IAMGOLD Will Make You Golden

There are one-hit wonders, and then there are those stocks that get hit only to come back for bigger and better gains in the future.

Who falls where takes more than just looking at a stock's price, so the fact that mid-tier gold miner IAMGOLD (NYSE: IAG  ) has lost more than a quarter of its value over the past month after releasing its earnings means we need to dig a little deeper to see whether there's any reason we can hope for a recovery.

A mighty temblor
On the surface it would appear not. Third-quarter results show IAMGOLD missing analyst earnings expectations by wide margins. Production was lower, grades were lower, and more of the same can be expected in 2013. It's moving into harder ores at certain mines, meaning it will face greater challenges in meeting its ambitious goals while its expansion plans in Suriname and Burkina Faso have been going slowly. It's a sobering look at what the gold miner faces.

Yet scratch a bit below the surface and we can identify opportunities that ameliorate the pallor its earnings report cast on the stock.

Joint pain
Much of the gap IAMGOLD suffered in the expectations department can be attributed to AngloGold Ashanti's (NYSE: AU  ) disappointing performance in Mali where the Sadiola joint venture was beset by severe weather and processing issues. While the economics of the project are enticing, at least for IAMGOLD -- it recently signed agreements with the Malian government for power purchases that should lower costs by 50% -- Anglo is not so hot to trot on the deal. Not that Anglo doesn't like its potential, but it's had a rough road to travel itself: facing strikes in South Africa, losing $250 million in cash flow, and slashing its dividend in half.

Yet it's situations like that that are causing IAMGOLD to continue moving closer to an operator-owner model. Currently, about 85% of its production follows from that model and tends to include its best-performing assets. IAG has reached three-quarters of production goals and has lower cash costs of $627 an ounce. In its joint ventures, like the Sadiola and Yatela projects with Anglo, production is at the low end of guidance and its cash costs are at the high end of estimates.

IAMGOLD also has joint ventures with Randgold Resources (NASDAQ: GOLD  ) , Merrex Gold, and Strongholds Metals.

Becoming an owner-operator has gained a following among a number of miners, as it gives greater control over labor and expenses. Gold Fields (NYSE: GFI  ) recently made the move at its St. Ives mine in western Australia in a bid to bring operations closer to those it experienced at its Agnew mine, while Banro (NYSEMKT: BAA  ) did the same thing in the Congo to reduce costs.

Money to burn
IAMGOLD still has a huge bankroll of $1.14 billion in cash and equivalents, and it should be able to maintain financial flexibility as it lowers costs through lowering its capex plans as well as bringing more costs under its control through the owner-operator model.

Then there's the added benefit of its niobium operation. Niobium is a strategically important metal because of its uses in the nuclear, defense, gas distribution, automotive, aerospace, and electronics industries. Currently Brazil's Companhia Brasileira de Metalurgia e Mineraca produces 80% of the world's supply of niobium and, because of its properties as a steel strengthener, a consortium of Chinese companies just bought a big stake in the miner to gain access to the metal. CBMM may call the tune on pricing, but IAMGOLD can go along for the ride. It also has a bevy of rare-earth elements it can throw into the mix.

At less than nine times earnings estimates, it seems the market has written off a good chunk of the miner's potential, but I see IAMGOLD digging itself out this hole and shining once again.

Another shining miner is Goldcorp, one of the leading players in the gold mining market. For the last several years, investors have been the beneficiaries of several successful acquisitions and strong organic growth. Goldcorp's low-cost production of one of the most sought-after metals in the world continues to make them an attractive choice for long-term investors. Click here for our detailed report to discover more about this mining specialist.


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