Excerpts from analyst's report

NRA Capital analyst: Liu Jinshu

Any New Concession Will Unlock Potential

mine11.15CNMC's gold mine in Kelantan. Photo: Company Maintain high return/low risk view. CNMC Goldmine Holdings Limited delivered a strong set of results that exceeded our expectations with PATMI growing by 133% from US$1.96m in 1Q15 to US$4.57m in 1Q16.

We remain bullish on CNMC and maintain our view that the company is high return/low risk, as CNMC continues to benefit from the triple combination of higher output, higher selling prices and low costs.

Any new concession will be a positive icing on the cake, supported by a solid balance sheet of 8.8 cents per share of net cash (33% of share price). 

 First gold pour points to 40,000oz output potential. The company announced on 13 April that it has achieved first gold pour of 1,363.3oz of gold dore bars from its newly upgraded vat leaching facility. We estimate that this facility has the potential to produce 3,000oz of fine gold per quarter or 9,000oz from 2Q16 to 4Q16. Coupled with 31,000oz/year of production from heap leaching, total 2016 potential works out to about 40,000oz/year.

CNMC Goldmine
Share price: 
26.5 c
Fair value: 
43 c

 Our 35,613oz forecast now looks conservative. On a trailing 12-month basis, CNMC has already produced 31,963oz of gold, just 3,650oz short of our full year forecast of 35,613oz. We tested our model by assuming output of 40,000oz of output in 2016 – 2016F EBITDA margin rises from 58% to 61%, and PATMI will in turn rise from US$16.46m to US$20.04m.

On balance, we decided to remain conservative and keep our forecasts unchanged – transient factors such as weather and changes in ore quality can still affect near term output.

 ASP looks set to recover further. ASP/oz of gold rose 5.8% from US$1,093/oz in 4Q15 to US$1,156/oz in 1Q16. Based on average gold price of US$1,253/oz from 1 April to 13 May, ASP may rise by another 8.3% in 2Q16. In our model, we continue to assume ASP of US$1,200/oz in 2016.

Potential catalyst
Liu Jinshu"Adding new concessions is a potential catalyst. Likely, the acquisition will entail a reasonable entry sum, followed by subsequent investment in line with milestones. We see any new concession as a positive as it will allow CNMC to expand from being a mine operator to a manager of multiple mines."

-- Liu Jinshu (photo)

 All-in costs dropped to US$487/oz from US$555/oz in 4Q. The decline in all-in costs was mainly due to lower general and administrative costs and non-sustaining capex. Accounting cost (depreciation and operating costs, less net financing income and exchange gains and losses) shrank from US$707/oz a year ago to US$650.2/oz in 1Q16, but still higher than US$629/oz in 4Q15.

We are still forecasting full year accounting cost of US$631/oz, which is achievable as production scales up further in 2016. 2Q and 3Q accounting costs were below US$600/oz last year.

Prospect of new concession and strong balance sheet makes for compelling case. CNMC has been commenting that it is exploring opportunities to expand its minerals portfolio since the 2Q15 results announcement. In the latest briefing, there was more discussion over these opportunities. Any such news will be a positive catalyst, especially when the company is well funded to take on such projects.

Full report here.

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