According to Bloomberg Businessweek, gold is in the 11th year of a bull market. Not since 1920 have we seen such an unprecedented winning streak. Many experts continue to see the yellow metal as a safe haven in a very unstable economic world. Where prices move from here is anyone's guess. What I do know is that investors interested in gold stocks look no further than Canada's Iamgold (NYSE:IAG).
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Gold Spread
As of October 12, the price of gold was $1,685 an ounce. Gold producers profit from the spread between what it costs them to acquire and extract proven reserves from the ground and the price people are willing to pay for that gold. Seeking Alpha suggests IAMGOLD's cost to buy its reserves based on market cap and the cost to extract those reserves is slightly less than $800 an ounce. This tells me two things. First, that IAMGOLD's profit margin on each ounce of gold it produces at present is theoretically 50%, although the true number is probably somewhat less. The second point, and the more important one, is why anyone would buy the physical asset when, in theory, it can be acquired for 50% less simply by investing in Iamgold. Even Goldcorp (NYSE:GG), Eldorado Gold (NYSE:EGO) and Yamana Gold (NYSE:AUY), whose market cap and extraction costs per ounce are higher; still present deep discounts to the metal itself. (For related reading, see How Gold Affects Currencies.)

Diversified Resources
Iamgold is more than its name suggests. It's not just a gold producer; it also produces niobium, which is used to strengthen steel while simultaneously lightening it, making niobium far more useful than gold could ever hope to be. Most importantly, steel production continues to rise and as such, niobium is in serious demand. Other potential contributors include copper, silver and diamonds, although gold is still the big workhorse. The company announced October 11 that it produced 222,000 ounces of gold in the third quarter, up from 188,000 in the second quarter. In terms of niobium, it produced 1.2 million kilograms in Q3 compared to 1.1 million kilograms in the prior quarter. It expects to have a strong fourth quarter with 2011 full-year gold production of at least 870,000 ounces, which means total revenues could be over $2 billion this year, its best ever.

Strong Balance Sheet
Iamgold, like most gold producers these days, is flush with cash. This is for two reasons. First, gold prices are at near-record levels. Secondly, in Q2 it sold its minority position in two gold mines in Ghana for gross proceeds of $667 million. Sitting with $1.2 billion in cash at the end of the second quarter and no debt, an acquisition, which has been its method of growth in the past, seems logical. In the second quarter conference call, CEO Steve Letwin suggested it's looking at gold producers with 2 million ounces in reserves and annual production of at least 150,000 ounces. Most importantly, it wants to own properties in countries it feels it can safely do business. This includes Canada, Surinam, West Africa, French Guyana and Colombia. Its long-term business plan is to own majority control of all of its mines in countries that present less political risk. It's hard to argue with this approach. Until it finds an attractive acquisition, it will continue to work on maximizing production and profits at each of its mines. (For more, see Gold: The Other Currency.)

The Bottom Line
Presidential candidate Ron Paul's owned Iamgold stock for many years as a hedge against inflation. It's hard to argue with the man that many consider the brightest of the candidates looking to represent the Republicans in the 2012 election.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing Basics

    Learn How To Trade Gold In 4 Steps

    Trading spot gold or gold futures, equities and options isn’t hard to learn, but the activity requires skill sets unique to these markets.
  5. Economics

    The Effect of Fed Fund Rate Hikes on Gold

    Explore the historical relationship between interest rate increases and the price of gold, and consider what effect a fed funds rate hike might have on gold.
  6. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  7. Investing

    Top Investment Banks In The Energy Industry

    Many global Investment banks are highly involved in the energy industry, but there are also some smaller banks and boutiques that are strong players.
  8. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  9. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  10. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!