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Head-To-Head Analysis Of 6 Junior Gold Producers In Mexico

Sep 8 2013
Visual Capitalist
Seeking Alpha

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

(Editors' Note: This article discusses micro-cap stocks. Please be aware of the risks associated with these stocks.)

Gold Producers in Mexico

After conducting a thorough analysis of all junior and mid-tier gold producers in Mexico, we have come to the conclusion that there are a handful of opportunities to be found in the jurisdiction that have high potential to return value to shareholders.

Analysis Methodology

Our algorithm that we use for Tickerscores breaks down each junior producer based on four major areas, which are weighted according to the current economic climate. Each area has multiple sub-variables that are also weighted. The four major areas are: financials, management, efficiency and growth, and performance and valuation.

The "Financials" section studies liquidity, debt ratios, cash flow, and cash relative to other producers in the jurisdiction. "Management" examines insider ownership, institutional ownership, YTD insider transactions, previous merger and acquisition experience, and experience with a major producer. "Efficiency and Growth" looks at revenue growth, ounces produced, net income, cost control within the business, and the growth prospects for the mine. "Performance and Valuation" is measured by performance vs. a basket of other junior producers, their enterprise value per ounce, book value per share, and return on equity.

From these 20+ variables, a score out of 100 is calculated for each company. The scoring system is extremely stringent and a score of 60+ is considered a very well-rounded. Companies that score well have excellent growth prospects, financial stability, and could provide market-beating returns.

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Alamos Gold (AGI)

Financial score: 99/100

Management score: 71/100

Efficiency & Growth score: 52/100

Performance & Valuation score: 38/100

Visual Capitalist Tickerscore: 62

Comments: Alamos Gold is in a very strong position with a cash balance of $464 million at the end of the 2nd quarter. Management is getting aggressive acquiring two companies in the last several months. An all-in sustaining cost of $861 per ounce ranks among the best in the industry.

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Argonaut Gold (ARNGF.PK) (AR on TSX)

Financial score: 78/100

Management score: 83/100

Efficiency & Growth score: 67/100

Performance & Valuation score: 47/100

Visual Capitalist Tickerscore: 69

Comments: Argonaut Gold is a well-rounded company that is flush with cash. Production metrics are impressive and shareholders are well-leveraged to a higher gold price with approximately 12.5 million reserve ounces. They are investing $80 million into capital expenditures and exploration this year and have multiple new mines planed through to 2017. Management has the track record to transition from 130,000 ounces in 2013 to the forecasted 300,000+ ounces by 2017.

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Timmins Gold (TGD)

Financial score: 51/100

Management score: 75/100

Efficiency & Growth score: 33/100

Performance & Valuation score: 63/100

Visual Capitalist Tickerscore 51

Comments: Timmins Gold has increased production 20% per annum and operation has been profitable since the first day. Timmins has the best-combined ownership out of all Mexican gold producers. Management owns ~4% of the stock and institutions own 65%. A major hiccup for Timmins is its $18 million loan payment due to Sprott Resource Lending Partnership on December 31, 2013. Insiders appear to be bailing out in front of the payment. Insider selling is $127,000 so far, year to date.

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Primero (PPP)

Financial score: 80/100

Management score: 70/100

Efficiency & Growth score: 59/100

Performance & Valuation score: 69/100

Visual Capitalist Tickerscore 67

Comments: Primero is in a strong position to continue its growth plans with $130 million in cash. It is currently focused on increasing the number of ounces mined (16% Q2 2013 vs. Q2 2012, 40% Q2 2013 vs. Q1 2013). Primero's recent acquisition of 69.2% of the Cerro del Gallo project has the potential to add a further 95,000 ounces to Primero's annual production. Goldcorp owns the other 30% stake in Cerro del Gallo and has a 27% stake in Primero.

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Starcore International (SHVLF.PK)

Financial score: 62/100

Management score: 37/100

Efficiency & Growth score: 40/100

Performance & Valuation score: 57/100

Visual Capitalist Tickerscore 47

Comments: Starcore is a small producer having only produced 6,315 AuEq ounces last quarter. Starcore is not in the same league as the mid-tier Mexican producers but it runs a tight ship. Starcore earned an impressive $1 million in comprehensive income that would have been 50% higher had it not suffered a $500,000 currency loss. The 180,151-ounce reserve base seems to be keeping investors away even though the mine has been producing continuously for 20 years. In the MD & A, management appears to want to give back to the shareholders by paying a dividend sometime in the near future. This seems a tad ambitious, but possible.

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NWM Mining (NWMMF.PK)

Financial score: 37/100

Management score: 27/100

Efficiency & Growth score: 33/100

Performance & Valuation score: 71/100

Visual Capitalist Tickerscore 40

Comments: The horizon for NWM looks extremely bleak at this time. The CEO, COO and President have resigned in the last 12 months. Additionally, NWM has had to extend payments on its $18.5m debt, which it owes to Renvest Mercantile Bancorp Inc. NWM is very poorly capitalized with only $1.6 million in cash - this comes nowhere close to paying off their short-term liabilities. The cash costs on the Lluvia de Oro / La Jojoba are quite high at $1,100 per ounce.

http://seekingalpha.com/article/1680112-head-to-head-analysis-of-6-junior-gold-producers-in-mexico