Common Stock: Lumina Gold (TSXV:LUM)
Current Market Price: $.60 USD
Market Capitalization: $198.7 million USD
Lumina Gold Stock – Summary of the Company
Lumina Gold is a mineral resource company focused on the exploration and development of its wholly owned Cangrejos gold project in Ecuador. Lumina was founded in 1988 and changed its name from Odin Mining in 2016. The company is headquartered in Vancouver, Canada.
Revenue and Cost Analysis
The company’s only project, The Cangrejos project, is not yet in production. Therefore, the company does not have any revenue. Lumina consistently runs a net loss and is likely to continue to do so for the foreseeable future.
In 2019 Lumina spent $14.1 million on exploration and evaluation expenses. This represents a slight increase from their 2018 expenditure, due mostly to increased drilling expenses.
In 2019 the company had a net loss of $16.3 million.
Lumina Gold – Royalty and Streaming Agreements
The government of Ecuador is entitled to a net smelter royalty ranging from 3% to 8%.
Lumina Gold – Mineral Resources
The Cangrejos property has indicated resources of 10.4 million ounces of gold and 1.4 billion pounds of copper and inferred resources of 6.7 million ounces of gold and 800 million pounds of copper.
Balance Sheet Analysis
Lumina has a solid balance sheet with sufficient liquidity and very low liability levels. It has a strong long term assets, which it is actively exploring. Although the company has an adequate liquidity position, if they wish to maintain their current burn rate, mainly exploration expenditure, they will need to raise additional capital in the near future.
Lumina Gold – Debt Analysis
As of year-end 2019 the company does not have any debt outstanding.
Lumina Gold Stock – Share Dynamics and Capital Structure
As of April 2020, the company had 331.3 million common shares outstanding. In addition, they have 19.5 million options outstanding. Fully diluted shares outstanding is 350.7 million shares.
Lumina has a dilutive capital structure and given their burn rate, and reliance on equity financing, they will likely need to dilute shareholders further. Investors should carefully consider their place in the capital structure before investing.
Lumina Gold Stock – Dividends
The company does not pay a dividend and is unlikely to do so for the foreseeable future.
Management – Skin in the game
Insiders at Lumina have purchased a significant number of shares recently and own a significant portion of the outstanding shares. This is generally viewed as a bullish signal for the stock.
Lumina Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$1.4 million/$10.9 million = .13
A debt to equity ratio of .13 indicates that Lumina uses very little debt in its capital structure and relies mostly on equity financing to fund itself.
Price to Book Ratio
Current Share Price/Book Value per Share.
$.60/$.03 = 20
Based on fully diluted shares outstanding, Lumina has a book value per share of $.03. At the current market price this implies a price to book ratio of 20, meaning Lumina stock currently trades at a significant premium to the book value of the company.
Working Capital Ratio
Current Assets/Current Liabilities
$6.5 million/$1.4 million = 4.6
A working capital ratio of 4.6 indicates that Lumina has sufficient short term liquidity and should not have problems meeting its 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.
Lumina Gold Stock – Summary and Conclusions
There are not many gold projects in the world the size of The Cangrejos project. It has the potential to produce over 300 thousand ounces of gold per year with a long mine life. Lumina is advancing the project at a reasonable pace. They have made significant expenditures on exploration, having drilled over 50,000 meters.
The company is in a sound position financially with low liability levels, however they will need to raise additional capital in the near term.
Major risks are that Lumina is a single asset company in a risky jurisdiction. Financing and development risks associated with building the mine are relevant. Dilution is also concerning.
However, given the significant upside the project present if developed, I believe investors are justified in making a small allocation to Lumina 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.
