Moody's Affirms IAMGOLD's Ba3 CFR; Outlook to Negative
Thanks Letwin, you douche.
"The change in IAMGOLD's outlook reflects our view that the company's relatively high cash costs could continue to increase over the next few years as it processes a greater amount of harder ore at its two largest gold mines", said Darren Kirk, Moody's vice president and senior credit officer. "As well, execution risks to ramping up production at its Westwood underground operations in Canada have persisted longer than we previously expected, and any further delays would have adverse implications on IAMGOLD's cost position and business profile", added Kirk.
IAMGOLD's Ba3 CFR is driven by the company's significant exposure to gold price volatility coupled with the elevated political risk in the regions where the majority of its cash flows are generated (mainly Burkina Faso and Suriname). Relatively high cash costs and negative free cash flow associated with investments to grow and diversify its narrow production profile also weigh on the rating while the short reserve lives of its gold mines provide an added constraint. Favorably, the rating considers the company's good liquidity, diversity provided by its exposure to niobium production in a stable mining jurisdiction (Canada) and Moody's belief that the company's adjusted leverage (Debt/ EBITDA) is likely to remain below 3.5x through 2014 incorporating a forward gold price sensitivity of $1,100/oz.
The negative outlook reflects Moody's view that the increase in ore hardness at the company's Essakane and, particularly, Rosebel mines will increasingly challenge IAMGOLD's ability to control costs over the next few years. The outlook also incorporates ongoing execution risks to ramping up production at Westwood's underground operations.
Moody's says "moody's credit ratings and moody's publications are not intended for use by retail investors and it would be reckless for retail investors to consider moody's credit ratings or moody's publications in making any investment decision. If in doubt you should contact your financial or other professional adviser."
This rationale sounds very reasonable. It is true that mining gold becomes more expensive every year and many costs are beyond company control. The only addition would be that it is the same for all gold miners. Why do you blame Letwin for this?
Instead of blaming management, one could accept following market truth: gold investment is risky and goes against many odds. By and large, gold is good as a hedge or as a fast trading vehicle; not as the major part of portfolio. Making gold investment larger, beyond “hedge” size, borders on gambling. It can work sometimes; some guys can even make fast bucks in a casino. However, casino trips are never considered as a part of sound investment strategy.
I'm not arguing the rating downgrade. When you have an incompetent CEO that takes a solid company with EXCELLENT financials that once boasted a billion+ in cash and zero debt and then deplete the cash level down to 220 million while accumulating 650 million in debt, and have nothing at all to show for it, that is why the credit rating was downgraded and why the stock is down more than 80% since he took over.