Gran Colombia Gold: The Toroparu Gold Copper Project Looks Attractive

Summary

• The company announced second-quarter revenues of $96.35 million, up 24.9% from the same quarter a year ago and down 5.5% sequentially.
• Gran Colombia announced production of gold of 52,198 Au Oz and 54,573 Ag Oz at its Segovia operations in 2Q21.
• I recommend buying TPRFF below $3.70.

Vitoria Holdings LLC/iStock via Getty Images

Investment Thesis

• Presentation

The Canada-based Gran Colombia Gold (OTCQX: TPRFF) is a gold and silver exploration, development, and production company mainly focusing on Colombia. The wholly-owned Segovia operations in Colombia is the main producing asset for the company.

Also, the company owns 44.3% (not including warrants) or 53.2% (with warrants) of the Marmato mine Project in Colombia, under Caldas Gold Corp. (OTCQX: ALLXF), which it spun out on February 25, 2020, through a reverse takeover with Bluenose Gold.

Source: previous Presentation

• Q2 Snapshot and commentary

The company reported its second-quarter 2021 results on August 12, 2021. Of course, the significant events for this quarter are completing the gold X transaction and closing a $300 million notes offering.

Source: Presentation

CFO Mike Davies said in the conference call:

on June 4th, we closed the acquisition to add the advanced staged Toroparu gold copper project in Guyana to our asset base. With the high grade intercepts announced in July from Gold X’s 2020-2021 drilling program, we couldn't be more pleased with our acquisition. To support our growth, on August 9th, we closed the $300 million notes offering. Combined with the $138 million of advanced deposits from the pre-existing Wheaton stream on Toroparu, the development of this project is now fully funded.

• Investment Thesis

Gran Colombia shows a solid profile with a producing mine complex offering excellent growth potential. The company indicates that the Segovia complex operates only on 3 of the 27 known veins in the RPP-140 license.

More, the company presents a solid balance sheet with no net debt and steady production. Finally, the recent acquisition gives shareholders diversity and significantly reduces the risk of relying only on a single asset.

However, the gold price outlook is uncertain and depends on the Fed's decision to battle rampant inflation. If the gold price continues to weaken, TPRFF may drop further.

Hence, I recommend trading the short term with about 50% of your position to reduce your risk exposure and keep only a core long-term position.

• Stock Performance

TPRFF has recently underperformed the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) after a long period of stagnation. It is a good sign for 2021.

CFO Mike Davies said in the conference call:

the second quarter is always the quarter that bears the biggest burden in our cash flow, given the income tax installment cycle in Colombia. The second quarter this year was no different, yet even after paying $49 million of income taxes, our second quarter operating cash flow was 12.8 million.

Gran Colombia - Financial Snapshot 2Q21 - The Raw Numbers

Gran Colombia	2Q20	3Q20	4Q20	1Q21	2Q21
Total Revenues In $ Million	77.13	113.14	99.67	101.92	96.35
Net Income in $ Million	-16.80	24.15	-36.53	124.56	29.80
EBITDA $ Million	-0.72	44.28	-17.61	143.45	53.69
EPS diluted in $/share	-0.27	0.17	-0.61	1.28	0.28
Operating Cash flow in $ Million	6.43	67.71	30.42	13.62	12.79
Capital Expenditure in $ Million	10.81	14.35	23.67	11.12	15.77
Free Cash Flow in $ Million	-4.38	53.37	6.76	2.50	-2.98
Total Cash $ Million	87.75	138.20	122.51	73.71	57.80
Total Long term Debt (incl. current) In $ Million	67.28	63.43	140.21	57.00	40.86
Shares outstanding -(diluted) in Million	61.34	74.95	61.67	73.99	83.90/132*
The dividend is paid per month now/ Quarterly dividend in $/share.	-	0.034	0.034	0.034	0.034

Click to enlarge

Data Source: Company release. (More data available for subscribers only).

* CFO Mike Davies said in the conference call:

With the closing of the Gold X acquisition in June, we issued 36.8 million shares to the former shareholders of Gold X, bringing our issued and outstanding number of shares to 98.5 million. We also honored 9.4 million Gold X warrants that represent the equivalent of 6.5 million Gran Colombia shares at the exchange ratio. On a fully diluted basis, we would have 132 million shares. And if all warrants and stock options are exercised, the incremental cash proceeds to the company would total approximately $100 million US.

Analysis: Revenues, Earnings Details, Free Cash Flow, Debt, And Gold Production

1 - Total Revenues and others were $96.35 million in 2Q21

The company announced second-quarter revenues of $96.35 million, up 24.9% from the same quarter a year ago and down 5.5% sequentially.

It was a decent quarter with gold production and a multi-year record gold price realized that I would analyze later in this article.

The second-quarter adjusted EBITDA was $48.0 million compared to $37.6 million in 2Q20.

2 - Free cash flow was a loss of $2.98 million in 2Q21

Note: Generic free cash flow is cash flow from operations minus CapEx.

The trailing free cash flow TTM is now $59.03 million, with free cash flow in 2Q21 of a negative $2.98 million.

3 - Gran Colombia was net debt-free at the end of the 2Q

At the end of June 2021, Gran Colombia had a cash position of approximately $57 million.

The aggregate principal amounts of the Gold Notes and Convertible Debentures outstanding were reduced to $19.75 million and CA$18 million, respectively. Also, the company indicated the successful completion of the acquisition of the Toroparu Project in Guyana and the recently announced high-grade drilling results from our ongoing exploration programs at Segovia.

With the closing of the Gold X acquisition in June, we issued 36.8 million shares to the former shareholders of Gold X, bringing our issued and outstanding number of shares to 98.5 million. We also honored 9.4 million Gold X warrants that represent the equivalent of 6.5 million Gran Colombia shares at the exchange ratio. On a fully diluted basis, we would have 132 million shares. And if all warrants and stock options are exercised, the incremental cash proceeds to the company would total approximately $100 million US.

4 - Production of gold was 52,198 Au Oz and 54,573 Ag Oz at its Segovia operations in 2Q21.

• Gold and Silver production: Historical chart

Production comes from Segovia operations mainly. Segovia operations include:

1. Sandra K mine
2. Providencia mine
3. El Silencio mine
4. Carla is a potential with a probable reserve of 33K Au Oz.

With Maria Dama Processing Plant and "El Chocho" Tailings Storage.

The Segovia operations processed an average of 1,581 tonnes per day ("tpd") in the second quarter of 2021, with an average head grade of 12.6 g/t.

In the conference call, the company indicated that the polymetallic plant would be producing in 4Q21.

Last quarter, we also mentioned the new polymetallic plant that Lombardo and the team are constructing in Segovia to recover zinc, lead, gold, and silver, from our tailings, into concentrate. Construction is expected to be completed in the third quarter, and we should start to see returns on this investment starting in the fourth quarter.

The company expects its 2021 annual gold production at Segovia between 200K and 220K ounces.

• Gold Production for 2Q21 per mine

Source: Presentation

• Quarterly AISC (consolidated) and the gold price received: Chart history

• Great Pipeline projects

1. Zancudo Project - Colombia 100%
2. Juby Project - Ontario Canada with Caldas Gold
3. Toroparu Project - Guyana to be 100%
4. Meadowbank - Nunavut 26%

Technical analysis (short term) and commentary

TPRFF forms an ascending triangle pattern with resistance at $4.10 and support at $3.65. The trading strategy is to sell about 30% between $4 and $4.2 and accumulate between $3.70 and $3.55.

For those who have decided to keep a long-term position, I recommend strongly trading LIFO while holding a core long-term position for a potential test of $5s or higher. Remember, adopting the correct investing strategy is the crucial element that makes you a winner.

Watch the gold price like a hawk.

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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.