IAMGOLD Corporation

CAVEAT: long time readers are aware that I am the author of The Gold Investors Handbook and have been a seller of all gold and gold stocks from $ 1800 until today.
This shift out of gold and out of shipping has allowed Jack A. Bass Managed Accounts to prosper – our position remains very cautious to both sectors preferring to maintain watch lists rather than positions.

IMG : TSX : C$2.17
IAG : NYSE
HOLD 
Target: C$3.00

COMPANY DESCRIPTION:
IAMGOLD is an intermediate gold company which
produced 764,000 oz in 2013 at a total cash cost of
$796/oz. Its key producing mines include Rosebel (95%)
in Suriname and the Essakane mine in Burkina Faso. Key
development projects include the Westwood (100%)
project in Quebec. Its key non-gold asset is the 100%-
owned Niobec mine in Quebec, which produces niobium.
All amounts in C$ unless otherwise noted.

Metals and Mining — Precious Metals and Minerals

TAKE A KNEE OR HAIL MARY?

Investment recommendation
At lower gold prices the operating outlook for IAMGOLD is not
favourable and based on the third quarter results the situation is even
more concerning. Grade control issues at Rosebel are expected to persist
into YE and management’s ability to fully fix the problem is unknown.
Near $1,100/oz we believe Rosebel may generate negative FCF. At
Westwood, IMG continues to evaluate different production profiles to
conserve development capital that could result in a slower ramp-up. At
Essakane, the Q3 results provided an insight into longer-term operating
costs for the hard rock expansion and the cost structure looks to be 5%
higher than anticipated. At all three core operations, there appears to be
limited opportunity to materially improve costs structures to defend
against a declining gold price environment.
IAMGOLD faces a fork in the road – utilize the Niobec windfall to pay
down debt and survive in a low gold price environment, or take a long
shot by purchasing a transformative asset (or possibly a combination of
both). In a low gold price environment, neither option will likely be
applauded by the market.
Investment highlights
 Q3/14 adj. EPS of $0.00 vs. CG at $0.01 and consensus of $0.03.
IMG generated positive ($55m) operating FCF for the first time in
two years. We forecast $16m in Q4/14 or negative $26.4m in FCF
(incl. G&A, expl., int. and ex Niobec). In this note we deconstruct
quarterly cash flows by assets.
Valuation
We have revised our target price to C$3.00 from C$4.25. Our target is
predicated on a 0.5x (from 0.6x) multiple to our forward curve derived
operating NAV of C$5.21/sh plus net cash and other assets of C$0.44/sh.
Our low target multiple reflects higher operating, financial, political
(Burkina Faso instability) and acquisition risk.

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