Common Stock: Bear Creek Mining (TSXV: BCM)
Current Market Price: $1.69 USD
Market Capitalization: $189.4 million USD
Bear Creek Mining Stock – Summary of the Company
Bear Creek Mining Corporation is a mineral resource company focused on the exploration and development of its 100% owned silver project in Peru. The Corani project is located in the Andes Mountains. The company released a feasibility study in 2019 and is moving toward a development decision. Bear Creek was founded in 1999 and is headquartered in Vancouver, Canada.
Revenue and Cost Analysis
Bear Creek does not have any properties that are currently producing and therefore does not have any revenue. The company consistently runs a net loss and is likely to continue to do so for the foreseeable future.
The company had a net loss of $17.7 million in 2019, a significant increase from $10 million in 2018. The increase was due mostly to increased exploration and engineering costs, which were the company’s largest expenses in both years.
Bear Creek Mining – Mineral Resources
The Corani property has “proven and probable” reserves totaling 225 million ounces of silver.
Balance Sheet Analysis
Bear Creek has a solid balance sheet with strong liquidity and low liability levels. Their largest long term liability is related to community project obligations. They have a strong short term cash position, but if they want to maintain their current exploration expenditure, they will need to raise capital in the medium term. And will certainty need additional capital to develop the Corani Mine.
Bear Creek Mining – Debt Analysis
As of year-end 2019 the company does not have any debt. However, the company has stated that they are actively exploring senior secured debt in order to develop the Corani Mine.
Bear Creek Mining Stock – Share Dynamics and Capital Structure
As of April 2020, the company had 111.3 million common shares outstanding. In addition, they have 7.7 million options outstanding. Fully diluted shares outstanding is 119 million shares.
Bear Creek Mining 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 Bear Creek have been net sellers of the stock recently. This is generally viewed as a bearish signal for the stock.
Bear Creek Mining Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$14.7 million/$103.2 million =.14
A debt to equity ratio of .14 indicates that Bear Creek has a small amount of debt in its capital structure but relies mostly on equity financing.
Price to Book Ratio
Current Share Price/Book Value per Share.
$1.69/$.87= 1.95
Based on fully diluted shares outstanding, Bear Creek has a book value per share of $.87. At the current market price this implies a price to book ratio of 1.95, meaning the company’s stock currently trades at a premium to the book value of the company.
Working Capital Ratio
Current Assets/Current Liabilities
$23 million/$3.2 million = 7.1
A working capital ratio of 7.1 indicates a strong liquidity position. Bear Creek should not have a problem meeting its obligations in the short term.
Silver Market – Economic Factors and Competitive Landscape
Silver 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 silver companies are poised to benefit from a strong economic tailwind.
Bear Creek Mining Stock – Summary and Conclusions
The Corani Project is a promising property that is almost ready to go into development. Bear Creek is in a sound financial position to continue to explore the property and seek out debt financing to begin construction. The capital structure appears acceptable for common shareholders as it is not overly dilutive.
However, the company has significant development related risks, in addition to the concentration risk associated with being a single asset stock. The current development cost of the mine is estimated to be more than the NPV of the project. This means the long-term value of the project is highly dependent on higher silver prices in the long term. Mine development costs coming in over budget will also have a large negative impact on shareholder returns.
I am not willing to invest in Bear Creek at this point. I will continue to monitor the project and reconsider as the project advances. For now, i would prefer to allocate my capital to more established producers that are not so dependent on the silver price, 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.
