Iamgold Corp. (TSX: T.IMG, Stock Forum) (NYSE: IAG, Stock Forum) shares are down 18% since the company announced its production forecasts this week, prompting some analysts to slash their targets for the stock.
They include Canaccord Genuity precious metals analyst Steven Butler, who lowered his stock price target to US$12.75 from US$15.25 and changed his rating to HOLD from BUY.
The move comes after Toronto gold analyst and Maison Placements Canada President John Ing put a sell rating on the stock, citing cost challenges associated with the company’s Cote Lake project in Northern Ontario.
Iamgold is a mid-tier gold producer with five operating gold mines, including current joint ventures, in Canada, South America and Africa.
Trading at $8.82 on Thursday, it has a market cap of $3.38 billion, based on 376.5 million shares outstanding. The 52-week range is $17.71 and $9.20.
Before the company’s forecasts were released on Tueday, the stock had been trading in a range of between $11.30 and $10.60. However, it has come off sharply as analysts and investors focus on the higher-than- expected cost estimates.
IAMgold announced earlier this week that its 2012 gold production of 830,000 ounces was slightly below the lower end of its guidance range of 840,000 to 910,000 ounces.
About 129,000 ounces or 15% of that amount is generated by two mines -- Sadiola and Yatela --in war-torn Mali, West Africa, where the company is cutting back on exploration activity.
IAMgold said this week it hopes to produce 875,000-950,000 ounces in 2013.
However, cash costs are expected to be in the range of $850 and $925 an ounce, a target that is significantly higher than an earlier Canaccord estimate of $706 an ounce, analyst Steven Butler said in his January 23rd investment report.
The increase has been attributed to a number of key factors, including inflation, lower ore grades, transition to harder ore at the company’s flagship assets and higher operating costs at the Westwood gold project in Abitibi, Quebec. Gold production there is expected to begin at the end of March.
“We believe that inflation and the transition to harder ore will lead to increased life-of-mine operating costs at the company’s operations,’’ Butler said.
Alongside its production forecasts, IAMGold unveiled a new mineral resource estimate for its Cote Gold project in northern Ontario. The new estimate consists of an indicated resource of 269 million tonnes, grading 0.88 grams per tonne or 7.6 million ounces, and an inferred resource of 44 million tonnes, grading 0.74 grams or 1 million ounces.
The latest figure marks a 114% increase on the company’s earlier estimate.
“Iamgold bet $600 million on Cote Lake and the company is drilling off that deposit,’’ said gold analyst John Ing in a January 16 report.
A positive attribute of the Cote Gold deposit is its accessibility for open-pit mining, the company has said.
However, we believe continuity will be a problem and that Cote Lake will be difficult and prove expensive to bring into production,’’ Ing said.
“At the earliest, Cote Lake won’t be in production until 2017,’’ he said.
Ing currently has a Sell rating on the stock.
Aside from its higher cost guidance, IAMgold has been under the spotlight following reports that al-Qaeda-linked Islamists have threatened to turn Mali into a “terrorist state.’’
Following a military intervention earlier this month aimed at halting a militant advance in the north of the country, France has bombed suspected rebel positions and deployed about 2,000 troops to help the weak Mali army recapture territory.
The company said the recent escalation of conflict in Mali has not disrupted production. It also said there has been no impact on supply chains.
But it curtailed exploration at the Sadiola and Yatela mines, which are located about 1,300 kilometres from the conflict, as a security precaution.
“While performance at our IAMgold operated mines has been solid, the underperformance at Sadiola has led us to re-assess our strategy with respect to our joint venture operations,’’ said Iamgold President and CEO Steve Letwin. He did not elaborate.