Griffin – An Unusual Company But A Potential Value Play

27th Oct '09 by renj86

4 comments 6901 reads

Griffin is certainly an unusual company. Even after digging through the recesses of the Main Market and AIM, you would struggle to find many companies whose share price soared 65% since the beginning of this year despite a sharp decrease in net income! How to explain this apparent paradox? Well, it’s of course true that the company didn’t make any sales in H109 but there’s more to this statement than meets the eye….

The Business

Griffin Mining Limited is a mining and investment company. Its principal asset is the first new foreign owned and operated mine and processing plant in China at Caijiaying, which mined 433,000 tonnes of ore in 2008, producing c. 24,000 tonnes of zinc concentrate (together with smaller amounts of gold, silver and lead). Through China Zinc Limited, one of its subsidiaries in Hong Kong SAR of China, GFM indirectly holds 60% of the interests in Hebei Hua’Ao, the company registered for exploration and production of the Caijiaying zinc-gold mine. The Caijiaying zinc-gold mine enjoys great benefits from transportation as it’s closely located to the northeast of Beijing, in Hebei province. Hebei Hua’Ao also enjoys a preferential tax rate in China because of its status as a foreign investment enterprise ^[1] .

Griffin’s prospects are highly correlated with the price of zinc. Its main income is from the revenue of Hebei Hua’Ao, which in turn relies on the sales of zinc extracted from the ground. Griffin’s profitability was severely impacted by the fall in the price of zinc, which has decreased 46% in 2007, and further 50% in 2008 to $1,100 per tonne. Since the economies and financial markets around the world started to recover from economy pit in March 2009, the price of zinc has fortunately started to pick up from its three-year bottom.

Although Hebei Hua’Ao’s income mainly came from zinc ore which were traditionally in Zone II and Zone III, Griffin significantly increased the production of gold and silver in 2008, diversifying its income streams. Coming out of the economic downturn, Griffin’s enhanced throughput should position it well.

Griffin enjoys extremely low cost of production since its main site is in one of the poorest villages in China, not to mention that China is a country well known for its low labour cost. We can easily see the effect on the financial statements where the…

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The Company said that "it has had its formal application for a new mining licence to mine
below the 1300 level accepted (number 100000222220090369) and is now working on
having that application approved within the statutorily stipulated 28 working day period.
A new JORC compliant updated mineral resource estimate will be announced upon the
granting of the new mining licence"

And there was also a further operational update: "the Caijiaying zinc-gold mine has
returned to profitability in the quarter ended 30th September 2009 having processed
114,233 tonnes of ore to produce 6,783 tonnes of zinc, 1,351 ounces of gold, 38,019
ounces of silver and 218 tonnes of lead. This follows 33,152 tonnes of ore being
processed in June immediately after recommencement of operations following the
suspension of production in the first 5 months of 2009".

So things are looking good! :-)

Betasurfer

28th Oct '09

Great article, although events have overtaken it slightly - the 1300 mining license was granted yesterday, which is great news. See: http://www.stockopedia.com/news/announcement/GFM/091027gfm000866.htm/Griffin+Mining+Ld+Mining+Licence+Application+Accepted

doverbeach

"Griffin is a difficult stock to get to the bottom of. Prudent investors are unlikely to be satisfied by the thin amounts available on the website or recent public announcements. The financial statements are rather skimpy, operational updates seem to be few and far between and private investors are crying out for a detailed trading update giving a sense for total ore mined in Q3 and the mix of metals."

It always has been like that. It always looks a great value play, but getting any real info is like drawing teeth... I made some money on it a couple of years ago but too many people failed to take profits because they thought there was more to come and got badly burned. Too many mining companies in China fail to deliver on their apparent promise - if you like the sector, buy a wide spread of companies rather than just the one that looks the biggest bargain.

"investing in Griffin for the medium term looks like an interesting value play"

I would never recommend it as a medium term play - if you fancy a small punt, then fine, but set yourself a stop loss price at which you will get out and don't be greedy about taking a profit.

The Prospector

28th Dec '09

More delays on the 1300 level unfortunately - http://www.stockopedia.com/news/announcement/GFM/091224gfm000642.htm

Unfortunately, although the suspension of the 28 working day period for the application for a new licence has been lifted, the suspension was lifted too late for the licence application to be considered at the December meeting of the "combined examination committee" of 8 departments of the MLR. The next expected meeting of the MLR combined committee is now expected to be held immediately prior to the Chinese new year in February 2010. As a result, approval of the mining licence application to mine below the 1300 level is not now expected until this time.

Sounds like boring Chinese bureaucracy, rather than anything more worrying, but who knows...

Sounds like boring Chinese bureaucracy, rather than anything more worrying

mmmm more like deja vue I think. For YEARS this company has always had great stuff coming up in the next 6 months - and it never materialises.

Griffin – an unusual company but a potential value play

The Business

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Renj86

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