Common Stock: Austral Gold (ASX: AGD)
Current Market Price: $0.21 USD
Market Capitalization: $118 million USD
**Note: All values in this article are expressed in United States Dollars (USD) unless otherwise noted.
Austral Gold Stock – Summary of the Company
Austral Gold is a gold mining and exploration company focused on the acquisition, exploration, development, and operation of gold mining properties. The company’s flagship asset is the Guanaco/Amancaya project in Chile, which is a producing gold and silver mine. They also own exploration stage properties in Chile, Argentina, and The United States. Austral Gold was founded in 1996 and is headquartered in Sydney Australia.
Revenue and Cost Analysis
Austral Gold produced 70,146 gold equivalent ounces in 2019, representing total sales of $102 million, a significant decrease from $122 million in sales in 2018. Although revenue decreased in 2019, net income increased from a loss of $36 million in 2018 to a profit of $1.6 million in 2019. The company’s large loss in 2018 in mostly due to one-time impairment charges associated with putting the Casposo mine into care and maintenance. It is worth noting that exploration expenditure was very low in both 2018 and 2019.
Austral Gold – Mineral Resources
Austral Gold has proven and probable resources totaling 175,000 ounces of gold and 4 million ounces of silver.
Balance Sheet Analysis
Austral Gold has a decent balance sheet. They have a solid base of long term assets and sufficient liquidity. The company’s liability levels appear reasonable.
Austral Gold – Debt Analysis
As of year-end 2019 Austral has $6 million in total debt outstanding, of which $4 million is classified as current.
Austral Gold Stock – Share Dynamics and Capital Structure
As of year-end 2019 the company has 559.4 million common shares outstanding. In addition they have 16.8 million options outstanding. Fully diluted shares outstanding is around 576.2 million shares.
Austral Gold Stock – Dividends
The company did not declare or pay any dividends in 2018 or 2019.
Management – Skin in the game
Insiders at Austral Gold have not made any relevant transactions in the company’s stock recently, providing no signal to investors.
Austral Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$494 million / $56.7 million = .87
A debt to equity ratio of .87 indicates that Austral uses a mix of debt and equity in its capital structure, but relies slightly more on equity financing.
Working Capital Ratio
Current Assets/Current Liabilities
$26.8 million / $23.5 million = 1.14
A working capital ratio of 1.14 indicates a sufficient, but not strong liquidity position. Austral should not have problems meeting its near term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
$0.21/ $0.10 = 2.1
Based on fully diluted shares outstanding Austral Gold has a book value per share of $.10. At the current market price this implies a price to book ratio of 2.1, meaning Austral Gold stock currently trades at a premium to the book value of the company.
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.
Austral Gold Stock – Summary and Conclusions
Austral Gold is a decent junior gold and silver producer. The produced around 70k gold equivalent ounces in 2019 and expects to produce around 60k ounces in 2020. The company is in a sound position financially with sufficient liquidity and reasonable liability levels.
However the future of the company is uncertain. Production and reserves are declining and in 2019 the company placed the Casposo mine into care and maintenance. Most of their proven and probable reserves are at the Casposo property in Argentina, so future production is unclear. Furthermore the company spent very little on exploration expense over the past two years, so it is not clear how Austral will replace the ounces it is mining.
Although Austral Gold is a decent producer trading at a decent valuation, I would prefer to allocate to similar companies with more clear production and exploration plans moving forward, for example Fortuna Silver.
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.
