Griffin solid despite volatile metal markets

By This Is Money
Updated: 04:29 EDT, 3 July 2006

SOARING metal prices drove the value of zinc and gold digger Griffin Mining to within a whisker of £1 a share in May. But since that peak the market's taste for the stock has waned and shares have eased back to 82¼p, creating a buying opportunity.

Griffin runs a gold and zinc mine in China, and after nine years of its involvement the site finally began production late last year. Its first profit, £170,000 for 2005, is a tiny sum. However, it is just the start.

Unlike many earlystage mining groups, Griffin has no debt, so much of that profit will go to investors.

While the mine will produce a modest quantity of gold, the main cash cow is zinc, for which there is a huge appetite in China.

Metal prices have been volatile recently and some analysts have warned that a speculative bubble may have built up.

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Zinc soared to $3,900 (£2,125) a tonne in May but has fallen back to about $2,900. Such volatility is a warning sign to investors and should not be ignored, but it must be seen in the context of Griffin's feasibility plans.

In 2003, zinc was $760 a tonne. At that price the mine was deemed feasible and profitable, and no one expects zinc to drop below $1,000 in the foreseeable future.

Analysts expect headline profits this year of £18m - and for them to keep rising. That means Griffin, valued at about £145m, is priced at just eight times pre-tax profits, and is thought to have attracted potential buyers.

•• Midas verdict: Griffin shares have doubled in a year, but that is no reason to ignore them. Bid speculation may spark the shares again and any spikes in metal prices will drive up profits. But even without these, the fundamentals are extremely sound. Buy.

> Stock and Shares Talking Point: Griffin Mining

Prospects at GW still good

MIDAS recommended shares in GW Pharmaceuticals, which is developing medical uses for cannabis, in 2004. Sadly, the shares are down from 130½p when Midas suggested the stock, to just 74¼p last week.

The shares' nerve-jangling ride reflects the ups and downs of GW's struggle to win regulatory approval for its cannabis-based product Sativex for use against multiple sclerosis.

The group is now having to carry out more tests to win approval in the UK, hence the shares' current low level.

But don't be tempted to give up on this long-running drama. The long-term prospects for Sativex are still good.