric, IAMGOLD's elevated cash costs are seen challenging the miner's ability to sustain positive cash flow for the year ahead.
Now what: While there can be no question that IAMGOLD faces a range of substantial near-term operating challenges at several key operations, with the shares now in single-digit territory I find the resulting value proposition for long-term investors extremely compelling. With the recently acquired Côté gold project already meaningfully enhanced with 7.6 million indicated ounces, a substantial treasury in cash and gold bullion, world-class niobium and rare-earth element assets, and a reiterated outlook for 80% production growth over the next five years, I view IAMGOLD shares beneath $10 per share as an unmistakable bargain.
Goldcorp is one of the leading players in the gold mining market. For the last several years, investors have been the beneficiaries of several successful acquisitions and strong organic growth. Goldcorp's low-cost production profile continues to make them an attractive choice for long-term investors. Click here for our detailed Ticker Report to discover more about this high-quality gold producer.