Common Stock: Aura Minerals (TSX: ORA)
Current Market Price: $12.96 USD
Market Capitalization: $916.2 million USD
**Note: All values in this article are expressed in United Stated Dollars (USD) unless otherwise noted.
Aura Minerals Stock – Summary of the Company
Aura Minerals is a gold and copper producer focused on the acquisition, exploration, development, and operation of properties in the Americas. They own properties in Brazil, Mexico, Honduras, and Colombia. The company was founded in 1946 and is headquartered in The British Virgin Isles, their corporate office is in Miami. They have around 860 employees.
Revenue and Cost Analysis
Aura had total revenues of $226.2 million in 2019, a significant increase from $157.7 million in 2018. The company had a gross margin of 21% in 2019, also a significant increase from 11% in 2018.
Net income was $24.8 million in 2019, down from $51.9 million in 2018. However, this decrease is due mostly to an impairment reversal in 2018 valued at $53 million that caused net income to be overstated.
Aura had exploration expenses of $3.5 and $3.8 million in 2019 and 2018 respectively. Almost all of their exploration expense was spent on their projects in Brazil.
Aura Minerals – Royalty and Streaming Agreements
The Aranzazu property is subject to a 1% net smelter royalty on copper production. The Pau-a-Pique property is subject to 2.5% in net smelter royalties.
Aura Minerals – Mineral Resources
Aura has proven and probable mineral resources totaling 1.9 million ounces of gold, 155.6 million pounds of copper, and 2.5 million ounces of silver.
Balance Sheet Analysis
Aura has a solid balance sheet. Liquidity is sufficient and the company has a solid base of long term assets. Liability levels are reasonable. Debt in the current period is high, but manageable.
Aura Minerals – Debt Analysis
As of year-end 2019 Aura had $43 million in total debt outstanding, $22.1 million of which is due on the current period.
Aura Minerals Stock – Share Dynamics and Capital Structure
As of September 2020, Aura has 70.7 million common shares outstanding and an additional 3.4 million options outstanding. Fully diluted shares outstanding is around 74.1 million shares.
Aura does not have an overly dilutive capital structure and appears to be acceptable for common shareholders.
Aura Minerals Stock – Dividends
The company paid out $3 million in dividends in January 2020 based on 2019’s results. It did not pay a dividend based on 2018’s results.
Management – Skin in the game
Insiders at Aura Minerals have not made any relevant transactions in the company’s stock recently, providing no signal to investors.
Aura Minerals Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$154.8 million/ $195.6 million = .79
A debt to equity ratio of .79 indicates that Aura uses a mix of debt and equity in its capital structure, but relies slightly more on equity to fund itself.
Working Capital Ratio
Current Assets/Current Liabilities
$110.2 million/ $87.4 million = 1.3
A working capital ratio of 1.3 indicates a sufficient, but not strong liquidity position. Aura should not have a problem meeting its near-term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
$12.96/ $2.64 = 4.9
Based on fully diluted shares outstanding Aura Minerals has a book value per share of $2.64. At the current market price this implies a price to book ratio of 4.9, meaning the company’s stock 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.
Aura Minerals Stock – Summary and Conclusions
Aura is a solid gold company. They have three producing assets and a solid portfolio of exploration stage assets, which should eventually lead to increased production. They are in a sound position financially with sufficient liquidity and manageable liability levels. Their capital structure is not overly dilutive and since debt levels are manageable, their capital structure is acceptable for common stock holders.
Although I like Aura Minerals and view it as investable, I feel I am a late to the party. The stock price has gone parabolic over the past several months and now appears to be fairly valued. I will continue to monitor the company and if prices dip significantly I will reconsider my investment decision. For now, I would prefer to allocate to companies I view as more reasonably values, such as 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.
