Iamgold (IAG) has not too long ago reported Q1 2019 outcomes. The corporate’s quarterly efficiency was troubled because of decrease output, greater prices, and a decline within the common realized gold costs Y/Y. Aside from witnessing greater manufacturing prices, IAG’s price metrics remained uncompetitive in contrast with peer gold miners. Furthermore, the corporate’s correlation with gold costs (in each bear and bull gold markets) signifies one other crimson flag for the traders. If gold costs get better from the present stage (which within reason possible for my part) IAG’s share worth can also present modest restoration. Nevertheless, the corporate lacks basic power which might inhibit any sustained restoration in the long run. Let’s get into the main points.
Determine-1 (Supply: Mining.com)
Throughout Q1 2019, IAG produced ~185 Koz of gold (Q1 2018: 229 Koz) at a mean AISC of $1,086/oz. (Q1 2018: $953/oz.). The declining gold costs added to the woes of the miner and resulted in thinner working margins. Common realized gold costs stood at ~$1,308/oz., down from $1,331/oz. final 12 months. Collectively, these three crimson flags mixed with the Y/Y decline in IAG’s revenues (from ~$314.5 MM in Q1 2018 to ~$251 MM in Q1 2019) hammered the corporate’s EPS which got here out at destructive $zero.09/share in contrast with constructive EPS of $zero.09/share final 12 months (complete Y/Y decline of $zero.18/share). For my part, IAG’s price efficiency makes it uncompetitive in opposition to different gold miners. As an example, in the course of the interval beneath evaluation, B2Gold (BTG), Kinross Gold (KGC), and Alamos Gold (AGI) respectively reported AISC of $848/oz., $925/oz., and $937/oz. In distinction, IAG’s AISC stood at ~$1,086/oz. The truth that gold costs are past the management of any miner, reinforces the significance of controlling manufacturing prices. With IAG’s FY 2019 AISC steering anticipated to lie inside the vary of ~$1,030-1,080/oz., I imagine that the corporate’s earnings might proceed to endure going ahead.
One more reason for the lackluster efficiency of IAG (and one which additional deteriorates its comparative place amongst friends) is IAG’s mine profile. In my view, different gold miners preserve a balanced mixture of mining property, the place a few of their mining property present improved manufacturing/price efficiency, and such a balanced portfolio helps preserve the general mining image of those mining corporations. Nevertheless, within the case of IAG, I can see a declining portfolio. Determine-2 exhibits that not solely have been there a Y/Y manufacturing decline from all of the three mines of IAG, the AISC additionally noticed vital enhance Y/Y. However then once more, this development was famous in all of IAG’s mines. It might be nicely famous that the AISC from all these mines exceeded $1,000/ouncesand given the typical realized gold costs of ~$1,300/oz, largely lowered the typical per ounce margins of the corporate.
So, in essence, we’re lacking that one (or two) star performing property in IAG’s mining portfolio that might be counted upon to enhance the corporate’s general mining image in the long run. In case you are questioning how this problem is countered by different gold miners, think about the instance of BTG’s Fekola mine, which is a star performer. The Fekola mine has already witnessed improved manufacturing and likewise has the potential to considerably ramp up its manufacturing potential by the tip of the present fiscal 12 months.
One other vital issue at play right here is IAG’s correlation with gold costs. As proven in Determine-Three, gold costs witnessed a chronic bearish cycle from the mid of Might 2018 until mid of August 2018. Ignoring the intervening interval the place gold costs confirmed combined habits, a noticeable gold market bull will be seen in the course of the interval from the mid of November 2018 to the tip of February 2019.
Determine-Three (Supply: Infomine)
Now let’s take a look at Desk-1 which exhibits the change in costs of chosen gold shares (together with IAG) in the course of the bear and bull gold cycles and correlates them with gold costs.
Desk-1 [Prepared by Aitezaz Khan for Seeking Alpha]
The above desk clearly exhibits that in a bearish gold market IAG is the one which takes the best influence (of ~3x the decline in gold costs) whereas it additionally exhibits the slowest restoration (when it comes to correlation with gold costs) in relation to a bullish gold market.
Primarily based on the correlation issue of zero.3x (in a bullish gold market) and an expectation of restoration in gold costs within the wake of rising US-China commerce tensions, I imagine that IAG might witness some restoration in share costs within the short-term. That is consistent with IAG’s technical image which displays that the inventory is at the moment buying and selling on the 52-week lows and at present costs, the probability of rebound takes priority over the probability of additional worth decline (Determine-Four). Nonetheless, the basic efficiency doesn’t justify an expectation of continued share worth progress as a result of any non permanent upside in inventory worth would solely be attributable to upward motion in gold costs. This establishes that IAG shouldn’t be match for a protracted funding within the gold mining area.
Determine-Four (Supply: Finviz)
Disclosure: I/we have now no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours. 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.