Why Is IAMGOLD’s Valuation Discount Slipping?
Lower historical multiple
Historically, IAMGOLD (IAG) has traded at a lower valuation as than its peers. But after the transformation it has shown so far in 2017, its discount has fallen. While the average five-year discount to its intermediate peers (GDXJ) is about 35%, its current discount is 20%.
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Reasons for contraction of discount
IAG stock is now trading at a forward multiple of 5.5x. Agnico-Eagle Mines (AEM), Eldorado Gold (EGO), Yamana Gold (AUY), and New Gold (NGD) are now trading at multiples of 11.4x, 6.6x, 4.7x, and 5.7x, respectively. The reason for IAG’s discount contraction is primarily twofold:
- Iamgold’s fundamentals have improved significantly. Its future production growth seems real, which had previously been a big investor concern, and the new production should help it reduce its unit costs. Meanwhile, its project pipeline remains full, which has restored investor confidence.
- The fundamentals of some of IAG’s close peers have worsened in 2017. Eldorado, for example, has been facing several issues at its Greece and Turkey mines.
IAG’s multiple has improved significantly in 2017 due to its positive exploration results. But there are other catalysts that could lead to the rerating of IAG stock. As we’ve discussed previously in this series, Essakane’s pre-feasibility study results are due in mid-2018, and this has the potential to add three to five years to its mine life. Updated resources from Falagountou are expected by the end of 2017, which could also lead to value enhancement for Essakane.
The above factors have the potential to boost production and reduce costs for IAMGOLD as a whole. Such positive results could lead to a re-rating of the stock, and so investors will be keeping a close eye on these developments.