Calculating The Fair Value Of Alamos Gold Inc. (TSE:AGI)

Alamos Gold Inc. (TSE:AGI) is a Canadian-based gold mining company with a strong presence in both Canada and Mexico. As of January 5, 2025, the company's stock price was $19.17 USD, with a market capitalization of $8.05 billion. To determine the fair value of Alamos Gold, we can use the discounted cash flow (DCF) analysis, which involves estimating the company's future free cash flows and discounting them back to their present value.



Terminal Value Calculation
The terminal value (TV) is a crucial component of the DCF analysis, representing the value of all future free cash flows beyond the explicit forecast period. In the case of Alamos Gold, the terminal value is calculated as follows:

TV = FCF2034 × (1 + g) ÷ (r – g)

where:
- FCF2034 is the free cash flow in the year 2034,
- g is the long-term growth rate, and
- r is the discount rate.

Assuming a long-term growth rate (g) of 2.3% and a discount rate (r) of 6.7%, the terminal value for Alamos Gold is calculated as:

TV = $429m × (1 + 0.023) ÷ (0.067 – 0.023) = $9.8b

Present Value of Terminal Value (PVTV)
The present value of the terminal value (PVTV) is then calculated as:

PVTV = TV / (1 + r)10 = $9.8b ÷ (1 + 0.067)10 = $5.1b

Total Value or Equity Value
The total value, or equity value, is the sum of the present value of the future cash flows, which in this case is $7.8b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in a fair value of approximately $19.17 per share.



Sensitivity Analysis
To assess the robustness of the fair value estimate, we can perform a sensitivity analysis by changing the key assumptions. For example, if we assume a higher discount rate (r = 8%) and a lower growth rate (g = 1%), the terminal value and present value would decrease, leading to a lower fair value per share. Conversely, if we assume a lower discount rate (r = 5%) and a higher growth rate (g = 3%), the terminal value and present value would increase, leading to a higher fair value per share.

Conclusion
Based on the DCF analysis, Alamos Gold's fair value is estimated to be approximately $19.17 per share. However, it is essential to consider the sensitivity of the fair value estimate to changes in key assumptions, such as the discount rate and growth rate. Additionally, investors should stay informed about the company's fundamentals, market conditions, and potential risks to make more informed decisions.