Personal Finance

Why This Under-$6 Gold Stock Jumped 15% in June

Gold rocks

What happened

In a month when most gold stocks lost momentum along with gold prices following the Federal Reserve's second interest rate hike of the year, shares of IAMGOLD (NYSE: IAG) continued their winning streak and jumped a whopping 15% in June. The gold miner's stock is now up almost 30% year to date as of this writing.

So what

Investors in IAMGOLD had already been impressed with the strong first-quarter numbers it announced in May; then, the miner gave them yet another reason to cheer last month by announcing it had sold a 30% stake in its Cote Gold project to Japan's Sumitomo Metal Mining Co. for roughly $195 million.

That's a significant development for IAMGOLD for a couple of reasons. First, the miner has struggled to get production underway at Cote since acquiring it in 2012 for a steep price of $608 million. At the time of the purchase, management said it hoped to start production in five years, but that hasn't happened. Having a partner now to share the capital expenditures involved in develop the mine should prove helpful.

Gold rocks

Image source: Getty Images

Second, if Cote's reserve estimates are anything to go by, it should add significant value to IAMGOLD in the long run. The company estimates that, at full capacity, the Cote project's average annual production will be 320,000 ounces of gold. For perspective, the miner produced 813,000 ounces of gold total in 2016.

Now what

IAMGOLD's joint venture with Sumitomo is yet another addition to the list of aggressive growth moves it has made in recent quarters. In May, IAMGOLD reported a 12% year-over-year jump in gold production and a 7% drop in its all-in sustaining costs (AISC). That came after a strong 2016 in which IAMGOLD earned $3.9 million in adjusted net income from continuing operations versus a loss of $170 million in 2015 as its gold production grew marginally and AISC declined 5%.

The miner also reiterated its full-year outlook in May, saying it expects its gold production to grow nearly 6% at the midpoint this year from 2016 levels, as it aims to double production at Westwood -- one of the three mines it owns and operates, and where it aggressively ramped up output last year.

My only concern is that by some valuation measures, IAMGOLD is still among the costlier gold miners in the industry, and I want to see if it can accelerate, or even maintain, its bottom line. At a price-to-cash-flow ratio of under 7 though, IAMGOLD is trading at a substantial discount to its five-year and industry average P/CF. So I wouldn't be surprised if IAMGOLD, which was among the top gold stocks of 2016, is a winner again in 2017.

10 stocks we like better than IAMGOLD

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and IAMGOLD wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 5, 2017

Neha Chamaria has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More