Harmony Gold Mining Co. (ADR) (HMY), Hecla Mining Company (HL): Two Miners to Buy and One to Sell

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One company to avoid

On the other hand, IAMGOLD Corporation (USA) (NYSE:IAG) is a company to avoid. The company’s financial position is rapidly deteriorating. Net cash has fallen from $1 billion during the first quarter 2012 to only $10 million during the first quarter of this year. At the same time, the company has only achieved a modest improvement of shareholder equity of about 3.4% although liabilities have exploded 83% in the five-month period. The company has been hemorrhaging cash to the tune of $250 million a quarter for the last five quarters and at this current rate, cash will be wiped out by the end of this year and the company will have to increase borrowing.

Moreover, the company is highly geared on an operational basis. A 14% fall in the realized gold price during the first quarter led to a 91% decline in net attributable earnings (on an adjusted basis this was a 37% decline). This decline was based on an average realized cost of $1,631; further losses could be round the corner. Indeed, IAMGOLD Corporation (USA) (NYSE:IAG)’s all-in cash costs are expected to be around $1,200 to $1,300 for this year, indicating that some of the company’s production could already be cash-flow negative.

Foolish summary

All in all, two out the three companies above look to be good plays on the currently undervalued mining sector  Both Hecla and Harmony have cash-flow positive operations and strong balance sheets, coupled with their low valuations and discount to book value, these companies appear to offer good reward for little risk.

IAMGOLD Corporation (USA) (NYSE:IAG), on the other hand, is rapidly going downhill and the company should be avoided based on its cash burn and collapsing earnings.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Two Miners to Buy and One to Sell originally appeared on Fool.com and is written by Rupert Hargreaves.

Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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