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Some Bright Spots in Other Dull Intermediate Gold Miner Stocks

Anuradha Garg - Author
By

Nov. 12 2018, Published 9:35 a.m. ET

AEM has the highest multiple

Among intermediate gold miners (GDXJ), Agnico Eagle Mines (AEM) has the highest forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple of 10.6x, which implies a whopping premium of 76.0% to its close peers.

The company offers strong production growth, which is supported by a strong project pipeline. AEM’s strong operational consistency and its exploration program support a higher multiple for the stock.

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Significant multiple erosion

Eldorado Gold’s (EGO) and New Gold’s (NGD) forward multiples used to trade at significant premiums to their peers. However, their multiples are currently trading at 5.8x and 4.9x, respectively, implying discounts of 38.0% and 31.0% to their historical multiples. Their multiples have fallen ~33.0% each in the last year and a half.

Although Eldorado Gold has had several ongoing issues at its mines in Greece and Turkey, New Gold stock has been pressured by delays, cost escalations, and execution issues at its Rainy River project. Operational and mechanical challenges at the site continue to dent its earnings potential.

Discount restored for IAG

IAG stock is currently trading at a forward multiple of 3.5x, a discount of 43% to its peers (GDXJ). Its trailing-five-year average multiple implies a smaller discount of 39% to its peers. While investors got excited about the company’s significant reserve expansion announcements and strong project executions in 2017, the company has disappointed on these fronts in 2018. It needs to become a lower-cost producer of the metal sooner rather than later to allay investors’ concerns.

Read What Would It Take to Restore Investors’ Confidence in IAMGOLD? for a detailed discussion on IAG’s future outlook.

Yamana Gold

Yamana Gold (AUY) is trading at a multiple of 5.3x, which implies a discount of 11% to its intermediate peers. The company has, however, narrowed its discount to its peers to a large extent. With the startup of the Cerro Moro mine, Yamana Gold’s production and costs are expected to improve significantly. The company’s free cash flow generation should also increase and sidestep its balance sheet concerns.

Consistent operational performances at all of its mines could help restore investors’ confidence in Yamana Gold. Read Yamana Gold: How Much Upside after Its Q3 Earnings? for more on this topic.

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