SINGAPORE (May 19): DBS Vickers Securities is downgrading its call on CNMC Goldmine Holdings to “hold” from “buy” with a lower target price of 31 cents from 60 cents previously, while also suspending coverage on the stock due to the lack of earnings visibility.
This comes after CNMC’s 1Q17 earnings came in below the research house’s expectations, falling 99% as compared to the previous year due to lower ore grades.
(See also: CNMC Goldmine reports 99% fall in 1Q earnings)
“While the completion of the new carbon-in-leach (CIL) plant later this year could add to output, we believe that near-term earnings performance could further worsen before potentially getting better,” says analyst Paul Yong in a Friday report.
Yong is in the opinion that negatives outweigh positives for the group at the moment, even as it has implemented several initiatives in an effort to boost longer-term profitability, such as the expansion of its mining asset portfolio to include Pulai Mining and KelGold Mining.
“As costs continue to creep up under the new (higher) royalty fee compensation structure and on a ramp-up in exploratory and mining activities at the new Pulai and KelGold sites – which are unlikely to contribute to earnings anytime soon – we expect near-term earnings potential to remain under pressure,” he explains.
After lowering its gold output estimates while factoring a higher operating cost base, DBS has cut FY16/18F earnings by 98% and 55% to US$0.3 million and US$5.7 million respectively.
Yong cautions that the stock remains susceptible to volatility in gold prices as well as mining conditions, such that every US$10/oz decrease in gold prices could lower FY17F earnings by 1.7%.
As at 11:27 am, shares of CNMC are trading 4.7% lower at 30.5 cents.
