Common Stock: Gran Colombia Gold Corp (TSX:GCM ,OTC:TPRFF)
Current Market Price: $5.03
Market Capitalization: $308.5 million
Gran Colombia Gold Stock – Summary of the Company
Gran Colombia Gold Corp is a gold mining company focused on the acquisition, exploration, development, and operation of gold mining properties. They focus mostly on projects in Colombia. Gran Colombia currently has 2 processing plants in operation and several underground mines. They also have several exploration stage properties. This makes them the largest gold producer in Colombia.
The company was founded in 1992. Its headquarters are in Toronto, Canada and they have offices in Bogota and Medellin. They have around 3,000 employees.
Revenue and Cost Analysis
Almost all of Gran Colombia’s revenue comes from gold sales, with a very small portion attributable to silver sales. Total production was 239,991 ounces of gold in 2019, a 10% increase compared to 2018.
Gran Colombia had total revenue of $326 million in 2019, a significant increase from 2018 revenue of $268.5 million.
The company’s all in sustaining cost of production was $1,003 per ounce in 2019.
The company had a large impairment charge of $175 million in 2019, causing net income to be negative. They had a net loss of $131 million. However operating cash flows were a positive $103 million.
Balance Sheet Analysis
Gran Colombia has a decent, but not great balance sheet. Short term liquidity is sufficient. At year end 2019 current assets totaled $136.9 million, including $84 million in cash, compared to $86.8 million in current liabilities.
Most of the company’s assets are long term assets such as property and equipment. Total assets were $359 million, compared to total liabilities of $241 million. The company’s largest liability is its debt, including an outstanding warrant obligation.
Gran Colombia Gold – Debt Analysis
Gran Colombia had $72 million in long term debt outstanding at year end 2019. The senior secured note is due in 2024 and has an interest rate of 8.25% per annum.
Gran Colombia Gold – Credit Rating
Fitch has rated Gran Colombia’s debt as “B”, a speculative grade rating that is below investment grade.
Gran Colombia Gold Stock – Share Dynamics and Capital Structure
As of March 2020, Gran Colombia had 60.8 million common shares outstanding. They also have significant dilutive instruments outstanding, such as warrants, convertible debt, and options. Fully diluted shares outstanding is around 88.7 million.
Investors should carefully consider their place in the capital structure, which is subordinate to the senior secured debt holders and likely to be diluted when outstanding warrants and options are exercised.
Gran Colombia Gold Stock – Dividends
The company does not currently pay a dividend.
Management – Skin in the game
Insiders own a significant portion of the shares outstanding, around 15%. Over the past 12-18 months insiders have been net buyers of Gran Colombia stock.
Insider buying and high insider ownership is generally viewed as a bullish signal for the stock, as it implies aligned interests between insiders and shareholders.
Gran Colombia Gold – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$241.7/$117 million = 2
A debt to equity ratio of 2 means Gran Colombia is financed to a significant extent with debt and may be reliant on additional debt financing in the future.
Price to Book Ratio
Current Share Price/Book Value per Share.
$5.03/$1.33= 3.8
Based on fully diluted shares outstanding Gran Colombia has a book value per share of $1.33. At the current market price this implies a price to book ratio of 3.8. A price to book ratio of 3.8 means Gran Colombia stock trades at a significant premium to the book value of its assets.
Working Capital Ratio
Current Assets/Current Liabilities
$136.9 million/$86.8 million = 1.6
A working capital ratio of 1.6 indicate sufficient balance sheet liquidity. Gran Colombia should not have problems meeting their 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.
Gran Colombia Gold Stock – Summary and Conclusions
Gran Colombia has a solid portfolio of assets in Colombia. They have producing mines with an all in sustaining cost of around $1,000 per ounce, as well as exploration stage projects.
The company’s balance sheet is OK, with sufficient liquidity, but a large convertible debt liability. Their capital structure is dilutive, with warrants and options outstanding in addition to this convertible debt.
Currently the stock looks fairly valued, trading at a premium to the book value of assets. Although it is not trading at bargain prices, there may still be significant upside.
Gran Colombia is one of the few gold miners focused exclusively on Colombia and is the largest Colombian producer. Within a portfolio of gold stocks Gran Colombia may merit an allocation as a way to diversify jurisdictional risk.
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.
