Iamgold is optimistic about the long-term prospects for gold, but is concerned about the current weak gold prices. By suspending dividend payments the company can conserve cash that it can put to better use when the gold price environment strengthens.
The company also hopes to cut costs with new initiative that will reduce the operating costs of its mines. It will also try to reduce exploration, mine site, and administrative costs. Before the gold price drop on March 4, 2013, the Iamgold launched a $100 million cost reduction program.
Shares of Iamgold fell by 11% on the news of the suspended dividend payments and concerns over the weak gold market. It isn't the only gold producer that's hurting, though. Market Vectors Gold Miners ETF (GDX), Barrik Gold (ABX), and Newmont Mining (NEM) are all down today.
Spot gold prices have declined 2% Thursday to $,1226.83. Prices of gold have steadily declined over the past year, after reaching a high of $1,723.45 earlier in the year. This decline played a part in Iamgold's decision to halt dividend payments.
TheStreet Ratings team rates IAMGOLD CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate IAMGOLD CORP (IAG) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- IAG's debt-to-equity ratio is very low at 0.17 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, IAG has a quick ratio of 2.22, which demonstrates the ability of the company to cover short-term liquidity needs.
- IAG, with its decline in revenue, underperformed when compared the industry average of 3.5%. Since the same quarter one year prior, revenues fell by 12.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for IAMGOLD CORP is currently lower than what is desirable, coming in at 27.22%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 8.62% trails that of the industry average.
- Net operating cash flow has decreased to $64.90 million or 34.24% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, IAMGOLD CORP has marginally lower results.
- You can view the full analysis from the report here: IAG Ratings Report