What Will Drive IAMGOLD’s Essakane Costs Lower in 2H16?


Aug. 9 2016, Updated 10:08 a.m. ET

Essakane mine

IAMGOLD’s (IAG) Essakane mine is situated in Burkina Faso, West Africa. It is 90% owned by IAMGOLD and 10% owned by the government of Burkina Faso. IAMGOLD started operations at this site in 2009, while commercial production started in July 2010.

The company completed the plant expansion at this site to accommodate a substantial rise in hard rock in 2013.

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Flat production 

Essakane produced 89,000 ounces of gold in 2Q16. This is flat year-over-year (or YoY). The company stated that slightly higher throughput was offset by lower recoveries due to “sporadic episodes of graphitic ore.” The company has now started a study to enhance the geo-metallurgy model at Essakane to manage graphitic ores through blending in the future.

One other observation from Essakane’s 2Q16 production was that the percentage of soft rock processed declined by 3% last year to 18%. Even as the proportion of soft rock increased, Essakane is able to maintain higher throughput rates.

Cash costs fell

While Essakane’s production was flat, its cash costs also fell by 15.3% YoY to $679 per ounce in 2Q16. The fall was mainly due to reduced fuel prices, favorable exchange rates, and improved plant efficiency. IAMGOLD is continuously exploring options to reduce its fuel consumption, including the addition of a solar plant.

IAG’s all-in sustaining costs (or AISC) were, however, higher in 2Q16 at $1,090 per ounce as compared to $1,022 per ounce in 2Q15. The increase is due to capitalized waste stripping in the current quarter.

During the company’s 2Q16 conference call, the management mentioned that Essakane’s AISC expected to fall below $900 per ounce in 2H16, as sustaining capital is expected to be lower in the second half.

For the last two years, most gold miners (GDX) have been focusing on lowering their costs to weather the volatile gold price environment. Agnico Eagle Mines (AEM), Newmont Mining (NEM), and Goldcorp (GG) have made significant progress in cutting costs, while Harmony Gold (HMY) has been left behind.


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