IAMGOLD: Expect a Move Higher

IAMGOLD Corp (IAG) is a Canadian based mining company that participates in worldwide exploration and development of mineral resources and produces roughly 1 million ounces of gold annually from eight property locations on three continents: North America, South America and Africa. The company boasts the largest cash flow ratio on investment in the entire industry and is second among top mining companies in terms of achieving earnings per $1000 invested. Revenue, adjusted net earnings and cash flow have all risen sharply through the first 9 months of 2008.

IAG MAINTAINS STRONG FINANCIAL POSITION

Given recent concerns about the economy and in particular, debt and leverage, stocks which are most likely to attract investor attention are those of companies that have bullet proof balance sheets, stable or growing cash flow and access to capital. IAG is a gold star candidate, with a low Debt/Equity Ratio and recent liquid assets as published in their 2008 TWP Presentation document as follows:

• CASH and CASH EQUIVALENTS – $153 million
• GOLD BULLION (at market value) – $154 million
• 5-YEAR UNDRAWN CREDIT FACILITY - $140 million
• TOTAL FUNDS AVAILABLE - $447 million
• YTD 9 MONTH OPERATING CASH FLOW - $189 million

GOLD PRODUCTION/GEOGRAPHIC DIVERSIFICATION – This company produced 253,000 ounces, a 5% increase in the latest quarter. They are on track to produce 950,000 ounces in 2008. Production costs are $476/ounce slightly below the estimated $480-490 range. Geographic diversification is another important factor for investors. IAG has production at 8 different facilities which breaks down as 51% (Africa), 30% (Suriname) and 19% (Quebec). Its current goal is to double total production to 1.8 million ounces in 2012.

RESERVES and RESOURCES

IAMGOLD Acquires 71.6% of EURO RESSOURCES S. A. (EUR.TO) for $1.20 / Reopens Offer

On December 3rd, IAMGOLD Corp announced results of its $1.20/share tender offer for French company Euro Ressources S.A. That company’s principal asset is a 10% royalty interest in the Rosebel Gold Mine in Suriname which is operated by IAMGOLD. This mine which is estimated to have 10 million ounces, achieved record throughput and the $44 million expansion and optimization project in on target for completion in early 2009. According to the CEO of IAMGOLD, this strategic purchase will reduce cash costs by about $45 per ounce produced at this specific property.

With the recent decline in the foreign exchange rate of the Euro currency, IAG was able to move quickly to purchase Euros and lock in the transaction cost at an average rate of 1.27, approximately 15% below the 1.47 exchange rate the date they announced the deal. Regulations require the offer be reopened for an additional 10 days at the same price, until December 17th.

IAG STOCK - Recent Price Activity

Typical of most mining stocks, IAG has been in a steady downtrend over the past year. Shares were banging around $10 when the year began and then gradually declined. The price stair-stepped its way down, spending time in each support zone before breaking down to the next area where buyers would regroup. The $5-6 range held from April through most of September, and then when financial markets cracked the price tumbled hard and fast to print a recent new low around $2.22 a share. Shares have been trending modestly higher since hitting their lows, and it’s possible we could see a new pattern of higher lows and higher highs on a recovery.

Given its outstanding balance sheet and strong positive cash flow, downside investment risk is small. Technical patterns indicate a high probability for shares to move up into their recent congestion zone between $5.50 and $6.50, where there will be overhead supply to work through before the stock could continue higher. As with all mining stocks, performance relates directly to how the underlying precious metals perform, so it’s critical that gold move in either a sideways manner where mining stocks can consolidate and base build or trend modestly higher. Or, if the gold market can rally strong, there is no doubt shares of mining stocks will also rise nicely.

Based on a multi-decade chart of gold, there is reason to believe a move higher is not far off. A more detailed discussion of the technical outlook for gold is available in a published report at TheWinnersForum.com - Cutler's Stock Market Blog.

OTHER FUNDAMENTAL FACTORS - Considerations for Investment

UNDERVALUED MARKET VALUATION VERSUS PEERS – The slide in the share price to below $4 now values the entire company at $1.2 billion, which is now only 1.5x trailing 12-month revenue, far below industry peers. To compare: Agnico-Eagle Mines (AEM) trades at 10x, Kinross Gold (KGC) trades at 6.5x, Newmont Mining (NEM) trades at 2.2x and Barrick Gold (ABX) trades at nearly 3x revenue.

RECENT ACQUISITION OF DOYON ROYALTY – In July, with a focus on reducing cash costs, the firm acquired the participation royalty in the Doyon/Westwood Property located in Quebec from Barrick Gold for $13 million. The acquisition eliminated royalty payments which was 25% of gold prices above $375 an ounce. The savings was about $140 an ounce. The participation royalty also extended to the Westwood Development Project, about 2 kilometers from the Doyon mine. Westwood production was also freed from royalty obligations.

Other Mining Activities / Projects

Niobium Mine in Quebec – Through its Niobec Mine in Quebec the company mines a lesser known metal called Niobium. Originally known as Columbium, this 41st element is a paramagnetic metal which has a high melting point and low density. One of its noteworthy characteristics is that it is corrosion resistant. It has superconductivity properties. It is used as an alloy in the steel industry because it increases the toughness strength and weldability of steel. It is also used in producing commemorative coins. According the company, the addition of $4 of niobium can reduce the weight of mid-sized cars by 100kg which save .05l/100 km in fuel consumption. It is also used in construction and land based turbine and jet engines. They company forecast to produce 4300 tons in 2008.

Quimsacocha gold Project in Ecuador – A new constitution took effect in Ecuador in October which received 64% of a referendum vote. This is a positive development that will enable a new mining law to allow responsible mining in the country. The 100% owned 3.5 million ounce Quimsacocha Project will complete its feasibility study in 2009.