Can A Low-Priced Gold Stock Actually Sell Below Book Value?

| About: IAMGOLD Corporation (IAG)

Summary

Many analysts are now saying that we are in a bull market for Gold and Silver.

Precious metal stocks are the best way to play the exploding market.

Many low priced gold stocks have double or tripled. But one is still cheap and selling below its book value.

Here is a list of Gold stocks showing their recent price and book value per/share.

Symbol Quote Book Price/share Symbol Quote Book Price/share
PAAS $18.36 $8.54 FFMGF $0.71 $0.27
FCX $10.89 $2.95 GBGDF $0.49 $0.23
GFI $5.48 $3.40 PGLC $4.70 $1.67
SLW $25.61 $10.35 VGZ $1.77 $0.32
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I could go on and on but I think you get the gist. These stocks are speculative plays on the price of gold and all of them sell at a premium to what they are actually worth should they be liquidated. Wouldn't have been nice to catch them before they increase so much in premium? If you had, you would be sitting with some great profits right now, some as high as 3 times book value! Well, maybe you will get a second chance at buying a mature gold stock that is still selling below its book value.

IAGOLD, Corp. (NYSE:IAG), as of Thursday's close was selling at $4.58 and its book value is $4.90/share. That means that if the company were liquidated today, you might not lose a penny.

Investopedia says that "Book value is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. By being compared to the 'market value', the book value can indicate whether a stock is under- or overpriced."

Now, preferred shareholders and creditors are paid off first in a liquidation and, then, what is left over belongs to the shareholders. But, IAG has no preferred shareholders according to its balance sheet (via Yahoo Financial Reports) and its debt is just about covered by its cash on hand. Now there is one more potential problem with a company's real book value. 'Goodwill, Intangible Assets and Amortization' are part of its makeup. But, as you see from the excerpt from IAG's balance sheet below, none of these things are shown to have any value for the past 3 years (Represented by a "-"). To be fare, we do not know what the company might change in its balance sheet in the future concerning these items, but we are dealing with the present and right now. If the other stocks in this category are worth as much as 3 times their book values, then we can conclude that IAG will not remain at this low price.

Assets 12/31/2015 12/31/2014 12/31/2013
Current Assets $548,000.00 $158,500.00 $222,300.00
ShortTermInvest. - Net - - -
Receivables $82,600.00 $55,700.00 $117,200.00
Inventory $321,300.00 $342,000.00 $397,100.00
Other Current Assets - $628,500.00 -
Total CurrentAssets $951,900.00 $1,184,700.00 $736,600.00
Long Term Invests. $91,700.00 $123,800.00 $97,100.00
Property Equipment $2,008,900.00 $2,697,700.00 $3,053,700.00
Goodwill - - -
Intangible Assets - - -
Accumulated Amortiz. - - -
Other Assets $198,900.00 $216,600.00 $229,000.00
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Background Information from Yahoo! Finance:

"IAMGOLD Corporation explores for, develops, and operates mining properties in North and South America, and West Africa. The company explores for gold, copper, zinc, and silver. The company owns interest in the Rosebel gold mine located in north eastern Suriname, South America; Essakane gold mine in north-eastern Burkina Faso, West Africa; Westwood gold mine southwestern Québec, Canada; and Côté gold development project located to the southwest of Gogama, Ontario. It also holds interests in various exploration projects, including Boto gold project in eastern Senegal; and Pitangui project located in Brazil. IAMGOLD Corporation was incorporated in 1990 and is headquartered in Toronto, Canada."Background Information from the Yahoo Finance profile page:

The market cap for IAG is $1.8 billion and I quickly noted that its enterprise value is almost the same. This means that they either have little debt or have the debt covered by cash. For IAG, the latter is true. They have debt of about $629 million but are sitting on $587 in cash. I like a company that manages its debt and leaves plenty of room for increasing its debt if good buys come along. It trades about 10 million shares per day and, even though it is only a $4+ stock, it also has OPTIONS with enough 'open interest' to be viable. This is big, because, if you trade options and you want to leverage your position, you can go long call options and can control the same amount of stock while paying and risking much less money. The chart below shows that the stock has been moving up with only 3 minor corrections since the beginning of the year. Even with the last 2 corrections, the stock never dropped below the 50 day moving average (in blue) and the 50 day has been above the 200 day moving average (in red) since the beginning of May.

Analysts galore are now saying that we are in a bull market for gold and that this is just the beginning. You should be investing in gold now and, in my mind, there is no better way to get started than with IAMGOLD.

Disclosure: I am/we are long CALL OPTIONS IN IAG AND OTHER G&S STOCKS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.