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Can Iamgold Catch Up on Valuations after Q2 2018?

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Lower historical multiple

Historically, Iamgold (IAG) has traded at a lower valuation than its peers. However, after its significant turnaround in 2017 and year-to-date, its discount compared to its peers has decreased.

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Reasons for the contraction of the discount

Among Iamgold’s (IAG) close peers, Agnico Eagle Mines (AEM), Yamana Gold (AUY), Eldorado Gold (EGO), and New Gold (NGD) have forward multiples of 11.3x, 5.7x, 6.7x, and 4.6x, respectively.

IAG stock is currently trading at a forward EV[1. enterprise value]-to-EBITDA multiple of 4.8x, which is a discount of 27% to its peers (GDXJ). Its last five-year average multiple implies a larger discount of 39% to its peers.

Here are the reasons for IAG’s discount contraction:

  • IAG’s fundamentals have improved significantly. Based on the reserve updates and other organic growth opportunities, its future production growth seems real, which previously had been an investor concern. The additional production is expected to come in at a lower cost, which is expected to improve its cost position. Its project pipeline remains full, which has restored investor confidence.
  • The fundamentals of some of IAG’s close peers have worsened. Eldorado, for example, has been facing several issues at its mines in Greece and Turkey. New Gold’s valuation multiple has also taken a hit due to several operational issues.

Going forward

Iamgold’s (IAG) multiple has improved significantly in 2017 and year-to-date due to its positive exploration results. However, other catalysts could lead to the rerating of the stock. As we saw in the previous parts of this series, the Saramacca reserve declaration is due in the third quarter, and Essakane’s heap leach feasibility study results are due in 2019.

These projects have the potential to add production as well as reduce the company’s overall unit costs. Positive results from these projects could lead to a rerating of the stock, so investors will probably keep a close eye on these developments.

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