The Market Has Restored IAG’s Discount—Is a Turnaround Possible?

Anuradha Garg - Author

Nov. 9 2018, Updated 9:01 a.m. ET

Lower historical multiple

Historically, IAMGOLD (IAG) has traded at a lower valuation than its peers. Due to its significant turnaround in 2017, the stock’s multiple rerated in 2017, and it’s since reverted back due to IAG’s weak operational performance.

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Discount restored

Among IAMGOLD’s close peers, Agnico Eagle Mines (AEM), Yamana Gold (AUY), Eldorado Gold (EGO), and New Gold (NGD) have forward multiples of 10.6x, 5.4x, 5.8x, and 4.9x, respectively.

IAG stock is currently trading at a forward EV-to-EBITDA (enterprise value-to-EBITDA) 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. Moreover, its asset portfolio represents a significant upside risk given the increasing instances of resource nationalism in Africa and South America.

Going forward

On the plus side, the company has a number of growth projects in its portfolio, which could represent a significant upside. Moreover, its balance sheet remains quite strong in support of its upcoming projects. The company, however, needs to do a lot more on the execution front to avoid a series of disappointing results.

Positive results from upcoming projects could lead to a rerating of the stock, so investors will likely keep a close eye on these developments going forward.


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