At market open on Tuesday in the US, Toronto based IAMGOLD Corp (USA) (NYSE:IAG) could be had for a little over $2.8 a share. By market close, the company had traded up to $3.12 – a close to 10% gain across the period.
The gains come on the back of a surge in gold prices. The yellow metal started the day just ahead of 1225 per oz. It will kick of Wednesday’s session at $1250, having corrected from Tuesday intraday highs of $1256. Those who have been tracking the gold space across the last twelve months will be aware of the recent resurgence, and the collateral impact this resurgence has had on companies associated with the space. Low prices have had even the incumbents – Barrick Gold Corporation (USA) (NYSE:ABX), Newmont Mining Corp (NYSE:NEM), among others – struggling to remain profitable on every ounce drawn from the ground, and capital inflow had all but dried up before the start of 2016. This weighed on expansion, and in particular, junior explorers such as IAMGOLD.
For those not familiar with the company, it’s an exploratory miner with projects across North and South America, as well as some smaller efforts in Africa. Just has been the case across the industry, it’s down heavily on 2011 highs – currently trading at an 87% discount to its April, 2011 top.
The key thing to watch for going forward is the price of gold. If gold remains up, then company’s such as IAMGOLD should be able to raise capital to fund their exploratory efforts. If not, there’s considerable risk of insolvency – especially at this end of the market. The company had just $548,000 cash on hand at the end of 2015, and a total $951,000 current assets. With an annual net loss in excess of $750,000 across 2015, and revenues just shy of $1 million, the company will need a cash injection going forward. This holds dilutive risk for current shareholders, and any that take a position ahead of financing.
Having said this, and taking the current discount into consideration, the company looks attractive as a speculative holding as part of a balanced, wider portfolio. One to keep an eye on as we head into earnings season.
DISCLAIMER: There is a substantial risk of loss with any speculative asset, especially small cap stocks. The opinions expressed are those of the author, and do not constitute recommendations to buy or sell a stock. Do your own research before committing capital.