Why IAMGOLD’s Valuation Could Climb Higher in 2017 and Beyond
Multiples compared to peers
Since EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples are helpful in comparing capital-intensive industries, we’ll use this multiple to value IAMGOLD Corporation (IAG) versus its peers and its historical multiples.
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While IAMGOLD (IAG) has consistently had a lower valuation multiple than its peers historically, the discount seems to have fallen lately. The discount is mainly due to the company’s higher than average unit costs and concerns regarding production falls.
The last-five-year average discount for IAMGOLD versus its intermediate peers (GDX)(GDXJ) is 51%. Currently, trading at a forward multiple of 6.1x, the discount has fallen to 31%. Yamana Gold (AUY), Eldorado Gold (EGO), New Gold (NGD), and Agnico-Eagle Mines (AEM) are currently trading at multiples of 7.0x, 8.9x, 8.2x, and 11.9x, respectively.
Upgradation of multiple
IAMGOLD’s stock has consistently and significantly outperformed other gold miners in 2017 year-to-date, mainly due to the strength of its exploration results. This performance has led to new optimism among market participants regarding the company’s future growth outlook, leading analysts to increase their revenues and earnings estimates and resulting in a higher multiple.
IAG’s multiple has improved by 30% since its 1Q17 results due to its positive exploration results. There are many more catalysts for the company that could lead to rerating of its stock in the future. As we’ve discussed previously in this series, Saramacca’s resource estimate is due in early September 2017. Plus, updated resources from Falagountou are expected by year-end, which could lead to enhancement of value for Essakane. The pre-feasibility study of the heap leach facility at Essakane, which has the potential to add three to five years to its mine life, is expected by mid-2018.
All the above factors have the potential to increase production and reduce costs for IAMGOLD as a whole. As such, positive results could lead to a re-rating of the stock, As such, investors should keep a close eye on these developments.
The SPDR Gold Trust ETF (GLD) mirrors the performance of gold prices. Investors can invest in GLD to gain exposure to gold.