Gryphon promises to be an appealing gold producer in just over a year thanks to its proven and inferred resource base in Africa of over 4Mil oz. The company is cashed up with $62mil, which means that any capital raising is destined to be to finance its other exploration efforts, i.e. Non-substantial. The implication is the prospect of very little dilution from your current equity exposure to $5.6 billion of gold, equal to around $2.4 billion in cashflow over the life of the mine. Converting that into a NPV and discounting for a number of risks, you might expect this company to be worth around $1 billion....before consideration of the commodity (gold) price risk. But this company, which will justify a market capitalisation of $1 billion in a year (after successfully commissioning its project) is worth just $90 million today. So investors seem to be pricing in a gold price of just $800/oz. Given that gold prices rose to the equivalent of $2400/oz in current dollar terms in 1980, you might wonder why markets are so conservative. The reason is of course the spectre of 'global growth'. The argument is that gold is appealing as 'hedge against inflation'.
The deflationary global labour price disparity means that inflation is well under control; at least the type reflected in food, oil, and general product prices. Of course those types of 'speculative investment' assets are not included in this calculation, despite being 'products'. i.e. Gold is a product too...but given that it offers no 'yield' and 'has little industrial use', it is actually the last store of value to rise in value. Gold has been strong for two reasons:
1. All other asset classes are priced higher
2. Gold prices are appealing given forecasts of where gold prices are expected to go
3. The outlook for yields on other asset classes is deteriorating
Now, with interest rates at very low levels, clearly bonds are abysmal investments. This is one of the biggest markets, so you might ask whether the very small gold market has appeal, and of course the answer is yes, simply because any rise interest rates will undermine equities. i.e. Rising bond yields will not help their value, so gold is still appealing. This is ultimately why people are sceptical that the global outlook is positive. Growth until now has been restored through monetary 'QE' stimulus.
So, reflecting on this, we are inclined to see the recent sell-off in gold as either 'technical' over-selling, or manipulation of the market, so that market pundits can acquire positions. We actually expect gold prices to perform even better, and we also expect several other positive events for Gryphon Minerals:
1. Takeover by another African producer wanting to diversify with pan-African risk
2. Expansion of resources given its large acreage along structural corridors
3. Doubling of gold production - this will bring forward cashflows, reducing the applicable discount factor
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