Following the recent news of the suspension of its dividend, IAMGOLD (NYSE:IAG) fell to yearly lows. A month ago I stated that a dividend cut would bring more downside for the miner. Now, when the move is made, it's time to look forward into 2014.
IAMGOLD was active on the capital expenditures front in 2013. While the company had $648 million of cash at the end of the first quarter, it finished the third quarter with just $361 million. IAMGOLD distributed $94 million in dividends this year. The gold price is very close to IAMGOLD's third quarter all-in sustaining costs of $1,216 per ounce, so the desire to save almost $100 million next year is understandable.
Speaking of dividend cuts, I would like to mention Gold Resource Corp (NYSEMKT:GORO), which I consider the next candidate to suspend its dividend in order to preserve the balance sheet. Gold Resource, which currently yields a hefty 7.10%, has spent $20.6 million on dividends this year. With $17.6 million cash on the balance sheet left at the end of the third quarter, the party seems to be coming to an end. Besides the falling gold price, the new Mexican tax on miners, which will take effect in the beginning of the next year, will put additional pressure on Gold Resource.
Unfortunately for IAMGOLD, the company has not started commercial production at its Westwood mine in Canada. The mine was to start commercial production at the end of October, but the start date was postponed to the third quarter of 2014. It is still unclear how much additional capital IAMGOLD needs to finish this project. So far this year, the company has spent $103 million on Westwood.
The situation is quite different for Kinross Gold (NYSE:KGC), which was in time to finish its Dvoinoye mine in Russia. Kinross Gold was investing heavily this year, which led to an almost $500 million reduction of cash on the balance sheet since the end of the first quarter. Now Kinross can stay on the sidelines and enjoy the benefits of increased production.
Further production growth under question
IAMGOLD was able to increase its gold production during this year. However, this result will be difficult to repeat in 2014. IAMGOLD's all-in sustaining costs at owned and operated mines are $1,118 per ounce. It's the high-cost joint ventures that push the overall all-in sustaining cost to a final $1,216 per ounce.
The logical move will be to exit these high-cost mines, and IAMGOLD has already started doing that. The company has suspended mining excavation activities in Yatela mine in Mali. The gold production at another Malian mine, Sadiola, dropped 20% sequentially. This mine is also a high-cost mine that is operated in a joint venture. IAMGOLD stated that it was waiting for the joint venture partner to decide whether to proceed with the mine.
The downside risks continue to prevail for IAMGOLD. The company's share price will be extremely sensitive to the gold price should the latter drop below $1,200 per ounce. IAMGOLD must try to cut costs further, as its all-in sustaining costs are too close to the current gold price.
The news about Westwood put an additional burden on the company. Unless gold prices increase meaningfully, shares of IAMGOLD will remain under pressure.