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.
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.
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.
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.
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