Griffin Mining Limited (LON:GFM): Can Strong Fundamentals Sustain the Rally?

Griffin Mining Limited (LON:GFM) has seen its stock price surge 24.68% since June 12, 2025, driven by a mix of operational resilience, strategic investments, and bullish technical signals. Investors are now asking: Is this rally justified by underlying fundamentals, or is it a fleeting momentum play? Let's dissect the company's ROCE trends, technical indicators, and operational efficiency to determine whether the stock's upward momentum is sustainable and where entry points might lie.

ROCE Trends: A Solid Foundation for Growth

Return on Capital Employed (ROCE) is a critical metric for assessing how effectively a company uses its capital to generate profits. While Griffin Mining's 2024 Annual Report did not explicitly state ROCE, we can infer trends from its operational performance and external data:

• 2021: ROCE was 8.12%, marking a recovery from prior years.
• 2022: ROCE jumped to 12.5%, outperforming the mining sector average of 8.5%, thanks to cost discipline and zinc production focus.
• 2024: Despite a three-month operational shutdown due to a safety incident, Griffin maintained profitability with a profit after tax of $11.35 million. Key drivers include:
• High asset turnover ratio (0.52), indicating efficient capital utilization.
• Strategic buybacks ($12.5 million in 2024), boosting earnings per share (EPS).
• Caijiaying Mine's zinc and gold production, which contributed 39,444 tonnes of zinc and 16,142 ounces of gold in 2024.

While 2024's ROCE is not explicitly stated, the company's ability to generate profits amid disruptions suggests it likely stayed above the sector average. This sets a solid base for sustained growth, especially with Zone II production expected to begin in late 2025, which could further lift ROCE by expanding capacity.

Technical Indicators: Bullish Signals, but Risks Linger

The technical picture paints a “strong buy” scenario, though not without caution:

• Moving Averages: A golden cross (5-day MA above 50-day and 200-day MAs) signals a bullish trend. The stock closed at 197 pence on July 4, up 2.07% on the day.
• RSI: At 52.88, it remains neutral, avoiding overbought territory (>70), leaving room for further gains.
• Support and Resistance:
• Immediate Support: 194 pence (accumulated volume support).
• Resistance: 232.70 pence (next key hurdle).
• Stop-Loss: 191 pence to protect against downside volatility.

However, volume divergence is a red flag. On July 4, volume fell by 74,000 shares, despite rising prices—a warning that momentum could wane without increased buying interest.

Operational Efficiency: Navigating Challenges and Seizing Opportunities

Griffin Mining's operational strategy has been both resilient and forward-looking:

1. Caijiaying Mine Expansion:
2. Zone III produced 1.15 million tonnes of ore in 2024, while Zone II is nearing completion. Full production from Zone II could add 1.5 million tonnes annually, boosting scale economies.

3. Recent gold discoveries, such as the UGCJY-6268 zone (20.4m @ 24.4 g/t Au), highlight upside potential for gold revenues, which command higher margins than base metals.

4. Cost Management:

5. Despite the shutdown, operating profit held steady at $17.29 million. Cost-cutting measures, including reduced labor expenses and streamlined logistics, have improved margins.

6. Balance Sheet Strength:

7. No debt and ample liquidity provide flexibility to invest in growth without dilution.

Investment Thesis: A Balanced View

Bull Case:
- ROCE improvement: Zone II's production could push ROCE toward 15%+, supported by higher gold output.
- Technical catalysts: A breach of 232.70 pence could trigger a rally to 250 pence, especially if zinc prices rise (zinc demand is buoyed by EV battery and construction sectors).

Bear Case:
- Operational risks: Delays in Zone II or further safety incidents could disrupt production.
- Commodity price swings: Zinc and gold prices are volatile, and a downturn could pressure profits.

Entry Points and Risk Management

• Aggressive Investors: Buy at 194 pence (immediate support) with a stop-loss at 191 pence. Target 232.70 pence for a 20% gain.
• Conservative Investors: Wait for a pullback to 185–190 pence before entering, using the golden cross as a confirmation.

Conclusion: A Stock to Watch, but with Disciplined Risk Control

Griffin Mining's strong fundamentals—improving ROCE, robust balance sheet, and growth catalysts like Zone II—justify its recent rally. However, investors must remain vigilant: volume divergence and external commodity risks necessitate tight stop-losses.

The stock's 24.68% surge since June 12 suggests momentum is real, but sustainable outperformance will depend on executing its expansion plans and navigating commodity cycles. For now, Griffin Mining offers a compelling risk-reward trade, best approached with partial positions and an eye on technical signals.

Disclaimer: This analysis is for informational purposes only. Investors should conduct their own due diligence and consult with a financial advisor before making decisions.