Market Movers: IAMGOLD Sheds 25% On Continued Costing Struggles At Cote Gold Project

IAMGOLD Corp (TSX: IMG) is one of the largest movers in the Canadian markets today, moving down $0.91 to $2.71 per share on over 8.1 million shares in volume. The equity has declined over 26% following the release of their financial results late last night.

In terms of financial results, the company posted revenues of $356.6 million, versus $294.6 million in the fourth quarter of 2021. Gross profit also improved, hitting $81.0 million versus negative $76.3 million in the quarter, while adjusted EBITDA improved to $137.6 million from $90.0 million in the fourth quarter.

Net cash from operating activities also improved, climbing from $67.5 million to $142.3 million, while mine site free cash flow jumped from $12.3 million to $87.5 million.

So why the pain?

The pain largely comes from the Cote Gold Project, which IAMGOLD holds a 64.75% interest in. The project, which is currently in the midst of development, saw its completion rise from 43.4% to 49% during the quarter. Incurred and expended costs during the quarter amounted to $130.0 million and $82.3 million, respectively.

The main issue here however is the estimates related to remaining costs to get to project completion. Previously, the company had guided remaining costs from January 1, 2022 through to the end of project development as being $710 to $760 million for their portion of the project. However, at the time of its fourth quarter financial release in February, the company indicated that “remaining costs to completion [are expected] to trend upwards above the high end of the range of the previous estimate.”

Despite spending $82.0 million in the first quarter on the development of the project, as of April 1, 2022, those costs are now expected to hit $1.2 to $1.3 billion, a near doubling of prior estimates. The new estimate is said to include between $100 and $150 million in contingencies.

The revised cost estimates are said to be a result of inflationary and cost pressures, which impacted numerous areas of development including freight costs, key consumables, earthworks, electrical and implementation components, indirect costs and more.

Outside of rising costs, the company is also delaying the timing for project development completion. While prior guidance had been the second half of 2023, that guidance has now extended the closing to the end of 2023. The change is representative of a four to five month delay, which the company blames on weather, the pandemic, low contractor productivity rates, and a fire that occurred in February at the batch plant.

This delay is based on preliminary results, as is the estimate, with ongoing discussions currently in the process of reviewing these estimates. A detailed update is said to be delivered by the end of the second quarter. The company however did preface this with the fact that it also anticipates operating costs to rise, due to “headcount assumptions” and “the current pricing environment for consumables and increased labour rates.”

As a comparison, when the company elected to proceed with the development of the Cote Gold project in July 2020, the capital obligation was expected to be between $875 and $925 million in total. Commercial production was estimated to occur in the second half of 2023, with commissioning to be completed in Q3 2023.

The disaster that is the Cote Gold project resulted in the company losing its CEO, Gordon Stothart, in January 2022, whom had been in the role since March 2020, and had been the champion behind the project. He had been with IAMGOLD since 2007 as a whole. At the time, CFO Daniella Dimitrov was named as interim CEO. Last night, she was replaced in that interim title by company chair Maryse Belanger, whom will now lead the company on an interim basis while Dimitrov remains in the CFO role.

“Given the complexity of the business from both an operational and project development standpoint, in addition to the need to actively investigate financing measures, further management capacity is needed to bridge the gap until a search for a permanent CEO is concluded. As a result, I have agreed to step in as Interim President and CEO,” said Belanger at the time of the appointment.

And in a nod to just how difficult of the situation the company is in, her first quote in the role of interim CEO also included the statement that, “preliminary cost estimates from the ongoing risk analysis at our Côté development project, coupled with the need for additional liquidity represent significant near- and mid-term challenges.”

IAMGOLD last traded at $2.71 on the TSX.

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Information for this briefing was found via Sedar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.