A new Seeking Alfa articlehttps://seekingalpha.com/article/3535026-st-andrew-goldfields-a-small-gold-miner-that-looks-undervalued?auth_param=14b7m0:1b0f64l:320bfd99bc297122ce0962410936674d&uprof=45&dr=1
St. Andrew Goldfields: A Small Gold Miner That Looks Undervalued Sep. 26, 2015 3:19 AM ET | About: St Andrew Goldfields Ltd (STADF) Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in STADF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Summary St. Andrew Goldfields operates the currently producing Holt and Holloway gold mines, and the development stage Taylor project. The company produced $9.2 million in operating cash flow in the second quarter and $1.8 million in free cash flow, with all-in sustaining costs of $966 per ounce. St. Andrew is a small, but profitable gold producer with a solid balance sheet and looks undervalued here. St. Andrew Goldfields STADF Chart STADF data by YCharts Recent Stock Price: $.25 Shares Outstanding: 368.27 million Market Cap: $92.07 million 52-Week Range: $.17 - $.32 St. Andrew Goldfields (OTCQX:STADF) is a small, yet profitable gold producer, even with gold at $1,100 per ounce. The company also has a pretty solid balance sheet, which should help it guard against a future drop in the price of gold (should it occur). The company owns and operates two gold mines: the Holt and Holloway mines in the Timmins Mining District, located in Ontario, Canada. The Holt mine contains 473,000 ounces in proven and probable gold reserves and produced 15,951 gold ounces in the second quarter of 2015, while the Holloway mine contains 453,000 ounces of measured and indicated resources, plus 484,000 ounces of inferred resources, and produced 7,582 ounces this past quarter. For the second quarter, St. Andrew reported total gold production of 23,319 ounces at all-in sustaining costs of $966 per ounce from these two mines, leading to revenue of $34.4 million, operating cash flow of $9.2 million ($.03 per share), net income of $3.5 million and free cash flow of $1.8 million. (click to enlarge) (click to enlarge) (St. Andrew's balance sheet has improved quarter after quarter. Credit: Corporate presentation) As for the balance sheet, it remains a strength for St. Andrew as the company ended the quarter with $26.8 million in cash and equivalents (up nearly $7 million from last year), and the company has just $344,000 in long-term debt, according to financials. The company also has access to a $10 million undrawn revolving credit facility and $6.3 million in a capital lease facility. The Taylor project will be the company's third operating mine, with initial production expected in the fourth quarter. The company completed a bulk sample of the mine last quarter and reported head grades of 9.01 g/t, higher than forecasted head grade of 7.2 g/t, and a mill recovery rate of 97.4%, which is 2.4% higher than anticipated recovery rates. Recent exploration results were very encouraging, with the company intersecting 20.21 g/t over 9.2 metres, 14.13 g/t over 5.4 metres, and 12.98 g/t over 15.3 metres. This mine should add at least 30,000 to 40,000 ounces of annual gold production at low cash costs beginning next quarter. Most importantly, the stock appears to be undervalued here. St. Andrews currently has a market cap of $88.39 million, and with $26.8 million in cash and $344K long-term debt, I calculate an enterprise value of approximately $62 million (on the US exchange). With $27.29 million in EBITDA over the past 12 months, shares carry an EV/EBITDA of just 2.44, according to Yahoo Finance. The company is also reporting quarterly earnings per share of $.01 at current gold prices, which gives shares a forward P/E ratio of 6.25 ($.04 annual EPS divided by current share price of $.25). In conclusion, St. Andrew Goldfields is a profitable little gold producer with a solid balance sheet and exploration upside at its Taylor project, which should be in production by next quarter. I think shares are undervalued here, so I recommend buying. Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.