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

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »