Griffin Mining Limited (LON: GFM) – Solid Year-on-Year growth of around 213.6% in H1 FY21 Gold Production

Griffin Mining Limited (LON: GFM) is an FTSE AIM All-Share listed mining & investment company incorporated in Bermuda.  Moreover, GFM holds nearly 88.8% interest in Hebei Hua Ao Mining Industry Company Limited and 90% of Hebei Sino Anglo Mining Development Company Limited. Furthermore, the Company is also engaged in the operation of the Caijiaying Mine to produce zinc, gold, silver, and lead.

Growth Prospects

• Zone II and Zone III Expansion: The Awarding of the Zone II mining licence and the expansion of Zone III would enable production volume to show an increase to 1.5Mtpa by the end of 2022.
• Positive Metal Price Dynamics: The Global zinc price had witnessed a recent rally driven by large global stimulus packages and ongoing worries regarding reduced Chinese production.
• Robust Production Volumes during H1 FY21: GFM had shown a robust jump in mining volumes from 323,536 tonnes during H1 FY20 to 475,785 tonnes for H1 FY21, reflecting improvements from 2020 levels which got adversely impacted by enforced suspensions.

Key Risks

• Failure to Discover Substantial Reserves: The failure in discovering substantial reserves could adversely affect the GFM’s future performance as exploration and development are capital-intensive activities.
• Strengthening of US Dollar: The continuing strengthening of the US dollar has put pressure on the gold price. Moreover, the key US inflation data due to release on 14 September 2021 could determine the direction of the US dollar and gold price.
• Beijing 2022 Olympic Games: Lack of significant announcement regarding Winter Olympic Games had created uncertainty regarding Provincial borders and transport of workers, explosives, re-agents and other critical supplies.
• Volatile Commodity Price: The high volatility in gold and silver price could have an adverse impact on the top-line revenue of the Company.

Gold Industry Dynamics

• Global gold ETFs had shown a net outflow of around 22.4 tonnes during August 2021, equivalent to USD 1.30 billion, after showing a marginal inflow during June 2021 and July 2021.
• The inflow into European and Asian Funds got outweighed by outflows from North American funds.
• The global Asset under Management stood at 3,611 tonnes during August 2021, equivalent to USD 211 billion, around 0.6% lower than the prior month.
• The gold futures price had witnessed a first weekly decline in the last five weeks, which indicated ongoing concerns regarding the timeline of US Federal Reserve asset tapering.
• Nonetheless, the gold price had witnessed a short rally since the last Federal Reserve meeting hinted of sooner-than-expected asset tapering. Moreover, there is a crucial Federal Reserve Meeting lined up for 21 September and 22 September 2021.

 (Source: REFINITIV; Analysis done by Kalkine Group)

On a daily chart, COMEX Gold Futures' price (USD 1,792.30) is sustaining between the lower Bollinger band and the middle Bollinger band, indicating an upside direction for the commodity. The momentum indicator RSI (14-period) is trading at ~48.30 levels. 

Now, we will analyze the Key Fundamental Statistics & Shareholding Pattern of Griffin Mining Limited.  

Usdan (Adam) is the most significant shareholder as it holds nearly 33.24 million shares as of 30 June 2021.   

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 09 August 2021)

(Source: Company result)

• The H1 FY21 revenue surged by around 154% to USD 54.10 million when compared with H1 FY20.
• With regards to the profitability, the Company had displayed a favourable turnaround and reported a profit after tax of USD 10.3 million during H1 FY21, while it had reported a loss after tax of negative USD 3.8 million during an equivalent period of the prior year.
• On the cash front, GFM had a net cash inflow from operations of USD 16.81 million during H1 FY21, while there was a cash outflow of USD 4.26 million for H1 FY20.
• The average price received for zinc metal had shown a robust increase of around 69.4% from USD 1,304 per tonne for H1 FY20 to USD 2,209 per tonne during H1 FY21.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

  (Source: REFINITIV; Analysis done by Kalkine Group)

On 13 September 2021, at 08:15 AM GMT, GFM’s shares were trading at GBX 85.24, down by around 0.19% from the previous day closing price. Stock 52-week High and Low were GBX 171.11 and GBX 56.95, respectively.

From a technical perspective, the stock is hovering between the lower Bollinger band and middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~35.72 is inching towards the oversold territory, reflecting an upside momentum in the stock price.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

GFM had produced stellar H1 FY21 results, benefited by a substantial improvement in the market price for zinc and reduced smelter treatment charges. The production volumes had shown an overall jump of around 47.1% during H1 FY21, with solid growth of approximately 213.6% in the gold production. The Company had projected 2021 business performance to remain significantly ahead of the 2020 levels, with H1 FY21 profit before tax already surpassed the FY20 levels. GFM had completed the design of the Zone II mine and remained on target to begin production in 2022. GFM would seek to explore more opportunities that would complement the current operations. Overall, the total production would reach 1.5 million tonnes per annum by the end of 2022 with the addition of the Zone II mine.

Considering the robust revenue growth during H1 FY21, strong production outlook, improved cash position, well-positioned balance sheet, strong commodity price dynamics, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Griffin Mining Limited at the current price of around GBX 85.24 (as on 13 September 2021 at 08:15 AM GMT), with lower-double digit upside potential based on 8.27x Price/NTM earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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