Is Iamgold Close to Filling the Valuation Gap?
Forward valuation multiple
For Iamgold (IAG), we’ll use the forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple because the metric is useful for comparing companies with different capital structures.
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Valuation gap closing?
While IAG has historically traded at a significant discount to peers, the discount has recently declined. IAG stock is now trading at a forward multiple of 7.0x, which is 18% higher than on July 26, 2017, when IAG announced an 80% increase in reserves at its Rosebel mine.
Historically, the discount on IAG stock was mainly due to the company’s higher cost structure compared with peers and concerns regarding its production growth outlook. While the past-five-year average discount for IAG versus its intermediate peers (GDX) (GDXJ) was 45%, the discount has now declined to 26%.
IAG’s current forward multiple implies a premium of 48% to its past-five-year average multiple.
YTD (year-to-date), IAG’s stock has significantly outperformed peers due to its consistent and strong operational performance and its additional reserves. Analysts and investors are now becoming more optimistic about the company’s cost and production outlook.
While some upgrades have already been finished, after IAG’s most recent announcement, more earnings upgrades could follow, which could lead to a further up-gradation of its multiple. Other catalysts include the expectation of updated resources at Falagountou, which we should see by the end of the year. Meanwhile, a 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.
Iamgold investors, of course, will be keeping a close eye on all these developments.