Does the Latest Decline in IAMGOLD Corp. Signal a Buying Opportunity?

The price of gold has hit its lowest level in more than a month, dragging down Canadian gold miners such as IAMGOLD Corp. (TSX:IMG)(NYSE:IAG). The company’s shares have fallen 20% more than some of its industry peers.

| More on:
The Motley Fool

The price of gold has fallen to its lowest level in more than a month following comments from the U.S. Federal Reserve about increasing interest rates. This has dragged down Canadian gold miners, including IAMGOLD Corp. (TSX:IMG)(NYSE:IAG). The company’s shares have declined by approximately 50% since early August–about 20% more than some of its industry peers.

Gold prices have been fluctuating between $1,320 per ounce and $1,370 per ounce since late June, but gold is up almost 30% from its 52-week low in late 2015. Some industry experts were anticipating a gold rally if the U.S. Fed signaled more of a delay in raising interest rates. Judging from the Fed chair Janet Yellen’s speech last week, it sounds likely that an interest rate increase will occur this year.

To help bolster IAMGOLD’s position in the face of fluctuating gold prices, management has taken significant steps to improve the company’s liquidity by issuing additional equity to pay down outstanding debt. The latest offering of common shares was fully subscribed by a syndicate of lenders who agreed to purchase 38.85 million common shares at a price of US$5.15 for total proceeds of approximately $200 million.

A majority of the gross proceeds from the sale will go towards paying down $150 million of its outstanding senior notes, and the remainder will go to various growth projects. One of these projects is its Cotes Gold deposit. The company owns 93%of one of Canada’s largest undeveloped deposits located in northeastern Ontario. It is estimated the site contains over 8.3 million ounces of gold.

The project has received favourable approval from the minister of environment and climate change, who said it’s unlikely to cause significant adverse environmental effects. Approvals and permits from the environment, fisheries, and natural resource departments are pending. IAMGOLD is currently reviewing the project construction and operation options, including sizing of the process plant and mining operation.

The price of gold will remain the determinate factor with regard to the pace of development and construction of this facility. The project may be less accretive than some of its South American or West African facilities; however, being located in Canada reduces a substantial amount of political risk that could affect operations.

Management has also taken significant steps to improve the company’s financials. The company’s debt-to-equity ratio is approximately 30%, which is significantly lower than a number of its peers. The company realized 125% growth in its net operating cash flow and 36% growth in its gold margin year over year. A good portion of these gains can be attributed to rise in gold prices; however, management has also taken steps to reduce the company’s operating costs by 11%.

Private equity should start taking notice of management’s actions to improve liquidity, costs, and the company’s pipeline of development projects. Once they are comfortable with the company’s share price, investors could see some bullish activity in the stock.

The bottom line is, investors will still continue to flock to gold stocks as way to hedge against any negative sentiment in the market. Considering the uncertainty over the U.S Fed policy, U.S. elections, and talk about stagnating global growth, the near-term outlook for this stock is positive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Scott Brandt has no position in any stocks mentioned.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »