Did IAMGOLD Finally Turn a Corner in 1Q17?

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Part 5
Did IAMGOLD Finally Turn a Corner in 1Q17? PART 5 OF 8

Inside IAMGOLD’s Westwood Mine: Is There an Upside to the Ramp-Up?

Challenges at the IAG’s Westwood mine

IAMGOLD’s (IAG) Westwood project is located in southwest Quebec, Canada. This site started production in 1Q13 and achieved commercial production in 2014.

During the early stages of the mine’s ramp-up, a seismic event occurred, leaving part of the operation in a rehabilitative state for most of 2015. This led to lower production at higher costs in 2015. Based on its revised plan for Westwood for 2016, IAMGOLD is focused on underground development to expand the mining area. It’s also doing remedial work in the area impacted by the seismic event.

Inside IAMGOLD’s Westwood Mine: Is There an Upside to the Ramp-Up?

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Operating performance turned corner during 1Q17

Westwood’s production almost doubled to 30,000 ounces in 1Q17, as compared to 1Q16. Investors might recall that Westwood mine is in ramp-up mode with the ramp-up to full capacity expected by 2019. This increased production from the mine during the quarter reflects an increase of 80% in throughput and higher grades.

While the company used to normalize the costs for Westwood as it was not operating at its normal capacity, it’ll be doing away with that practice from 1Q17.

The company’s management said that after completing nearly 25 kilometers of development in 2016, it’s on track to achieve another six kilometers of development in 2017. In the company’s most recent conference call, its chief operation officer stated: “By the end of this year, we should be producing from at a commercial level from three of the upper four mining blocks, including the zone where remedial work was completed last year.”

The AISC (all-in sustaining costs) for 1Q17 were $965 per ounce, which represents an incremental rise of 8.4% YoY (year-over-year). While the operating performance at the mine improved, increased costs came as a result of higher sustaining capital and lower normalization.

Westwood development

For 2017, the company expects to double its production at Westwood due to better grades. A ramp-up to full production of between 180,000 and 200,000 ounces per year is expected by 2019.

Notably, the structure of IAMGOLD’s Essakane and Rosebel mines remains high-cost due to the presence of hard rock, making it a high-cost producer. Under these circumstances, Westwood remains key for IAMGOLD to increase its production while reducing costs.

Meanwhile, peer Eldorado Gold (EGO) is also facing issues regarding its mines in Greece, while New Gold’s (NGD) capital expenditure requirements for its key project, Rainy River, are creeping higher. Kinross Gold (KGC) has also faced problems with its Tasiast expansion in the past, but things are now going as planned for the company.

Investors looking to invest in gold may also want to look at leveraged ETFs like the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT).

Continue to the next part for a discussion of IAG’s liquidity.


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