Gold bullion may not be prone to tarnish, but that doesn't stop the producers of the metal from exhibiting a dulled finish from time to time.
Mid-tier miner IAMGOLD (NYSE:IAG) had been shining brilliantly in recent months, surging by more than 40% from the time I highlighted the stock's extremely compelling valuation back in August. But in an abrupt reversal of fortune, the market erased those gains this week after the miner's third-quarter earnings came in well below market consensus and forced a downward revision to near-term production expectations.
IAMGOLD's $0.16 per share of adjusted net profit came in a full $0.08 shy of consensus expectations for earnings of $0.24 per share. That wide gap resulted in part from disappointing performance at the Sadiola joint venture in Mali, where mine operator AngloGold Ashanti (NYSE:AU) suffered a range of challenges from adverse weather conditions to "processing issues" at the plant that reduced throughput. The processing of lower-grade ore at IAMGOLD's 90%-owned Essakane mine in neighboring Burkina Faso further strained production, contributing to consolidated production of 205,000 ounces of gold at an average cash cost of $710 per ounce.
Meanwhile, IAMGOLD delivered a fairly sobering assessment of near-term challenges; forcing the company to reduce its forecast for production volume in 2013 by about 13%. Preparing investors for a slower-than-anticipated ramp-up at the new Westwood mine, and some delay to the proposed expansion project at Sadiola, the company now expects to produce between 875,000 and 950,000 ounces during 2013.
This latest round of setbacks for IAMGOLD dealt a rather severe blow to shareholders like myself that were anticipating a reversal of fortune from previous interruptions of the company's quest for meaningful production growth. Given the 22% decline in the shares following the earnings release, and the related outlook for a reduced near-term-growth rate, the resulting investment thesis for shares of IAMGOLD is now of the sort that will like send short-term investors and long-term investors in two opposite directions. Those that are mining for a quick buck may rightfully refocus elsewhere; perhaps in favor of rival Eldorado Gold (NYSE:EGO) with its own powerful growth outlook. Now back under $40 per share amid renewed weakness in the gold equities, Goldcorp (NYSE:GG) is once again demanding consideration as one of the premier growth vehicles in the sector. I recently completed an in-depth review of Goldcorp's awe-inspiring potential, which I encourage investors to access by clicking here.
As a disciplined long-term investor, meanwhile, I have no intention of reducing my own stock position in IAMGOLD. I have maintained my bullish pick on the stock since 2006, and I've already made it clear that I intend to hold for the long haul. If anything, my focus has turned once more to the compelling value proposition presented by this decline. The miner retains a massive treasury of $1.14 billion in cash and equivalents (including a precious trove of gold bullion), and the outlook for reduced capital expenditures in the near term only enhances the company's outstanding financial flexibility. I continue to expect that shareholders will earn considerable value from IAMGOLD's world-class niobium operation and bonanza discovery of rare earth elements, and I perceive powerful long-term upside in the company's portfolio of development and exploration projects.