+ 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.
– 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.