Common Stock: Wesdome Gold Mines ( TSX:WDO)
Current Market Price: $11.50 CAD
Market Capitalization: $1.6 billion CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Wesdome Gold Mines Stock – Summary of the Company
Wesdome Gold Mines is a gold mining company focused on the acquisition, exploration, development, and operation of gold mining properties in Canada. Since 2017 they have produced gold at 2 mines; The Mishi Mine and The Eagle River Mine. They also have several other proeprties at earlier stages of development. Wesdome was founded in 1980 and is headquartered in Toronto Canada. They currently have around 300 employees.
Revenue and Cost Analysis
Wesdome had total revenue of $164 million in 2019, a significant increase from 2018 revenue of $116 million.
In 2019, All in sustainable costs were $1,293 per ounce. And the company generated net income of $40.9 million. This represents a significant increase over 2018 net income of $14.8 million.
Wesdome continues to invest heavily in exploration. In 2019, the spent $25.2 million exploring and evaluating their Kinea property.
Wesdome Gold Mines Stock – Royalty and Streaming Agreements
The Eagle River Mine has a 2% net smelter royalty, with an additional 1% royalty for certain claims.
The Mishi Mine has net smelter royalty’s ranging from .5% to 1.5%.
Wesdome Gold Mines – Reserves
The Eagle River Mine has “proven and probable” reserves totaling 550,000 ounces of gold. The Mishi Mine has “proven and probable” reserves totaling 10,500 ounces of gold.
Balance Sheet Analysis
Wesdome has a good balance sheet with adequate liquidity and a strong, diversified portfolio of assets. The company does have debt, but relative to operating income, debt levels appear reasonable.
At the end of 2019 the company had current assets totaling $60.6 million, including $35.6 million in cash. Current liabilities were $28 million.
Most of the company’s assets are long term assets such as property and equipment. At the end of 2019 Wesdome had total assets of $285 million compared to total liabilities of $79.2 million.
Wesdome Gold Mines – Debt Analysis
In 2019 Wesdome entered a $45 million senior secured revolving credit facility. The interest on this facility will range from 2.5% to 4.5% depending on the company’s leverage.
They also have two leasing facilities outstanding, a Canadian facility with $9 million drawn and a US facility with USD $2.4 million drawn
Wesdome Gold Mines Stock – Share Dynamics and Capital Structure
As of March 2020, the company had 138.2 million common shares outstanding. They also have 4.5 million options outstanding. Fully diluted shares outstanding is 142.7 million.
Wesdome has a small number of dilutive instruments outstanding and senior secured debt in its capital structure. Assuming the company can continue to meet its debt obligations from operating earnings, then the capital structure is acceptable for common shareholders.
Wesdome Gold Mines Stock – Dividends
The company does not currently pay a dividend. The last time they paid a dividend was 2011.
Management – Skin in the game
There has not been any relevant insider activity related to Wesdome stock. In 2019, small amounts were both purchased and sold by insiders, but not in amounts that are relevant for investor analysis.
Wesdome Gold Mines Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$79.2 million/ $206 million = .38
A debt to equity ratio of .38 means Wesdome has relevant amounts of debt in its capital structure, but is financed primarily with equity. The company should not be overly reliant on any one form of financing in the future.
Price to Book Ratio
Current Share Price/Book Value per Share.
$11.50/ $1.45 = 8
Based on fully diluted shares outstanding Wesdome has a book value per share of $1.45. At the current market price this implies a price to book ratio of 8, meaning Wesdome stock currently trades at a significant premium to the book value of its assets.
Working Capital Ratio
Current Assets/Current Liabilities
$60.6 million/$28 million = 2.2
A working capital ratio of 2.2 indicates sufficient short term liquidity, meaning Wesdome should not have problems meeting its near-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.
Wesdome Gold Mines Stock – Summary and Conclusions
Wesdome has a strong track record, having been producing gold for the past 30 years. They have two solid mines which are currently producing, with The Eagle River mine appearing to still have the potential for substantial production.
In addition, the company has several promising exploration stage properties, that could have significant upside should they be developed further.
The company does have senior debt in its capital structre and some dilutive instruments. However, debt level appear reasonable and liquidity levels are adequate. Dilution is relatively low.
Wesdome is a strong, well-run company, but its stock in no bargain. It currently trades at a significant premium to the value of its assets, and does not return capital to shareholder via a dividend. I would love to own Wesdome, but not at the current price.
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
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