Editor's note: Catch the Latest Happenings with Kitco Video News!

High Costs In 2013 Will Continue To Be A Hurdle For IAMGOLD

By Alex Létourneau of Kitco News
Thursday February 21, 2013 9:54 AM

(Kitco News) - In what has been a theme with several miners reporting lower fourth-quarter and year-end results, high costs in 2012 heavily affected IAMGOLD’s (TSX: IMG)(NYSE: IAG) earnings.

The company did expect costs to rise in 2012, but IAMGOLD President and Chief Executive Officer Stephen Letwin did not expect the rise to be as steep as it was.

“The magnitude of the cost increases did surprise everyone,” Letwin said in a conference call in conjunction with a quarterly earnings release Thursday morning. “We expect to have less cost impact after 2013.”

It will be challenging for the company as it transitions from soft-rock mining to hard-rock mining.

“At the outset, rising costs continue to be a challenge. The biggest change at our two largest mines is the transition from soft rock to hard rock,” Letwin said. “This is a development we’ve been talking to investors about for some time and we did signal at the beginning of last year that the hard rock is proving to be harder than we originally assumed.”

Lower grades at IAMGOLD’s Rosebel Gold Mine in Suriname and the Essakane Gold Mine in Burkina Faso will also pose cost issues in 2013, but Letwin said that will improve in 2014 and on.

The company will see mines winding down in 2013, which will alleviate some cost issues in 2014.

“In 2013 we’ll be winding down the Mouska Mine as Westwood ramps up and the Yatela mine in Mali is reaching the end of its life,” Letwin said. “The high costs of these mines in 2013 are not expected to continue through 2014.”

IAMGOLD will be starting up its Westwood project, located in Québec, Canada, next month and will add some ounces to the company’s production in 2013.

“Westwood is just starting up next month and as is typical for the startup of an underground mine, we do not expect to reach full production for a few years,” Letwin said. “We’re projecting 2015 to reach that point.”

Letwin is optimistic about the company’s position and ability to handle the challenges IAMGOLD will face in 2013.

“The business of mining gold continues to be challenging, as we know,” Letwin said. “We have the assets, the people and the funds to grow the company, and more specifically, grow our return on capital.”

Fourth Quarter And Full-Year Financial And Operational Results

The company posted a sharp decline in fourth-quarter net earnings, dropping to $84.6 million, or 22 cents per share, compared to $133.6 million, or 36 cents per share it earned during the same period of the previous year.

Annual net earnings came in at $334.7 million, or 89 cents per share, down from $391.3 million, or $1.04 per share from a year earlier.

Adjusted net earnings were down to $90.3 million, or 24 cents per share, compared to $107.8 million, or 29 cents per share in the previous year’s corresponding quarter.

Annual adjusted net earnings were down in 2012 to $316.9 million, or 84 cents per share, from $405.7 million, or $1.08 per share in 2011.

Revenues in the fourth quarter fell to $468.4 million, compared to $481.6 million in 2011, while annual revenues remained around $1.7 billion.

Quarterly gold production dropped to 214,000 ounces in the quarter from 253,000 a year earlier due to lower grades at Essakane and the stockpiling of ore at Mouska, in Québec, for processing in 2013, the company said.

The company produced 1.2 million kilograms of Niobium on the quarter, the same as the prior year’s fourth-quarter production.

Cash costs for the quarter rose to $731 per ounce, compared to $643 per ounce in the previous year.
Gold production for the year fell 66,000 ounces to 830,000 ounces due to lower grades from Essakane and Sadiola coupled with stockpiling at Mouska.

Cash costs rose $79 to $715 on the year due to lower grades, the processing of an increasing proportion of hard rock and inflationary cost pressures across all sites, the company said.

Niobium output rose 4.7 million kilograms, up 2% from 2011.

By Alex Létourneau of Kitco News aletourneau@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Precious Metal Charts

Click to see this Precious Metal chart
  1. 24h
  2. 30D
  3. 60D
  4. 6M
  5. 1Y

Interactive Chart