Investors of IAMGOLD must be experiencing some kind of sticker shock this week.
The Toronto-based mine developer revealed May 3 that the cost to finish construction of its much-heralded Côté Gold open-pit mine in the Gogama area, north of Sudbury, it will take more than a billion dollars.
Those following the company suspected bad news was coming this spring.
After construction costs began escalating dramatically over the winter and productivity waned, the company assigned a new project manager and a team to launch a project review, dubbed Supertrend, to dive into the details of where the cost pressures were coming from.
With the mine development roughly at the halfway mark of construction, it was believed last February that the remaining cost to finish work at Côté would be in the range of $710 million to $760 million.
The preliminary results of the study now show the remaining price tag to complete Côté has almost doubled, to between $1.2 billion and $1.3 billion.
The start of the mine’s commercial gold production is being pushed back to the end of 2023, a delay of four to five months.
"None of us are obviously happy about the circumstances,” said Daniella Dimitrov, CFO and vice-president of strategy and corporate development, in her remarks during a conference call with mining analysts, May 4.
"We're all very, very disappointed and are working diligently to address it."
The Côté project is situated just off Highway 144 in the Gogama area. It is 175 kilometres north of Sudbury and 125 kilometres south of Timmins. The sod-turning for construction was in September 2020 and mining has started as excavators are scraping out the pit.
But in recent months, Côté has been dogged by some serious setbacks that increased costs. Much of it are side effects and trickle-down impacts related to the pandemic, global supply chain issues, Russian trade sanctions, inflation that’s ballooned the cost of labour, fuel, equipment spare parts and electrical and instrumentation components, and other camp consumables.
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A COVID-19 outbreak hit the workforce pretty hard after Christmas, leaving 60 per cent of the personnel available to work. The contractors involved in construction of earthworks and the processing plant bore the brunt, resulting in lags in completing that work. A February fire that destroyed the concrete batch plant further exacerbated things.
And this week, some unionized crane and heavy equipment operators at Côté hit the picket line in support of a strike by International Union of Operating Engineers Local 793.
According to a Sudbury.com story, one striking worker described activity at Côté as being “close to a halt.”
IAMGOLD senior executives made no mention of a strike in their conference call. A potential labour disruption was mentioned only in passing as one of the laundry list of cautionary items that could hamper construction.
Company chair Maryse Bélanger, the interim president-CEO, said she was at the site over the weekend and came away “impressed to see the ramp-up of activity as the weather improves.”
Côté Gold spokesperson Bianca Galimi responded the operators currently on strike represent only a small portion — 35 — of the 950 people on the site, “in the areas of crane operations and certain segments of concrete pouring and delivery. Work continues on all other facets of construction and project advancement.”
Times have also been rocky at IAMGOLD’s head office in Toronto.
Gordon Stothart suddenly resigned in January and there’s been an ongoing shakeup and shuffle on the board of directors and with management on the ground at Côté.
Bélanger, the former president of Atlantic Gold Corp., has stepped in to help project manage Côté until a new president is chosen.
To provide some direction forward, the company is waiting on the release of a more detailed project review and a revised mine plan, with updated costs and project schedule. It’s due to come out before the end of the second quarter, as part of this Supertrend exercise.
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Dimitrov said they’re not expecting a bigger hike in Côté project costs.
"We are not expecting a material change to the range we provided in (the May 3) release."
She provided assurances that all the major on-site problems are behind them. They’ve added a second contractor to help finish the earthworks construction and have increased oversight of the project.
They’ve gotten better at coordinating and communicating with the various teams on site, are better able to track construction progress, and have developed the "agility to respond to problems and unplanned challenges."
There are currently 950 workers at the site. During the peak construction period this summer and fall, that figure will grow to 1,700.
Dimitrov stressed the need to double down in closely monitoring the project oversight "to ensure we don't have any hiccups" with more congestion at the site.
“We're really pushing to finish this work,” she said. “We're working diligently on getting this done and really (it's) all hands on deck on having a good summer at the project.
“This is really, really critical for the project schedule on having a very productive summer and fall months before the winter comes. That’s the key focus. We’ll look forward to achieving and demonstrating that to the market as the project gets more de-risked.”
On the financial side, with $1 billion in cash and credit on hand, the company said they’re sufficiently funded to carry on construction at Côté over the next 12 months. Beyond that, they'll need additional financing to fund the ramp-up stage to commercial production.
Dimitrov said they're looking at ways to increase liquidity and boost capital resources through debt and equity financing, by disposing of some non-core exploration assets, and by pursuing joint venture partnership with other companies.
Whether that involves finding a new partner at Côté, the company really didn’t answer.
Sumitomo Metal Mining of Japan is already a 30 per cent partner with IAMGOLD at Côté.
In responding to an analyst's question, Dimitrov said they've not received any indication that Sumitomo is looking to exit the project. In fact, she said, there’s plenty of interest in the latest exploration results, with Sumitomo expressing a desire to become more involved on the exploration side.
IAMGOLD execs batted away another question if the company should’ve considered taking a project pause, months early, to re-evaluate and get a better handle on costs.
Bélanger, who recently spent the weekend at the Côté site, said they’ll take an extra month to fully assess all opportunities at the mine. She sees ways to make improvements in the development of the open pit.
Once a new mine plan comes out over the next few weeks, Bélanger said, she expects to see a “bit more aggressive mining schedule in the first two years” of the operation.
The company maintains Côté is a "transformational" and "multi-generational" asset with a growing inventory of gold that will deliver a long mine life beyond the current estimate of 18 years. A nearby sister deposit to Côté, dubbed Gosselin, discovered two kilometres away, plus other prospective targets, continue to show great potential to add more ounces to the overall project.
Once in operation, Côté will be known for employing autonomous drilling rigs and haulage fleet. Last month, IAMGOLD signed a master lease agreement with Caterpillar Financial Services to lease mobile equipment, which will start to be delivered to the site this year and next.
