• Revenue met expectations, but net profit beat due to the lower than expected listing expenses. The dual primary listing in Hong Kong was rejected.
• CIL plant should support our FY19e production growth of 18%.
• Both production and revenue reached a record high in FY18.
• The performance will be better in FY19 because the CIL plant will deliver a full year production amid a bullish outlook of the gold price.
• We maintain our BUY recommendation with a higher TP of S$0.31 (previously S$0.29) due to the improvement of production.

The Positives

+ Remarkable performance turnaround driven carbon-in-leach.  Following the recovering in production in 3Q18, the output of gold continued to climb higher in 4Q18. This is due to the higher volume of the gold pour from carbon-in-leach (CIL) (31,473oz in FY18 vs former peak of 31,206oz in FY15). Full-year revenue reached a record high of US$39.5mn (8% more than the previous high in FY16) even though the average selling price dropped by 8% YoY in FY18. Since the CIL plant only commenced operation in May-18, there were only two-quarters of revenue contribution this year.

The Negatives

– The dual primary listing in Hong Kong was rejected. In Dec-18, the Hong Kong Stock Exchange rejected the application of dual primary listing due to the unqualified market capitalisation requirement (HK$500mn, equivalent to S$87.7mn). Both the stock market and gold price tanked in 4Q18 when the exchange’s listing committee reviewed the application. The board has not decided whether to resubmit the application or to abandon the plan. Total listing expenses that the company forked out was US$1.99mn.

Outlook

To recap the group’s expansion plan in FY19:

1. Build an additional gold de-absorption and smelting facility for CIL plant (boost operation efficiency).
2. Install one more heap leaching pad. The capex of each pad is expected to be US$3mn.
3. Embark on underground mining* in FY19 (high-grade ore supply exclusively to CIL plant).
4. Establish a new flotation facility with a capacity of 500 tonnes/day to monetise other metals (silver, zinc, and lead) (Expect to commence operation and realise revenue by the end of 2019). Total capex is expected to be less than US$5mn.
5. Consider installing a power line for the entire Sokor field project (to substitute diesel as a source of supply for power generation, hence operating expenses will drop). Total capex is expected to be less than US$10mn.
6. Consider doubling the capacity of the CIL plant.

The flotation facility, the potential expansion of CIL capacity and underground mining will scale up the production and sales. The two permanent heap leaching pads are expected to bring down the transportation costs by half. The power line will sustain the operation at lower fuel costs.  The realisation of turnaround is expected to continue this year. With the bullish outlook of the gold price, we believe the performance will be better off in FY19.

Maintain BUY with a high

We maintain our BUY recommendation with a higher TP of S$0.31 (previously S$0.29) due to the improvement of production.er TP of S$0.31