CNMC Goldmine Holdings Limited -
Growth Trajectory Swings to the Upside
Intrinsic Value S$0.800
Previous Close S$0.275
CNMC Goldmine Holdings Limited reported 3Q FY13 PATMI of US$1.6m, up 112% from 3Q FY12. Production in Oct 2013 has been confirmed at 81.5kg of gold dore, or about 2,350oz of fine gold, bringing Jan-Oct output to about 9,200oz - on track to meeting our full year forecasts.
We expect the company to maintain very high exponential growth in FY14 as it will enjoy full contribution from leaching pads 2 and 3 in 2014. The full 1m tonnes of ore processing capacity has the potential to yield output of 32,100oz to 48,150oz based on a gold grade of 1.0g/tonne to 1.5g/tonne.
Production Growth & Economies of Scale Had More Than Offset Lower Gold Prices: Production in 3Q FY13 of 4,763oz grew by 243% over that of 2Q FY13. As a result, all-in costs fell by 29.1% year-on-year, while average gold prices fell by only 19.7% over the same period. These factors resulted in the company earning an impressive pre-tax margin of 44% on revenue of US$6.3m.
More Scope for Costs to Fall Further:
There is scope for unit costs to improve further as the second and larger leaching pad only started operations in Sep 2013 and a third leaching pad will only be completed at the end of 2013. We reduced forecast unit costs for FY14 from US$600/oz to US$550/oz to factor in the lower than expected costs.
We also lowered assumed selling prices for FY14 to US$1,200 per ounce to provide for a margin of safety against fluctuating gold prices, currently at US$1,312/oz. These changes offset each other and do not materially affect our valuation.
Upside Risk for FY14:
We now see some upside risk against our FY14 production forecast of 30,000oz, as available capacity by end FY13 can cater towards a substantially higher level of output, depending on gold grades, recovery rates and weather (mining rate). In this update, we focus on revising assumptions regarding gold prices and costs. 1H FY14 will give us further visibility about production.
Under current assumptions, we project a possible FY14 PATMI of US$11.0m, which we reckon may give rise to the possibility of dividend payments to shareholders, if such profitability is achieved.
Publish date: 08/11/13