Common Stock: Chesapeake Gold Corp. (TSXV:CKG)
Current Market Price: $3.74 CAD
Market Capitalization: $189.8 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Chesapeake Gold Stock – Summary of the Company
Chesapeake Gold is a precious metals exploration company focused on the acquisition, exploration, and development of gold and silver properties in North and Central America. Their major asset is the Metates project located in Durango Mexico. They also have several other exploration stage projects, mostly in Mexico and Nevada. Chesapeake Gold was founded in 2002 and is headquartered in Vancouver, Canada.
Revenue and Cost Analysis
Chesapeake does not have any properties that are currently producing and therefore does not have any revenue. The company consistently runs a net loss and is likely to continue to do so for the foreseeable future.
In 2019, the company had a net loss of $1.6 million, significant less than 2018’s net loss of $4 million. The company’s largest expenses are administrative, including share based compensation. Chesapeake did incur a small exploration expense of $264 thousand in 2019.
Chesapeake Gold – Royalty and Streaming Agreements
The Talapoosa property in Nevada is subject to a 1% net smelter royalty. The Cerro Minas property in Mexico is subject to a 1.5% net smelter royalty. Wheaton precious Metals owns a .5% net smelter royalty on the Metates project.
Chesapeake Gold – Mineral Resources
The Metates project is one of the largest undeveloped projects in the world. Based on the company’s pre-feasibility study, the property has “proven and probable” reserves totaling 18.2 million ounces of gold and 501 million ounces of silver.
Balance Sheet Analysis
Chesapeake Gold has a solid balance sheet with a strong liquidity position and low liability levels. The company has a significant long term asset base and given its current burn rate, should not need to raise significant capital in the short to medium term.
Chesapeake Gold – Debt Analysis
As of year-end 2019 the company does not have any debt outstanding. The company borrowed USD $9 million in 2019 to repurchase a 1% net smelter royalty, but the company has already paid off the loan in full.
Chesapeake Gold Stock – Share Dynamics and Capital Structure
As of year-end 2019 the company had 51.2 million common shares outstanding. They also have 5.2 million options outstanding. Fully diluted shares outstanding is 56.5 million shares.
Chesapeake has a capital structure that is acceptable for common shareholders. They have no senior debt outstanding and potential dilution is low.
Chesapeake Gold Stock – Dividends
The company does not currently pay a dividend and is unlikely to do so for the foreseeable future.
Management – Skin in the game
There has not been any relevant insider activity related to Chesapeake Gold stock recently, providing no signal for investors.
Chesapeake Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$8.6 million/ $96.4 million = .09
A debt to equity ratio of .09 means Chesapeake uses very little debt in its capital structure and relies mostly of equity financing to fund itself.
Price to Book Ratio
Current Share Price/Book Value per Share.
$3.74/$1.71 = 2.2
Based on fully diluted shares outstanding Chesapeake Gold has a book value per share of $1.71. At the current market price this implies a price to book ratio of 2.2, meaning the company’s stock currently trades at a premium to the book value of its assets.
Working Capital Ratio
Current Assets/Current Liabilities
$17.3 million/$2.1 million = 8.2
A working capital ratio of 8.2 indicates a strong liquidity position. Chesapeake should not have a problem meeting its short-term obligations.
Gold Market – Economic Factors and Competitive Landscape
Gold mining is a highly competitive, capital intensive business. The company will need to compete fiercely for both new projects and capital. However, given the current economic environment of global money printing and zero or negative interest rates, it would appear gold companies are poised to benefit from a strong economic tailwind.
Chesapeake Gold Stock – Summary and Conclusions
Chesapeake Gold has one of the largest undeveloped gold and silver assets in the world. They also have several other promising exploration stage projects. The upside for investors should the Metates property be brought into production is huge. The company is financially healthy and the capital structure is acceptable for common stock holders.
The major risks are development risks. The CAPEX to build the Metates mine is well over $1 billion. So, the question is if, when, and on what terms the mine will be build.
Given the scale and upside potential of the mine, I believe Chesapeake Gold stock is investable within a well-diversified portfolio of gold stock.
Disclaimer
This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.
This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.
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