Gold floor developing around $1,400 - IAMGold CEO
Speaking to Mineweb on the sidelines of the Mining Indaba Conference, IAMGold CEO, Steve Letwin says as a result of increasing costs, a floor is developing around the $1,400 level.
Posted: Monday , 06 Feb 2012
CAPE TOWN -
GEOFF CANDY: Hello and welcome to this Mineweb.com Newsmaker podcast. Joining me live at the 2012 Mining Indaba conference is STEVE Letwin. He is the President and CEO at IAMGOLD. It's a very, very interesting time to be a goldminer.
STEVE LETWIN: It's a great time to be a goldminer and we are seeing some solid prices, lots of activity, I think more upside than downside to the gold price. It's got its challenges in terms of cost control, whether that be operating or capital, but on the whole it's a great time to be a goldminer.
GEOFF CANDY: Clearly there are increasing costs across the board and I suppose the one big unknown is what the price of oil is likely to do. How big an issue is that on your radar screens at this stage?
STEVE LETWIN: Oil plays a big role in our costs because all of our power in Burkina for example is driven off HFO, so the higher the oil price goes the more expensive it is for us to mine our operations and of course when you are dealing with low grade operations, like we have in Burkina, every cost, every penny makes a difference with respect to cost. So we've hedged our exposure to oil in 2012 - about 75% of our exposure's hedged, so we feel pretty good about it right now but, going forward, oil above $100 hurts. You are talking about power at around 25cents a kilowatt hour compared to Canada where it's around 4cents to 4.5cents, it is a huge difference.
GEOFF CANDY: Are there any other particularly significant differences in terms of costs in your various operations?
STEVE LETWIN: I would say again where we have our mines in remote places like Burkina, like Mali, like Surinam, costs are higher obviously. Infrastructure costs are higher, bringing supplies in is more challenging, attracting talent is more difficult especially in the ex-pats side, trying to have them come to remote areas is obviously more difficult to do.
GEOFF CANDY: One of the big talking points at last year's conference was the notion of resource nationalism and perhaps the rise or the return of resource nationalism. Is this something that is on the radar screen of IAMGOLD particularly in the harder to reach locations?
STEVE LETWIN: I would tell you that the level of communication between our company and the respective governments whether it be Burkina Faso or Mali or Surinam has never been higher and it's never been better. I think the level of understanding that the governments have of what we bring to the table, the fact that our company brings a lot more than just mining, has certainly resonated with them so although it's out there, I think these are very smart people and they understand that if the model is going to work it needs to be more of a symbiotic model as opposed to a parasitic model and we've seen examples like in Venezuela where nationalisation is a complete and utter disaster and instead of adding value they are destroying value. So looking at these countries, they travel, they communicate with other countries, they see the models that don't work, and the models that do work. The model we have, the partnership model, is a very workable model for us.
GEOFF CANDY: That said there have been some news reports about unrest in Mali at the moment. Have you got an update? Is it affecting any of your operations?
STEVE LETWIN: It hasn't affected any of our operations. We've seen some of the spill over from the Libya issue. I know that there have been some skirmishes with the Malian army. We've seen some of the Tauregs come into Burkina Faso. We see them as a peaceful group; we have no issues with them. We obviously have the appropriate level of security at our mines, but today we've seen no issues, no problems as a result of it.
GEOFF CANDY: At a broad level another one of the issues that was at the forefront of a lot of discussions and a lot of presentations was the notion of dividends and perhaps a change in the way in which goldminers reward their investors and particularly look to increase dividends. Have you see a change in the makeup of the investor base that you are experiencing particularly an increase in the number of generalist investors or more generalist investors.
STEVE LETWIN: Yes we have. We've definitely seen a change in the mix and I come from a background of paying dividends and I happen to believe that you can do both. You can build a good dividend base and you can grow the company. They are not mutually exclusive. I worked for a mid-stream company in the oil and gas business where we grew the share price over 10 years 450%, and we increased our dividend every year at a rate around 15%. I think if you have the right business model you can make that work and the gold business is no different than any other business. So we are believers in dividends. We've increased them over 300% over the last year and will continue to increase it in line with our cashflow growth.
GEOFF CANDY: You are on record as saying you'd like to see the proof in the pudding of gold-linked dividends and the more new-fangled dividend structures. Are you happier with the way in which you are paying dividends at this stage?
STEVE LETWIN: Yes in fact I am not happy and I am not a supporter of tying it to the gold price. I am a believer that it should be tied to what you believe is sustainable. I think the gold price model is too prescriptive, it works for some companies obviously, for us it's really not the way to go, so we're the traditional dividend paying company that looks out to the future and says we believe we can sustain this level of dividend for 20 years, therefore we are going to increase our dividend and have it stable, not jump up and down with the price of gold.
GEOFF CANDY: We saw with the purchase by Barrick of Equinox Minerals a lot more focus on copper porphyry and indeed where the next big gold deposits are likely to come from and perhaps the benefits of looking a little bit further ahead and the benefits of looking not just to pure gold deposits, both from the premium to which pure gold companies are given at a stock level and also the cashflows that come through from them. Is this a trend do you think, that is likely to continue? Are we likely to see more and more gold companies moving into the copper porphyry space?
STEVE LETWIN: We are not allergic to a gold copper porphyry. I think the Barrick deal was more pure copper and we wouldn't do something like that. We are not going to go into the base metal business. In fact we have a rare metal called niobium where we are trying to basically shine some light on it, separate it out from our gold business. We have just made a major announcement on our rare earth elements which is next door to our niobium deposit, so I would tell you that we are certainly in favour of exploring a gold-copper porphyry but we are not out for a pure base metal play. It doesn't make any sense for us.
GEOFF CANDY: Let's talk about that rare earth play and particularly the niobium business. How does that add to the mix for IAMGOLD?
STEVE LETWIN: It's a tremendous value for our shareholders that haven't been recognised, so it's like having a free warrant if you are an IAMGOLD shareholder. We just basically announced what could be the largest REE deposit in North America. Light ended REEs with some heavy involved right in the centre of major infrastructure. This is huge and could be a game changer for us. And the niobium - we are one of three mines in the world, the only mine outside of Brazil, again a tremendous opportunity to triple our production. Our IAMGOLD shareholders are blessed with five very good gold mines and two mines that will add significant value in my view over time to what they currently own.
GEOFF CANDY: Would there be a thought perhaps to spinning out the rare earth elements or would it be within the fold of IAMGOLD?
STEVE LETWIN: Ultimately we are going to move it out of the gold business. It's certainly part of it. It is not recognised the way it needs to be so definitely spinning it out is an option. Bringing in a strategic investor is an option. Any kind of restructuring where we can isolate it out from our gold business is going to be looked at and again I think that is where we are going to get most value for our shareholders.
GEOFF CANDY: In terms of financing and funding, clearly with the economic downturn and funding has tightened up particularly more on the junior side I would assume, than for the likes of IAMGOLD, but is that an issue - where would the financing come from?
STEVE LETWIN: We have a plethora of cash - we have $1.3bn in cash in marketable securities, we have no debt. We have cash we need internally to fund Gordon Stothart's brownfield expansion program and we believe the niobium business will self-fund and the REEs will self-fund, so we're not at all concerned about financing. We have a lot of interest in both our gold and non-gold assets.
GEOFF CANDY: Just finally, how do you see the gold price going in 2012?
STEVE LETWIN: I think $1850'sh for 2012 - probably stabilising in that range. Maybe getting towards $2000. I think a floor has sort of developed in and around that $1400 - $1450 level, just because costs are increasing, demand is increasing and it's just harder and harder to find. I use the words "peak gold" - I come from the oil and gas side where we had peak oil - I think you hit peak gold three or four years ago. You cannot find the large deposits any more. Most of it being lower grade and in more remote locations, so it's going to be difficult for anybody to produce gold at less than $1200/oz in terms of new discoveries. So I'm bullish, certainly around that $1800 mark and there's a floor that's going to be more or less put in place here going forward that we can work off of. And once people start pricing in $1700 gold instead of $1100 going forward, this disconnect between the equities and the price of gold will disappear.