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,
