Which Intermediate Gold Miners Can See Upside in 2017 and Beyond?



AEM and EGO: Highest multiples

Among the intermediate gold miners (GDXJ), Agnico Eagle Mines (AEM) has the highest EV-to-forward-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 12.9x. It also has one of the highest EBITDA margins in the group, as you can see in the graph below. Apart from having consistently strong operational performance, it is also one of the best managed gold companies, warranting the current premium to its peers at 40.0%.

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Eldorado Gold (EGO) has a forward multiple of 9.7x, which is just below Agnico’s in the peer group. EGO has a low-cost, long-mine-life portfolio and a strong balance sheet. The stock’s multiple has fallen 20.0% year-to-date, mainly due to its ongoing mine issues in Greece. A resolution of these issues could lead to a significant rerating of the stock.

Rerating potential

Iamgold (IAG) is trading at the other extreme. It’s trading at the lowest multiple of 6.3x, a discount of 31.0% to its intermediate peers. But that is after a 21.0% rise in its multiple in 2017. The company has announced a significant increase in its reserves at Rosebel and higher resources at Saramacca than its initial expectations.

Read the series Can IAMGOLD’s Keep Up Its Stock Performance after Q2 Earnings? for an in-depth discussion of its price drivers and outlook.

Yamana Gold (AUY) is trading at a multiple of 7.7x, which is just higher than Iamgold’s. Its operational inconsistent performance has been a major investor concern. The future growth potential also doesn’t show much promise.

New Gold’s (NGD) forward multiple is 9.2x. Its EBITDA margin is also strong at 44.8%. The delays and cost escalation at its Rainy River project have been dragging the stock down for the last few months. The Rainy River development could be one of the most important catalysts for the stock right now.


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