Did IAMGOLD Finally Turn a Corner in 1Q17?

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Part 8
Did IAMGOLD Finally Turn a Corner in 1Q17? PART 8 OF 8

Behind IAMGOLD’s Valuation: What Could Improve IAG’s Operational Performance

EV-to-EBITDA multiple

The EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is an important relative valuation multiple. It’s generally used for capital-intensive industries such as gold mining.

With the help of relative valuation, we can calculate a company’s valuation with respect to its closest peers’ valuations. In this final part of our series, we’ll compare IAMGOLD’s (IAG) forward EV-to-EBITDA valuation multiple with its historical averages and the multiples of its major peers.

Behind IAMGOLD&#8217;s Valuation: What Could Improve IAG&#8217;s Operational Performance

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Multiple compared to peers

IAMGOLD has consistently traded at lower multiples than its peers. It currently has an EV-to-EBITDA multiple of 5.1x for 2017, which is 44% lower than the peer average.

Agnico-Eagle Mines (AEM), New Gold (NGD), and Eldorado Gold (EGO) are currently trading at multiples of 12.4x, 6.6x, and 10.6x, respectively.

IAMGOLD’s low EV-to-EBITDA multiple is probably due to its higher-than-average all-in sustaining costs and concerns regarding production falls in the medium term. As you can see in the above graph, IAMGOLD has the lowest EBITDA margin in its peer group, mainly due to higher costs, which tend to result in a lower valuation multiple.

Key going forward

While IAG’s balance sheet position is strong due to its large cash holdings, some issues have led to its discounted price as compared to peers. The company has been focusing on improving its operational performance for the past few quarters.

But investors need to see such consistent improvement over a longer timeframe, in addition to sustained cost improvements. Investors will also be eagerly looking forward to the ramp-up of IAG’s Westwood project, as this project remains key to the company’s production growth and unit cost reduction going forward.

The SPDR Gold Trust ETF (GLD) mirrors the performance of gold prices. Investors can invest in GLD to gain exposure to gold.


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