As the title suggests I was in quite a bit of turmoil the last 2 weeks when deciding if I should take up my LLL entitlement. However I went back to the numbers and this is what I arrived to.
FFX holds enough cash to get to cashflow positive on its gold. This means it is reasonably safe to perform a NPV calculation on its gold asset. Sprott did this and came to US$632m at todays exchange rate this is $0.74/share, For the purposes of this analysis I will give it the africa discount of 80% (The same as many ASX listed gold producers in Africa) to make it an even $0.60 per share.
https://firefinchltd.com/wp-content/uploads/SprottEquityResearchReportUpdatedGoulaminaDFS06Dec21.pdf
So then the question became do I buy LLL shares at $0.70 each or buy FFX shares to get exposure to them. Now I personally am very bullish on LLL and think when benchmarked to peers it will easily go to $2Bn + market cap and be one of the hottest IPO's of this year. However this is about me choosing to buy FFX over LLL.
When you buy a FFX share what do you get? You get =1/1.4 of a LLL share (at LLL listing price worth $0.7/1.4 = $0.5/share), you get 20% of the LLL market cap at listing ($780,000,000 market cap = $156,000,000 or $0.131/share and I value using a NPV methodology the gold at $0.6/share
FFX 20% LLL Holding FFX LLL Distribution Implied LLL MC Implied LLL SP FFX Gold FFX Lithium FFX Current 1 $0.047 $0.180 $280,000,000 $0.251 $0.60 $0.227 $0.83 2 $0.064 $0.244 $380,000,000 $0.341 $0.60 $0.307 $0.91 3 $0.081 $0.308 $480,000,000 $0.431 $0.60 $0.388 $0.99 4 $0.097 $0.372 $580,000,000 $0.521 $0.60 $0.469 $1.07 5 $0.114 $0.436 $680,000,000 $0.610 $0.60 $0.550 $1.15 6 $0.131 $0.500 $780,000,000 $0.700 $0.60 $0.631 $1.23 7 $0.148 $0.564 $880,000,000 $0.790 $0.60 $0.712 $1.31 8 $0.164 $0.628 $980,000,000 $0.880 $0.60 $0.793 $1.39 9 $0.181 $0.692 $1,080,000,000 $0.969 $0.60 $0.874 $1.47 10 $0.198 $0.757 $1,180,000,000 $1.059 $0.60 $0.955 $1.55 11 $0.215 $0.821 $1,280,000,000 $1.149 $0.60 $1.035 $1.64 12 $0.231 $0.885 $1,380,000,000 $1.239 $0.60 $1.116 $1.72 13 $0.248 $0.949 $1,480,000,000 $1.329 $0.60 $1.197 $1.80 14 $0.265 $1.013 $1,580,000,000 $1.418 $0.60 $1.278 $1.88 15 $0.282 $1.077 $1,680,000,000 $1.508 $0.60 $1.359 $1.96 16 $0.299 $1.141 $1,780,000,000 $1.598 $0.60 $1.440 $2.04 17 $0.315 $1.205 $1,880,000,000 $1.688 $0.60 $1.521 $2.12 18 $0.332 $1.270 $1,980,000,000 $1.777 $0.60 $1.602 $2.20 19 $0.349 $1.334 $2,080,000,000 $1.867 $0.60 $1.683 $2.28
The decision became quite easy, when FFX was trading at $0.83/share it was like buying LLL for for $0.251/share. Even buying FFX today you are effectively buying LLL for $0.52/share. I think those that missed out on the over subscription will soon scamble for FFX shares over the next few days.
Buying FFX currently presents a great opportunity in my opinion. The market so often gets things wrong. As an example look at the recent TAH and TLC split, a company valued at over $12Bn with what you would assume to be plenty of "sophisticated investors", the first day of trading for both an almost $1Bn extra value was created. I think buying now and holding unti the record date is such an easy trade.
All the best, I think we are in for a wild week as the fomo creeps in.
Happy to be corrected should any of my calculations be wrong. Do your own research,
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