1 The Company
Starcore International Mines (SHVLF, Financial) operates the San Martin mine located in Mexico. The deposit contains both gold and silver and has been mined continuously for more than 20 years.
| Number of shares | 143,390,465 |
| Number of warrants | 18,745,000 |
| Fully diluted share count | 162,135,465 |
| Share price | $0.16 |
| Market cap | $22.4 million |
| Enterprise | $13.42 million |
| P/E | 3.30 |
| P/B | 0.50 |
| P/S | 0.71 |
| Tickers | SHVLF, TSX:SAM |
The stock is currently trading at a very low P/E ratio.
1.1 History
Starcore acquired its only operational gold mine, San Martin mine, from Goldcorp in 2007. The San Martin mine has produced over 550,000 gold equivalent ounces since 1993. Earliest reports estimate that 250,000 tonnes grading 15g Au/t and 100g Ag/t were extracted between 1900 and 1924 from the San Martin mine.
(Source: Investor presentation)
2 Management
The CEO Robert Eadie has 20 years of industry experience. Robert Eadie has been with Starcore since October 2003. Collectively, Starcore's team has over 100 years of industry experience.
2.1 Compensation
Here is a table of Starcore management's annual salaries for the year ending July 31, 2013:
| Name | Title | Annual Salary |
| Robert Eadie | CEO | C$240,000 |
| Gary Arca | CFO | C$180,000 |
| David Gunning | COO | C$180,000 |
(Source: Annual General Meeting)
I believe the management compensation is reasonable for this size of company. Here is a table of directors' compensation for the year ending July 31, 2013.
(Source: Annual General Meeting)
Again, very modest compensation for the board.
2.2 Insider Ownership
As at July 7, 2014, Starcore’s directors and senior officers held a total of 2,699,700 shares or 1.9% of the company. The CEO, Robert Eadie, has been buying shares at the open market this year and last year. This year he purchased 95,000 shares at C$0.155 on May 30. Robert Eadie currently holds 2,284,000 shares or 1.6% of the company. There have not been any insiders selling the shares since 2012 when the stock peaked at C$0.45.
3 Operating Summary
Here is a table of Starcore’s annual gold production since 2007:
| Year | Annual Production oz. Eq. Au |
| 2007 | 29,606 |
| 2008 | 21,367 |
| 2009 | 21,696 |
| 2010 | 18,156 |
| 2011 | 23,736 |
| 2012 | 19,213 |
| Jan 31 2013 - Jan 31 2014 | 26,304 |
| Jan 31 2014 - April 30 2014 | 5,338 |
The annual gold production has averaged 22,868 ounces since 2007.
4 Financial Summary
4.1 Current Situation
Starcore reported the fiscal 2014 third-quarter, which ended April 30, financial results on June 12 with the following highlights:
| Revenue | C$8.3 million |
| Net income | C$1.2 million |
| Cash | C$9.8 million |
| Debt | C$0 |
| Gold production | 5,338 ounces |
| Mine operating cash costs | $833 per ounce |
| All-in sustaining costs | $1,066 per ounce |
The fiscal 2014 third-quarter results were short of Starcore’s internal target for the quarter, but the company outperformed the previous year's production.
4.2 Historical Developments
Here is a table Starcore’s revenue and EPS since 2007:
| Fiscal Year | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| Revenue (C$ millions) | 18.5 | 27.1 | 24.1 | 23.2 | 39.5 | 57.0 | 30.2 |
| EPS (C$) | -0.06 | -0.04 | +0.02 | -0.05 | -0.05 | +0.11 | +0.03 |
Starcore became debt free in September 2013, which should help the earnings going forward.
5 Shares
Here is a table of Starcore’s number of shares since 2007:
| Fiscal Year | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| Number of Shares (millions) | 36.7 | 60.7 | 60.7 | 74.5 | 88.0 | 139.8 | 143.4 |
The number of shares has increased significantly since 2007. I don’t expect the number of shares to grow substantially from here on since Starcore is currently profitable and debt free. Starcore has 18,745,000 warrants outstanding at an average exercise price of C$0.23.
6 Outlook
Starcore expects to continue to operate the mine over an expected mine life of at least 6 years. The mine has maintained two years of reserves for the past seven years. The mine development team has been replacing more ounces than Starcore mines on a year-to-year basis. The San Martin mine has been successfully replacing reserves for the past 20 years. Starcore is also working to become a dividend-paying corporate entity.
(Source: Investor presentation)
7 Risks
I believe the two main risks are the price of gold and relatively low gold reserves. Starcore’s all-in sustaining costs were $1,066 per ounce in the most recent quarter compared to the current gold price of $1,320 per ounce. Starcore’s current gold reserves last only for two to three years. Starcore is a penny stock.
8 Conclusion
Starcore is currently trading at a P/E ratio of 3.3, P/S ratio of 0.7, and P/B ratio of 0.50. I believe Starcore could have at least 100% upside potential during the next 12 months.
(Source: Investor presentation)
Disclosure: The author is long TSX:SAM.
