Hello, I’m going to help navigate through this financial table and provide as much insight as possible. I’ve updated the table and included several additional companies and plan to include several more by the end of April, as well as additional financial metrics.
Analyzing the Levels of Gold Production, Reserves, and Resources Across Various Companies for the Year-End Results of 2023. All Figures Expressed in Thousands of USD. Production of Different Types of Metals may be Reflected in Revenue and Earnings.
As we move through the table, it’s important to remember the similarities. As we continue to compare other sets of data, we want to mostly focus on the companies with similar data to Argonaut Gold.
We’ll start off by assessing the reserves and resources quantities and compare Argonaut Gold to companies with similar quantities, as well as compare the average. Companies with reserves and resources similar or less than Argonaut Gold’s include New Gold, Alamos Gold, Calibre, SSR Mining, Coeur Mining, Wesdome Gold, I-80 Gold, B2 Gold, Oceana Gold, Fortitude Gold, and Aura Minerals. The average reserves and resources excluding Barrick's is about 21 million gold ounces, Argonaut Gold’s reserves and resources are about 20 million gold ounces.
After evaluating the reserves and resources quantities, we begin by assessing the operating data. First, we see AU produced, then Average AISC, Revenue, Revenue Per Share, Gross Profit, Gross Profit Margin, Net Profit, Net Profit Margin, and Diluted EPS. When assessing this data, we want to look across the board and find companies with similar AU production to Argonaut Gold’s year-end results and as the company anticipates the operation will expand to. Next, we look at gross profits and net profits; we want to ensure the companies’ operations are viable and profitable after expenses. We’ll also compare AISC and look for similarities. For annual production, companies with a similar or lower rate of production include Wesdome, I-80, Fortitude, and Aura. The current average annual production is 700k ounces, but when eliminating Barrick’s gold annual production, the average production falls to 500k gold ounces. The companies with a similar or lower gross profit margin include New Gold, Equinox, IAMGOLD, and Wesdome. The average gross profit is about 20%, while Argonaut’s is about 10%. The companies with a similar or lower net profit margin include IAMGOLD, Eldorado, Oceana, Kinross, and Aura. The average net profit margin, excluding I-80, is about 7%, while Argonaut’s is about 10%. Argonaut Gold’s AISC is similar to or lower than New Gold, Equinox, SSR, IAMGOLD, Coeur, Wesdome, I-80, and Oceana. The average AISC of all companies is about US$1,600 per ounce, while Argonaut’s is about US$1,700 per ounce.
Now, let’s assess the financial data, starting with assets and then liabilities. We’ll compare across the table, look for similarities, and compare with the average. Companies with similar or fewer assets than Argonaut include Calibre, Coeur, Wesdome, I-80, and Fortitude. The average total assets, excluding Barrick’s, is about US$3.7 billion, and Argonaut Gold’s assets are about US$1.6 billion. Companies with fewer liabilities include Calibre, Wesdome, I-80, and Fortitude. The average liabilities, excluding Barrick’s, amount to US$1.2 billion, and Argonaut Gold’s liabilities are US$600 million. In liabilities, we also see debt and net debt. We're just going to focus on net debt for comparison. Net debt is debt minus cash and equivalents. Argonaut Gold’s net debt is US$183 million, which is below the table’s average of US$390 million.
Next, we move on to other financial data. Here we see Outstanding Shares, Working Capital, Working Capital per Share, Book Value Equity, Book Value per Share, Net Debt to Earnings Before Interest and Taxes ratio, Debt to Equity Ratio, Equity Multiplier, Market Capitalization, Market Capitalization per Share, Book Value to Market Capitalization Ratio, Enterprise Value, Enterprise Value per Share, Enterprise Value to Earnings Before Interest and Taxes Ratio, Enterprise Value to Market Capitalization Ratio, Price to Earnings Ratio, Free Cash Flows, Beta, Cost of Equity CAPM Model, Net Present Value using Cost of Equity as Discount Rate and $2k/oz Gold Price, Net Present Value per Share, Enterprise Value to Net Present Value Ratio, and finally, Net Present Value to Market Capitalization Ratio.
Moreover, net profit margins, whether positive or negative, are utilized to calculate cash flows from the total reserves and resources based on the annual production rate reported by the company at the end of 2023, for the computation of Net Present Value (NPV). A negative Net Profit Margin will result in a negative NPV. However, if the net profit margins were to be converted to a positive figure, the NPV would remain the same in value but switch from negative to positive. For analytical purposes, one can consider negative net profit margins as positive and vary them from zero to gain insights into the NPV of resources and reserves of the companies mentioned. This adjustment is also applicable to all other financial metrics that have negative values. The values remain the same, only their sign changes from negative to positive. We’re using the cost of equity as the discount rate for the NPVs, calculated using the CAPM model. The cost of equity is determined by the formula: Cost of equity = Risk-free rate in Canada + Beta * (Average 1-year return on SPX500 - Risk-free rate in Canada). We’re using 7.58% as the Average 1-year return on SPX500 and 5% as the Risk-free rate in Canada.
Furthermore, Net Debt/EBIT, Debt/Equity, Equity Multiplier, BV/MC, EV/EBIT, EV/MC, P/E, EV/NPV, NPV/MC. These are ratios and the importance of these metrics vary. For instance, BV/MC, EV/MC, EV/NPV and NPV/MC, we’re dividing the first metric by the second one to evaluate whether or not the first metric is larger than the second one and we’re portraying the answer as a ratio. We want to see how many times the second metric can go into the first one. A number above 1 indicates the first metric is larger than the second, and conversely, a number below 1 indicates the first metric is smaller than the second. For example, BV/MC, when ratio reads above 1, this tells me market capitalization has room to move up to Book Value, and conversely, if the ratio is below 1 this tells me market capitalization is already above book value. The EV/EBIT ratio is a valuation metric that compares the price of the company adjusting for cash, debt and other liabilities compared to the earnings. Generally, a 6 to 9 is considered good in the mining industry. The P/E ratio is market capitalization divided by net profits, metals industry average ratio is 30. The equity multiplier is a financial metric that reveals the proportion of a company’s assets financed by shareholders’ equity rather than by debt. A high equity multiplier indicates that a company has high financial leverage, meaning it has borrowed a significant amount of money to finance the purchase of assets. On the other hand, a low equity multiplier indicates that a company is using more equity and less debt to finance the purchase of assets. The Debt-to-Equity ratio is a financial metric used to evaluate a company’s financial leverage. It is calculated by dividing a company’s total Liabilities by its Book Value Equity. The Net Debt to Earning Before Interest and Taxes ratio is a financial metric that measures a company’s debt level relative to its Gross Profits. It is calculated by dividing a company’s Net Debt (total debt less any cash or cash equivalents) by its EBIT (Gross Profits). Argonaut’s Net Debt-to-EBIT ratio stands at 6.65. Generally, a lower number indicates a stronger financial position, but if a company has negative earnings, this will cause the ratio to become negative, which doesn’t represent a strong financial position. When analyzing this metric, make sure the earnings aren’t negative before coming to a conclusion.
Companies that I found efficient for comparison include New Gold, Alamos Gold, Calibre, SSR Mining, Coeur Mining, Wesdome, I-80, Oceana Gold, and Aura Minerals. Argonaut Gold’s total reserves and resources are similar to all of these companies, including B2 Gold. B2 Gold was not mentioned because their gold production in 2023 exceeded 1 million ounces. Each company mentioned has a much higher market capitalization than Argonaut Gold, with several valued at or above US$1 billion. For instance, New Gold, Alamos, Coeur, Wesdome, B2 Gold, and Oceana are all valued at or above US$1 billion. Some of the companies, including Wesdome, I-80, and Fortitude, produced less AU than Argonaut Gold in 2023. If you were to analyze every financial metric on this table for these companies and compare them to Argonaut Gold, you’ll see that the biggest difference in these metrics is the market capitalizations. Argonaut Gold’s is significantly lower, but all other metrics are similar and at times Argonaut Gold’s results are superior. Argonaut Gold’s reserves and resources are close to the average of all companies on the table. If we eliminate I-80 Gold’s net profit margin from the average, the average net profit margin is about 7%. Argonaut Gold’s net profit margin, without optimizations and expansion, is already above the average. Their debt/asset ratio is just above the average. Their book value equity is higher than New Gold, Calibre, and Wesdome. Argonaut Gold’s book value to market capitalization ratio is the highest of all companies, excluding SSR Mining. When analyzing Cash and Equivalents, we see that Calibre, Coeur, Wesdome, I-80, Oceana, and Fortitude all have similar or less cash and equivalents than Argonaut Gold. A couple of companies valued at US$1 billion carry negative working capital balances. For instance, Coeur, Wesdome, I-80, Oceana, and Fortitude all have similar, less than, or a negative working capital balance compared to Argonaut Gold. When analyzing Free Cash Flows (FCF), Argonaut Gold’s FCF is US$4 billion, which is higher than the FCF of New Gold, Equinox, SSR, Coeur, Wesdome, B2, Ocean, Fortitude, Aura Minerals and the average FCF of the table. The average Free Cash Flows of the table is US$3.7 billion. Next, we’ll look at NPVs across the table. The average NPV excluding Barrick's is about US$700 million. Companies with lower or similar NPVs include New Gold, Equinox, Wesdome, I-80, B2, Fortitude, and Aura Minerals. It’s important to understand that the higher the annual production and the fewer years to extract all reserves and resources, the higher the NPV. For instance, Alamos has similar total reserves and resources but a much higher annual production. The discount rate is also similar to Argonaut’s. Alamos Gold’s net profits margin is twice that of Argonaut’s. Alamos Gold's NPV stands at US$2.6 billion. Looking into Argonaut Gold’s future, we see optimizations and expansions which will result in a higher production rate, lower OpEx, and a higher net profit margin. In conclusion, optimization and expansion will result in the NPV increasing substantially.
Something to note is that Fortitude Gold’s Market Capitalization stands at US$100 million less than Argonaut Gold’s. The company’s reserves and resources total 187.5k gold ounces, and their annual production in 2023 was only about 38k gold ounces.
Having said all that, I also believe that adopting a holistic approach to investing is extremely beneficial and comes highly recommended. A holistic approach encompasses aspects such as examining ownership, understanding market sentiment towards both the company and the commodity of gold, and scrutinizing insider trades.
I appreciate your attention. Farewell.