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Why You Should Hold Iamgold

GuruFocus.com

Gold price outlook

Fears about a global economic slowdown related to the negative effects of the new coronavirus outbreak continue to push the gold price higher, breaking through $1,600, as the precious metal is considered a hedge against the risk of higher volatility and uncertainty.

The yellow metal rose 0.47% to close at $1,607.50 on the Comex gold futures market and 0.9% to $1,604.20 on the London bullion market on Wednesday. Year over year, the precious metal has gained nearly 20%.


Sluggish growth worldwide, as well as the threat of continuing trade conflicts, will serve as a catalyst for the commodity, which is forecasted to stand at around $1,640 to $1,645 per troy ounce within a year.

Iamgold

On the tailwind of a rally in the price of the metal, the stocks of its publicly traded producers will go up as well. So many of them represent opportunities for investors who are seeking ways to make a consistent profits out of the bullish sentiment that will prevail on the gold market.

One way to do so is by maintaining exposure to the rare earth metal through holdings in the Canadian mid-tier gold mining company Iamgold Corp. (NYSE:IAG). Its average target price of $4.07 reflects an impressive 31.3% return that can be achieved within a year.

Currently, the stock, which was trading around $3.15 as of Feb. 19, is not expensive as it is below the 200-, 100- and 50-day simple moving average lines and below the midpoint of the 52-week range of $2.28 to $4.17.

A price-book ratio of 0.63 versus the industry median of 1.49 also indicates the stock's market cap of $1.47 billion is not expensive.

In 2019, the Canadian minder produced 762,000 ounces of gold (down 13.6% from 882,000 ounces in 2018) from its mineral reserves located in Quebec, Suriname, Burkina Faso and Mali, supporting a cost of sales of $950 per ounce (up 16.6% from $815 per ounce in 2018).

The all-in sustaining cost per ounce of metal sold also grew 6.3% year over year to $1,124 in 2019, which, offsetting the positive effects from a 10% gain in the average realized gold price to $1,396, determined a lower gold margin of $489 per ounce versus $477 per ounce reported the year before.

2019 was full of challenges for Iamgold, which found itself having to solve a series of operating issues that occurred across its entire assets base during the year.

Thanks to proceedings that Iamgold received from forward gold sale agreements, however, the company was able to substantially grow the operating cash flow to more than $360 million, deliver robust free cash flow of $115 million and strengthen its overall financial condition.

The balance sheet had $865 million on Dec. 31, 2019, which should provide Iamgold with sufficient resources to focus on reducing operating costs and upgrade resources in Suriname and developing the Westwood ore deposit in Quebec. Total funds to allocate to capital expenditures are anticipated to be $315 million for 2020, of which 38% will be used for care and maintenance of existing mining activities and 62% for development and expansion projects.

Looking ahead to full-year 2020, Iamgold guides for attributable gold production of 700,000 to 765,000 ounces at total cash costs of $840 to $890 per ounce and all-in sustaining costs of $1,100 to $1,150 per ounce.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.