Common Stock: Starcore International (TSX:SAM)
Current Market Price: $.19 CAD
Market Capitalization: $9.4 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Starcore International Stock – Summary of the Company
Starcore International is a precious metals mining company focused on the acquisition, exploration, development, and operation of gold and silver properties in Mexico. Their flagship property is the San Martin mine in Queretaro Mexico. They also own several exploration stage properties in North America. Starcore international was founded in 1980 and is headquartered in Vancouver Canada.
Revenue and Cost Analysis
Starcore has one property that is currently producing, the San Martin mine in Mexico. Equivalent gold production was 13,112 ounces in the year ended April 30, 2020 compared to production of 16,392 ounces in the year ended April 30, 2019. This represents total revenue of $24.8 million in 2019 compared to $32.8 million in 2018.
All-in sustaining costs were US$1,422/EqOz for the year ended April 30, 2020, compared to costs of US$1,336/EqOz for the year ended April 30, 2019. The company had a loss of $3.6 million for the year ended April 30, 2020, a significant improvement compared to a loss of $11.8 million for year ended April 30, 2019.
Starcore International – Royalty and Streaming Agreements
The company’s 100% owned Toiyabe property in Nevada and Lone Ranch property in Washington are subject to a 3% net smelter royalty.
Starcore International – Mineral Resources
The company has total estimated resources of 227,515 ounces of gold.
Balance Sheet Analysis
Starcore has an OK balance sheet. They have a solid portfolio of assets and reasonable liability levels. However, their liquidity position is not strong.
Starcore International – Debt Analysis
As of April 20, 2020, the company had debt outstanding valued at $3.19 million, which is due in full during the current period.
Starcore International Stock – Share Dynamics and Capital Structure
The company has 49.6 million common shares outstanding. In addition, they have 3.3 million warrants outstanding. Fully diluted shares outstanding is around 52.9 million shares.
Starcore does not have an overly dilutive capital structure and appears acceptable for common stock investors.
Starcore International Stock – Dividends
The company does not currently pay a dividend.
Management – Skin in the game
Insiders at Starcore International have been net sellers of the company’s stock in the recent past. This is generally viewed as a bearish signal.
Starcore International Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$17.1 million/$37.3 million = .45
A debt to equity ratio of .45 indicates that Starcore uses a mix of debt and equity in its capital structure, but relies more on equity financing to fund itself.
Working Capital Ratio
Current Assets/Current Liabilities
$6.3 million/ $6.2 million = 1
A working capital ratio of 1 indicates a sufficient but not strong liquidity position. Investors in Starcore International stock should pay close attention to the company’s liquidity position.
Price to Book Ratio
Current Share Price/Book Value per Share.
$.19/$.71 = .27
Based on fully diluted shares outstanding Starcore International has a book value per share of $.71. At the current market price this implies a price to book ratio of .27, meaning the company’s stock currently trades at a significant discount 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.
Starcore International Stock – Summary and Conclusions
Starcore is an interesting company. They have a single operating asset in Mexico in addition to several exploration stage properties in the US, Canada, and Mexico. Although production at the San Martin mine is low, the expected mine life is 10 years. The company has a relatively high all in sustain cost per ounce, however with sustained higher gold and silver prices the company has the potential to be profitable.
Given that the company has low dilution and currently trades at a significant discount to its book value, I am going to take a small starter position in Starcore International stock and continue to monitor the project closely. Other project of a similar scale that I own are Jaguar Mining and Calibre Mining. I will be comparing Starcore to these companies to decided which, if any, merit an additional allocation.
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.
