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Why IAMGOLD Corporation Stock Soared 51% in 2017

By Scott Levine - Jan 16, 2018 at 1:02PM

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This gold miner ended 2017 a lot more lustrous than it was when the year began.

What happened

Shares of IAMGOLD Corporation (IAG 2.25%), a leader in gold mining, soared 51% in 2017, according to S&P Global Market Intelligence. Besides gaining favor on Wall Street, progress with a development project and improvements in the company's finances provided investors with several reasons to celebrate.

So what

Building on the momentum it picked up in 2016, when analysts upgraded the stock six times, IAMGOLD received five upgrades from analysts in 2017. Of all the bullish sentiment exuded by the Street, investors, perhaps, found the most compelling rating change from Credit Suisse. Whereas it had downgraded the stock to underperform in January, Credit Suisse upgraded it to neutral only four months later.

Several glittering gold bars lie next to each other.

Image source: Getty Images.

In terms of the company's future, IAMGOLD inspired optimism when it announced positive results from a pre-feasibility study (PFS) for the Cote Gold Project. According to the study, the project has a mine life of 17 years and will average annual gold production of 207,000 ounces. With all-in sustaining costs (AISC) of $689 per gold ounce, the project is expected to provide -- with gold priced at $1,250 per ounce -- a 14% internal rate of return after taxes.

Another positive aspect of the PFS for Cote Gold is the fact that it adds 3.8 million gold ounces to IAMGOLD's reserves. Combined with the updated gold reserve figure at Rosebel -- an increase of 80% -- IAMGOLD's attributable gold reserves now stand at 13.2 million ounces, representing a 69% increase over the 7.8 million ounces it reported in December 2016.

Turning to the company's financials, investors found various reasons to celebrate throughout the year. In the first-quarter earnings report, the company reported AISC of $992 per gold ounce -- a 8% year-over-year improvement. Successfully reducing costs, in part, contributed to improving profitability. In the Q2 2017 earnings report, for example, IAMGOLD reported a gross profit of $71 million through the first half of fiscal 2017, representing a 129% increase over the same period in 2016. Pleasing investors further, the company reported $157 million in operational cash flow through the first half of the year, representing a 29% increase over the same period in 2016. And in the third quarter, IAMGOLD lowered its fiscal 2017 AISC guidance $40 per gold ounce at the upper end of the range; consequently, management now expects fiscal 2017 AISC per gold ounce between $1,000 and $1,040. If the company achieves the midpoint of this guidance, it will represent a 3.5% reduction over the $1,057 AISC that IAMGOLD reported for fiscal 2016.

Now what

Undoubtedly, bullish sentiment from the Street can boost shareholders' confidence. However, it should often be taken with a grain of salt, since analysts usually consider stocks within shorter time horizons. In addition, replenishing gold reserves is essential for any gold miner's success, and the 69% increase in IAMGOLD's gold reserves compared to December 2016 indicates that the road into IAMGOLD's future may be paved with yellow brick. The crucial thing for investors to monitor is whether IAMGOLD is successful at executing the development of the Cote Gold project.

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