Shares of gold miner Iamgold (IAG +2.41%) rallied as much as 8.4% on Monday, before settling into a 5.7% gain as of 2:16 p.m. ET.
Not only were gold prices up slightly on top of an extremely strong first-half performance today on geopolitical news, but Iamgold also made a positive company-specific announcement regarding its new Cote Gold mine in Canada, which started operations 15 months ago.
NYSE: IAG
Key Data Points
War and escalation usually leads to higher gold prices
Gold is often thought of as the classic store of value in case war or severe supply shocks shake the world -- although Bitcoin (BTC +4.32%) is emerging as a potential alternative as "digital gold." Still, gold still seems to have its luster -- as this year's Trump administration tariffs have threatened to escalate into full-on trade wars, gold has had a fantastic run, up just over 30% year to date.
This past weekend's U.S. bombing of Iran's nuclear facilities has certainly increased geopolitical risks and escalation, which led to gold appreciating mildly today, up about 0.41% as of this writing on top of an already-strong year.
Specifically for Iamgold, the company also put out a press release disclosing that its Cote Gold mine's processing plant had reached nameplate capacity of 36,000 tons per day just 15 months after the commencement of operations.
CEO Renaud Adams said in the release:
To bring a gold project from first gold to the design nameplate rate within this time frame, while ensuring a safe workplace for all, exemplifies the commitment to excellence and accountability that is at the core of Iamgold today... The achievement confirms our confidence in the Côté Gold production guidance of 360,000 to 400,000 ounces on a 100% basis, with costs expected to decline through the year.
Image source: Getty Images.
Iamgold looks cheap, but miners have this risk
Today, Iamgold trades at a mere 5 times trailing earnings, which looks astoundingly cheap. However, investors should keep in mind that miners such as Iamgold have lots of fixed costs, and therefore generate huge profits when the end price of whatever commodity they sell goes up.
At the same time, if gold prices were to fall, Iamgold and others would see profits fall by an even greater percentage. Last quarter's all-in sustaining costs for Iamgold's Cote mine were $1,643 per ounce, while the price of gold has appreciated from $2,633 to $3,340 this year.
Therefore, gold miners are more like leveraged bets on gold prices, offering more upside but also more downside than owning the commodity outright. That makes gold miners potentially better for portfolio-hedging purposes than owning gold. And when one sees strong execution, as Iamgold displayed today, that's an added bonus.
