Common Stock: Monarch Gold (TSX: MQR)
Current Market Price: $0.43 CAD
Market Capitalization: $135 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Monarch Gold Stock – Summary of the Company
Monarch Gold is a gold mining and exploration company focused on the acquisition, exploration, development, and operation of precious metals properties. The company is entirely focused on properties in Quebec Canada. They own 315 square kilometers which includes the Beaufor mine (put into care and maintenance in 2019) as well as several exploration and development stage properties. Monarch Gold was founded in 2011 and is headquartered in Quebec Canada.
Revenue and Cost Analysis
For the fiscal year ending June 2020 Monarch had total revenue of $6.7 million, a significant decreased from $31.6 million in the previous year. This decrease is due to the company’s only operating mine and its mill being put into care and maintenance. This means moving forward the company’s revenue is highly uncertain and the company may have little to no revenue.
Monarch had net income of $9.5 million in the fiscal year ending June 2020. However this is significantly overstated due to one-time gains from the disposal of non-financial assets and write ups in the value of investments.
Monarch Gold – Royalty and Streaming Agreements
Many of the company’s properties are subject to net smelter royalties ranging from 1% to 4.5%.
Monarch Gold – Mineral Resources
Across all of its properties Monarch Gold has measured and indicated resources totaling 3.15 million ounces of gold.
Balance Sheet Analysis
Monarch has a sound balance sheet. They have a solid base of long term assets, good liquidity, and manageable liability levels.
The company has a significant investment portfolio valued at $15 million as of the fiscal year end June 2020.
Monarch Gold – Debt Analysis
As of the fiscal year end June 2020 Monarch Gold had $6 million in total debt outstanding, $3.7 million of which is classified as current.
As of September 23, 2020 the company fully paid off the $4.3 million in debt associated with the Beacon acquisition.
Monarch Gold Stock – Share Dynamics and Capital Structure
As of September 2020 the company has 315 million common shares outstanding. In addition the have 12.7 million options and 29.3 million warrants outstanding. Fully diluted shares outstanding is around 357 million shares.
Monarch Gold has a dilutive capital structure. Investors should consider the effects of dilution before investing.
Monarch Gold Stock – Dividends
The company does not currently pay a dividend.
Management – Skin in the game
Insiders at Monarch Gold have bought and sold relatively equal amount of the company’s stock in the recent past, providing no signal to investors.
Monarch Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$27 million / $66 million = .4
A debt to equity ratio of .4 indicates that Monarch Gold uses a relevant amount of debt in its capital structure but relies more heavily on equity financing.
Working Capital Ratio
Current Assets/Current Liabilities
$30.6 million / $7.3 million = 4.2
A working capital ratio of 4.2 indicates a sound liquidity position. Monarch should not have a problem meeting its near term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
$0.43 / $0.18 = 2.3
Based on fully diluted shares outstanding Monarch Gold has a book value per share of $0.18. At the current market price this implies a price to book ratio of 2.3, meaning the company’s stock currently 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.
Monarch Gold Stock – Summary and Conclusions
Monarch Gold is an compelling mining and exploration play. The company owns a portfolio of assets in one of the world’s premier mining districts. These assets included a mine and mill that are in care and maintenance. A development stage project with a large resource (Wasamac), as well as several exploration stage properties where the company has already found some resources.
The company is healthy financially, their liquidity position is strong and their liabilities are manageable, and improving, as they recently paid off a large portion of their debt. They have a good base of strategic investors, however their capital structure is dilutive.
Monarch has the potential to create upside for shareholders in several different ways. They can restart their mine and/or mill, they have development upside at their Wasamac property as well as exploration potential across their asset portfolio. They could also sell non-core assets.
I think Monarch Gold stock is investable and would make a solid addition to a diversified gold stock portfolio. I will continue to monitor the stock and look for an entry point. I will need to consider position sizing and regional concentration risk, given that the company is in the same region as one of my core holdings, O3 Mining. But I will certainly look to invest in Monarch Gold in the near future.
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.
