How Does IAMGOLD Plans to Deploy Its Cash as Liquidity Remains Abundant?


Aug. 11 2016, Updated 10:04 a.m. ET

Strong cash position

IAMGOLD (IAG) has a strong cash flow and balance sheet position. At the end of 2Q16, it had a cash balance of $626 million.

It also has a revolving credit facility of ~$140 million at the end of 2Q16, which equals total liquidity of $768 million.

During the call, the company mentioned that if the gold price remains above $1,300 per ounce, it could have a positive free cash flow (or FCF) in 2H16. At a higher gold price of $1,350 per ounce for the balance of the year, it could have a positive FCF for fiscal 2016.

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IAG’s debt position is comfortable

IAMGOLD’s debt also fell to $643 million in 2Q16 compared to $716.2 million at the end of 4Q15. It repaid debt amounting to $70 million during the half-year.

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, IAMGOLD is less leveraged than its peers Agnico Eagle Mines (AEM), Yamana Gold (AUY), and New Gold (NGD).

Deployment of cash is key

IAG has plenty of cash to invest organically in order to seek growth opportunities. On being asked about its priorities for the use of this cash, the company’s management said that while it could look for external opportunities, it has a “robust pipeline of projects with untapped growth potential.”

IAMGOLD could also use its cash to acquire new mines. In the past, IAG has made a number of acquisitions, with its track record being mixed at converting those acquisitions to value for shareholders.

For example, analysts were not happy regarding IAG’s acquisition of Trelawney’s Cote Lake project in 2015, and some termed it as a missed opportunity. Thus, IAG’s deployment of its excess cash reserves and the expected returns from that deployment will be one of the key factors investors look forward to.

The Market’s reaction will depend on the deal’s terms, including price paid, grade, cost structure, and exploration potential of the acquired assets, among other things.

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


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