Common Stock: Orefinders Resources (TSXV: ORX)
Current Market Price: $.15 CAD
Market Capitalization: $22.5 million
**Note: All values in this article are expressed in Canadain Dollars (CAD) unless otherwise noted
Orefinders Resources Stock – Summary of the Company
Orefinders Resources is a gold exploration company focused on the acquisition and exploration of gold properties, mainly in the Abitibi region of Canada. They own several exploration stage projects which they are actively exploring. The company also owns 40% of Pacific Precious, a Canadian company that owns 100% of the Kuta Ridge exploration project in Papua New Guinea.
The company was founded in 2011 and is headquartered in Toronto, Canada.
Revenue and Cost Analysis
Orefinders Resources does not have any producing properties, only exploration stage projects. Therefore, the company does not have any revenue and consistently runs a net loss.
The company had a net loss of $1 million in the fiscal year 2019, which matched its total operating expenses of $1 million. Their largest expenses are compensation expenses including share based compensation, followed by exploration expenses.
Orefinders Resources – Royalty and Streaming Agreements
The Mirado Property has a 3% net smelter royalty attached. The Knight property has net smelter royalty’s attaches ranging from 2% to 4%.
The company’s Gold Hill project and McGarry project also have royalty’s attached.
Orefinders Resources – Mineral Resources
The Mirado property has estimated “Indicated and Inferred” resources of 46,900 and 32,700 ounces of gold respectively,
Balance Sheet Analysis
The company has an acceptable balance sheet with sufficient liquidity and low liabilities.
Current assets totaled $1 million at the end of fiscal year 2019. Current liabilities were also $1 million.
Orefinders had total assets of $2 million. It has a long-term investment in an associate valued at $1 million. It has no long-term liabilities.
Orefinders Resources – Debt Analysis
The company does not have any debt.
Orefinders Resources Stock – Share Dynamics and Capital Structure
As of February 2020, the company had 159 million common shares outstanding. They also have 10.8 million options and 20.9 million warrants outstanding. Fully diluted shares outstanding is 191 million.
Although Orefinders has no debt, their capital structure is dilutive. Investors should consider their place in the capital structure and the effects of dilution before investing.
Orefinders Resources Stock – Dividends
The company does not pay a dividend and is unlikely to do so for the foreseeable future.
Management – Skin in the game
Over the past several years insiders have been net buyers of Orefinders stock. This is generally viewed as a bullish signal.
Orefinders Resources Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$1 million/$964 thousand = 1.04
A debt to equity ratio of 1.04 indicates the company is financed with equal parts debt and equity and is not overly reliant on any one form of financing.
Price to Book Ratio
Current Share Price/Book Value per Share.
$.15/$.01 = 15
Based on my estimate of fully diluted shares outstanding, Orefinder has a book value per share of $.01. At the current market price this implies a price to book ratio of 15, meaning the company trades at a significant premium to its book value.
Working Capital Ratio
Current Assets/Current Liabilities
$1 million/$1 million = 1
A working capital ratio of 1 indicates sufficient short term liquidity to meet the company’s 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.
Orefinders Resources Stock – Summary and Conclusions
The company has a diverse portfolio of assets in Canada. They also own a significant portion of a property in Papua New Guinea. The company is in an acceptable financial position, with no long-term debt and sufficient short term liquidity.
The potential for value loss due to royalty’s and dilution should be concerning for common shareholders. But ultimately, I believe these risks are acceptable given the high potential of the company’s properties.
At the current price, I view Orefinders common stock as a call option on several promising gold properties. I think the shares have significant upside and I believe an allocation to Orefinders is acceptable for highly risk tolerant investors within a well-diversified portfolio of gold stocks.
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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