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See my earlier posts on valuation based on a detailed financial analysis using $2,000 for achieved zinc selling prices. In present conditions, based upon expected 2018 EPS, I value Griffin at 144p and significantly more in 2019 and 2020. Even with the current low price of zinc which reflects mainly trade war nervousness, Griffin is 40% undervalued. I read the recent update to Wood McKenzie report on the zinc market: given low stocks, smaller Chinese miners cutting back production because of the costs of environmental compliance, and reduction in smelter capacity, zinc would now be around $3,000 if it wasn't for the Trump factor. Hold your nerve fellow Griffin's and buy on weakness. DYOR
It's to appoint the auditors and amend the bye laws relating to treasury shares: however cannot find the attachment to the notice so don't know what the amendment is.
For what it's worth the $2,000 I chose is less than GFM achieved in H1 2017, FY 2017 and H1 2018. What we know is Century have raised $40 million, their mine is ready to roll and C. 550,000 per year of concentrate will hit the markets starting in Q4 2018. They have take off agreements for most of this but it is likely to increase one warehouse stocks. The increase in global zinc production looks about balanced with the expected increase in demand. However, Trump trade wars may delay that demand increase to after supply increase so we may be in an oversupplied position for the next 12 months or so. Your choice is to try and trade in and out of GFM, or lock the shares away for two years and pick up the 150% gain from today's price. DYOR
Pessimistic? I cannot predict the future price of zinc: the $2,000 achieved selling price I chose to use seems reasonable with what we know about supply/demand in the zinc market. My main objective in producing these EPS estimates was to have a view of long term value in GFM to measure the volatile share price against. I have, for example, assumed zone 2 starts to come on stream in H2 2019, and in 2020 runs at around 50% of the production rate of zone 3. Will it come on stream later? Will they mine at the zone 3 rate? Don't know! What is clear is that, when it does start producing it will have 30% less zinc/ tonne than zone 3, double the amount of lead, 10% more silver and 50% less gold so I have plugged that into my estimates. I think, except for whatever views you may have on zinc price, my estimates err on the conservative side and should be achievable by GFM. It gives me enough confidence to hold my 250,000 shares and add on weakness.
As you know I used to run an equity research business, and maintain my own dividend discount model on Griffin. My estimates of intrinsic value are in earlier posts. After all the brouhaha on ADVFN (where I don't post), I decided to take a very close look at EPS forecasts for 2018, 19 and 20. I have analysed the historic production statistics and metals yields, the half1/half 2 variations, and made estimates for production from zone 3 for H2 2018, and FY 2019 and 2020. I have looked at the 2017 resource estimate for zone 3 and zone 2 which shows zone 2 to have significant variation in metals concentrations compared to zone 3. I have used these to estimate yields for zone 2. I have assumed we process 200 kt from zone 2 in H2 2019 and 500kt in 2020. In terms of expected selling prices I have tried to account for the current drop in zinc prices and also for the ramp up of the Century mine, which will be shipping concentrate from Q4 2018. Therefore I have used the following prices: Zn $2,000/tonne, Pb $2,000/tonne, At $14/is, Au $1,200/oz. I have adjusted cost of sales, admin, other and tax costs for the variation in production and revenue. For what it's worth (DYOR) my undiluted EPS @$1.30 are 2018 14.4p, 2019 18.4 p, 2020 25.6p. Apply your own forward P/E multiple to get share prices. IMHO a P/E of 10 is not demanding given this is a debt free, cash producing growth stock. Growth stocks are usually on much higher ratings, but we have China risk, illiquidity, lack of transparency. Happy to share more detailed analysis privately with other informed long term investors.
Hi Sage, Millwall, CD et Al. If you move to a private email thread for informed comment and analysis please count me in.
Hi Pilko, we know volumes of zinc sold were down because they mined lower grade ore. What the board hasn't told us is this a one off or is it the new normal. Achieved selling prices also seem poor when the zinc price held up above 3,000 until early June. Obviously we don't know how much they sell spot and how much forwards, and what the lag is between mining, processing and sales - I guess around 3 months. It is also complicated because they have stockpiles of mined ore. 20 million in options decreases fully diluted EPS by about 9% vs. undiluted EPS. For my models I assume an average price of 2,500 for zinc.Sageman may have more insight into the H1 mining operations but a bit more info from the BOD would be helpful.
Having had a chance to absorb the results in my opinion they were not bad compared to H1 2017. The small increase in EPS was welcome, as was the very significant improvement in the balance sheet. NCLs (net current liabilities) have been slashed from $37m at H1 2017 to $19m at FY 2017 and just $5 m at H1 2018. Cash, already at $28m should now start to accumulate rapidly until new production ramps up at Zone 2. H1 2018 does not look so good compared to H2 2017 and this has left investors disappointed. However it seems that GFN strained every wines to produce as much zinc from high grade ore as it could in H2 2017 to take advantage of the spike in prices, for which the BOD are to be congratulated. It was unlikely that this exceptional 6 months was going to be repeated. In my DD model I have not had to change selling prices, operating or admin costs as a result of the latest figures which is a relief. Where I am struggling is with products zinc volumes. Did GFN mine and process lower grade ore in H1 2018 out of choice (having pushed the best stuff in the previous 6 months), or is that all they have left? Are we to assume lower volumes from lower grades until zone 2 is brought into production? What are the quantities and qualities of ores in the mine and extension areas? Some further information from the BOD would be very welcome. In terms of my model, I have downgraded production for 2018, and assume zone 2 is operational for Q4 2019. This gives me fair value of 160p today, 190p for 2019, and a lot more for 2020!! These are relatively conservative estimates. I am holding onto my position as I don't know many companies which are debt free and likely to give me a 50% return over the next 12 months.
Hi all, not sure of the credentials of all posters on Griffin boards, especially on advfn which seems to be a bit short term. Igenuinely was an MD in corporate finance and had my own successful equity research firm. See my two previous posts on GFN valuation based on my own DCF calculations: I use a dividend discount model (based on distributable free cashflow) as it accounts for cash retained in the business for future investment. There some challenges invaliding GFN of which the biggest are timings of production from zone 2, average forward zinc price, and discount rate against a background of rising $ interest rates and increase in risk premium applied to Chinese assets. However, all scenarios give me valuations well above current levels. There are many reasons stock prices lag or lead intrinsic value. In GFN case these include no established institutional investor base, illiquidity, slow news delivery, and what seems like a lot of short term holders looking for an exit at 160 to 180p. I intend to hold through the full year, hope a lot more sellers exit, and that the next roadshow pulls in institutions. For that, though, the BOD will need to be transparent on dividend policy.
So my own DDM had GFM at 175 last week, or 150 with a higher discount rate for the extra risk of the trade war. Licence news, and making some assumptions about when the new production comes on stream, I have 225 fair value, and 180 at current China ' risk off'. Recovery in zinc price from my assumed long term average of 2,500 gives fair value of 275. NOT SELLING!
Hi all, I have been a shareholder for a couple of years and hold a material number at around 30p. I followed the enlightened discussions on iii but have not posted. By way of background, before retiring I was MD in corporate finance at a major investment bank and before that an equities analyst. Based on my own dividend discount model I value Griffin in current conditions at 175p +/-. The main guesstimates in the model are volumes mined (licence, zone 2, or negatives like mine closures), future zinc price (I have assumed 2,500 on average but not constant), and the discount rate (in particular the risk premium: dollar risk free rate but high risk premium). The recent weakness in the Griffin share price is entirely consistent with the current increase in risk premium being applied to Chinese assets. I think this doesn't allow for the relative positives of the Griffin story, but it is understandable. I think c.150p+ is a fair price under current risk conditions. I also think the dividend question is somewhat irrelevant: it might expand the investor pool, but valuation models are based on ownership of the distributable free cash flow of a business not whether that cash is retained or paid out. I'm holding as I think the share remains undervalued in the present 'risk off' conditions.