Common Stock: Outcrop Gold (TSXV:OCG)
Current Market Price: $ 0.51 CAD
Market Capitalization: $ 55.9 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Outcrop Gold Stock – Summary of the Company
Outcrop Gold is a precious metals exploration company focused on the acquisition, exploration, and development of mineral properties. The company owns a portfolio of exploration stage properties in Colombia, which they are actively exploring with a planned 12,000 meter drill program in 2021. Outcrop Gold was founded in 1993 and is headquartered in Vancouver, Canada.
Revenue and Cost Analysis
Outcrop Gold does not have any properties that 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.
For the fiscal year end August 31, 2020 the company had a net loss of $ 5 million, a significant increase compared to a net loss of $ 2.7 million in 2019. This increase is due to increased exploration and compensation expenses.
Exploration expenses were the company’s largest expense in both 2020 and 2019. These expenses totaled $ 2.1 million and $ 1.6 million in 2020 and 2019 respectively.
Outcrop Gold – Royalty and Streaming Agreements
Several of the company’s Colombian properties are subject to net smelter royalties ranging from 2% to 4%.
Balance Sheet Analysis
Outcrop Gold has a sound balance sheet. They have a strong liquidity position and low liability levels, including no long term liabilities.
Outcrop Gold – Debt Analysis
As of the fiscal year end August 31, 2020 Outcrop Gold does not have any debt outstanding.
Outcrop Gold Stock – Share Dynamics and Capital Structure
As of January 2021 Outcrop Gold has 109.6 million common shares outstanding. In addition they have 10 million options and 50.6 million warrants outstanding. Fully diluted shares outstanding is around 170.2 million shares.
Outcrop Gold has a highly dilutive capital structure. Investors should carefully consider the effects of dilution before investing.
Outcrop Gold Stock – Dividends
The company does not currently pay a dividend and is unlikely to do so for the foreseeable future.
Management – Skin in the game
Insiders at Outcrop Gold have been net sellers of the company’s stock recently. This is generally viewed as a bearish signal by investors.
Outcrop Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$ 532 thousand / $ 10.4 million = .05
A debt to equity ratio of .05 indicates that Outcrop Gold uses very little debt in its capital structure and relies almost entirely on equity financing to fund itself.
Working Capital Ratio
Current Assets/Current Liabilities
$ 6.3 million / $ 532 thousand = 11.9
A working capital ratio of 11.9 indicates a strong liquidity position. Outcrop Gold should not have problems meeting its near term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
$ 0.51 / $ 0.06 = 8.3
Based on fully diluted shares outstanding Outcrop Gold has a book value per share of $ 0.06. At the current market price this implies a price to book ratio of 8.3, meaning the company’s stock currently trades at a significant 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.
Outcrop Gold Stock – Summary and Conclusions
Outcrop Gold is a decent exploration stage company. They own a portfolio of assets in Colombia which are underexplored and have good potential. The company is sound financially and has an active drill program planned for 2021.
Although I like the company’s asset portfolio and the potential it may hold, their capital structure is highly dilutive. On their website they highlight newsletters where they have been featured. I feel as though I am late to the party. I would prefer to wait to see if some of these dilutive instruments are exercised and/or expire. I will revisit Outcrop Gold stock when their drill program has advanced further. For now I would prefer to allocate to explorers with larger drill programs and less dilutive instruments, such as O3 Mining.
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.
