Food for thought! Let me give you two simple examples. At the end of Q3’23, the total shareholder equity was US$860M. The non-current assets were valued at US$1.2B, which included mineral properties, plant, and equipment. We expect this value to increase subsequent to the completion of mill and reserve expansions, as well as drill programs. The non-current liabilities were US$274M, which included debt and deferred revenue costs. The current liabilities were US$61M, including a portion of debt and deferred revenue. These particular non-current and current liabilities will inevitably be eliminated from the balance sheet, resulting in a new total shareholder equity balance of US$1.19B (new book value). The metals and mining industry, on average, has a price to book ratio of 4.33x. If you multiply the new book value (US$1.19B) by a number in the range of 1.0 - 4.33, you’ll see a value between US$1.19B - US$5.174B.
Fair value = (Total Shareholder Equity + Non-current Liabilites (debt and deferred revenue costs) + Current Liabilites (a portion of debt and deferred revenue)) X Price to Book ratio.
Here's another example. At the end of Q3’23, the company’s total gold reserves were 5.5M ounces, while the gross profit margin was 16.3%. If we multiply the total gold reserves by the current price of gold, then multiply by 0.163 (profit margin), and then subtract total liabilities, we should get a fair value which is a multiple of a dollar. As construction at Magino wraps up, production begins, and the company expands operations, costs and profit margins should change. They are expected to decrease and increase, respectively. In regard to the Magino reserves expansion program, the company anticipates that they’ll be able to convert ~2M resource ounces into reserves. We could estimate a future fair value by calculating a greater profit margin and a hypothetical new total of gold reserves of 7.5M ounces; if we multiply the hypothetical new total of gold reserves (7.5M ounces) by the current price of gold, then multiply by 0.20 (greater profit margin), and then subtract total liabilities, we should get a fair value which is a multiple of a dollar. As of Dec 31, 2023, Alamos Gold's total gold reserves were 11M ounces, while their gross profit margin was ~27%, and total liabilities were valued at US$1B; if we multiply the total gold reserves by the current price of gold, then multiply by 0.27 (gross profit margin), and then subtract total liabilities, we should get a fair value of ~US$5B. Alamos Gold's market capitalization is currently ~US$5B.
Fair value = (Total Gold Reserves X Current Price of Gold X Gross Profit Margin) - Total Liabilities.
This isn't financial advice, and it’s always recommended to consult with a financial advisor for accurate information.