UPDATE: S&P Cuts IAMGOLD Corp. (IAG) to 'B+'; Removes from CreditWatch Negative

(Updated - December 18, 2014 2:33 PM EST)

Standard & Poor's Ratings Services today said it lowered its long-term corporate and issue-level ratings on Toronto-based gold producer IAMGOLD Corp. (NYSE: IAG) to 'B+' from 'BB-', and removed the ratings from CreditWatch, where they were placed with negative implications Oct. 3. The '4' recovery rating on the company's unsecured notes is unchanged. The recovery rating, which is based on Standard & Poor's updated recovery analysis that excludes Niobec, reflects our view of average (30%-50%) recovery in a simulated default scenario.

"The downgrade primarily reflects our expectation that IAMGOLD's core credit ratios and operating efficiency will weaken following the sale of the company's Niobec Inc. subsidiary," said Standard & Poor's credit analyst Jarrett Bilous.

We estimate that the subsequent decline in earnings and cash flow will increase the volatility of the company's profitability, and result in estimated adjusted debt-to-EBITDA and funds from operations (FFO)-to-debt ratios that fall within the range commensurate with an "aggressive" financial risk assessment.

Standard & Poor's now views IAMGOLD's business risk profile as "vulnerable" and its financial risk profile as "aggressive," which results in a 'b' anchor score. We revised our financial risk assessment to "aggressive" from "significant" primarily to reflect the expected deterioration in the company's core credit ratios that primarily result from the Niobec sale, and are calculated on a gross debt basis. The company's business risk profile was also revised to "vulnerable" from "weak," based mainly on our view of the company's weaker operating efficiency and increase in the volatility of its
profitability. We also consider IAMGOLD's liquidity position as "strong," which benefits from the US$500 million in proceeds expected from the Niobec sale, and has a positive one-notch impact on the anchor score. This results in a final rating of 'B+'.

IAMGOLD is contemplating a range of strategic options following the Niobec sale that are most likely to include investments in its existing gold portfolio, a gold-focused acquisition that improves the company's cost profile, and debt repayment. The company has not provided a timeline but we expect it to make a decision within the next 12 months. However, a change to our business risk assessment is unlikely over this period, regardless of how the sale proceeds are deployed. In our view, a higher assessment would require IAMGOLD to own several more operating mines or achieve significant mprovement
in its operating efficiency, which we view as unlikely in the next two years based on the aforementioned options.

The stable outlook reflects our view that IAMGOLD will maintain core credit ratios consistent with an aggressive financial risk profile, with strong liquidity. We estimate that the company will generate an adjusted debt-to-EBITDA ratio in the mid-to-high 4x area and FFO-to-debt below 20% over the next two years, based on an average gold price of US$1,200 per ounce. Our stable outlook also takes into account the potential for modest improvement in estimated core ratios, which will depend on the allocation of Niobec sale proceeds.

A negative rating action could result from higher-than-expected cost pressure or modestly lower average gold prices that lead to adjusted debt-to-EBITDA above 5x. In our view, this could result from an average gold prices approaching US$1,100 per ounce in 2015. In addition, we would expect to downgrade the company with the erosion of IAMGOLD's currently strong liquidity.

Although unlikely over the next 12 months, we would consider an upgrade if the company generated an adjusted debt-to-EBITDA ratio below 3x on a sustained basis, or added several producing assets via acquisitions. In our view, a sustained improvement in adjusted debt-to-EBITDA would require significant debt reduction (likely well above US$100 million) with an improvement in gold margins.

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