S&P Cuts IAMGOLD Corp. (IAG) to 'B'; Sees Highly-Leveraged Financial Risk Profile

Standard & Poor's Ratings Services today said it lowered its long-term corporate and issue-level ratings on IAMGOLD Corp. (NYSE: IAG) to 'B' from 'B+'. The '4' recovery rating on the company's unsecured notes is unchanged. The '4' recovery rating reflects our view of average (30%-50%; lower half of the range) recovery in a simulated default scenario. The outlook is stable.

"The downgrade primarily reflects our expectation that IAMGOLD will generate core credit ratios commensurate with a highly leveraged financial risk profile over the next two years," said Standard & Poor's credit analyst Jarett Bilous.

We revised our gold price assumption over this period (see "Standard & Poor's Revises Its Price Assumptions For Base Metals Following Further Softening Of Prices," published Aug. 28. 2015, on RatingsDirect), which primarily accounts for the weaker than previously expected core credit ratios over the next two years. Our revised earnings and cash flow estimates for the company follow the
lowering of our gold price assumption.

Standard & Poor's views IAMGOLD's business risk profile as "vulnerable" and its financial risk profile as "highly leveraged," which results in a 'b-' anchor score. We revised our financial risk assessment from "aggressive" primarily to reflect the increase in expectation for adjusted leverage ratios, which are calculated on a gross debt basis. We also consider IAMGOLD's liquidity position as "strong," which primarily reflects the company's significant cash position and increases the anchor score by one notch. This results in a 'B' final rating.

We base our "vulnerable" business risk assessment primarily on IAMGOLD's limited operating diversity and higher cost structure relative to that of its rated peer group. The company is highly reliant on its Essakane (Burkina Faso) and Rosebel (Suriname) mines for the vast majority of production and earnings.

Our "highly leveraged" financial risk assessment of IAMGOLD reflects our view that the company's core credit ratios will remain weaker than our previous expectations over the next two years, which mainly reflects the downward revision to our gold price assumption. We now expect gold prices to average US$1,150 per ounce for the rest of 2015 through 2017 compared with US$1,200 per ounce previously. While the reduction is modest, IAMGOLD's credit ratios are highly sensitive to small changes in gold prices--particularly on the downside. We now estimate adjusted debt-to-EBITDA, calculated on a gross basis (no netting of cash), above 5x in 2015 and 2016. Our adjusted debt totals also include estimated asset retirement obligations.

The stable outlook reflects our view that IAMGOLD will generate core credit ratios consistent with a "highly leveraged" financial risk profile over the next two years, including adjusted debt-to-EBITDA above 5x. Our outlook also reflects our expectation that the company will maintain "strong" liquidity.

A downgrade could result from a change in our liquidity assessment to "adequate." from "strong." In this scenario, we would expect available cash to sharply decline following a material acquisition or higher-than-expected free cash flow deficits from a severe drop in gold prices.

We would consider an upgrade if the company generated an adjusted debt-to-EBITDA sustainably below 4x. In this scenario, we would expect the company to significantly reduce debt or steadily improve operating costs assuming no change in our gold price assumption.

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