The following news should have a positive impact on the market value of Iamgold Corp. (IAG, Financial) in the coming days.
On Monday, the Canadian midtier gold producer announced the feasibility study that its exploration team conducted at the Boto Gold Project in Senegal has shown positive results supporting an economically robust project.
The results from the feasibility study represent a meaningful improvement from the outcome of the prefeasibility study, which was announced in February.
Even though the after-tax internal rate of return is only 23%, Boto Gold is a solid metallic project for several reasons.Ă‚
First, Boto Gold will add about 140,000 ounces of gold to Iamgold's total annual production. Shareholders should be excited about this estimate of future annual production because, if we consider that the mining company expects to produce between 850,000 and 900,000 ounces of attributable gold in full fiscal 2018, including the output from joint ventures, the Senegalese contribution will be about 15% to 20% of the total. The annual production volume is an average the company has forecasted over 12.8 years of operation.
Second, the Boto Gold project is considered to be a future low-cost productive mineral asset. In fact, the precious metal will be produced at a total cash cost of $714 per ounce and an all-in sustaining cost of $753 per ounce of metal sold, which, compared to the company’s cost guidance for the year, is a less expensive rate.Â
In addition, the economic analysis of the feasibility study was conducted using a moderate gold price of $1,250 per ounce. This means that a net present value of $261 million, which is a 151% upside from the prefeasibility study, and the payback period of 3.4 years are highly reliable measurements of the project's profitability.
In addition, proven and probable gold reserves increased from 1.42 million ounces to 1.93 million ounces, representing approximately 13.3% of Iamgold’s total reserves as of Dec. 31. The average gold grade of the reserves at Boto Gold is 1.71 grams per ton of mineral, an improvement of 42.5% from the average gold grade of the miner's total reserves.
Iamgold will use $254 million to start production and $66 million to maintain operations at Boto Gold. The miner's three core assets are the Rosebel Gold Mine in Suriname, the Essakane Gold Mine in Burkina Faso and the Westwood Gold Mine in Canada. The company is also producing the metal from its joint ventures in Mali.
The company will use the feasibility study of the Boto Gold project to obtain a mining concession. The application will be submitted in the last quarter of 2018.
The share price of Iamgold was $3.97 at market close on Oct. 22, bringing the market capitalization to roughly $1.88 million. For the 52 weeks through Monday, the stock declined 28%. Monday's closing share price is slightly above the 50-day simple moving average line, but far below the 100- and 200-day SMA lines. The 52-week range is $3.57 to $6.52.
The company has a price-book ratio of 0.66 versus an industry median of 1.74 and the EV-to-EBITDA ratio of 4.42 compared to an industry median of 9.30.
For the four quarters through the second quarter, Iamgold's earnings before interest, taxes, depreciation and amortization margin is 31.2% versus an industry median of 22.9%.
The 14-day relative strength indicator is 53.55, suggesting it is neither overbought nor oversold.
The recommendation rating is 2.2 out of 5 and the average target price is $7.65 per share.
Disclosure: I have no positions in any securities mentioned in this article.
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