The last time gold approached a price of $103 per ounce, Gerald Ford was in the White House, and Romanian gymnast Nadia Comaneci had just scored the first perfect scores of the modern Olympic era.
But unless you have a time-traveling DeLorean parked outside, you wouldn't expect to find an ounce of gold for sale today for anything less than the current spot price near $1,600 per ounce. That is, of course, unless you were to dig for investment gold among the mining industry's deepest bargains. I've already hailed the incredible bargain of Eldorado Gold (NYSE: EGO ) , but on the basis of a per-ounce valuation of gold assets in the ground, Eldorado's mid-tier rival IAMGOLD (NYSE: IAG ) may be a sweeter bargain still.
IAMGOLD produced more than 200,000 ounces of gold in the second quarter, and it recorded adjusted profit of $74 million that was 9% better than the prior-year period. Cash costs at mines operated by IAMGOLD remain slightly elevated at $641 per ounce, while the pair of mines operated by joint venture partner AngloGold Ashanti (NYSE: AU ) in the rather turbulent nation of Mali carried IAMGOLD's consolidated cost to $737 per ounce. After yielding $72.4 million in operating cash flow, the miner retains a pristine balance sheet with nearly $615 million in cash, cash equivalents, and gold bullion even after the recent $620 million acquisition of Trelawney Mining.
Fun with golden numbers
That major acquisition -- from which the vast majority of gold ounces added to IAMGOLD's resource base were of the less certain inferred category -- nonetheless warrants consideration within any comprehensive assessment of IAMGOLD's fair value. Inferred ounces often get a bad rap, but in the hands of a proven operator like IAMGOLD, a substantial portion of those resources will be destined to graduate through successive resource classifications into proven and probable reserves.
The beauty of IAMGOLD as a deep-value choice for gold exposure is that the stock is already dirt cheap on the basis of its proven and probable reserves alone! For IAMGOLD's proven and probable reserves of 13.3 million ounces, the enterprise value is just $238 per ounce. By zooming out to consider the entirety of IAMGOLD's global resource (the measured and indicated resource, plus the inferred resource) of 30.8 million ounces, you get a slightly different perspective of the stock's value proposition.
With an enterprise value of $3.16 billion, the market has seen fit to assign a value of only $103 for each ounce of gold in IAMGOLD's entire golden treasure trove. With a robust exploration budget of $157.3 million for 2012, I expect big chunks of that global resource tally to begin moving up the value chain, and I have no problem paying $103 per ounce in the ground while the company works to prove-up some of those 11.7 million ounces in inferred resources. Fellow gold bargain Eldorado Gold carries a corresponding global resource valuation of $172 per ounce in the ground. I consider Goldcorp (NYSE: GG ) an attractive bargain as well, but even at today's deeply impaired share price Goldcorp commands a global resource valuation of $253 per ounce!
Although calculating global resource valuations by no means offers a complete view of a miner's stock valuation, it does provide some very interesting perspective. And when I find a debt-free, dividend-paying operator like IAMGOLD with its gold hoard on sale for $103 per ounce, I can't help but to add to my long-standing position in the shares. I have maintained my bullish CAPScall on IAMGOLD since 2006, and I expect it will remain among my favorite picks in gold for years yet to come.
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