Common Stock: Argo Gold (CSE:ARQ)
Current Market Price: $.20 CAD
Market Capitalization: $10.3 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Argo Gold Stock – Summary of the Company
Argo Gold is a mineral exploration company focused on the acquisition, exploration, and development of gold properties in Ontario Canada. Their flagship property is the 100% owned Uchi Gold Property, which covers 22 square kilometers. They also own several other exploration stage properties in Canada. Argo was founded in 1995 and is headquartered in Toronto Canada.
Revenue and Cost Analysis
Argo does not have any properties that are currently producing and therefore does not have any revenue. The company consistently runs a net is and is likely to continue to do so for the foreseeable future.
The company had a net loss of $1.2 million in 2019, significantly higher than $500 thousand in 2018. Their largest expenses in both years were exploration related, which totaled $853 thousand and $228 thousand in 2019 and 2018 respectively.
Argo Gold – Royalty and Streaming Agreements
Some of the company’s properties in the Wawa region have a 2% net smelter royalty attached.
Balance Sheet Analysis
Argo has an OK balance sheet with adequate short term liquidity and no long-term liabilities. However, in order to continue exploration, they will need to raise capital in the near future.
Argo Gold – Debt Analysis
As of year-end 2019, the company does not have any debt outstanding.
Argo Gold Stock – Share Dynamics and Capital Structure
As of April 2020, the company had 51.5 million common shares outstanding. They also have 4.3 million options and 11.2 million warrants outstanding. Fully diluted shares outstanding is 67 million.
Argo 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
Insiders at Argo Gold have not made any relevant purchases or sales of the stock recently. Insider ownership of the stock is relatively high, but there has been an exodus of key personnel recently. Overall insider activity provides investors with no signal.
Argo Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$275 thousand/ $853 thousand = .32
A debt to equity ratio of .32 indicates that Argo uses some debt in its capital structure, but relies mostly on equity financing to fund itself.
Price to Book Ratio
Current Share Price/Book Value per Share.
$.20/$.01 = 20
Based on fully diluted shares outstanding, Argo has a book value per share of $.01. At the current market price this implies a price to book ratio of 20, meaning the company’s stock trades at a significant premium to the book value of the company.
Working Capital Ratio
Current Assets/Current Liabilities
$318 thousand/ $275 thousand =1.2
A working capital ratio of 1.2 indicates an adequate, but not strong, short term liquidity position.
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.
Argo Gold Stock – Summary and Conclusions
Argo has an interesting claim in a proven gold region. Their Uchi property is promising, but still needs significant exploration. The company needs to raise capital in order to continue exploration.
Their capital structure is dilutive and the stock is certainty not undervalued. A major concern is the exodus of key personnel recently, including the CEO and CFO.
Overall I would prefer to invest in more established companies in the region, such as Wesdome. At this stage, I don’t see any reason to take the additional risks associated with an investment in Argo 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.
