IAMGOLD (NYSE:IAG) suffered a lot this year and lost more than 50% of its capitalization. This is typical for a gold miner, as gold prices remain under pressure. However, there are three specific reasons IAMGOLD could underperform.
Dividend cut is possible
During the latest earnings call, the company's CEO stated that IAMGOLD aimed to preserve liquidity. The company is going to review its dividend policy this quarter. IAMGOLD is one of few gold miners that pay a significant dividend.
Two others are Gold Resource Corporation (NYSEMKT:GORO) and DRDGOLD (NYSE:DRD). Gold Resource is a Mexican gold miner that yields 6.4%. However, the recently approved Mexican tax on mining companies' earnings poses threats for Gold Resource. The company stated that the board could consider lowering the dividend, but it hasn't done so yet.
DRDGOLD, which yields 4.1%, is a South-African miner. South Africa has powerful worker's unions which are not easy to deal with. These unions have a habit of negotiating with the help of strikes. Luckily for DRDGOLD, the last strike ended in just two days, but the risk is always there. In addition, increases in wages and electricity costs, as well as inflation, put pressure on the company's profitability. At some point, DRDGOLD could choose to save cash and cut the dividend.
The bright side for IAMGOLD is its debt profile. The company has $650 million in debt due in 2020. At the end of the third quarter, IAMGOLD had $361 million of cash. The miner also had $750 million available under credit facilities. However, given the company's statements, it's safe to assume that IAMGOLD is not going to use them anytime soon.
IAMGOLD is a relatively high-cost producer. All-in costs for the third quarter of this year averaged $1,216 per ounce of gold. This is dangerously close to the current gold price. However, there is one important thing I should mention.
The company is an operator at its Rosebel mine in Suriname, its Essakane mine in Burkina Faso, and its Canadian mines. At the same time, IAMGOLD is in a joint venture in Sadiola and Yatela mines, which are situated in Mali. IAMGOLD is not operating these mines.
All-in costs in mines operated by IAMGOLD were $1,118 per ounce of gold. Costs at Malian mines were significantly higher. This fact led to a decision to suspend mining excavation activities in the Yatela mine from the end of September.
It's not that easy to battle costs for IAMGOLD. Low grades at mines are the main reason for big costs. This is something that comes from nature and could not be changed. In addition, several of IAMGOLD's operations are situated in a very tough environment. For example, when the company installed drinking water treatment at its Burkina Faso mine, it saved $1.5 million on bottled drinking water.
Delay at Westwood
IAMGOLD previously stated that its Westwood mine in Canada would reach commercial production by the end of October. Now, the company stated that the start date of commercial production is postponed to the third quarter of 2014.
The mine had several incidents. One was a software malfunction that put the service hoist out of commission in June. The other was a rock burst in August. The fact that these two incidents resulted in an almost year-long delay surely unnerves investors.
The gold price environment remains tough. In addition, IAMGOLD has company-specific problems. The combination of these two factors will continue to put pressure on the company's shares.