Share Value (US)
FD Mkt Cap (four/19/2019
One among my funding goals is to personal mid-tier producers. I’m all the time on the lookout for high quality mid-tier producers with an excellent entry worth that present important upside potential. IAMGold at the moment suits that profile.
In fact, the entry worth is just one information level that I verify. I additionally search for pink flags in a number of areas. For IAMGold, their solely important flag is publicity to West Africa. This provides each political threat (unexpected occasions) and investor threat (the place buyers keep away). They’ve about 40% of their sources in West Africa (Burkina Faso, Mali, Senegal), 34% in Canada (Ontario, Quebec), and 23% in South America (Suriname and Brazil).
For mid-tier producers, different information factors I search for embrace their tasks (present and future), property places, sources, prices, grade, restoration price, administration, stability sheet, shares excellent, and upside potential.
IAMGold Corp is a big mid-tier producer, with manufacturing at 850,000 oz. They’ve four working mines in Suriname (northern South America), Canada (Quebec), Mali, and Burkina Faso. They’re at the moment constructing a big gold mine in Ontario (Cote with 7 million oz.), and are spending thousands and thousands on exploration and advancing properties. I take into account this a development inventory.
Their money prices are at the moment about $800 per oz., with all-in prices (free money movement) round $1,150 per oz. The provides them round $100 million in free money movement at $1,300 gold. In addition they have two extra growth shares in West Africa. Boto (Senegal) is 1.5 million oz. at 1.eight gpt and Sribanye (Mali) is 1 million oz. at 1.7 gpt. Plus, they’ve a couple of extra exploration performs that would grow to be mines. They’re giving steering to achieve 1.2 million oz. of manufacturing in 2022, with all-in prices (free money movement) of about $1,150 per oz.
They’ve giant sources, with 24 million oz. of reserves. In actual fact, their reserves are what makes them so engaging. They need to be capable to develop into a really giant firm.
They’ve an excellent administration group with a variety of expertise. They’ve accomplished a wonderful job financing (avoiding a variety of debt), constructing, and working their mines. I additionally like the way in which they’ve begun to diversify away from West Africa by including mines in Canada. Plus, I like their technique of sustaining a variety of money on their stability sheet.
Their stability sheet is sweet with $734 million in money (and short-term investments) and $398 million in debt. With a FD market cap of $1.four billion, this inventory is extremely undervalued with out a debt drawback. Plus, it’s an excellent revenue inventory that ought to present future dividends. This inventory has very excessive upside potential in the long run at larger gold costs. If that occurs, the longer term dividend could possibly be round 5%+ based mostly on at the moment’s share worth.
My solely concern is West African publicity. That might cut back the upside potential, or doubtlessly damage the inventory if there’s a political impression of some sort. Nevertheless, I’m keen to take that threat to personal a top quality gold producer with each development potential and doable future dividends.
Estimated future annual free money movement (at $2,500 gold costs): 1,000,000 oz. x $1,300 = $1.three billion
Estimated future market cap (at 10x free money movement): $1.three billion x 10 = $10.three billion
Evaluating the present market cap ($1.four billion) to the longer term market cap ($10.three billion), you get a possible 635% improve.
This valuation assumes that IAMGold will attain 1,000,000 oz. of annual manufacturing, with all-in prices at $1,200 per oz., and future gold costs at $2,500. This can be a best-case state of affairs.
I like this inventory for a number of causes. I like the chance/reward profile for the long run. The variety of pink flags for this inventory are restricted. And it seems to have important upside potential at larger gold costs. Certain, it might drop considerably in worth if the worth of gold drops, or if certainly one of their properties experiences a shutdown or larger royalties. That may be a threat we take with all gold mining shares.
I would like publicity to larger gold costs over the long run. One of the best ways to try this for prime returns is to personal gold producers. If gold rockets above $2,000 and stays there, will probably be corporations like IAMGold that reap the rewards, together with their shareholders.
Be aware: Knowledge included on this evaluation was sourced from IAMGold’s Web site.
Disclosure: I’m/we’re lengthy IAG. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from In search of Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.