Common Stock: Sitka Gold (CSE: SIG)
Current Market Price: $0.20 CAD
Market Capitalization: $11.2 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Sitka Gold Stock – Summary of the Company
Sitka Gold is a mineral exploration company focused on the acquisition, exploration, and development of precious metals properties. They own several exploration stage assets in the Yukon region of Canada as well as in Arizona and Nevada in The United States. Sitka Gold was founded in 2015 and is headquartered in Vancouver Canada.
Revenue and Cost Analysis
Sitka 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. In 2019 the company had a net loss of $1.4 million, significantly higher than their net loss of $341 thousand in 2018. This increase is due to increased administrative and investor relation related expenses.
Total exploration expense was $318 thousand in 2019, significantly less than $663 thousand in 2018.
Sitka Gold – Royalty and Streaming Agreements
The Adobe and Alpha properties in Nevada are subject to a 1.5% net smelter royalty. Some of the claims on the RC Gold property in Yukon are subject to a 2% net smelter royalty.
Sitka Gold – Mineral Resources
A Historical NI-43-101 resource estimate for the Burro Creek property in Arizona, completed in 2011 (before Sitka owned the property), estimates the property has a reserve of 5 million ounces of silver and 120 thousand ounces of gold.
Balance Sheet Analysis
Sitka has a simple but sound balance sheet. Liquidity is sufficient in the near term and liability levels are very manageable. The company has no long term liabilities or debt.
Sitka Gold – Debt Analysis
As of year-end 2019 the company does not have any debt outstanding.
Sitka Gold Stock – Share Dynamics and Capital Structure
As of October 2020 Sitka has 56.1 million common shares outstanding. In addition they have 4.7 million options and 23.5 million warrants outstanding. Fully diluted shares outstanding is around 84.3 million shares.
Sitka has a dilutive capital structure. Investors should carefully consider the effects of dilution before investing.
Sitka Gold 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 Sitka Gold have been net buyers of the company’s stock recently. This is generally viewed as a bullish signal for investors.
Sitka Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$275 thousand / $1.3 million = .2
A debt to equity ratio of .2 indicates that Sitka uses some debt in its capital structure but relies mostly on equity financing to fund itself.
Working Capital Ratio
Current Assets/Current Liabilities
$573 thousand / $275 thousand = 2.1
A working capital ratio of 2.1 indicates a sufficient liquidity position. Sitka Gold should not have problems meeting its near term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
$0.20 / $0.015 = 12.7
Based on fully diluted shares outstanding Sitka Gold has a book value per share of $0.015 cents. At the current market price this implies a price to book ratio of 12.7, 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.
Sitka Gold Stock – Summary and Conclusions
Sitka Gold is a solid exploration company. They have several high potential properties in The United States and Canada. The company is healthy financially with sufficient liquidity and no debt. Four of their five properties are actively being explored. Most concerning for investors is the company’s highly dilutive capital structure and significant royalty obligations.
Since I already have significant exposure to Arizona and Canada via McEwen Mining and O3 Mining, I am not willing to allocate to Sitka Stock at this time. Given the large warrant and option overhang, I don’t feel the need to rush. I will continue to monitor the company and as their projects move forward and their financials evolve, I will reconsider.
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.
