Gold price is on the bull run after rallying back to a 6-year high. In 2Q19, the gold price averaged at US$1,308.5/oz (up 0.1% YoY and 0.4% QoQ). The improving spot gold market resulted in the 1.6% YoY and 1.8% QoQ growth in average realised selling price. It’s worth noting that the gold price surpassed US$1,400/oz, which is a 6-year high since Apr-13 by the end of Jun-19. As of mid-Aug-19, the gold price is holding up at above US$1,500/oz.
Lower ore grade led to a decline in QoQ production.
In 2Q19, the gold output dipped by 5.3% QoQ to 7,600oz due to lower ore grade. As of Jun-19, all the output were from open-pit mining whose ore grade is lower than underground mining. During the period, the carbon-in-leach plant was more than 100% utilised with a daily ore processing capacity of 500 tonnes. However, phase one underground mining has commenced operation by the end of Jun-19. The lower ore grade issue is expected to be mitigated in 2H19.
The expansion plan below enables CNMC to boost production and lower operating costs further.
Downgrade to ACCUMULATE with a higher TP of S$0.33
We adjust the FY19e and FY20e average selling price to US$1,350/oz (+3.8%) and US$1,400/oz (+3.7%) upward respectively while tweak down the FY19e implied gold grade to 0.48g/tonne (previously 0.49g/tonne). Accordingly, the present value of FCFE increases by 6.8%. Meanwhile, the updated cost of equity drops 0.5 ppt to 12.5%.
The last done price is 10% lower than our updated target price due to the recent price appreciation. We downgrade our call from BUY to ACCUMULATE with a higher TP of S$0.33 (previously S$0.31).