Intermediate gold miners
Intermediate gold miners are smaller than senior gold miners in terms of production and market capitalization, but they’re still generally liquid, unlike their junior counterparts (GDXJ).
Read Will Gold Miner Stocks Offer Upside Potential in 2017? for an in-depth analysis of intermediate miners.
AEM and EGO: Highest multiples
Among North American intermediate gold miners, Eldorado Gold (EGO) has the highest EV-to-forward EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 12.8x. It has a low-cost, long-mine-life portfolio and a strong balance sheet. It substantially underperformed its peers in 2016, mainly due to regulatory and geographical concerns.
With the apparent improvement in government relations in Greece and the resumption of the Skouries development, the stock has re-rated. Its multiple has risen 40% in the last year. To learn more about Eldorado and its valuation, read Could Eldorado Gold’s Stock Make a Comeback at Long Last?
Agnico Eagle Mines (AEM) has a forward multiple of 12.1x. It has the highest EBITDA margin among its peers at 44%, and it’s one of the best-managed gold companies.
Agnico Eagle is trading at a 39% premium to the group average. High-quality growth is hard to come by, so a bit of a premium seems justified. The company’s exploration update in February 2017 could lead to further re-rating of its stock.
Yamana Gold’s (AUY) valuation multiple of 6.9x is lower than Eldorado’s and Agnico’s multiples. Yamana’s operational inconsistency has been a major investor worry, but the company has started to deliver consistently at all of its mines during the last few quarters. However, given the weak gold price outlook, investors may wish to consider more operationally consistent and low-cost names.
IAMGOLD (IAG) has consistently traded at lower multiples than its peers (JNUG) (GDXJ). Currently, it has a forward EV-to-EBITDA multiple of 6.0x, 68% lower than the peer average. Its lower multiple is mainly due to its above-average all-in sustaining costs and concerns regarding production falls in the medium term.
As you can see in the chart above, IAMGOLD has the lowest EBITDA margin of 34%. In a weaker gold price environment, the multiple could further de-rate. Investors should watch IAG’s 4Q16 results for an update on its cost-reduction initiatives.
Investors can read IAMGOLD Is Riding High on Its Upbeat 3Q16 Earnings to gain more insight into the stock’s fundamentals.
New Gold (NGD) is trading at a forward multiple of 9.1x. Its EBITDA margin is also strong at 45%. The development of its Rainy River project appears to be the biggest catalyst for its price performance going forward.