Share Watch: Another Big Run in Griffin Mining on the Way

Caijiaying mine site

Griffin Mining Limited (GFM.L) is a mining and investment company, incorporated in Bermuda and listed on the London AIM market. The major asset of the Company is an 88.8% interest in Hebei Hua Ao Mining Industry Company Limited, the holder of 6.0 square kilometres of mining and exploration licences and the mine and processing facilities at Caijiaying in the People’s Republic of China. The Company also holds 90% of Hebei Sino Anglo Mining Industry Company Limited, which controls 15.7 square kilometres of exploration licences immediately surrounding the Caijiaying Mine. The Company continues to aggressively explore, expand and develop the Caijiaying mine, whilst also investigating further potential acquisitions of mining projects that are capable of being brought into production and to meet historically preset, economic returns to shareholders.

On August 7th, 2018, GFM published half-year results for the period to June 30th 2018. The Company reported PBT of $21.3m on revenues of $54.1m and basic EPS of 8.95 cents (2017: 8.85 cents). The period in question saw a 21% fall in the zinc price, although this only marginally impacted profitability, while higher grade gold areas resulted in record gold in concentrate production. Operations at Caijiaying were maintained with minimal disruption throughout the first half of 2018. During the period, 448,530 tonnes of ore were processed to produce 16,873 tonnes of zinc, 459 tonnes of lead, 132,689 ounces of silver and 9,492 ounces of gold. Cost of sales of $23,336,000 in the first six months of 2018 was up on that incurred in 2017 of $20,820,000. This in the main reflects additional costs incurred extracting ore from greater depth and backfilling waste material and tailings to minimise surface storage of tailings. With cash flows from operations now directed towards the development of the Zone II area at Caijiaying and in line with previous years’ practice of determining annual dividends at the time of the Company’s full year results, no interim dividend has been declared by the Board of Griffin. Chairman Mladen Ninkov said it was a “wonderful result in light of the 21% fall in the zinc price since the beginning of the year.” He added that H2 “will remain challenging if commodity prices remain subdued.  However, the recent signing of the Contract of Transfer and the progress towards the issue of the new Mining Licence over Zone II, sets the stage for an exciting 2019.”

Very Undervalued and an Outstanding Track Record

On numerous occasions in the past, VectorVest has flagged up the GFM investment opportunity to members. A strong run earlier in the year despite the weak zinc price was followed by a retracement in the stock through the summer months, followed by the beginnings of a recovery in September. Now trading at 111p, the stock logs an excellent RV (Relative Value) rating of 1.44 (scale of 0.00-2.00), but uncertainties over China and the trading environment weighs across the RS (Relative Safety) metric, where GFM scores a fair rating of 0.92 (scale of 0.00 to 2.00). Despite this, GFM logs a very good Relative Timing (RT) (stock price trend) rating of 1.30, (again on a scale of 0.00 to 2.00) and an excellent forecasted GRT (Earnings Growth Rate) of 29.00%. VectorVest believes the stock is well worth considering at current levels against a current valuation of 159p per share.

VectorVest U.K. price chart for GFM.L
Click or tap image to enlarge

A weekly chart of GFM.L is shown above over a period of 3 years. After an outstanding run from around 60p to 160p (which most VectorVest subscribers banked) the share has pulled back to the long-term support as defined by the inclined simple trend line of the chart. The pullback occurred in a three-wave pattern which technical analysts consider to be a correction rather than a change in the longer-term trend. From the low on 24th September at support the share has been strongly accumulated and is now on a BUY recommendation on VectorVest. A break and close above 118p would confirm a rising bottom which is a very positive sign.

Summary: A long standing favourite of VectorVest (and myself), GFM provides a reasonably predictable platform, which, if the timing is correct can yield decent returns. We believe such an opportunity exists now given the recent price action, technical picture and fundamental outlook as stated by the Chairman. Investors uncomfortable with mining operations in China may want to look elsewhere, but our view remains that the stock currently offers an attractive amount of upside even with softer commodity prices and a strong US$.

 

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