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Morningstar | Iamgold's Production and Costs Will Remain Steady Until the Opening of Cote Gold

Iamgold produces gold from three owner-operator mines and one joint-venture mine. The owner-operator mines of Rosebel (Suriname), Essakane (Burkina Faso), and Westwood (Canada) generally operate at total cash costs roughly at the industry average. Iamgold has focused on reducing costs at these mines to improve operating margins.Iamgold also operates Sadiola in a joint venture with AngloGold Ashanti. While Sadiola produces at middling costs, its relatively small size and short remaining mine life limit its impact. The pending sulphide project could turn things around for the mine. Given Iamgold's concentration in just a handful of mines, developments and changes and individual sites have a material impact on fair value.Iamgold's growth pipeline is in its early stages but holds promise. Westwood's continuing ramp-up represents the clearest avenue for production growth, and it has remained on track since a seismic event caused delays. The company intends to pursue the sulphide project at Sadiola, but requires approvals from host country Mali to proceed. The Cote Gold project is in the feasibility stage, attractive economics and a financial partner give us confidence that it will open, albeit most likely at the end of our forecast period.Our long-term nominal gold price forecast is $1,300 per ounce in 2020. Investment demand has weakened as the Federal Reserve raises interest rates, weighing on near-term gold prices. However, Chinese and Indian jewelry demand should eventually fill the gap left by investment demand. Strong preferences for gold in these countries drive high income elasticity, and rising incomes should result in robust jewelry demand growth over the next few years. Strong demand will lead to a production shortfall, requiring a higher incentive price to encourage additional mine production. However, cost deflation caps the potential upside from an otherwise strong demand story. Depreciation in producer currencies, lower oil prices, and general mine cost deflation stemming from the end of the Chinese-driven commodity boom have helped drive cost reductions, lowering the marginal cost of production.