Investing £900,000 In Doré Production Will Align With Ghana Directives But May Increase Costs

Key Takeaways

• Strategic shift to doré production in Ghana may improve cash flow efficiency, aligning with local directives and potentially boosting future earnings.
  
• Reprocessing tailings in South Africa offers new revenue streams, while faster inventory processing could improve net margins and throughput.
  
• Regulatory changes and supply dependencies increase costs and risks, while currency fluctuations and declining byproduct supply threaten net profits and shareholder returns.

Catalysts

Operates as a mining services company in South Africa and Ghana.

• Goldplat is shifting its business model in Ghana to produce doré bars instead of concentrates, reducing debtor days and turning material into cash faster, which is likely to improve revenue and cash flow efficiency.
  
• The company plans to invest £900,000 in Ghana to enable doré production, potentially increasing future earnings by enhancing local beneficiation and aligning with government directives.
  
• Goldplat possesses a tailings facility in South Africa with potential for reprocessing, which, with proper permits and commercial agreements, could unlock additional revenue streams in the future.
  
• Management is focused on improving inventory processing times in both Ghana and South Africa, which could positively impact net margins by reducing costs and increasing throughput efficiency.
  
• The company is considering returning surplus cash flow to shareholders through dividends or buybacks, which, if implemented, could enhance shareholder value and drive stock price appreciation.

Goldplat Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Goldplat's revenue will decrease by 19.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.8% today to 12.2% in 3 years time.
• Analysts expect earnings to reach £4.7 million (and earnings per share of £0.02) by about February 2028, up from £4.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.4x on those 2028 earnings, up from 2.9x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 9.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.64%, as per the Simply Wall St company report.

Goldplat Future Earnings Per Share Growth

Risks

• Regulatory changes in Ghana requiring local beneficiation of material could increase capital expenditure and operational costs, impacting net margins and cash flow.
  
• Dependence on variable supply from West Africa and South America poses risks to consistent revenue generation, as fluctuations in available materials could affect earnings.
  
• Foreign exchange losses due to trading in multiple currencies may continue to impact net profits, particularly with significant transactions conducted in USD potentially leading to volatile financial results.
  
• Transitioning business models and processes in Ghana may necessitate significant working capital investments and capital expenditure, which could delay potential dividends and impact shareholder returns.
  
• Declining supply of byproducts from South Africa's current mining industry could reduce revenue streams and require costly adjustments to operations to maintain profitability.

Valuation

• The analysts have a consensus price target of £0.143 for Goldplat based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £38.1 million, earnings will come to £4.7 million, and it would be trading on a PE ratio of 6.4x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of £0.07, the analyst price target of £0.14 is 49.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.