An Aug. 22 research report by BMO Capital Markets reported that IAMGOLD Corp. (IMG:TSX; IAG:NYSE) "intends to complete an NI 43-101 compliant resource estimate at the [Saramacca] project in September 2017," after having released "a number of encouraging results" from drilling there, Kaip indicated.
BMO expects the numbers to be conservative, according to the report. "We are of the view that the resource, when announced, will be higher grade and potentially larger than the company's initial estimate, which we believe, despite the shares being up about 50% year to date, is not being fully reflected," wrote Kaip.
Upon modeling Saramacca as "a future contributor to Rosebel's production," BMO's calculations revealed possible upside for IAMGOLD, Kaip said. "Based on our initial development capital scenario of $75M and assuming 2.67 g/t gold across a 1.15 Moz resource, we see a 20% lift to our net asset value (NAV)/share estimate for IAG," he detailed.
BMO also expects the project to have "a declining all-in sustaining cost profile through 2020," Kaip said, which "will mean additional cash-generative ability for IAG on a corporate level" and "may support additional exploration at the Saramacca deposit, which remains open along strike and at depth."
Further, IAMGOLD is trading below its peers, Kaip pointed out. "Our NAV/share estimate for the company has increased by about 20%, to $5.48, from $4.65. As a result, price:NAV multiples for IAG have declined from 1.3x to 1.1x, placing it well below the average for both the large and medium producers of 2.1x and 1.5x, respectively," he described.
Consequently, BMO revised its stance on the mining company. "On the back of the increase to our NAV/share estimate, we are upgrading the shares of IAG to Outperform and increasing our target price to $7.50 (from $6)," stated Kaip.
The analyst reiterated the gold miner's recent history with the Saramacca acreage, which, he noted, "is sitting ~30 km southwest of the Rosebel mill and immediately southeast of the Sarafina property" in Suriname.
IAMGOLD, which entered into an agreement to acquire an interest in Saramacca in mid-2016, "made an initial payment of $0.2M," Kaip stated. It also paid "$10M on completion of due diligence" and one of three "tranches of 3.125M in common shares." The remaining share payments are due in December 2017 and December 2018. The Suriname government "holds a 30% interest in the joint venture," he added.
Kaip explained that BMO anticipates Saramacca will "serve as an important satellite with a short hauling distance and the potential to add higher-grade material at Rosebel and extend the mine life using existing infrastructure."
On Sept. 12, IAMGOLD will hold a tour of its Saramacca property and Rosebel mill, Kaip reported.
BMO Capital has an Outperform rating and $7.50 per share target price on IAMGOLD, whose stock is currently trading at roughly $5.76 per share.
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