Gran Colombia Gold is a producing gold company based in Colombia (but you could probably guess all of that from the name!). Gold stocks have been on an amazing run this year but I think this one has been a bit under the radar because of a debt restructuring and an odd capital structure. It also may have lagged a bit because they are in Colombia and they have interference from gangs at times but they are on the right side of the law so while it may cause disruptions at times (that could hurt the stock), I do not think it's an impairment.
They have a good website that details the capital structure and they provide annual guidance which they just raised the past quarter so I don't want to spend too much time rehashing information.
Basically in addition to about 250m shares outstanding, there are two sets of convertibles outstanding GCM.DB.U and GCM.DB.V, with face value of about US$53m and US$100m outstanding. Both sets of converts trade on the TSX in USD and are convertible at US$0.13 vs the last trade of the equity at C$0.125.
Based on the high end of their cash cost guidance of US$750 and using the spot gold price of $1350 and assuming 145k oz of production next year ( I think this is low based on their production growth so far this year and discussions with management), their potential EBITDA for 2017 is about US$87m or about C$110m.
To calculate EV/EBITDA you have some choices for EV. You can use the fully diluted share count as the valuation seems to cheap for the stock to trade at US$0.13 or below even with 1.46bn shares outstanding or you can fix the debt at face value and add the equity value. Either way projected EV/EBITDA is less than 2x.
I own some of the GCM.DB.U and mostly the GCM.DB.V. The latter has a 6% coupon paid monthly, is senior secured and trades at 86 on the dollar so not too far from conversion value. The former only has a 1% coupon and trades at 77 and often trades below conversion value.
This has created an arb at times and hedge funds are rightly buying the debs and converting to stock and selling in the market. In fact the share count has more than doubled this year so far and the amount of GCM.DB.U outstanding has dropped by a decent amount. This overhang is also constraining valuation.
The final thing I want to add is that there is a cash sweep for the debentures on any "excess cash flow" and the company must use it to buy back debentures and they have started that program. This could offset some of the dilution but they have said they will not pay above par for the debs (not a problem yet).
The multibagger potential comes from getting to say 6x EV/EBITDA which would be more in line with tier 3 producers. Even if it gets to 4x and the gold price lifts or they continue to grow it could be a multi-bagger.
Any feedback welcome.