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Gold To Regain Its Glitter; Can CNMC Catch The Ride?
Corporate Digest | 20 February 2014
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By: Peter Ng
Articles (81) Profile

Since gold price has fallen 15.1 percent from US$1,415 in June 2013 to hit a one year low of US$1,201 on 31 December 2013, several signs are indicating that the yellow metal could be regaining its shine. Shares Investment will provide a glimpse on ways which an investor can hitch a ride on the shiny metal’s further potential price action as well as key takeaways from our interview with CNMC Goldmine Holdings.

After taking helm as Chairwoman of the US Federal Reserve, Janet Yellen made her first testimony to the US Congress, lifting hopes of sustained monetary stimulus which sent spot gold prices soaring to a three-month high of US$1,290 per ounce on 11 February. Recently, India’s trade ministry has recommended easing curbs on gold imports on the back of a 2.2 percent narrowing of trade deficits, accompanied by reports indicating buying activities of gold in China jumped by as much as 41 percent to a record high. Given that China and India are the two largest consumers of gold in the world, these are further reasons to believe why the yellow metal could be regaining its shine.

  Did gold ever lose its shine?

How To Invest In Gold

More often than not, questions surface pertaining to how investors can invest in gold. To put this simply, there are several ways for an investor to invest in gold, namely by purchasing gold related exchange traded funds (ETFs), acquiring physical gold and bullion coins as well as investing in shares of gold mining companies. Another alternative available for an investor to seek exposure in gold is to purchase financial derivative contracts via options and futures.

In comparison, investing in gold via ETFs or physical gold does not produce any cash flows to the investor during the investment horizon until the position is liquidated or sold, while an investment in shares of gold mining companies, depending on profitability and the company’s dividend policy, gives an investor the chance to enjoy periodical dividend payouts just like investing in shares of any other companies.

  Physical gold bars of different country makes

While the investment in shares of gold mining companies appears to be superior among these three options (excluding financial derivatives), however, this is certainly not by default. Notably, investment in shares of gold mining companies is subjected to market risk arising from constant fluctuation of security prices and most importantly, just like any other companies, gold mining companies also face business risk.

Compared to other countries in the world, there are only a handful of listed gold mining companies on the Singapore Exchange. The list gets even thinner while searching for a gold mining company which is progressing from the exploration phase to include actual production, and notably CNMC Goldmine Holdings, not only meets the criteria but apparently holds the title as the “first primary listing of a gold mining company in Singapore”.

Consistent Revenue Stream
CNMC has its primary mining activities situated in Kelantan, Malaysia. More specifically, the Sokor Gold Zone Project, a gold exploration and mining project, spans an area of 10 kilometres square consisting of four identified gold mining areas with proven gold reserves that are sufficient for production and generation of a sustainable revenue stream for the company. In conjunction to the Sokor Project, mining licenses for the project were obtained with full support from the State Government of Kelantan.

Querying on some of the exploration rights outside the Sokor Gold Project that have expired, Chris Lim, Chief Executive Officer of CNMC, elaborated, “These rights are currently not utilised, therefore the company does not view the renewal as top priority. Should we see potential in utilisation, we believe that they can be renewed.”

Company’s Proven Origins And Experience
According to Lim, the Sokor Project site was not just a leap of faith, instead the site selection was backed by prior studies as well as former operations of an Australasian company under the same site. As the former company has hit the mother lode, known as the principal veins with the largest amount of mine ores within an identified mining area, at a separate mining site in another country, the company needed to re-calibrate its resources into extraction causing the inevitable abandonment of the Sokor Project site.

Lim has also pointed out that one of the factors that has set it apart from other gold mining companies is the experience which it has garnered since ten years ago. “Having operated CNMC from scratch, we have developed a holistic and in-depth understanding of the business and its underlying industry. This adequately geared us up to not only better steer the company in the face of adversities but also the ability to pursue organic growth,” commented Lim.

  CNMC primarily operates in Kelantan, Malaysia

A Turnaround Story?
Moving forward, several catalysts and developments under CNMC’s pipeline such as the establishment of a joint venture to include harvesting of tin, as well as extensive efforts channeled into ramping up of its gold production significantly via the setup of a third leaching yard and a second gold de-absorption plant, can potentially lead to higher topline for the company.

However, its balance sheet remains in a territory which requires a potential investor to pay closer attention to. As of the nine months ended 30 September 2013, the company’s balance sheet indicated accumulated losses amounting to US$7.9 million, nevertheless, improved 11.6 percent from US$9 million since December 2012, as a result of better operating performance. Excluding the proceeds generated from a convertible loan and short-term borrowings, CNMC’s net cash flow for the nine months would have been in the red.

Despite this, a silver lining begins to form as the company’s 9M13 earnings soared 16.4 percent to US$1 million in tandem with a nine-fold year-on-year increase in the production of gold during 3Q13. With a stronger outlook for earnings as the bottleneck for gold production begins to be resolved, its balance sheet is expected to demonstrate further signs of improvement.

Furthermore, CNMC’s interest coverage ratio appears well above 80 times, coupled with a relatively healthy debt to equity ratio of 0.12 (including accumulated losses), granting the company with ample room to further finance its operations when needed. With more good news to cheer which include the company’s first interim dividend payment of $0.001 per share in December 2013, do you think this could be the making of a turnaround story for CNMC?

Backed by a strong interest in investments, Peter's research spans across a range of industries, with his focus placed on companies listed on the SGX.

Please click here for more information about this author.

CNMC Goldmine Hldgs  0.285 +0.005 +1.79%   
Business: Co is engaged in the business of exploration, mining of gold and the processing of mined ore into gold dores.

Insight: Feb-19, FY18 revenue jumped 106.5% due to signific... Read More

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