The last two weeks have been fairly active for IAMGOLD Corp (NYSE:IAG) and investors tracking IAG shares on the charts. The buzz started on May 5 with the release of the Q1 2015 report, followed by the annual meeting of shareholders six days later. The latter concluded with the re-election of the BoD with a virtually unanimous stockholder vote. Based on the results, one would think stockholders are quite content with the performance of the business so far. A quick glance at both reports (annual and quarterly) confirms that to a certain extent. However, there might be a few challenges lying ahead, too.
Shortly after the 10-Q came to light, IAG shared slided 6.5%, rebounded a few days later nad has so far enjoyed consistent trades between $2.15 and $2.35 per share. The main risks associated with IAG‘s future chart performance do not lie with its financials. As of Mar. 31, 2015, Iamgold’s finances look fairly robust as the company’s current cash reserves exceed $700 million, nearly equaling its net working capital. The latter is big enough to wipe long-term debt in one take.
Rather, what could pose a challenge to IAG shares is the company’s complete dependence on:
- the price of gold -> in terms of revenue
- the price of oil -> necessary for mining operations
- gold production cost, including cash and all-in sustaining costs.
The first two factors are external to IAG and the new old management could do little to exert influence on them (if any). Gold spot prices for the first quarter of 2015 have not deviated too much from their 2014 values. However, in the event of a Fed-induced rise in interest rates, this could adversely impact gold by making it a less attractive investment if only for the lack of interest. Oil prices are determined by a myriad of determinants, as well.
The third factor – production cost – is what IAG could concentrate its efforts on in order to become profitable in a medium of declining gold prices. The company reported a $40 per ounce decrease in cash costs, as well as an $85 per ounce improvement in all-in sustaining costs in comparison to Q1 2014. The pending reports for the remainder of 2015 will show how IAG‘s newly re-elected BoD will provide for further cost efficiency.