After more than a month of pain there was finally something to cheer about for investors – a week of gains! The Dow was up 4.3%, FTSE up 1.8%, DAX up 1.0% and the All Ords was up 2.4%.
Despite the week’s gains this is not the time to grow complacent, as there is plenty of risk in global stockmarkets. Europe has a long way to go in solving its debt problems and the US is still facing a looming recession. Back home, while media and retail stocks have bounced off their lows, the outlook is still murky as Australians stash their cash under matresses rather than buying new TVs. And then there’s the elephant in the room – the Australian property market, which is slowly deflating in the background as investors focus on gyrating stockmarkets.
In the table below of 26 buys from brokers Australia-wide those exposed to mining are well and truly back on brokers’ buy lists, including Alacer Gold, OneSteel, BlueScope, Santos, Fortescue, Gryphon, WorleyParsons, Newcrest and BHP. Blue chips feature heavily as well, with Qantas, ASX, QBE and Flight Centre all buys from leading brokers.
This week we focus on gold explorer Gryphon Minerals, looking at why it is so popular among brokers.
Gryphon Minerals (GRY) – the next golden target?
Citi, BUY, High Risk, $2.00 Price Target
Credit Suisse – BUY
Deutsche – BUY
RBC – BUY, $2.30 Price Target
RBS Morgans – BUY
Argonaut – BUY
Eagle Research – BUY, $2.20 Price Target
Alpha Broking – BUY, $3.00 Price Target
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
Gryphon Minerals (GRY), a West African focussed Gold exploration company with projects in Burkina Faso and Mauritania hit $2.00 in April only to plunge 30% to $1.40 in May and then rocket back to $2.00 in July. It’s stocks like this that push investors into more stable blue chips.
Then the current market turmoil hit, sending the stock – and the rest of the market – down 20% to close at $1.64 on Friday. This is well below Citi’s price target of $2.00, which has placed a ‘High Risk Buy’ on the gold explorer that is set to commence production in 18-24 months.
Les Szancer from Alpha Broking is also impressed and is even more bullish than Citi, saying that he can see the stock at $3.00 in the next 18 months. This is the same Szancer who six months ago predicted that gold could hit $2,000 in 18 months, while many others hollered about gold being overpriced. It took only six months to get within 5% of Szancer’s target.
Despite the plunge in gold this week from a record high of $1,900 an ounce, it still sits near all-time highs and has more than tripled over the past five years. The soaring gold price has made many more projects viable for emerging gold explorers and in the process has created a host of takeover targets for the world’s largest gold miners looking for further growth opportunities. Gryphon Minerals is one such company that could be targeted, with the outlook looking solid and with plenty of brokers backing the stock.
Late last year GRY acquired ASX-listed Shield Mining, which gave Gryphon exposure to a number of highly prospective gold and copper projects in Mauritania. But with a depressed share price and a record gold price, GRY could now be a takeover target itself.
And the announcement early last month of ‘exceptional drill results’ at the Banfora project in Burkina Faso was positive news for the gold miner, which is sure to have piqued the interest of prospective buyers. According to GRY ‘the Project has numerous regional exploration targets with real potential for Gryphon Minerals to uncover a multi-million ounce gold district.’
TheBull’s Bob Kohut looked at GRY last month and pointed out that with a speculative share like GRY that has yet to turn a profit, there are only three numbers that matter – debt, cash on hand, and burn rate. Kohut said that the impressive feature of GRY is that it has no debt. The figures below outline its current position:
|Consolidated Statement of Cash Flows – Half Year 31 Dec 2010|
|31 Dec. 2010 $||31 Dec. 2009 $|
|Cash Flows from Investing|
|Cash from Subsidiary Acquisition||4,335,492|
|Payment for Acquisition of Available for Sale Assets||(370,600)|
|Net Cash from Investing||3,787,767||(14,039)|
|Cash Flows from Financing|
|Proceeds from Issue of Shares||51,915,555||14,400,000|
|Payments for Cost of Issue of Shares||(2,538,518)||(655,604)|
|Net Cash from Financing||49,377,037||13,744,396|
|Cash & Equivalents at the Beginning of the Period||19,338,881||12,015,383|
|Cash & Equivalents at the End of the Period||61,360,977||19,063,984|
GRY has $61 million cash on hand, with $19 million from the previous period and $52 million from an equity raising. Kohut pointed out that although $61 million cash on hand seems healthly, you need to look at it in the context of its burn rate and the projected start date for revenue and profit generation. We already know that it expects production to commence in 18-24 months, so we need to see whether they have enough cash on hand to get there. To get the burn rate you divide the cash on hand of $61,360,977 by the yearly loss of $11,280,465. We see the company could continue to operate at present levels without the need for any kind of capital raising for 5.5 years, which is a very healthy cushion.
What’s more, Kohut outlined that the big boys like GRY, with 70% of its shareholders being major institutional holders. With this kind of backing the stock is in good hands. It now remains to be seen whether share price appreciation comes from the company hitting targets on the way to production or as the result of a takeover bid.
Les Szancer from Alpha Broking, who has a buy on the gold miner, says that there’s a lot to like about Gryphon Minerals. The West African gold explorer recently announced a 520,000 ounce increase of its inferred resource estimate at the company’s flagship Banfora Gold Project in Burkina Faso for a total of 2 million ounces. GRY is planning about 600,000 metres of drilling in the next 12 months as part of an aggressive $30 million exploration program. Szancer says the Banfora Gold Project benefits from a shallow depth with most of the resource within 100 metres of the surface, which keeps extraction costs down. “Investors like positive news flow, particularly from explorers,” he says. “Gryphon is a company that keeps hitting targets.” However, Szancer says potential investors must pay close attention, as any good news tends to be rapidly factored into the share price.
According to Credit Suisse, the gold miner is looking like a good growth bet. And Credit Suisse is certainly not alone – we tracked down no less than eight brokers with a buy on Gryphon. You can download several research reports from Deutsche Bank, RBC, Argonaut and Eagle Research here. Eagle Research has a $2.20 target price and RBC has a $2.30 target price.
Stock code: GRY
Charts: Gryphon Minerals Limited
More news: Gryphon Minerals Limited
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