Gold prices fell once again in November, generating a very uncertain future for those active in the mining industry. The price of the precious metal had dropped by 6.5 percent last month, to a quarterly low of $1,235 per ounce, the largest blow to gold miners since the 12.2% decline in June 2013. However, despite the turbulent market, investment guru Jean-Marie Eveillard decided to increase his stake in IamGold (IAG, Financial), a Canadian mid-tier gold mining company.
What Makes This One Special?
IamGold has operations in Canada, Suriname, and Burkina Faso, along with two further gold mines in Mali, as part of a joint venture with AngloGold Ashanti Ltd (AU, Financial). However, gold is not the firm’s only business, as it is also a major niobium supplier. This diversification is highly beneficial, as the rare metal, which is utilized in steel alloys, is in high demand. Since niobium output is controlled largely by three producers, IamGold can take advantage of the relatively captive market.
Apart from generating around 20 percent of operating profits from the niobium sector, new projects should ensure the firm a bright outlook over the coming year. The company is expecting to see revenue increase as new projects, such as Westwood in Quebec, reach commercial production capacity. Also, the projected annual gold output of 180,000 ounces generated by Westwood, will be produced at below-average cash costs. This decline in costs is surely bound to reduce the company’s cost structure below the $715 per gold ounce mark. Hence, with healthy operating margins created by the sale of niobium, IamGold projects not only enjoy good funding, but also allow the firm to keep debt in check.
The company’s modest approach to expansion is one of its main strengths. Unlike rivals the likes of Barrick Gold Corporation (ABX, Financial), which have invested rather heavily in projects which are yet to generate gold output – such as Pascua-Lama – IamGold has gone forward slowly. The Canadian gold miner is known for not starting construction until good partners and favorable gold prices are at its disposal.
Earnings and Dividend – a Premium for Large Returns on Invested Capital
Although IamGold has a solid structure and good prospects, the firm is still affected greatly by the current trend in gold prices. Its slightly above-average cost structure is constraining profits, while debt has risen noticeably. Despite the additional funds from the production of niobium, the company has shown negative cash flow levels, and has lost around two-thirds of its market value over the past year. Nevertheless, the stock is currently trading at 16.6 times its trailing earnings, meaning IamGold boasts a significant 28% price premium relative to industry peers’ average.
Despite its medium size, mediocre cost structure and the considerable price premium investors must be willing to pay for this stock, IamGold is a great investment. What Jean-Marie Eveillard has not failed to recognize is the stock’s whopping 6.2 percent annual dividend yield, which is huge relative to the industry average of 2.8 percent. Hence, in addition to interesting growth opportunities, and a diversified structure derived from its activity in the niobium market, IamGold generates steady returns on invested capital. A strong balance sheet and solid projections for the coming year, are additional reasons to feel bullish regarding this stock’s growth potential in spite of low gold prices .
Disclosure: Patricio Kehoe holds no position in any stocks mentioned.
What Makes This One Special?
IamGold has operations in Canada, Suriname, and Burkina Faso, along with two further gold mines in Mali, as part of a joint venture with AngloGold Ashanti Ltd (AU, Financial). However, gold is not the firm’s only business, as it is also a major niobium supplier. This diversification is highly beneficial, as the rare metal, which is utilized in steel alloys, is in high demand. Since niobium output is controlled largely by three producers, IamGold can take advantage of the relatively captive market.
Apart from generating around 20 percent of operating profits from the niobium sector, new projects should ensure the firm a bright outlook over the coming year. The company is expecting to see revenue increase as new projects, such as Westwood in Quebec, reach commercial production capacity. Also, the projected annual gold output of 180,000 ounces generated by Westwood, will be produced at below-average cash costs. This decline in costs is surely bound to reduce the company’s cost structure below the $715 per gold ounce mark. Hence, with healthy operating margins created by the sale of niobium, IamGold projects not only enjoy good funding, but also allow the firm to keep debt in check.
The company’s modest approach to expansion is one of its main strengths. Unlike rivals the likes of Barrick Gold Corporation (ABX, Financial), which have invested rather heavily in projects which are yet to generate gold output – such as Pascua-Lama – IamGold has gone forward slowly. The Canadian gold miner is known for not starting construction until good partners and favorable gold prices are at its disposal.
Earnings and Dividend – a Premium for Large Returns on Invested Capital
Although IamGold has a solid structure and good prospects, the firm is still affected greatly by the current trend in gold prices. Its slightly above-average cost structure is constraining profits, while debt has risen noticeably. Despite the additional funds from the production of niobium, the company has shown negative cash flow levels, and has lost around two-thirds of its market value over the past year. Nevertheless, the stock is currently trading at 16.6 times its trailing earnings, meaning IamGold boasts a significant 28% price premium relative to industry peers’ average.
Despite its medium size, mediocre cost structure and the considerable price premium investors must be willing to pay for this stock, IamGold is a great investment. What Jean-Marie Eveillard has not failed to recognize is the stock’s whopping 6.2 percent annual dividend yield, which is huge relative to the industry average of 2.8 percent. Hence, in addition to interesting growth opportunities, and a diversified structure derived from its activity in the niobium market, IamGold generates steady returns on invested capital. A strong balance sheet and solid projections for the coming year, are additional reasons to feel bullish regarding this stock’s growth potential in spite of low gold prices .
Disclosure: Patricio Kehoe holds no position in any stocks mentioned.
