I think it’s about time to refresh a contentious issue often raised on these boards regarding “book value”. In many industries (stock sectors) book value is a legitimate way to assess stock fair value. Earnings can fluctuate affected by short-term economic conditions. Market cap can fluctuate affected by short-term market conditions. Book value is supposed to be stable reflecting inner wealth of the company: real assets.
Unfortunately, mining companies are specific. Their real asset is not in real estate, buildings, equipment, intellectual property, etc. presented in book value as it is defined by accounting standards. The main asset of a mining company is ore deposits (aka metal in ground), something that will be processed in future generating revenues and earnings. This mineral asset is not included in accounting assets (balance sheet items) and accordingly it is not part of book value.
This disconnection between mineral assets and accounting assets create feeding ground for confusions that can be biased to both directions, positive and negative. Sometimes, company can have great mineral assets and very small book value; it just made great geological discovery that is not developed yet. In other cases, company can spend big money developing poor mineral assets thus magnifying book value while still having poor mineral value.
I would like to add here that mining company “fair value” is a complicated issue that cannot be squeezed in one message. This message just covered small fringe of the issue.
As you can see by my post I was referring to "Book Value" which for IAG at present is under the sectors (Basic Material) 22.81 average while IAG is 9.9 which as you know does not include mineral assets. IAG currently has 813.50 million in cash with low debt to assets. The only thing I abhor in companies is "goodwill" and IAG has reported 256 million of which, myself I always subtract from the entire balance sheet. My closing point is that taking everything into consideration and comparing apples for apples IAG is a buy that will outshine others in months ahead. One last point when gold was 400 to 600 dollars an ounce IAG was selling at these levels up to over 10,00 per share,
I feel obliged to give few more comments regarding your points.
Firstly, your message misses the main thing about “book value”; it is not representative for mining stocks. It doesn’t reflect true value of the mining company (can exaggerate or diminish) and accordingly it can’t be used, especially in exclusive way, for valuation purposes.
Secondly, your message is not quite correct saying that IAG has low debt. IAG’s debt is $639M. it is not something that could be paid easily using operating cash flow, even if the latter could be used for this purpose now. Please note that debt will exceed cash at the end of this year in any scenario, i.e. for any reasonable gold price range (e.g. no higher than $1800).
Thirdly, the argumentation about past gold prices (lower than now) while share prices were higher than now is misleading. It omits simple consideration/fact: when gold price was low, let say $500, gold producers exploited different ore deposits (with much higher quality). When gold price went up, it created opportunity to bring in many new deposits of lower quality requiring much higher gold price just to break even.