In the past, I have written about companies that have good, strong economical projects that were more classified as junior mining companies. Of course, the exception to that synopsis would be Cameco (NYSE: CCJ), which is more like the Exxon Mobil (NYSE:XOM) of uranium. This company I am going to write about is more of a mid-tier producer with a roughly one billion dollar market cap. It is called IAMGOLD (NYSE:IAG). I am writing about this company for two reasons, one, is because I bought this stock for a different reason than I bought the others, and also, I got a request from a follower to write about this company, so let's dig in.
In terms of the company's valuation, its EV/EBITDA is trading at roughly 10 times its EBITDA. In terms of its cash flow per share it's trading roughly 2.3 times higher than its cash value per share price, and its price to book ratio is at .55, with a calculated book value per share of $4.82. In my opinion, its EV/EBITDA ratio is a little higher than I would like, but its cash per share and its price to book ratio are trading at attractive levels. In my opinion, its valuation metrics are above average, but nothing to write home about.
In terms of the company's assets, it has four operating mines, and its in ground reserves contain 7.7 million ounces of 2P gold reserves. This was a decrease of 11 percent due to lower gold prices, where it estimated its reserves based on a price of $1,300 in 2014, while in 2015, the company estimated its reserves at a price of $1,200.
Its operating mines are its Rosebal, Essakane, Sadiola and Westwood mines. In terms of grades, its overall grades are 1.4 grams per tonne (g/t). To me this shows that its assets are of low grades. Its individual mines contain grades of 1 g/t for its Rosebal mine, for its Essakane mine it contains grades of 1.1 g/t, for its Sadiola mine it contains grades of 1.9 g/t, and for its Westwood mine it contains grades of 7.6 g/t. Out of its four producing mines, only one mine contains good grades on its assets.
In terms of production, the company's estimated all in sustaining costs are between $1,000 per ounce and $1,100 per ounce. Personally, I lean more towards the $1,100 per ounce estimation. In terms of production guidance for the year 2016, IAMGOLD is estimated to produce 770k-800k ounces of gold from these four operating mines.
In terms of each mine, its Westwood mine is estimated to produce 50k-60k ounces of gold for the year 2016. This mine is operating on a reduced schedule, and is continuing its developmental work to advance its ramp up stage, and is expected to reach full capacity by 2019. Its estimated mine life is 20 years, at an annual production rate of 183k ounces of gold. 100 percent of this mine is owned by IAMGOLD.
Its Essanke mine is estimated to produce 365k-375k ounces of gold in 2016. It completed its expansion phase in 2013, and has an 8-year mine life at an annual production rate of 368k ounces of gold. It is currently working to improve its gold recovery rates through oxygen injection into the carbon-in-leach tanks, and by installation of an intensive leach reactor into the gravity circuit. 90 percent of this mine is owned by IAMGOLD, while 10 percent is owned by the government of Burkina Faso.
Its Rosebal mine is estimated to produce 285k-295k ounces of gold for the year 2016. This mine is estimated to have a mine life of 6-7 years with an estimated annual production rate of 316k ounces of gold. Recently, this mine reduced 10 percent of its workforce to more align its workforce with its current production levels. It is also stating that it's working at increasing its capacity to process hard rock, while trying to initiate performance improvements via reduced cycle times through enhanced dispatching and road optimization, increased bench heights, optimized gravity circuits and carbon in-leach-configuration. 95 percent of this mine is owned by IAMGOLD, while 5 percent is owned by the government of Suriname.
Its Sadiola mine is estimated to produce 70k ounces of gold in 2016. Current assessments of this mine indicate that this mine can be mined into early 2018. Company plans to update feasibility study for this mine, and work with its JV partner AngloGold (NYSE:AU) to extend this mine's life. 41 percent of this mine is owned by IAMGOLD, while 41 percent is owned by its JV partner AngloGold Ashanti, while 18 percent of this mine is owned by the government of Mali.
In terms of its other assets, it has a developmental project currently on hold called the Cote Gold Project. This project is a large low grade bulk tonnage mine that would need a higher priced gold environment to significantly add to the company's profitability. This is an open pit operation that is estimated to have a throughput rate of 60k tonnes per day. This project though, won't be able to generate much shareholder value until we have much higher prices, so there is no use talking any more about it, because simply, we are no were near that environment yet. 92.5 percent of this project is owned by IAMGOLD.
In terms of exploration projects, this company has its Boto gold project. In 2016 it expects to continue technical studies to support economic valuation, and to prepare an application for an exploration permit. 2015 assay results included a 36 m at 3.59 g/t Au, including 7 m at 9.46 g/t Au25 m at 4.26 g/t Au, including 8 m at 8.80 g/t Au.
It also has Pitangui project where it will continue drilling to test electromagnetic anomalies and geological targets previously identified on the property. Its 2015 assay results included 11.9m at 6.84 g/t Au, including 3.5m at 17.02 g/t Au, 7.6m at 9.78 g/t Au and 4.4m at 16.56 g/t Au, and 7.4m at 8.12 g/t Au.
It also has three joint venture exploration projects, if you wish to learn more about its JV exploration projects click here.
In terms of the company's financials, its balance sheet seems to be strong were it has a current ratio of 3.8, with over $481 million dollars of cash on its balance sheet, and a total assets to total liabilities ratio of 2.47. In terms of company debt, it has $628 of long term debt on its balance sheet, which is due in October of 2020.
In terms of its net income statement, it posted a loss of $753.5 million for the year. But in terms of the net loss, $621.3 dollars of this was from impairment charges which are non-cash charges, but if you take away the impairment charge, its income is still negative. Its EBIT/interest expense is negative at roughly negative 2, so there are finance costs that do concern me.
In terms of cash flow, I calculated its cash flow to be negative $187 million. I attribute this to its higher cost mines that it is operating, also known as its assets.
In terms of the company itself, its assets only contain one high grade mine, which is why it is a higher cost producer. It has made an effort to reduce operating costs, but I am not sure how much more it can reduce its costs with three of its four producing mines being of lower grade mines. Growth is suspect, but its Westwood mine, which is the only high grade mine, is expected to reach full capacity by 2019, its Yatela mine will cease production by the end of the year, and its cash flow and net income are negative, which is a cause for concern.
It is painfully obvious that this company has its faults. But there is also good reason to invest in it. First, despite its cash flow, income, and EBIT/interest expense ratio problems, it does contain a strong balance sheet, the mine that will be growing significantly is its high grade mine, it has exploration potential, and assay results are encouraging.
Its most recent news is encouraging. It has converted bullion holdings into cash, and issued flow through shares. This helped the company raise $211.3 million dollars in cash. The money raised by its equity dilution will fund half the capital needed to help develop its Westwood mine. This means that the company now has 405.4 million shares outstanding. It has also secured a fully committed $100 million credit facility, with an option to add $150 million to it.
The main reason this company should not be overlooked is because of how gold stocks move. In 2011, IAMGOLD was trading at $20 a share. Now it trades at roughly $2 a share, closer to $3 a share. This company has 10 bagger potential. In a rising gold price environment, higher cost companies have more leverage to the gold price than low cost companies do. Think of it, a move from 1k to 1300 has a much greater profitability impact on mines that produce at $1200 an ounce than it would a mine that costs $600 an ounce. This company provides a great deal of leverage to rising prices, which I think we are in the beginning stages of.
I do expect gold to continue consolidating its gains, probably for the summer, but we are now in a new bull market, and these types of companies are the best performers and should not be ignored. But, if you do not believe gold prices will start rising over the next two years by a large amount and could possibly trade down at this level for another year or so, this is not a company you want to invest in. You only buy this stock because gold is going up, and due to a higher price, the negative incomes, cash, reserves will start to reverse, and this will go from a starving company, to a thriving company.
Disclosure: I am/we are long IAG, CCJ.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.