Common Stock: Volcanic Gold (TSXV: VG)
Current Market Price: $.63 CAD
Market Capitalization: $18 million CAD
**Note: All values in this article are expressed in Canadian Dollars (CAD) unless otherwise noted.
Volcanic Gold Stock – Summary of the Company
Volcanic Gold is a mineral exploration company focused on the acquisition, exploration, and development of precious metals properties in Guatemala. The company was founded in 2007 and is headquartered in Vancouver Canada.
Revenue and Cost Analysis
Volcanic 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.
In 2019, Volcanic Gold had a net loss of $198 thousand, significantly less 2018’s net loss of $4 million. This decrease is due to reduced expenses across the board, including zero exploration expenses in 2019, down from $632 thousand in 2018.
Volcanic Gold – Royalty and Streaming Agreements
The company’s most recent audited annual report does not mention any royalty or streaming agreements.
Balance Sheet Analysis
Volcanic Gold has a simple but OK balance sheet. Liquidity is sufficient in the short term and liability levels are low. However, to continue as a going concern the company will need a capital injection in the medium term.
Volcanic Gold – Debt Analysis
As of year-end 2019 the company does not have any debt outstanding.
Volcanic Gold Stock – Share Dynamics and Capital Structure
As of September 2020, the company has 28.6 million common shares outstanding. In addition, they have 368 thousand options and 13.3 million warrants outstanding. Fully diluted shares outstanding is around 42.3 million shares.
Volcanic Gold has a dilutive capital structure. Investors should consider the effects of dilution before investing.
Volcanic 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 Volcanic Gold have been net buyers of the company’s stock in the recent past. This is generally viewed as a bullish signal.
Volcanic Gold Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$131 thousand/ $101 thousand = 1.3
A debt to equity ratio of 1.3 indicates that Volcanic Gold uses more debt in its capital structure than equity and may be reliant on debt financing in the future.
Working Capital Ratio
Current Assets/Current Liabilities
$131 thousand/$170 thousand = 1.3
A working capital ratio of 1.3 indicates a sufficient, but not strong liquidity position. Volcanic Gold should not have problems meeting its obligations in the short term.
Price to Book Ratio
Current Share Price/Book Value per Share.
$.63/$.002 = 263
Based on fully diluted shares outstanding Volcanic Gold has a book value per share of $.002. At the current market price this implies a price to book ratio of 263, meaning the company’s stock trades at an extreme 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.
Volcanic Gold Stock – Summary and Conclusions
Volcanic Gold is a very early stage exploration company with properties in a promising, but uncertain jurisdiction. Their capital structure is dilutive and they are financially sound. The project tis too early stage for me to invest in on its own. However I am happy to have some exposure to the project via an investment in Radius Gold Stock, as it provides cheap upside optionality within a more diversified exploration play.
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.
