Tom K is a financial blogger and investor who embraces continuous learning. He believes in living below one's financial means, expanding one's financial means and crafting an effective system to capture opportunities in the Singapore stock market. This article was first published on Tom K's blog, and is reproduced with permission.

MENTION LIONGOLD, and many investors will remember this stock as one of three (together with Blumont and Asiason) that plunged in Oct 2013.

More than a year after the saga and with results of investigations by the authorities into the saga not released yet, I was curious about the latest development of LionGold whose stock was, at one time, well-loved by retail investors (or should I say speculators?). 
 

I downloaded LionGold's annual report 2014 which has an opening theme that I find rather apt: "Emerging from Adversity".

LionGoldchart12.14LionGold (2.1 cents) has a market cap of S$23.5 million. Chart: www.ft.com

I must say investors in LionGold must be in it for the long term and focused because, firstly, the current low price of gold coupled with production costs that have not fallen do not benefit the bottomline of the company. 

Secondly, unlike other types of companies whose product is readily produced, LionGold has to explore, mine and process gold. My take on gold is this: Since President Nixon took the dollar off the gold benchmark, the price of gold has been rather speculative though in the long-term, I believe gold should continue to be valuable as it still is in demand in various industries and it has limited supply (essentially, the "supply and demand" theory). 

As someone who knows nothing about gold production, I did not find it easy reading LionGold's annual report as I grappled with the difficult parlance of the gold industry. Also, as a result of the "penny stocks saga", I will not compare the financial figures between the previous and current financial years. All I want is a general understanding of the business. I believe I have distilled some rather useful insights. 


» Revenue Drivers 

I was quite surprised that for FY2014, the sale of office equipment accounted for 55% of LionGold's revenue share while the sale of gold accounted for the remaining 45%.

The company was into the office equipment segmen before it diversified into the gold business. The former went from contributing 70% of the FY2013 revenue to 55%.

AsI always thought that LionGold is a pure gold play, the realization that it has a business in "office equipment" is quite comforting to me, and I think that the company should retain or even grow this defensive segment.

» Current Strategies 

Following the penny stocks saga and in view of the macro gold environment, LionGold takes the path of "rationalization, streamlining and stabilizing" operations. The main work of LionGold consists of two phases: the first is to explore and mine gold and the second is the production and sale of the gold. 

Understanding that production and sale are what generate revenue, one can easily appreciate LionGold's current strategies of focusing on production and growing organically through exploration and mining work (with an aim to locate more gold, of course).

And like most companies, LionGold also strives to grow its business through acquisitions. Its investments are (a) 10% share in Unity Mining (Australia) (b) 15% share in A1 Consolidated Gold (Austrailia) (c) 10% stake in a Bolivian company (in the stage of preparation of mine development) and (d) 16% in Citigold corporation, Australia (in production and development stage). 

However, I am more focused on LionGold's core assets as these are 100% controlled by the company.

The assets are Castlemaine Goldmine, Australia (100% owned), Brimstone Resources, Australia (100% owned) and Signature Metals, Ghana (54% owned).

Castlemaine Goldmine is the production facility with a throughput of almost 40,000 ounces of gold in FY2014 and, from the description in the annual report, this asset is a steady revenue generator for LionGold.

I am also glad to learn that Castlemaine is engaging in production and exploratory work with the possibility of more gold to be found in the vicinity. As for the other two assets, Brimstone Resources is in the exploration stage and Signature Metals is in the advanced exploratory stage. 

» Future Strategies 

I noted the company's plan to explore other metals or business if the gold business becomes unprofitable. I am not surprised that the management of LionGold has this thinking as the company first started out as "The Thinking Environment Company", its business model was really quite different from now: that of gold recycling.
  

» My concluding notes 

In view of the current low price of gold, as an investor, my aim is really practical, i.e. I will consider this stock only when the price of gold becomes better.

A more important factor which would weigh in my decision to buy LionGold stock is the outcome of the "penny stocks saga" investigation which I believe many investors are waiting for too (as I really want to know what caused the price of these three stocks to dive).

Last but not least, I would keep tabs on whether LionGold would "strike gold" at Brimstone Resources and Signature Metals as well as, to a smaller extent, how its other investment in other gold-related companies fare.  
 


Click on chart to enlarge it.
 
5 Year Gold Prices - Gold Price Chart

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    Comments  

    +1 #2 Ria 2015-01-02 07:32
    It's interesting that a Malaysian, Mr. Moi Hsien Hur, believes in the stock. He has agreed to subscribe for 105,000,000 new ordinary shares at an issue price of S$0.019 for a total of S$1,995,000.

    http://infopub.sgx.com/FileOpen/LionGold%20-%20Albert%20Moi%20Subscription%20Announcement%20-%20Final.ashx?App=Announcement&FileID=329986
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    0 #1 Aquarius 2014-12-28 15:47
    If I am not mistaken gold mining was the primary activity in the Castlemaine area (in Victoria) in the early 1900's and a large community of Chinese migrants came here to work in the mine. As a result, quite a number of present residents in the community in the area are of Chinese ancestry. I have been to this stretch in late 2010. There are a lot of sleepy suburbs there and life is at a very slow pace. Anyway, the point is, most of the gold there have already been mined and to hold one's investment potential in the prospects of finding more gold there does not seem to be a pragmatic business approach, unless there is no other alternative sources to put your money into.
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