Common Stock: Galane Gold (TSXV:GG, OTC: GGGOF)
Current Market Price: $.087
Market Capitalization: $19.5 million
Galane Gold Stock – Summary of the Company
Galane Gold is a gold mining company focused on the exploration, development, and operation of gold mining properties. They have two operating mines, the Mupane property in Botswana and the Galaxy property in South Africa. In addition to their operating mines they have several exploration stage projects. The company was founded in 2007 and is headquartered in Toronto, Canada. Galane has 207 full time employees.
Revenue and Cost Analysis
In 2019 Galane had $41 million in total revenue, a slight decrease from 2018 revenue of $44 million. The company operates on tight margins, earnings from mine operations were only $832 thousand in 2019, a decrease from $2.7 million in 2018.
The company consistently runs a net loss. In 2019, the net loss was $3.8 million, a significant decrease from a net loss of $321 thousand in 2018.
Galane Gold Stock – Royalty and Streaming Agreements
The company pays a royalty to the Botswana government and has royalty payments associated with its debt.
Galane Gold – Reserves
The Mupane property has 116,100 ounces of proven and probable gold reserves.
Balance Sheet Analysis
The company has a weak balance sheet with high leverage and low liquidity. At year end 2019 Galane had current assets totaling $9 million, including $ 2 million in cash. Current liabilities were $23 million, most of which is the current portion of debt.
Most of their assets are long term assets like property and equipment. Total assets were $48.2 million at the end of 2019, compared to $35.3 million in total liabilities.
Galane Gold Stock – Debt Analysis
Galane has high levels of debt relative to its assets. At the end of 2019 the current portion of debt was $13 million and total debt was over $19 million. This was a significant increase from 2018. Much of this debt is convertible into common shares.
Galane Gold Stock – Share Dynamics and Capital Structure
As of March 2020, Galane had 223.4 million shares outstanding. The company’s capital structure is highly dilutive. The have significant amounts of options and warrants outstanding. In addition, a large portion of their debt is convertible. Fully diluted shares outstanding (excluding convertible debt) is around 268.9 million shares.
Galane’s capital structure is not friendly to common shareholders. It has large amounts of convertible senior debt and other dilutive instruments outstanding. Investors should carefully consider their place in the capital structure before investing.
Galane Gold Stock – Dividends
The company has never paid a dividend and intends to retain its earnings for the foreseeable future.
Management – Skin in the game
Galane insiders own a significant portion of the common shares outstanding, between 12%-13%. Over the last 12-18 months insiders have been net purchasers of Galane common stock.
Galane Gold – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$35.3 million/$12.9million= 2.7
A debt to equity ratio of 2.7 means the company use debt for a significant portion of its financing and may be reliant on additional debt financing. A high debt to equity ratio implies increased risk for common equity holders.
Price to Book Ratio
Current Share Price/Book Value per Share.
$.087/$.048=1.8
Based on my estimate of fully diluted share outstanding, Galane has a book value per share of $.048. At the current market price their price to book ratio is 1.8 meaning Galane stock currently trades at a premium to the book value of their assets.
Working Capital Ratio
Current Assets/Current Liabilities
$9.3 million/$23.6 million=.39
A working capital ratio of .39 indicates short term liquidity problems. Galane may have difficulty meeting its short-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.
Galane Gold Stock – Summary and Conclusions
Galane has 2 descent properties in Africa. Both are producing, but margins are thin and the company continually runs a net loss.
They are in a very weak financial position. Debt is high and liquidity is low. It is unclear how they will continue to fund their operations.
The capital structure is highly unfavorable for common stock holders with senior convertible notes and dilutive instruments outstanding. Given the weak financial position stated above, it is highly likely Galane will need to add more debt or further dilute existing shareholders to fund itself.
For the reasons stated above, most importantly the company’s weak balance sheet and dilutive capital structure, I would not invest in Galane common 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.
