IAMGOLD CEO: Free Cash Flow is What Investors Want

Stephen J.J. Letwin, CEO of IAMGOLD (TSX:IMG,NYSE:IAG), tackled the gold space in a presentation at Mines and Money New York last week, speaking about a market that’s been plagued for years by low prices and lack of exploration (even with total exploration growing 19 percent last year).

In an interview at the sidelines of the show, he spoke further about what the future may bring for gold and why he is a fan of mergers and acquisitions within the gold space.

“The fact that gold prices have sort of stayed in the US$1,250 (per ounce) range for the last six years doesn’t do a lot to excite people. So I think there’s investor fatigue, and the bottom line is there’s probably too many of us relative to the fact that the capital pool is shrinking,” he said.

Letwin thinks investors want to see gold break through the US$1,400 mark.

“If that happened, maybe generalists would come back into the space. Where right now we really aren’t seeing any new faces,” Letwin added.

Although gold prices have shifted upwards in 2019, it has only been a marginal change, and Letwin believes that, because gold is so tightly bound to the US dollar, the greenback needs to lose much more steam before prices will move significantly.

“The US dollar continues to be very strong (and) Trump is probably going to make sure the US economy stays strong before the election, so as a haven for investors, gold really hasn’t stood out.”

Listen to the interview above or read the transcript below for more of Letwin’s thoughts on gold. You can also click here to view our full Mines and Money New York playlist on YouTube.

INN: What attracted you to Mines and Money this year?

Stephen J.J. Letwin: Well, Mines and Money is very active around the world. They throw some very good conferences (in) Hong Kong, Australia, Canada, New York (and) London, so we generally will attend their conferences and sponsor a lot of things that are going on, so it’s certainly been a very productive experience for us here. As I said earlier, they’re very well organized and they’re well attended.

INN: How does investor sentiment seem to be around the gold space right now?

SL: Extraordinarily weak and we were talking about that today, the amount of capital that has left the business, the industry, is very high, very little capital coming in. Generalists haven’t shown up again since they left probably in 2012, so the fact that gold prices have sort of stayed in the US$1,250 range for the last six years doesn’t do a lot to excite people. So I think there’s investor fatigue, and the bottom line is there’s probably too many of us relative to the fact that the capital pool is shrinking, so (it’s) extremely difficult to get a lot of interest. You wouldn’t want to be trying to raise money right now and any (company) — either major, mid-tier or junior — faces (that).

INN: And speaking of the gold price, you’ve kind of alluded to it already, but how are you feeling about it? And where do you see it going?

SL: It’s all tied to the US dollar, so if the US dollar weakens as the US economy weakens we’ll see gold prices probably react, but right now we really haven’t seen that. The US dollar continues to be very strong; Trump is probably going to make sure the US economy stays strong before the election, so as a haven for investors, gold really hasn’t stood out. So we could see a range around between US$1,250 and US$1,350, and I think investors want to see it break through the US$1,400 mark.

Then, if that happened, maybe generalists would come back into the space, Where right now we really aren’t seeing any new faces and a lot of the active managers are being hurt by the passive investors, so that’s happening at the same time. It’s just one of these times when you need a really strong balance sheet like we have and you need to hold the course and wait for the cycle to turn back to better times.

INN: In your presentation earlier today, you mentioned that exploration budgets are still below historical numbers, but gold is taking over 50 percent of that — what does that mean for IAMGOLD as a company and the space as a whole?

SL: Well, over the last three years, we’ve had incredible success. We more than doubled our reserve base and a year ago that was received extremely well, so I believe investors really like the fact that we went from 6.8 years to almost 18 years in the span of three years. But, right now, investors are not rewarding any companies for in the ground reserves. In fact, they’re looking for free cash flow, so free cash flow really is what everybody is looking for. So, then, the ground reserves really aren’t at the top of the list, meaning we need to see companies that produce free cash flow, that don’t need to come to the equity markets. Exploration dollars, unfortunately, probably are going to be under pressure until there’s a change in that sentiment.

INN: You recently had a new gold discovery at your asset in Timmins. Can you explain a little bit about that and what that means for the company?

SL: We had a phenomenal discovery about 1.5 kilometers northeast of our main Côte deposit. Probably sitting at 12.5 million ounces lower grade, but bulk tonnage very close to surface, very low stripping ratio, 6 kilometers off the highway. It’s an extremely attractive deposit and project, but again the market is not interested in us moving in, spending a billion dollars to develop it. They’d much rather see that put on the shelf for now, and then, when the cycle gets a little healthier, maybe we can move ahead, but it’s a disappointment for us because we think it’s a fantastic project.

INN: What are some things you have coming down the pipe in terms of projects that give you a competitive edge that might get you recognized with investors?

SL: Well, we definitely have to improve our free cash flow in Saramacca, which is in Suriname, and the Rosebel mine definitely is something that will bring us better … short cycle economics, so that’s a big plus. Optimization of the mill at Essakane and Burkina Faso is a big plus. And ramping up Westwood, which you know, unfortunately we had a bit of a setback in the first part of the year, so we need to get that back on track.

If we can get those three things working, I think we can get more confidence back in the stock and see the price go a little higher.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.