What happened

Shares of IAMGOLD (NYSE:IAG) dropped sharply today -- as much as 13.6% by 10:15 a.m. EDT. The gold stock regained some ground as the day progressed but was still down 9.8% at 1:25 p.m. EDT. The Canada-based gold miner released its preliminary second-quarter numbers this morning, and they're clearly a bummer. To make matters worse, IAMGOLD also expects to spend a lot more than originally estimated on a key project under development.

So what

IAMGOLD is projecting its Q2 gold production to be only 139,000 ounces, down a little more than 10% from the year-ago period. Also, it expects its all-in sustaining cost (AISC) for the quarter to be $1,422 per ounce sold versus $1,189 per ounce it spent in Q2 2020.

A person holding a piece of gold ore between thumb and finger.

Image source: Getty Images.

To be sure, gold price has edged lower in recent weeks, but that's not why IAMGOLD foresees such a weak second quarter. Low production from its Westwood mine in Canada and Rosebel mine in Suriname is to blame. IAMGOLD has three operating mines, so it's worrisome 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, COVID-19 restrictions, and a union-led work stoppage finally resolved in May through a collective bargaining agreement. 

Thanks to a weaker-than-expected Q2, IAMGOLD has downgraded its full-year guidance as well, and it's a pretty sharp downward revision. Here's a glimpse.

Metric Original Guidance Revised Guidance
Gold production (ounces) 630,000-700,000  565,000-605,000
Cash cost (per ounce sold) $930-$980 $1,115-$1,150
AISC (per ounce sold) $1,230-$1,280 $1,395-$1,435

Data: IAMGOLD. Table by author.

Even at the midpoint, IAMGOLD's revised full-year guidance translates to a 10% drop in production and an almost 15% jump in AISC versus 2020.

To add to investors' chagrin, IAMGOLD now estimates its total expenditure on the Côté gold project in Ontario to be $930 million to $980 million versus its previous estimate of $875 million to $925 million. IAMGOLD owns a 64.75% stake in the project, and its venture partner Sumitomo Metal Mining owns the rest. Côté is a promising, low-cost gold mine. IAMGOLD expects to begin full production at Côté by 2024, which could boost its annual gold-production capacity to one million ounces. 

Now what

At a time when most gold miners are expected to report strong numbers for their most recent quarters thanks to the recent rally in gold price, IAMGOLD's disappointing outlook has caught investors by surprise. With Côté still years away from commercial production and IAMGOLD's AISC going up, investors in gold may want to look at better gold stocks out there. 

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