As Gold Prices Fall, Will This Miner Survive?

Can this high-cost gold miner turn the corner?

Jun 12, 2014 at 11:05AM

With gold prices falling over the past week, gold miners, including high-cost miner IAMGOLD Corp (NYSE:IAG), are feeling the pressure. If gold prices remain low, how serious is the situation for IAMGOLD?

IAMGOLD's costs of business
IAMGOLD reported first quarter all-in sustaining costs of $1,198 per ounce and has guided for $1,150 to $1,250 an ounce for 2014, which, at the high end, is close to where gold prices currently sit. It managed to reduce all-in sustaining costs by $92 an ounce over the same quarter last year; however, the average realized gold price was approximately $350 an ounce more in the first quarter last year. For the first quarter of 2014, IAMGOLD reported paltry earnings of $3.7 million on revenues of $279.3 million. 

While these numbers are scary, more disturbing for investors is the fact that cash at the end of the first quarter of 2014 was $139.9 million compared to $648 million at the end of the first quarter of 2013. Net cash from operating activities for the first quarter of 2014 was $28.1 million, down from $99.5 million from the same prior year period. With IAMGOLD making less money, and with its treasury being depleted, a continued prolonged period of low or lower gold prices will continue to hurt the company's bottom line.

IAMGOLD is making some progress on cost-cutting as it is projecting 2014 capital expenditures of $400 million, which is a reduction of approximately 40% from 2013. It does have $750 million in available credit, which means it shouldn't have to issue any debt or raise money through the equity markets, but one way or another, in order to increase cash flow, it looks like gold prices are going to need to rise, or IAMGOLD is going to need to reduce spending much further.

Successful transition for AngloGold Ashanti
In comparison to IAMGOLD, AngloGold Ashanti (NYSE:AU) has managed to transform itself from one of the higher cost producers to middle of the pack status. AngloGold Ashanti managed to reduce all-in sustaining costs from $1,275 per ounce in the first quarter of 2013 to $993 per ounce in the first quarter this year on lower capital expenditures and cash costs. AngloGold Ashanti is guiding for all-in sustaining costs of $1,025 to $1,075 an ounce for 2014. Part of the reason for its success is due to the increased production as its new low-cost Kibali and Tropicana mines continue to ramp up. The Kibali mine, which is jointly owned by Randgold Resources, produced 51,000 ounces of gold at low all-in sustaining costs of $572 an ounce while Tropicana produced 84,000 ounces at all-in sustaining costs of $694 an ounce. 

Cash flows from operating activities were steady at $350 million compared to $356 million from the first quarter last year. One concern for investors is debt, as AngloGold Ashanti has net debt of $3.1 billion as of the end of the first quarter, which is a substantial amount. AngloGold Ashanti will be reducing costs and for 2014 capital expenditures are anticipated to be $1.35 billion to $1.45 billion, compared with $1.99 billion in 2013.

Foolish takeaway
Something has to change in order for IAMGOLD to increase profitability and cash flow. While the company has been able to cut expenditures and reduce all-in sustaining costs somewhat, with the current price of gold barely above costs, IAMGOLD is likely to continue to only tread water in the near future. Further cost-cutting would be a welcome sign for investors, but more likely only a rise in the price of gold will boost this stock. AngloGold Ashanti has done a good job of transforming itself into a mid-cost producer, and in doing such, has enabled the company to generate reasonable cash flows.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Charles Sherwood has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information