Can These Intermediate Gold Miners Provide Valuation Upside?
Intermediate gold miners
Intermediate gold miners are smaller than senior gold miners in terms of production and market capitalization, but they’re still generally liquid unlike their junior counterparts (GDXJ).
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AEM and EGO: Highest multiples
Among North American intermediate gold miners, Agnico Eagle Mines (AEM) has the highest EV-to-forward EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 13.1x. It has one of the highest EBITDA margins just below Eldorado Gold (EGO) at 46%. It’s one of the best-managed gold companies. Its 1Q17 results further proved that its strong fundamentals are here to stay.
Eldorado Gold (EGO) is trading at an EV-to-forward EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 10.6x. It has a low-cost, long-mine-life portfolio and a strong balance sheet.
With the apparent improvement in government relations in Greece and the resumption of the Skouries development, the stock has been re-rated.
Yamana Gold’s (AUY) valuation multiple of 6.9x is lower than Eldorado’s and Agnico’s multiples. Yamana’s operational inconsistency has been a major investor concern. Even in its latest results, it missed expectations on both revenues and earnings. It has a history of missing expectations. So, given the volatile gold price outlook, investors may wish to consider more operationally consistent and low-cost names.
IAMGOLD (IAG) has consistently traded at lower multiples than its peers (JNUG) (GDXJ). Currently, it has a forward EV-to-EBITDA multiple of 5.6x, 35% lower than the peer average. Its lower multiple is mainly due to its above-average all-in sustaining costs and concerns regarding production falls in the medium term.
As you can see in the chart above, IAMGOLD has the lowest EBITDA margin of 31%. In a weaker gold price environment, the multiple could fall further. Investors should watch IAG’s 1Q17 results for an update on its cost-reduction initiatives on May 9, 2017.
New Gold (NGD) is trading at a forward multiple of 6.9x. Its EBITDA margin is also strong at 46%. The development of its Rainy River project has been dragging the stock down for the last few months. While its operational performance remains strong, delays at Rainy River are weighing on the stock. Any more delays could mean a downside for the stock.