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2019-11-13 17:13:20


I believe that the current price for Greta Panther Mining Limited (GPL) could offer an entry point into a sector that is poised to grow and increase its margins.

Therefore, although I remain neutral on the stock, which has some key fundamental problems, I will be keeping a very close eye on this company. 2020 could signal a change in trend and if GPL manages to turn things around, the stock could easily double in price over the medium term.

Company Overview

Great Panther Mining Limited operates as a precious metals mining and exploration company. It explores for silver, gold, lead, and zinc ores. The company operates three mines, including the Tucano gold mine in Amapá State, Brazil; and two silver mines in Mexico, as well as the Guanajuato mine complex and the Topia mine in Mexico. Its exploration properties also include the El Horcón, Santa Rosa, and Plomo projects in Mexico; the Tartaruga project in Brazil; and the Argosy project in Canada.

Source: SA Overview

Latest news and filings

On October 31st, GPL released its 2019 Q3 results. The results surprised investors and management by missing EPS by $0.05.

However, this wasn’t the most surprising news to come from this, with CEO James Bannantine resigning on the same day. Board Chair Jeffrey Mason has assumed the additional role of interim President and CEO until a permanent successor is in place.

Finally, it is also important to mention that GLM acquired Beadell in 2018 in a controversial deal which significantly changed the company's operations in terms of size and type. (Now GLM is mostly a gold-producer.)

What is wrong with GPM?

Currently trading at $0.50, the company has come a long way down. Indeed, a comparative analysis between the financial state of the company now and 10 years ago justifies this depreciation.

Need for cash

Without a doubt, this is the biggest reason for concern when looking at this company. In short, the mining operations of GLM just don’t seem to be profitable enough. A quick look at operating revenue and FCF reveals as much.

Data source: Seeking Alpha

Source: Seeking Alpha

As we can see, the company has struggled to produce positive results and the necessary FCF from its operations.

This would be less of a problem if GLM had better profitability, but the truth of the matter is that GLM has been forced to finance its operations through shareholder dilutions, which is proven by GLM’s $25 M at-the-market offering. In turn, this wouldn’t have been necessary 10 years ago, when the company was debt-free.

Debt burden

In 2018, GLM bought out Beadell, an Australian company with mining operations in Brazil. The move has allowed the company to double its production. Another interesting result of this acquisition is that now GLM is producing more gold than silver.

The move has been seen as controversial. Before the acquisition, GLM was a relatively healthy company with close to no debt. Beadell, on the other hand, carried $83 M in debt, resulting from the upgrades made to its Tucano mill. GLM came in near the end of this process, hoping to reap the benefits from increased production.

The effects the acquisition had on the balance sheet are easy to see, while the positive results are somewhat harder to quantify, though we will discuss this further on.

Here’s a look at the evolution of cash and the debt burden.

Data source: Seeking Alpha

Furthermore, GLM has seen a substantial increase in its liabilities. Current liabilities have gone from representing 11% of the balance sheet to above 27%. Long-term liabilities have followed a similar path almost doubling their weighting in the BS.

With short-term liabilities of around $80 million, GLM is in desperate need of cash or refinancing.

Low profitability

As far as the industry is concerned, GLM is on the higher end of cost production. In 2019, AICS as of the last nine months stands at $1277. This is somewhat above management's forward-guidance range of $1,030 – $1,130.

Of course, GLM’s high production costs have prevented the company from turning a profit and put the company at a disadvantage in terms of profitability, which we can see in EBITDA margins. The following table compares GPL with two of its main competitors Silvercorp Metals Inc. (SVM) and Avino Silver & Gold Mines Ltd. (ASM).




Sector median

Gross Profit Margin





EBIT Margin










Net Income Margin





Levered FCF Margin





While GPL has better numbers than GPL, it still lags behind the industry average in terms of EBITDA and net income.

Data Source: Seeking Alpha

Why I like GPM at ~$0.50 today.

At $0.50 Panther Mining looks interesting due to some key macro and business factors.

A positive outlook for the precious metals industry

Gold prices rallied in 2019 to over $1500. Since July-August, the price stabilized at around $1500-1400.

I should, and will dedicate a whole other article to this subject, but I have a solid and well-grounded belief that precious metals will continue to appreciate in the short/mid-term, perhaps substantially. If there was any doubt in people’s minds before it is now evident that the U.S. is embarking on a road to QE Infinity.

This, sustained, increase in the gold price will allow GPL to turn a profit. Furthermore, thanks to its recent doubling in production, the effects will be even greater.

Increased Production

While the Beadell deal has been widely criticized by investors, it is undeniable that the production has increased significantly. We must see this acquisition as what it is, an investment in the future, which is due to pay off now, and for the next few years.

Source: Q3 2019 Financial Results

GPL’s Financial Results Presentation paints an overly optimistic, yet promising outlook for the company. To get some sense of the magnitudes presented, let’s remember that in Q3 2018, total revenue was $11,691 M vs. $71,002 M in Q3 2019, Although production costs remain high, this has certainly helped GPL produce cash and reduce debt, currently holding $27.3 M in cash and short-term deposits.

Source: Q3 2019 Financial Results

Again, the results show quite an improvement; lower debt, more cash, and working capital. With EPS unchanged at -$0.02/share.

While a lot has changed, what hasn’t changed and management hoped would, is All-In Sustaining Cost (AISC). Production costs have barely fallen from $1,367 to $1,330, and keep in mind that gold ounce stand as of today at $1,456.20

Without a doubt, this is the biggest challenge Great Panther Mining Limited faces, and what, in my opinion, will make a difference from a potentially good buy to a great one:

Can GPL reduce its extraction cost?

This is the question we must answer, and also the hardest. On one hand, management was expecting a lower AICS, projecting estimates a year ago of $1,030–$1,130. Perhaps management didn’t completely factor in the increased complexity of running another mine miles away and the logistical and administrative costs they would incur.

In the Q3 earnings call, management was candid about this fact and highlighted that reducing AICS was their top priority. So far, they have maintained ~93% gold recoveries and improved gold grades.

I have my doubts at the moment, which is why, as I state in my thesis summary that I am neutral and expectant to see how this metric evolves in 2020.

However, imagine a 2020 where Panther Mining can sell ~200,000 ounces of gold at $1550, with an AISC of $1250. This would produce an operating revenue of $60 M. Indeed, if/when that happens, the company will be trading at a lot more than $0.50.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any 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.

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