Common Stock: O3 Mining (TSXV: OIII)
Current Market Price: $2.22 CAD
Market Capitalization: $104.1 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
O3 Mining Stock – Summary of the Company
O3 Mining is a mineral resource company focused on the acquisition, exploration, and development of precious metal properties in Quebec and Ontario Canada. The company has several flagship properties in the Cadillac Break region of Canada, but also owns several other exploration stage projects in Canada. O3 was spun out from Osisko Mining in 2019. The company is headquartered in Toronto Canada
Revenue and Cost Analysis
O3 Mining does not have any properties which 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 $4.1 million in 2019. Their largest expenses were exploration related, these expenses totaled $2.7 million.
O3 Mining – Royalty and Streaming Agreements
Some of the claims at the company’s Cadillac Break properties are subject to net smelter royalty’s ranging from 1% to 2.5%.
O3 Mining – Mineral Resources
The company estimates it has “measured and indicated” resources totaling 3.64 million ounces of gold and “inferred” resources of 1.48 million ounces of gold.
Balance Sheet Analysis
O3 has a strong balance sheet with good liquidity and low liability levels. At year end 2019, the company had current assets totaling $30.6 million, including $16.7 million in cash. Current liabilities were $3.3 million.
The company’s major long term asset is an exploration and evaluation asset, valued at $136.6 million. Long term liabilities totaled $5 million.
O3 Mining Stock – Debt Analysis
As of year-end 2019 the company does not have any debt outstanding.
O3 Mining Stock – Share Dynamics and Capital Structure
As of March 2020, the company had 46.9 million common shares outstanding. In addition, they had 4 million options, 5.4 million warrants, and 490 thousand restricted share units. Fully diluted shares outstanding is 56.9 million.
O3 Mining 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 O3 have been net buyers of the company’s stock in the recent past. This is generally viewed as a bullish signal for the stock.
O3 Mining Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$8.3 million/$158.6 million = .05
A debt to equity ratio of .05 indicates that O3 uses very little debt in its capital structure and relies almost entirely on equity financing to fund itself.
Price to Book Ratio
Current Share Price/Book Value per Share.
$2.22/$2.80 = .79
Based on fully diluted shares outstanding, O3 has a book value per share of $2.80. At the current market price this implies a price to book ratio of .79, meaning the company’s stock currently trades at a discount to the book value of the company.
Working Capital Ratio
Current Assets/Current Liabilities
$30.6 million/$3.3 million = 9.2
A working capital ratio of 9.2 indicates a strong liquidity position. O3 should not have a problem funding itself in the short term.
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.
O3 Mining Stock – Summary and Conclusions
The company owns a promising portfolio of exploration stage gold properties in Canada. They are aggressively exploring their properties which are located in a proven gold region. Management has strong experience and the ability to execute since the company was spun out from one of the world leading royalty companies.
The company is in good financial health, with sufficient liquidity to fund itself for the foreseeable future. They do have some dilutive instruments outstanding, but these are not excessive.
Given that the company is currently trading at below its book value, I believe O3 stock merits an allocation within a diversified portfolio of exploration companies.
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.
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