Iamgold Corp. (IAG, Financial) plummeted 10.34% to $3.21 on Wednesday on the New York Stock Exchange after releasing production results for full-year 2018.
Even though the Canadian miner surpassed the midpoint of the production guidance of 850,000 to 900,000 ounces for the year, the output of 882,000 ounces of gold is not an improvement from the prior year.
The chart below illustrates the issue, which, together with an expected drop in the attributable production of gold for 2019, has impinged on the share price.
The chart below illustrates the trend in Iamgold's annual gold production from 2013 to 2018.
Higher gold grades at the Rosebel mine will drive the production growth of the asset in Suriname to 315,000 to 330,000 ounces in 2019, up from 287,000 ounces in 2018. Rosebel will also benefit from improved gold recovery rates and the incorporation of maiden reserves declared at the nearby Saramacca deposit. While this is positive, it is not enough to offset the production loss the mid-tier operator will suffer across its portfolio of operations.
In 2019, Iamgold will lose approximately 14,000 ounces of gold at the Westwood mine in Canada due to the ongoing ramp-up of operating activities. The operator will also be deprived of about 22,000 ounces at the Essakane mine in Burkina Faso because of lower accessibility of high-grade zones. The cessation of operations at the Sadiola joint venture in Mali will result in another production decline of approximately 36,000 ounces of gold.
A rising commodity may be the only short-term catalyst here, but this may not work in the stock's favor since the share price is not moving according to changes in gold prices.
Gold has increased 1.03% to $1,292.3 per troy ounce on the London Bullion Market so far this year, while Iamgold decreased 12.8% over the same period.
The miner also has two long-term catalysts. The first is annual gold production of 1.2 million to 1.3 million ounces. The second is the 20% cut in the all-in sustaining cost to below $850 per ounce. Iamgold hopes to achieve both goals before the end of 2022.
GuruFocus has assigned a financial strength of 7 out of 10, meaning that the balance sheet is strong enough to sustain organic growth.
After Wednesday’s drop, Iamgold is now 48% lower than a year ago. The share price is below the 200-, 100- and 50-day simple moving average lines. The closing price on Wednesday was 16.4% above the 52-week low of $2.75 and 103.75% below the 52-week high of $6.52. Iamgold has a market capitalization of approximately $1.5 billion.
The price-book ratio is 0.54 versus an industry median of 1.74 and the EV-to-EBITDA ratio is 3.98 versus an industry median of 9.3.
There isn’t any doubt the stock is much cheaper than a year ago. Regardless, since there are no consistent short-term catalysts and because the profitability of operations is just a bit over the industry median, I would invest in other gold mining operators.
Iamgold has a trailing 12-month earnings before interest, taxes, depreciation and amortization margin of 28.4% versus an industry median of 24%.
I don’t think the miner will significantly improve this ratio over the coming quarters considering expectations for 2019 gold production and costs, unless the bullion brings its cumulative average above $1,325 an ounce. In such a scenario, it may make sense to add Iamgold to any portfolio.
So, as of today, I, along with six other analyts, recommending holding Iamgold Corp. Among the other analysts surveyed, one has a strong buy recommendation and six say buy.
The average target price of $7.65 per share is mirroring 138.3% upside from the closing price on Wednesday. The odds for such appreciation, however, is very low.
The average target is the result of 13 estimates ranging between a low of $6.25 and a high of $9.05.
Disclosure: I have no positions in any securities mentioned in this article.
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