Common Stock: Sanatana Resources (TSXV: STA)
Current Market Price: $.25 CAD
Market Capitalization: $10.5 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Sanatana Resources Stock – Summary of the Company
Sanatana Resources is a mineral exploration company focused on the acquisition, exploration and development of precious metals properties. Their flagship project is the Tirua property located in The Solomon Islands. They also own several exploration stage assets in Ontario, which are not actively being explored. Sanatana Resources was founded in 2004 and is headquartered in Vancouver Canada.
Revenue and Cost Analysis
Sanatana Resources does not own any assets 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 March 2020, Sanatana had a net loss of $1.1 million, slightly less than a loss of $1.8 million the previous year. The company’s largest expenses in both years were exploration related expenses, which were $475 thousand and $494 thousand in 2020 and 2019 respectively.
Sanatana Resources – Royalty and Streaming Agreements
The Gold Rush property in Ontario is subject to net smelter royalties of 0.5% and 2%. The Empress property in Ontario is subject to a 2.33% net smelter royalty. The Santoy property in Ontario is subject to a 2% net smelter royalty. The Watershed property in Ontario is subject to a 1% net smelter royalty.
Balance Sheet Analysis
Sanatana Resources has a weak balance sheet. Liquidity is poor and liability levels are high relative to the company’s assets.
Sanatana Resources – Debt Analysis
As of the fiscal year end March 2020, Sanatana does not have any debt outstanding.
Sanatana Resources Stock – Share Dynamics and Capital Structure
As of September 2020, Sanatana has 42.1 million common shares outstanding. In addition they have 13.6 million warrants and 4.7 million options outstanding. Fully diluted shares outstanding is around 60.5 million shares.
Sanatana has a dilutive capital structure and investors should consider the effects of dilution before investing.
Sanatana Resources 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 Sanatana Resources have not made any relevant transactions in the company’s stock recently, providing no signal to investors.
Sanatana Resources Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$453 thousand / $115 thousand = 3.9
A debt to equity ratio of 3.9 indicates that Sanatana uses a significant amount of debt in its capital structure and may be reliant on further debt financing in the future.
Working Capital Ratio
Current Assets/Current Liabilities
$28 thousand / $453 thousand = .06
A working capital ratio of .06 indicates a very weak liquidity position. However it is worth noting that balance sheet metrics are a point in time measure. Sanatana subsequently raised additional capital, improving its liquidity. That being said, Santana does not have any producing assets, so investors should carefully monitor the company’s liquidity position moving forward.
Price to Book Ratio
Current Share Price/Book Value per Share.
$.25 / $0.002 = 131
Based on fully diluted shares outstanding Sanatana has a book value per share of $0.002 cents. At the current market price this implies a price to book ratio of 131, meaning Sanatana stock currently trades at a huge 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.
Sanatana Resources Stock – Summary and Conclusions
Sanatana has one promising exploration stage project in the Solomon Islands and recently acquired another, the gold rush property in Ontario. Their remaining exploration assets are not very promising, management has stated that it will be very difficult to finance further exploration at these properties and they are likely impaired. The company is in poor financial health and their capital structure is dilutive.
Sanatana Resources stock may be interesting as a jurisdictional diversifier for some gold stock portfolios. However I am not willing to invest. it is a single asset drill story in a relatively unknown jurisdiction. I would prefer to allocate to better funded and more diversified drill stories, in better jurisdictions, such as Orefinders.
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.
