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Morningstar | Iamgold’s Mediocre 2019 Outlook Leads Us to Cut Our FVE

Iamgold reported preliminary 2018 results that were largely as expected, though costs ended at the unfavorable end of guidance. For the full year, Iamgold produced 882,000 attributable gold ounces compared with guidance of 850,000 to 900,000. Management guided that total cash costs in 2018 would come at the high end of guidance of $750 to $800 per ounce and all-in sustaining costs near the high end of guidance of $990 to $1,070 per ounce. In addition, production and all-in sustaining costs are likely to come above our prior forecast, though not by a material amount.

The company also provided 2019 guidance that underwhelmed us. For the full year, the company expects 810,000 to 870,000 ounces, below our prior forecast of 890,000 ounces. In addition, management expects total cash costs of $765 to $815 per ounce and all-in sustaining costs of $1,030 to $1,080 per ounce. Although we had modeled some cost inflation, the guidance was above our forecast. As a result, we’ve lowered our production forecast and increased our cost assumptions in line with guidance. Concurrently, we’ve lowered our exit multiple assumption to 5.5 times from 6.5 times to better reflect the company’s free cash flow generation under our revised forecast.

Having updated our model to reflect these changes, we’ve lowered Iamgold’s fair value estimates to $5 per share and CAD 6.50 from $6 and CAD 8, respectively. The company remains one of the higher-cost miners, and as such, we maintain our no-moat rating. Ar current prices, shares look undervalued, but we reiterate the very high uncertainty rating on the stock. With a small portfolio of mines, challenges at an individual mine have an outsize impact and execution at development projects is even more important.