CNMC Goldmine Holdings Limited - Tayrona Financial Research 2019-03-12: Getting Back On Growth Track


CNMC Goldmine Holdings Limited - Getting Back On Growth Track

2018 revenue grew 106.5% as production jumped 112.4%.

  • CNMC Goldmine Holdings Limited (SGX:5TP) more than doubled its gold production in 2018 to 31,473.07oz, driven mainly by the commencement of operation of its CIL plant on 2 May 2018. As such, adjusted PAT rose by 137%.
  • Including non-operating items, i.e. unrealized foreign exchange losses/gains, listing expenses, share based expenses and reversal of tax accruals, PAT was lower by 9%, falling to US$3.01m.

Recovery to improve and costs to drop in 2019.

  • CNMC Goldmine recently completed the construction of the first of two new leach pads to replace the three older ones. The new leach pads are designed such that ore is being leached continuously and do not have to removed when new ore is added.
  • We reckon that new ore is either stacked atop or adjacent to processed ore for the new leach pads. This in turn translates into higher recovery of gold from each tonne of ore, due to the longer leaching cycle, less operational downtime and savings on transport costs.

Forecast US$8.66m PAT and US$6.9m PATMI.

  • We expect heap leaching recovery to improve from around 35% in 2018 to 65% across our forecast horizon of 2019 to 2025.
  • We also expect mining and processing costs to drop by about 30% from the estimated US$2.90/t - US$3.40/t of ore for heap leaching. Consequently, we forecast PAT to grow by 62% from US$5.34m, excluding non-operating items, in 2018 to US$8.66m in 2019.

Sokor, Kelgold and Pulai mines hold exploration upside.

  • CNMC Goldmine has asserted that its Rixen deposit at the flagship Sokor mine is still expandable based on drilling results in 2018, and that there could be potentially one more ore deposit in the central segment of Sokor after an exploration drill hole intersected significant gold/lead mineralisation.
  • Over at Kelgold, CNMC Goldmine has expanded its exploration programme to complete 19 drill holes covering 3,479m after soil sampling and trenching conducted in 2017 verified identified gold anomalies. We reckon that the odds of reporting resource estimates for Kelgold are promising.

Medium term growth/cost reduction plans remain intact.

  • CNMC Goldmine has explained that the Malaysia Department of Environment has requested for additional environmental assessment and reports for the proposed flotation plant (for the processing of silver, lead and zinc ore). Hence, there might be some delay in the commencement of construction of the flotation plant and the plant may start operation only in the tail end of or after the initial target of second half 2019.
  • However, we expect the new leach pads and year-round contribution by the CIL plant to raise production to about 35,000oz of gold in 2019. Higher gold prices and cost savings will in turn raise net margin to about 14.8%. Hence, we maintain our OVERWEIGHT rating on CNMC Goldmine with an updated fair value of S$0.310.

Key Forecasting Assumptions

  • We assume that CNMC Goldmine will also start tapping on lower cost electricity from the local grid in 2020. These cost savings are expected to offset the higher cost of operating the flotation plant.
  • Nonetheless, processing cost per tonne is expected to rise by approximately 7% in 2020 as our model assumes that CIL and flotation will account for 15% of ore processed in 2020 versus 6.5% in 2019. See Figure19 in attached PDF report for key forecasting assumptions summary table. 
  • Based on our updated tonnage, recovery, cost and capital expenditure assumptions, we obtained a fair value of S$0.310 for CNMC Goldmine. See Figure20 in attached PDF report for details.
  • Do Gold Miners Deserve A Relook? See report: Gold Miners - High Gold Price To Drive Interest Towards Miners

Liu Jinshu Tayrona Financial Research | http://www.tayronafinancial.com/ 2019-03-12