Back in February, I wrote that while the big $395 million impairment charge for the Westwood mine hurt IAMGOLD (NYSE:IAG) shares, the higher gold prices should provide support for the company and, ultimately, for its stock. Fast forward several weeks, and the stock is close to the same levels it had after the earnings report:
First of all, I would like to discuss the strange action seen in many other gold names, which took the VanEck Vectors Gold Miners ETF (GDX) way below its starting point in 2020 despite favorable gold price (GLD) movement. In fact, GDX is still roughly flat for the year:
In my opinion, the coronavirus-related panic, which added fuel to the gold price rally, led to a massive cashing out exercise by some investors who wanted to raise cash in preparation for worse times. Gold stocks, which had a good 2019, found themselves under a massive wave of profit-taking. Now this panic selling is gone, but a number of gold stocks, including IAMGOLD, are yet to see any re-pricing according to the new $1600+ gold price reality.
Such a re-pricing is the first potential upside catalyst for IAMGOLD at current prices, since the market completely ignored the gold price upside in the case of IAMGOLD shares. Typically, shares of a higher-cost producer like IAMGOLD (all-in sustaining costs (AISC) are expected to be $1100-1150 per ounce in 2020) are more sensitive to gold price upside, since higher gold prices improve the company’s prospects materially, but such a reaction from the market has not materialized yet.
It looks like the company decided to play safe when it announced its 2020 production guidance of 700,000-760,000 ounces of gold. Gordon Stothart, the new CEO of IAMGOLD whose appointment was announced less than two months ago, stated: “We’ve been very conservative in our guidance numbers on purpose. And that’s the strategy that I want to pursue going forward”. Given past performance, the market is not likely to give IAMGOLD the benefit of the doubt, but apparently the company decided to set the bar low in order to create positive headlines during the upcoming earnings seasons.
Another interesting catalyst for this year is the upcoming project decision on Boto Gold (I wrote about it here) or Cote Gold (it was put on pause last year). This year, the company will spend $35 million on Cote Gold and $30 million on Boto Gold, advancing the projects to make them ready for investment decisions. During the earnings call, the company stated that it will likely make a decision on these projects in the next few months, promising that it won’t develop both at one time. In my opinion, IAMGOLD will likely choose Boto Gold, which has less capex requirements. The market has previously cheered the company decision not to proceed with Cote Gold, and while the gold price has changed materially since that time, the company’s stock is at depressed levels, so investors continue to express their concern regarding IAMGOLD’s ability to develop profitable deposits.
At this point, I’m looking for positive upside momentum above $3.20 and believe the company’s shares will ultimately be able to get to the $3.80-4.00 area, testing the long-time resistance area:
The gold price environment remains highly favorable, and it is likely that during the next reporting season, the market will be surprised by gold miners whose stocks were underperforming. I’d also note that I believe both in a material impact to the world economy from the coronavirus and in the fact that gold entered a new multi-year upside trend when it breached the $1400 level back in 2019, so I am staying bullish on gold. In short, I maintain my bullish stance on IAMGOLD.
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