Starcore (SAM.TO) vs. Gold Resource Corp. (GORO)

Instead of a weekend report I’d like to do a quick comparison of two gold stocks, and discuss why I think Starcore is still a great opportunity.  I own shares of Starcore and am biased so take what I say with that in mind.

After Starcore indicated last year that they’d pay up to 50% of their earnings as dividends I thought it was a great opportunity that the market was completely ignoring.  To do a comparison though with what that would mean to the stock I looked at a similar gold stock that paid 50% of their earnings as dividends, and that was Gold Resource Corp.  GORO has since reduced their payout ratio to around 25% of earnings due to low gold prices and other issues.  But that is still a nice payout ratio for a mining stock and the market has rewarded GORO with a higher market cap than it would normally have with no dividend.

If you want to boil it all down to simple numbers, currently GORO produces about 3X as much gold as Starcore, but has a market capitalization of 10x of Starcore.  And with Starcore’s new dividend, assuming they payout another annual dividend of about the same amount next year, Starcore has a similar payout ratio to GORO.  So either the market is overvaluing GORO or undervaluing Starcore or both because the discrepancy in valuations doesn’t make a lot of sense.  GORO does have more properties than Starcore but since they aren’t producing for GORO they shouldn’t be worth much in the current marketplace.

So given the fact that Starcore is now a dividend paying stock, if it was valued at a simliar valuation to GORO given its gold production numbers it would have a 75 million to 100 million market cap.  Instead it only has a 30 million market cap currently.  So in my view Starcore could easily double from here and not even blink an eye because it’s undervalued compared to other mining stocks.  And that would still put the dividend at 5% if Starcore traded at 40 cents assuming they pay another 2 cent dividend next year.  That would still be one of the highest dividends of any gold mining stock and that’s after 100% price appreciation from here.

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

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