Common Stock: Roscan Gold (TSXV:ROS)
Current Market Price: $.41 CAD
Market Capitalization: $84.1 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Roscan Gold Stock – Summary of the Company
Roscan Gold Corporation is a gold exploration focused on the acquisition, exploration, and development of gold properties in West Africa. They company’s major project is the Kandiole property in Mali, where they started inaugural drilling at the end of 2018. The company was founded in 1987 and is headquartered in Toronto, Canada.
Revenue and Cost Analysis
Roscan does not have any producing properties therefore they do not have any revenue. The company consistently runs a net loss and is likely to continue to do so for the foreseeable future.
At year October 2019, the company had a net loss of $5.7 million. Significantly higher than a net loss of $1.6 million for fiscal year 2018. This increase is mostly attributable to a significant increase in drilling expenses which totaled $3.8 million for the fiscal year 2019 compared to $900 thousand for 2018.
Roscan Gold – Royalty and Streaming Agreements
Most of the claims on the Kandiole property have royalties attached including a net profit interest of 5% and net smelter royalty’s ranging from 1% to 3%.
Balance Sheet Analysis
Roscan has a relatively weak balance sheet with low liquidity. However, the long-term value of the company’s assets will be determined by exploration results. These results are highly uncertain at the moment.
Roscan Gold Stock – Share Dynamics and Capital Structure
As of February 2020, the company had 167.4 million common shares outstanding. They also had 16.6 million options and 97.7 million warrants outstanding. Fully diluted shares outstanding was 281.8 million shares.
Roscan has a highly dilutive capital structure and management has been willing to dilute existing shareholders regularly. Given that the company is likely to need additional financing, investors should carefully consider their place in the capital structure and the effects of further dilution.
Roscan Gold Stock – Dividends
The company has never paid a dividend and is unlikely to do so for the foreseeable future.
Management – Skin in the game
Roscan insiders purchased and sold significant amount of Roscan stock in 2019. However, the amounts were nearly equal so this tells investors very little.
However, insider ownership is around 15%, which is generally viewed as a bullish signal as it implies interests between management and shareholders are aligned.
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.
Roscan Gold Stock – Summary and Conclusions
The company has a very early stage but very promising property in Mali. The property is near other established properties with large gold reserves. However, exploration of the property is the very early stages and the size and quality of the deposit is highly uncertain.
The company is currently in a weak financial position, with low liquidity. It will need to raise additional funds to finance further exploration and eventual development. The company already has a highly dilutive capital structure and these additional funds are likely to be raised to the detriment of existing shareholders.
Roscan is certainty a company to watch, but it is still too early for me to feel comfortable investing, epically given the recent run up in price from $.10 to over $.40 since the beginning of 2019. I would consider buying Roscan stock if there are positive developments related to exploration (justifying current valuation) or if there is a significant correction in the price (improving risk/reward).
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.
