Wednesday, May 4, 2016

IAMGold Corp Sells All Of Its Gold Bullion - Good News For Gold Bugs

It is not the news of the day but I think it is worth mentioning in a single post. 

In 1Q 2016 IAMGold, a mid-tier miner, sold all of its gold bullion it had been holding since 2002. 

IAMGold was an exceptional gold miner - apart from producing gold, it was holding part of its cash reserves in the form of gold bullion. The first acquisition of gold took place in 2002. Let me cite the company (an excerpt from 2002 Annual Report):

"During 2002, the Company converted the majority of its corporate cash balances to gold bullion. As a result, the Company is exposed to changes in gold prices"

Then the company was increasing its gold bullion holdings. The only sale of gold was reported in 2009 - IAMGold sold 73.7 thousand ounces at the average price of $1,088 per ounce.
The chart below shows the history of the company's gold bullion holdings:





As I mentioned above, in 1Q 2016 all of IAMGold's bullion was sold at the average price of $1,260 per ounce. Because the book value of gold bullion was standing at $720.7 per ounce, IAMGold made a profit of $539.3 on each ounce of gold sold ($72.9 million, in total). 

The company commented:

"During this period of continued volatility and uncertainty in the price of gold, having strong liquidity remains a priority for IAMGOLD and its investors", said IAMGOLD President and CEO Steve Letwin.  "Selling the bullion at an average price of $1,260 per ounce crystallizes the benefit of the recent rise in the value of gold, without limiting our fundamental upside leverage to our profitability and cash flow at higher gold prices"


Well, in my opinion, it seems that the company's management behaves as a small gold investor, panicking at the bottoms. The sale of part of gold bullion in 2009, when gold was entering a new phase of a bull market, is a classical example. 

In 1Q 2016 the management did the same thing. However, this time it sold all gold bullion. I think that the company need not have done that. Apart from gold bullion, at the end of 1Q 2016 it was holding cash of $586.7 million and debt of $628.5 million. It means that IAMGold is far away from liquidity problems.

If history repeats, we should see a new phase of a gold rush.


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