Why IAMGOLD Earnings Should Be Down But Not Out

IAMGOLD (IAG -2.96%) will release its quarterly report on Monday, and as with most gold mining companies, it's expected to post disappointing results compared to last year's figures because of the big drop in gold prices during the second quarter. Yet investors still expect IAMGOLD earnings to show the company's profitability, giving it a competitive advantage over weaker producers that are struggling to stay out of the red.

IAMGOLD isn't a huge producer, but it has a substantial number of different mining assets across the world, in areas including Canada, the South American country of Suriname and the French Guiana region, and the African nations of Senegal, Burkina Faso, and Mali. With so many projects, IAMGOLD has been working hard to make the most of all of its assets while handling project-specific challenges in many areas at the same time. Let's take an early look at what's been happening with IAMGOLD over the past quarter and what we're likely to see in its quarterly report.

Stats on IAMGOLD

Source: Yahoo! Finance.

Will IAMGOLD earnings eventually recover?
The drop in analysts' projections for IAMGOLD earnings in recent months isn't a big surprise given continuing challenges in the gold market. A $0.02 per share drop in June-quarter estimates pales in comparison to $0.15 and $0.25 per share drops for 2013 and 2014 respectively. The stock has remained under pressure, falling 17% since early May.

Despite the tough conditions, IAMGOLD has done its best to deal with falling gold prices. Yet its first-quarter results showed the dilemma the company faces, as it estimated all-in cost guidance of $1,200-$1,300 per ounce, matching current gold levels. Total cash costs of $787 per ounce came in below guidance, though, giving the company some maneuvering room until its $100 million cost-reduction efforts can take effect.

But investors also have paid close attention to IAMGOLD's exploration efforts. In May, the company reported what it considered encouraging results in its Boto Gold project in eastern Senegal, with continuing drilling efforts expected throughout much of the remainder of the year. An increase in its stake in Canadian miner Merrex to 20% also indicates IAMGOLD's intent to diversify its own asset portfolio.

In the longer term, IAMGOLD could potential challenges from higher taxes on some of its holdings. The Canadian province of Quebec is considering changing the current 16% profit tax either to what amounts to a gross revenue tax or to a more progressive profit tax with higher rates on high-margin mining operations. Under current conditions, those taxes might not have much effect either on IAMGOLD or rivals Agnico-Eagle (AEM 1.22%) and Goldcorp (GG), both of which also have projects in the province, but it's hard to predict how a changes might affect future results if they take effect.

In the IAMGOLD earnings report, look for the company to comment on its announcement earlier this week about its Rosebel gold mine in Suriname. With the company having agreed with the Suriname government to provide better power infrastructure, IAMGOLD expects to see substantial cost reductions and margin improvement. Such work with small national governments could prove essential in IAMGOLD's expansion efforts across the globe and its keeping earnings up even under challenging conditions in the industry.

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