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How Could Iamgold Deploy Excess Cash to Generate Higher Returns?


Jul. 27 2016, Updated 11:08 a.m. ET

Flush with cash

At the end of 1Q16, Iamgold (IAG) had $658 million in cash compared to $548 million at the end of 4Q15. The company also increased its revolving credit facility to ~$138 million at the end of 1Q16, from $100 million previously.

IAG believes it has the potential to increase its total facility to $250 million. It’s also interesting to note that the company doesn’t have any near-term debt maturities. So it will be worth watching management’s comments on potentially employing this cash toward M&A (mergers and acquisitions) or accelerating internal growth projects.

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Buying back bonds?

In Iamgold’s 1Q16 earnings call, management was asked about the company’s priorities for using its cash. Management said that when its bonds were trading at $0.62 on the dollar, it might have used the cash to retire some debt, thereby locking in a 21%–23% after-tax return.

Now, however, bond prices are trading closer to par, so the company is looking at brownfield expansions, which can provide much greater returns.

IAG’s debt position

Iamgold’s debt fell to $650.6 million in 1Q16 compared to $716.2 million at the end of 4Q15. This was due to the company’s repaying $70 million of debt during the quarter. In its 2Q16 call, it will be interesting to find out how management is planning to deploy this cash on the back of its strong balance sheet.

Iamgold is in a strong position as far as its balance sheet is concerned. On a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) basis, the compmany is less leveraged than peers Agnico Eagle Mines (AEM), Yamana Gold (AUY), and New Gold (NGD).

ETFs such as the Direxion Daily Gold Miners Bull 3x ETF (NUGT) and the ProShares Ultra Silver (AGQ) provide leveraged exposure to precious metals.


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