Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
This is a company I have only fleetingly heard of before. It ticks my boxes as an investment - I have two young children who love sugary food (but not drink). Questor in the Daily Telegraph has tipped this share without mentioning a p/e of c. 47. What is the potential growth in earnings profile?
Well. (deep breath). I believe that any purchases around the current price will be rewarding over several years. I suspect that the investigation into nearby land has pushed the prospect of a dividend even further down the line. The p/e on last years earnings is 21.6x (Hargreaves Lansdown quote 16.97 and TD Direct 22.34). Who knows what the p/e should be in the long run. There are risks of operating in China but the potential for increased throughput and the potential zone II licence should substantially increase profits over this and many, many future years. There has been a lot of investment over the last few years which should enable first class mining. The zinc price graph over the last month is appalling. It is, however, back to slightly above the price at the start of 2017. This is 70% above the starting price in 2016. Although the mine was shout for the start of 2016 most of the zinc would have been sold at prices way below current levels. Let's say last year's turnover of $66m ($48m attributable to zinc) is boosted by 30% with no change in throughput or costs. Noddy maths coming up. $66m x 30% = $20m. 2016 profit before tax was $10m. Could profit for 2017 be $30m? It's possible. Gold isn't so high. Currently $1,275 / oz compared to GFM's $1,154 in 2016. 10% higher. Silver, however, is currently $18.31 v GFM's $13.25 in 2016. If (and a big if) this is the price received by GFM - last year's sales of silver totalled 310,000 ozs this would be an increase in revenue (and gross profit?) of $1.5m The fundamentals for zinc seem very sound. Throughput will be higher in 2017 due to the closure in 2015/16. All this makes for a compelling investment case. I stupidly sold 29,000 shares last year to buy more Sirrius. Sirrius will come very, very good but I'd have been better holding my Griffin. I retain 102,135 shares at an average buying price of 26.53p so you should sense check my positive stance with your own research.
Everything does seem to be in GFM's favour. I bought more at 28p in December '14 and January '15. I'd recommend buying more now but........ as others point out GFM has a habit of getting to the current price and then retreating to 28p. QE has been around for a long time and might support commodity prices further into the future but who knows? Should GFM breach 50p in the next couple of months could I resist booking some profit? I doubt it but would love to have the chance. Could 80p 120p or 140p be possible in the next year? Yes. Likely? probably not until dividends start and that won't be for a couple of years at least.
GFM, and similar companies, post updates only on significant news. A doubling of capacity without anything like a doubling of costs will multiply profits when the p/e is already low. Listen to the FD's comments on GFM's website to understand some of the potential. I've bought between 28p and 40p over many years and think 60 - 80p is more reasonable but won't sell for less than £1.20 over the next 2 years.