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Lion Gold Corp Case Study

Lion Gold Corp Case Study. Tan Weihan. Disclaimer and Declaration.

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Lion Gold Corp Case Study

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  1. Lion Gold Corp Case Study Tan Weihan

  2. 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.

  3. Agenda 1 Company Background Industry Overview 2 3 Ratio Analysis Valuation 4 Risk 5

  4. Company Background • LionGoldCorp 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.

  5. Company Background Source: Company’s Presentation Slides

  6. Company Background Source: Company’s Presentation Slides

  7. Company Background Source: Company’s Presentation Slides

  8. Business Model Revenue Breakdown for 2013 Source: Annual Report

  9. Business Model Source: Company’s Presentation Slides

  10. Business Model Source: Company’s Presentation Slides

  11. Business Model Source: Company’s Presentation Slides

  12. Business Model Source: Company’s Presentation Slides

  13. Industry Outlook • Central Bank become Net Buyers of Gold Source: CPM Group

  14. Industry Overview • Gold jewellery, bars, coin still in Demand Source: World Gold Council

  15. Industry Overview • Gold Mining hits a Plateau Source: CPM Group

  16. Industry Overview • Diminishing Margin Return for Gold Mining Source: Bloomberg. Barclay Research

  17. Recent News • Liongold on course to achieve 40,000 to 50,000 production annual target Source: SGX Announcement

  18. Ratio Analysis Did not generate returns for shareholders Solid cash balance with no default risk

  19. Valuation • Methodology • Enterprise Value/Resource Comparison • Discounted Cash Flow

  20. Valuation (EV/Resource) • Enterprise Value • How much are you willing to pay to buy the company? • Market Cap + Debt + Preferred shares - Cash Source: Bloomberg and respective company websites

  21. Valuation (EV/Resource) Source: Bloomberg and respective company websites

  22. Valuation (EV/Resource) • 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

  23. Valuation • Profit / FCFF projection

  24. Valuation - Assumptions

  25. Valuation – DCF Assumption

  26. Valuation – Fair Value • Low valuation, because financial reports had shown that Lion Gold been unable to generate returns for shareholder

  27. Trading Data Source: Yahoo Finance

  28. 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.

  29. 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

  30. 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.

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