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Why Does IAMGOLD Expect Higher Costs at Essakane in 4Q16?

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Essakane mine

IAMGOLD’s (IAG) Essakane mine is situated in Burkina Faso, West Africa. It’s 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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Increased production 

Essakane produced 104,000 ounces of gold in 3Q16, a rise of 17% compared to the second quarter. This was mainly due to higher grades and higher mill throughput. The company, however, reported a 3,000-ounce fall in production compared to 3Q15, mainly due to a rise in the proportion of hard rock and lower throughput.

IAG’s chief operating officer, Gordon Stothart, mentioned during the company’s 3Q16 earnings call that it was commissioning an extensive leach reaction that should help gold recoveries in 4Q16. He added that this could be offset by a fall in grades, which is expected in 4Q16.

Cash costs fell

While Essakane’s production was slightly lower YoY (year-over-year), its cash costs also fell 16.5% YoY to $624 per ounce in 3Q16. The fall was mainly due to reduced fuel prices and higher capitalized stripping. IAMGOLD is continuously exploring its options to reduce its fuel consumption, including the addition of a solar plant.

In line with its cash costs, IAG’s all-in sustaining costs (or AISC) were lower in 3Q16 at $815 per ounce than they were in 3Q15 at $922 per ounce. The fall was due to lower cash costs and lower sustaining capital.

As we previously noted, the company expects Essakane’s grades to fall in 4Q16, which could lead to higher costs during the upcoming quarter.

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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