CNMC Goldmine Holdings Limited: Halfway to production turnaround August 17, 2018 666

PSR Recommendation: BUY Status: Maintained
Target Price: SGD0.29
  • 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 TP of S$0.29.


The Positives

+ CIL plant elevated production volume:  As shown in Figure 1, 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

– 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 are 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, see Figure 2. 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.

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Chen Guangzhi
Investment Analyst
Phillip Securities Research Pte Ltd

Guangzhi graduated from Singapore Management University with a Master degree in Applied Finance and from South China University of Technology with a Bachelor degree in Electronic Commerce.

The current sector coverages include Energy, Utilities, and Mining sectors. He has 3 years experience in equity research in both Hong Kong and Singapore market. He is the mandarin spokesperson for Phillip Securities Research in relation to China-related projects and all mandarin seminars and client events.

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