SINGAPORE (July 3): KGI Securities Research is re-initiating coverage on CNMC Goldmine Holdings with a “buy” call and a target price of 38 cents, representing an upside of close to 40% from its last traded price.
The target price is based on 10 times of its earnings per share (EPS) forecast for 2018, which is a 30% discount to global gold miners.
“Production and sales volume recovered in 1Q18 and was the highest since 3Q16,” says analyst Joel Ng in a report on Tuesday. “1Q18 PATMI increased 8 times year-on-year to US$0.5 million as gold production increased 23% y-o-y to 4,519 oz.”
CNMC saw its gold production slump by some 46% y-o-y to 14,817 oz in 2017, due mainly to a delay in the group’s plan to add a new facility to process high-grade ore at its Sokor goldmine.
“The group had wanted to obtain the extension of the Sokor goldmine for another 21 years before spending on capex,” says Ng. As a result, the facility did not contribute to production for the year.
CNMC’s new ore processing facility was completed in Nov 2017, and began trial operation in March this year. The plant is capable of processing 500 tonnes of ore per day.
According to Ng, the board has approved another new facility, capable of processing a further 500 tonnes of raw materials per day, which would allow the group to diversify to base metals.
“In terms of production, we estimate a sustainable gold production of around 32,000-34,000 oz per annum. We believe this is easily achievable with the new CIL plant, which is capable of extracting gold from high-grade ore,” says Ng.
At the same time, the analyst opines that downside risks to gold prices in 2018 may be limited, noting that gold price forecasts range from a low of US$1,244 to a high of US$1,493, based on a Bloomberg compilation.
The way Ng sees it, CNMC’s earnings are forecast to jump 52% to US$4.2 million in 2018, and surge 170% to US$11.4 million in 2019.
As at 1.04pm, shares of CNMC Goldmine are trading flat at 27 cents, implying an estimated price-to-earnings ratio of 19.3 times, a price-to-book ratio of 1.9 times, and a dividend yield of 0.7% for 2018.
