Mineros S.A. (TSX:MSA) - Unique Gold Producer with Strong Financials and High Dividend Yield

Sep 19, 2024

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Interview with Alan Wancier, CFO of Mineros SA

Our previous interview: https://www.cruxinvestor.com/posts/mineros-sa-tsxmsa-230k-ozyr-gold-producer-with-12-dividend-yield-5500

Recording date: 17th September 2024

Mineros S.A. presents a unique investment opportunity in the gold mining sector, combining sustainable practices, strong financial performance, and an attractive dividend yield. With operations in Colombia and Nicaragua, the company produces between 210,000 and 230,000 ounces of gold annually, employing innovative and environmentally friendly mining techniques.

In Colombia, Mineros operates one of the largest alluvial gold mines in the world, producing 80,000 to 90,000 ounces of gold per year. The company's approach to mining is notably eco-friendly, using only water and gravity for extraction without chemicals or cyanide. Powered by its own hydroelectric plant, the operation boasts a minimal environmental footprint. As mining progresses, Mineros systematically rehabilitates mined areas, further demonstrating its commitment to sustainability.

The Nicaraguan operations showcase a different but equally innovative approach. Here, Mineros produces about 130,000 ounces of gold annually, with 90,000 ounces sourced from artisanal miners. This unique model supports approximately 6,000 local miners, paying them 40-45% of the spot gold price. By integrating artisanal mining into its business model, Mineros has created a socially responsible operation that benefits the local community while maintaining profitability.

Financially, Mineros demonstrates robust performance. In the second quarter, the company reported $43 million in net income and $90 million in EBITDA. Extrapolating these figures suggests potential full-year EBITDA of $170-180 million. Despite this strong financial position, Mineros appears undervalued with a market capitalization of around 300 million Canadian dollars.
One of Mineros' most attractive features for income-focused investors is its impressive dividend history. The company has paid dividends for 40 out of the last 42 years, currently offering a yield of 12-13%. This high yield is attributed to the company's low valuation rather than an unsustainable payout ratio, suggesting potential for capital appreciation alongside the income stream.

Looking ahead, Mineros is actively pursuing growth opportunities, both organically and through acquisitions. The company is exploring an underground mine project in Nicaragua and is open to expanding into new geographies. Management believes their strength in obtaining and maintaining social licenses to operate in challenging jurisdictions provides a competitive advantage in pursuing these growth opportunities.

The macroeconomic environment appears favorable for gold producers like Mineros. With geopolitical tensions and expectations of declining interest rates worldwide, the outlook for gold prices remains positive. This backdrop, combined with the perceived undervaluation of gold companies relative to gold prices, creates potential for industry consolidation through mergers and acquisitions.

However, investors should consider potential risks, including political and regulatory challenges in Nicaragua and Colombia, gold price volatility, and operational risks associated with artisanal mining. Additionally, while Mineros emphasizes its environmentally friendly practices, ongoing monitoring of its ESG performance is advisable.

In conclusion, Mineros S.A. offers a compelling proposition for investors seeking exposure to gold with a focus on sustainability and income. Its unique operational model, strong financials, attractive dividend yield, and growth potential make it an intriguing option for those looking to diversify their portfolio with a socially responsible gold mining stock.

View Mineros S.A.: https://www.cruxinvestor.com/companies/mineros-sa