SI Research: CNMC Goldmine Holdings – A Potential Cash Cow

Gold is a unique metal unlike other commodities: Gold is also a medium of exchange or currency. Prior to the introduction of paper currency, gold coins were circulated as currency. Today, the shiny malleable metal continues to play an important role in the international monetary system and is often considered as a “safe haven” asset.

With its close relationship with fiat money, apart from a few differences, it can almost be said that a gold mining company is very much similar to a mint, which “mines money” instead of printing it.

However, it is easier said than done and not all gold miners are making huge profits. This is due to a wide range of factors such as equipment capacity, quality of gold and ores, volume of ores to process as well as gold prices.

The Business

CNMC Goldmine Holdings (CNMC), the first Catalist-listed gold producer in Singapore, is principally engaged in the business of exploration, mining of gold and the processing of mined ores into gold dores.

Focused on the development of its flagship Sokor Gold Field Project located in the State of Kelantan, Malaysia. Having achieved its first gold pour on 21 July 2010, CNMC has steadily ramped up its gold production to three metric tonnes of gold bullion as of December 2017.

Since its listing on 28 October 2011 at $0.40 a piece, the group’s share price is down by over 30 percent at $0.275 as at time of writing. However, with the group’s large ore reserves and a new carbon-in-leach plant, 2018 could potentially be a turning point.

Ore Reserves

CNMC’s Sokor Gold Field Project is an extensive region covering an area of 10 square kilometres with five identified gold deposits. As at 31 December 2017, the total measured, indicated and inferred gold resources for the Sokor Project are 13,860,000 tonnes at 1.6 grams per ton gold grade, which would amount to 724,000 ounces of contained gold, inclusive of material used to define ore reserves.

Apart from gold, mineral resources at Manson’s Lode, one of the five gold deposits, contain significant amounts of silver, lead and zinc, amounting to a total of 1,928,000 ounces of contained silver, 23,025 tonnes of contained lead and 23,505 tonnes of contained zinc. As gold is still CNMC’s main focus, the other minerals are just icing on the cake.

Meanwhile, the group continues exploration activities at the Sokor Gold Field Project with the aim to extend the mine’s life and identify fresh targets for production.

New Plant Boosts Production

Completed in six months with a budget of RM25 million, CNMC’s newly-built carbon-in-leach (CIL) plant officially commenced operations in May 2018.

The new plant, which is CNMC’s third production facility at the Sokor gold field, can process approximately 500 tonnes of ore per day and boasts a gold recovery rate of up to 95 percent. This is a significant improvement when compared to approximately 65 percent for CNMC’s heap leaching plant, which has been the main production facility since 2012.

The CIL plant is now in stable commercial operation, having yielded 2,334.82 ounces of gold dore bars over 23 days of non-stop production in May 2018. Comparatively, CNMC’s production volume of fine gold for FY17 was 14,816.53 ounces.

In addition to the higher output this year, the group’s production cost per ounce is expected to be lower. CNMC’s average all-in cost of production for every ounce of gold in 2017 was higher at US$1,367 (2016: US$819), due to capital expenditure for the CIL plant and additional mining expenses as well as lower gold production. As the new plant has been fully paid for and already boosting production, the group’s production cost is expected to be significantly lower this year.

Gold Prices

Gold prices have been favourable for CNMC for the first six months of 2018, having stayed above the US$1,300 per ounce level in most months. However, in a rising interest rate environment, investors’ demand for gold could weaken as the opportunity cost of holding gold could increase relative to other interest-bearing assets.

Strong jobs report in the US keeps the Federal Reserve on track to raise interest rates later this month, with possibility that it even increases the forecast for more interest rate hikes for this year. Currently, the market expects three to four rate hikes for 2018.

Strong Financial Position

As at 31 March 2018, CNMC had cash and equivalents of $17.9 million, while total liabilities were at $8.3 million. Of the group’s total liabilities, borrowing and debt securities amounted to only $0.7 million. This puts the group in a net cash position of $9.6 million or $0.024 per share.

While the net cash per share against the group’s current share price of $0.28 is not much to boast about, a company that has this much potential while maintaining a strong balance sheet position is likely to attract investors’ interest.