CNMC Goldmine Holdings Limited - Phillip Securities 2018-08-17: Halfway To Production Turnaround

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CNMC GOLDMINE HOLDINGS LIMITED SGX:5TP

CNMC Goldmine Holdings Limited - Halfway To Production Turnaround

• CNMC Goldmine's revenue met expectations but net profit missed due to higher operating expenses and listing expense.
• Carbon-in-leach (CIL) plant elevated production volume.
• Operating and non-operating expenses ate up revenue growth.
• We revise down FY18e and FY19e EPS to 0.3 US cents and 1.7 US cents (previously 1.9 US cents and 2.7 US cents) due to higher operating expenses and one-off listing charges. We maintain our BUY recommendation with a lower Target Price of S$0.29.

The Positives

+ CIL plant elevated production volume:

• The rebound in revenue was attributable to the surge in volumes due to the CIL plant. During 2Q18, CIL plant effectively operated for 2 months with an average gold recovery rate of 93%. Based on the data from the first gold pour announced in Apr-18, monthly production from the CIL plant ranges from c.1.6k to 1.8k oz, which is in line with the increment of volume in 2Q18.
• We forecast production to almost double this year to 28,757oz.

The Negatives

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- Operating and non-operating expenses ate up revenue growth:

• During 2Q18, overhead costs surged, resulting in losses at the operating level. Site and factory expenses jumped by 117% to US$3.2mn due to higher operating expenses from the CIL plant.
• Listing fees amounted to US$814k in 2Q18 (US$995k in 1H18). Management reiterated that the total cost would be less than SG$5mn. Another US$2mn listing expenses is expected in 2H18.

Double whammy from strengthening USD:

• USD resumed its appreciation in Apr-18 (MYR/USD grew from 3.86 to 4.06 over 2Q18). On the macro side, strong USD has, in general, resulted in an inverse relationship or softer gold prices.
• Moreover, strong USD will result in FX losses since CNMC’s functional currency is in MYR but reporting currency is in USD. Hence, 2Q18 performance was impacted by both situations negatively.

Outlook

• The turnaround of gold output could probably be realised in FY18. However, the one-off listing costs and higher plant operating expenses will offset the turnaround in earnings. Nonetheless, management sought to optimise the CIL operating costs by constructing a gold de-absorption and smelting facility next to the plant, aiming to boost production and improve efficiency.
• Furthermore, CNMC has started to construct the floatation facility and plans to monetise other minerals such as silver, lead, and zinc. The total capex will be similar to that of the CIL plant (less than MYR25mn/US$5mn). The facility expected to commence operation by mid-FY19 and deliver output thereafter.
• The exploration on KelGold and Pulai project is still ongoing. The dual primary listing is still on track, pending to HKEX’s review.

Chen Guangzhi Phillip Securities Research | https://www.stocksbnb.com/ 2018-08-17

SGX Stock Analyst Report BUY Maintain BUY 0.29 Down 0.420