L ION G OLD C ORP C ASE S TUDY Tan Weihan. Disclaimer and Declaration The objective of the...
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Transcript of L ION G OLD C ORP C ASE S TUDY Tan Weihan. Disclaimer and Declaration The objective of the...
Disclaimer and Declaration
The objective of the presentation is for educational purposes. The full content of the presentation is for illustration purposes only and should not be used as investment recommendations. The presenter is not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss.
The presenter may have personal interest in the particular shares presented.
Company Background
LionGold Corp Ltd is a Main Board SGX listed investment holding company focused on gold mining, mine development and exploration. Primary gold interests are currently in Ghana and Australia.
Business Model
Source: Annual Report
86.74; 72%
33.49; 28%
Office Equipment Gold Division
Revenue Breakdown for 2013
Recent News
Source: SGX Announcement
• Liongold on course to achieve 40,000 to 50,000 production annual target
Ratio AnalysisRatio Analysis FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
Growth rate (%YoY)
Revenue 4.58% -10.62% 19.20% 10.36% 29.79%
EBIT 14.21% -158.80% -88.06% -8807.18% -61.55%
Net proft 0.93% -157.89% -67.12% -3066.95% -69.89%
Profitability
Gross Profit Margin 5.48% 14.07% 12.53% 10.65% 8.51%
Net Profit Margin -6.26% 4.05% 1.12% -30.04% -6.97%
Return on Asset -8.77% 3.89% 1.15% -31.70% -3.48%
Return on Equity -24.68% 11.05% 3.63% -157.10% -6.82%
Liquidity
Current Ratio 1.72 1.80 1.38 1.87 2.52 2.73
Quick Ratio 1.05 1.17 0.70 0.75 1.59 2.39
Cash Ratio 0.44 0.61 0.08 0.02 0.52 2.04
Solvency
Debt to Equity 0.03 0.05 0.02 0.27 0.93 0.17
Interest Coverage 139.67 70.17 NA NA NA NA
Solvency -6.66 -2.44 3.71 0.07 -0.89 -0.20
Did not generate returns for shareholders
Solid cash balance with no default risk
Valuation (EV/Resource)
Source: Bloomberg and respective company websites
• Enterprise Value
– How much are you willing to pay to buy the company?
– Market Cap + Debt + Preferred shares - Cash
• Fair Value– Current Share Price: $0.154
– Gold Company Valuation Median : 217– Lion Gold EV/Resource : 17– Fair Value Calculation
Fair Value = 217 / 17 x 0.154 = $1.96
Valuation (EV/Resource)
Valuation - AssumptionsBeta 0.19
Risk Free Rate 3.00%
Market Risk Premium 7.00%
Cost of Debt 6.50%
Cost of Equity 4.36%
Equity Funding 137,312
Debt Funding 42,761
WACC 4.87%
Terminal Growth 3.00%
Total Outstanding Shares 858199
Total Debt 42761
Valuation – Fair Value
• Low valuation, because financial reports had shown that Lion Gold been unable to generate returns for shareholder
Trading Data
52 Weeks Trading Range $0.14 - $1.76
Avg Volume (3 mths) 14.6 mil
Market Cap $141.98 mil
Source: Yahoo Finance
Main Risks
• Valuation assumes cash cost per ounce remains stable at USD $1200/oz for the next 5 years
• Fluctuation in Spot Gold prices is likely to have an impact on the profit margin of Gold mining companies.
Main Risks
• Recent plunge in share price means that Lion Gold is unable to use its strategy of using share placement for acquisition of gold mines.
• Default Risk – Very Low– Current ratio = 2.73x– Interest coverage = NA– D/E ratio = 0.17– Loans maturing this year = $2.7 mil– Cash = $46 mil
Conclusion
• Lion Gold Corp had been using a acquisition model to grow its business however due to the sudden plunge, their M&A model is likely to be halted.
• Low Enterprise Value to Resource makes Lion Gold a potential takeover target for large capital group or bigger gold mine
• Lion Gold is asset rich, however the jury is still out on whether they can continue to create returns for Shareholders, thus explaining the low valuation for this counter.