GRIFFIN Mining - Chinese Zinc & Gold (Moderated)

Happy New Year everyone. I trust 2007 will prove a very profitable year for all of us and for GFM in particular.

I have been updating my GFM model this morning by adding on forward projections for 2008 and by extrapolating growth in cashpile based on 2006 data. Of course, all the forward-looking stuff gets highly speculative the further out one attempts to go so it is unwise to put too much faith in the outcome.

Having said all that I still think it is a useful exercise to attempt these projections and they can be steadily refined as solid data is released by the company.

It looks like 2006 will have ended with total sales of around $46m and cash of around $38m (approx 10p/share). Failing some near-term acquisition I would have thought that a maiden dividend could well be on the cards when final results are announced in late Spring.

2007 will include a plant upgrade to 500ktpa throughput and quite possibly initial gold in concentrate sales. At the present time we have no resource statement for gold-rich ore (although the reported drill results are very positive) hence I do not include any projections for gold sales for 2007 and if they do commence I would doubt they would exceed more than 1,000 oz/month (assuming a wildly speculative 3g/t ore grade). As such I expect zinc production to remain the major component of sales through 2007/08 and possibly even longer.

Assuming zinc remains around 1.90/lb, and head-grade is kept at relatively low levels throughout 2007 I would expect full year sales of around $78m and cash rising to around $102m (about 26p/share at current forex).
Projected EPS would be at around 14p/share.
However, as we well know, zinc may well rise towards $5,000/t if the supply/demand imbalance remains. GFM may also start to make inroads into the higher-grade ore (both of which would be positive to the bottom line). We should also consider the possibility of a contribution from gold-in-concentrate sales although, as previously mentioned, I do not expect a significant uplift to sales from this source during 2007.

Looking further out into 2008 we need to factor in the payment of tax @ 10% from Jan 08. We also begin the JV split of 60:40 from July 08.
GFM has already reported that they intend to raise ore throughput to 750ktpa in 2008 so I have assumed this may well be timed to add to sales for H2 of that year.
With these inclusions and assuming current grade & zinc price(??), 2008 year end sales may well be at around $113m and cashpile at around $165m (I really expect something will have been decided about the deployment of this cash before then!!).
Cash of $165m would equate to approx 43p/share at current forex although heaven only knows what the dollar/pound rate may be by then!

I see GFM as an extremely pure play on zinc and Chinese industrial growth - both of which look highly positive in 2007. Obviously there are many factors which could push the sp up or down, but on current data this looks an excellent hold/add over the next 12 months IMHO.

Regards
Chip