Positives
+ Results from the trial operation of Carbon-in-leach (CIL) met expectation. The trial run had lasted for more than 2 months, and the results have been satisfactory so far, meaning that the gold recovery rate from CIL (up to 95%) improves and surpasses from heap leach (c.65%). Production at CIL plant expected to kick-start in 2Q18. With the help of the plant and available high-grade ore stockpiled, it is expected to see a significant improvement of output volume this year.
+ Exploration on Sokor, Pulai and KelGold project goes on. Monetisation of other minerals (silver, lead, and zinc) at Sokor will resume. The company plans to build the flotation facility on site after the CIL production stabilises. The budget, capacity, and construction schedule for this project will be comparable to those for CIL plant (capex: US$5mn+, 500 tonnes/day, 6 months). As of Dec-16, respective silver, lead, and zinc estimated resources was 1.96mn oz, 22.68k tonnes, and 21.45k tonnes in Sokor field. In 1Q18, the company will continue to conduct diamond drilling under Sokor and KelGold project, and exploration in Pulai concession will resume.
Negatives
– Impact of low ore grade lasted during full FY17 amid ascending gold price. Total sales volume of gold dropped by 10.4% YoY to 3,619.3oz in 4Q17. Accordingly, the FY17 sales volume of gold arrived at 14.8koz (Down 45.9% YoY). The average realised selling price (ASP) grew mildly to US$1,293/oz in FY17 (FY16: US$1,265/oz).
Outlook
In FY18, the primary catalyst that we look forward to is the significant turnaround of gold output, stemming from the replenishment of high-grade ore and higher gold recovery. Another positive factor is the resumption of the uptrend in gold price. Meanwhile, we expect more capex from flotation facility construction and additional operating expenses from a planned dual primary listing in Hong Kong.
Change in assumption
We lower the FY18 forecast of implied gold grade to 0.22 g/tonne (previous 0.28 g/tonne).
The forecast average gold prices are revised up to US$1,300/oz in FY18 (previous US$1,280/oz) but remain US$1,320/oz in FY19
All-in cost & gold price
Due to lower estimated production volume, the all-in cost estimation is changed from previous US$810/oz to US$975/oz in FY18. The revenue contribution from CIL plant will only be seen after 1Q18.
Investment action
We revise down FY18e EPS to 1.5 US cents (previous 2 US cents) as the full production from CIL plant may only start in 2Q18. Meanwhile, it is expected a further improvement of output in FY19e. Accordingly, we upgrade our recommendation to ACCUMULATE with an unchanged target price of S$0.3 due to the recent price correction.
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.
