Griffin Mining Limited

Griffin Mining Limited (LON: GFM) is an FTSE AIM All-Share listed multi-jurisdiction, multi-asset, gold production, development, and exploration entity.

Rationale for Valuation – SELL at GBX 97.50

• Reduction in Gold & Silver Production: GFM had witnessed a quarter-on-quarter and a year-on-year drop in gold and silver production during Q3 FY21 when compared with Q2 FY21 and Q3 FY20, respectively.
• Increase in Cost of Sales: The Cost of sales increased by around 65.6% during H1 FY21 when compared with H1 FY20.
• Weak Liquidity Levels: On the liquidity front, the quick ratio and the current ratio remained significantly lower than the respective industry median of 1.16x and 1.83x during H1 FY21.
• Unfavorable Technical Indicators: From a technical standpoint, the 14-days RSI of ~65.26 indicates a correction in the near term. Also, the stock price is hovering between the upper Bollinger band and the middle Bollinger band, suggesting a decline over the short term.

Key Risks

• Hawkish comments from BOE Governor: The sooner-than-expected rise in interest rates indicated by the Bank of England’s governor might keep investors away from the UK Equities.
• Rise In Bond Yields: The rise in UK bond yields would keep pressure on the gold price.
• Volatile Commodity Price: The high volatility in gold and silver price could have an adverse impact on the top-line revenue of the Company.
  

Q3 FY21 Production Update (as of 12 October 2021)

(Source: LSE Website)

Increase in Total Production: Tonnes processed during Q3 FY21 remained 5.9% ahead of the Q2 FY21 levels. However, the gold production and silver production went down significantly from the previous quarter and the prior-year levels.

H1 FY21 Results (for the six months ended 30 June 2021, as of 09 August 2021)

 (Source: LSE Website)

• The Turnaround in 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.
• Operational Cash Flow: 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.
• Robust Top-Line Business: The H1 FY21 revenue surged by around 154% to USD 54.10 million when compared with H1 FY20

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion 

GFM had warned of the potential headwind of possible restriction of all mining and processing activities, including Caijiaying, because of the Winter Olympic Games. Moreover, the stock price had shown a substantial upward trajectory since the release of Q3 FY21 production numbers. Considering the penny nature of the stock, it may show volatile movements because of several factors such as rising inflation, increasing bond yields, an economic slowdown in China, and the Evergrande fiasco. Thus, it would be prudent for the clients to book profit at the current levels on this Company. The stock made a 52-week High and Low of GBX 171.11 and GBX 63.20, respectively.

Considering the weak liquidity, decline in gold & silver production during Q3 FY21, and unfavorable valuation as done using the above method, we have given a “SELL” recommendation on Griffin Mining Limited at the current market price of GBX 97.50 (as of 20 October 2021 at 08:25 AM GMT+1). 

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

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