BofA flags Iamgold, New Gold as benefiting most from gold price spike

Bank of America Securities has flagged Iamgold (TSX: IMG; NYSE: IAG), New Gold (TSX: NGD) and Kinross Gold (TSX: KGC) as having the most torque, given gold’s 6% surge to US$1,982 per oz. on Mar. 10, a report noted Monday.

Gold miners with a higher cost base and those with more debt relative to net asset value on the books had the greatest torque to rising prices, argues research analyst Lawson Winder in the bank’s Precious Metals Weekly note.

It ran a sensitivity analysis for producers and found it was mainly driven by the cost base. For example, higher cost producers offer more torque as they benefit from the most margin expansion in an upswing in gold prices, the analyst wrote.

He also pointed out that financial leverage was a key sensitivity in a rising price environment, since producers with higher levels of debt (enterprise value with a higher component of debt) also offered more torque to the gold price. Using NAV and EBITDA, BofA provided an indication of the gold price sensitivities across its coverage universe.

Based on its 2023 EBITDA estimates, Iamgold offers the greatest sensitivity with a 10% increase in gold price driving a 35% increase in EBITDA. This is due to the mid-tier’s high-cost base, said Winder.

Similarly, New Gold and Kinross Gold’s 2023E EBITDA increase 25% for a 10% increase in the gold price – both also high-cost producers.

On the flipside, royalty and streaming stocks offer the least sensitivity to a rising gold price, according to BofA, owing to the limited operating costs associated with the business model (no cost on royalties, typically low fixed costs on streams).

The miners’ equity has been on the move over the past five days. Iamgold shares last traded at $3.48 apiece, up 7.4% for the past five trading days, while that of New Gold is up 8.5% and Kinross is up 11% as of market close Monday.

M&A for reserve replacement

BofA also commented on B2Gold’s (TSX: BTO; NYSE: BTG) $1.1 billion acquisition of Sabina Gold & Silver (TSX: SBB; US-OTC: SGSVF), underlining the traditional value of senior miners using mergers and acquisitions to replenish dwindling reserves and resources.

Last week, B2Gold reported updated reserves and resources indicating a 15% year-on-year drop, reflecting mining depletion. The measured and indicated resource base also declined, though this was more muted at Fekola, in Mali, which saw benefits from regional consolidation and near-mine exploration activity.

B2Gold’s update excluded reserves and resources to be gained through the acquisition of Sabina and Winder calculates that proforma for the acquisition, expected to close by June, that B2Gold would have reserves of 8.9 million oz., and M&I resources of 20.9 million oz., and inferred resources of 8.3 million oz., reflecting a 68%, 43% and 52% increase than B2Gold’s existing reserves, therefore demonstrating the benefits of M&A.

B2Gold shares are up 5% over the past five trading days at $5.08.