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Defiance Silver Stock (TSXV:DEF) – Investment Analysis

Common Stock: Defiance Silver (TSXV: DEF)

Current Market Price: $ 0.98 CAD

Market Capitalization: $ 140.5 million CAD

**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.

Defiance Silver (TSXV:DEF) - Stock Chart
Defiance Silver (TSXV:DEF) – Stock Chart

Defiance Silver Stock – Summary of the Company

Defiance Silver is a precious metals exploration company focused on the acquisition, exploration, and development of precious metals properties in Mexico. The company was founded in 2007 and is headquartered in Vancouver Canada.

Revenue and Cost Analysis

The company does not own any properties that are currently producing and therefore does not have any revenue. They consistently run  a net loss and are likely to continue to do so for the foreseeable future.

For the fiscal year end June 30, 2020, Defiance Silver had a net loss of $1.3 million, a slight decrease from $1.4 million the prior year. Their largest expenses were compensation related, including share based compensation.

Total exploration expenses for 2020 was $ 862 thousand, which were capitalized.

Defiance Silver – Royalty and Streaming Agreements

Two of the company’s properties in Mexico, the Tepal property and the San Acacio property, are subject to 2.5% net smelter royalties.

Defiance Silver – Mineral Resources

The Tepal Gold Copper Project has a 2017 Preliminary Economic Assessment estimating

measured and indicated resources to be 4 million gold equivalent ounces.

Balance Sheet Analysis

Defiance silver has a very weak balance sheet with few assets and relevant amounts of debt, despite the fact the company has no revenue.

Defiance Silver – Debt Analysis

As of the fiscal year end June 30, 2020, the company has $1.2 million in total debt outstanding.

Defiance Silver – Debt Table

Defiance Silver Stock – Share Dynamics and Capital Structure

As of September 2020 the company has 186.7 million common shares outstanding. In addition they have 6 million options and 42.3 million warrants outstanding. Fully diluted shares outstanding is around 235 million shares.

Defiance Silver has a dilutive capital structure and investors should consider the effects of dilution before investing.

Defiance Silver 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

Insiders at Defiance Silver have been net buyers of the company’s stock in the recent past. This is generally viewed as a bullish signal by investors.

Defiance Silver Stock – 2 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

$2.1 million / $14 million = .15

A debt to equity ratio of .15 indicates that Defiance Silver relies mostly on equity financing to fund itself.

Working Capital Ratio

Current Assets/Current Liabilities

$ 642 thousand / $ 2 million =.31

A working capital ratio of .31 indicates a weak liquidity position. Defiance Silver may have problems meeting its near term obligations and investors should carefully monitor the company’s liquidity.

Gold and Silver Market – Economic Factors and Competitive Landscape

Gold and Silver 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 and silver companies are poised to benefit from a strong economic tailwind.

Defiance Silver Stock – Summary and Conclusions

I do not consider Defiance Silver stock to be investable. They are an exploration stage company with little exploration expense and debt outstanding. The company is in very poor financial health, and will need to raise additional capital to survive, to the detriment of existing shareholders.

Even if management can raise the capital needed to continue as a going concern, their prospects are weak. I would prefer to invest in more promising exploration stage companies such as O3 Mining.

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.

Patrick Flood, CFA

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