CNMC

Voyage Research, Oct 29

CNMC Goldmine Holdings looks set to produce a very strong set of Q3 results, following announcements of record gold dore production of 1,360 oz in July and 3,420 oz in September 2013. In contrast, H1 2013 gold production was only 2,073 oz. CNMC's share price of S$0.235 as at Oct 28, 2013, suggests that the market may yet to have fully priced in the growth in CNMC's production (intrinsic value: S$0.800).

Assuming merely 1,000 oz of gold dore output in August 2013, Q3 FY2013 gold dore output may be more than 5,700 oz (or about 5,200 oz of gold, assuming 90 per cent purity). Such production in turn translates into US$1.5 million to US$2.6 million of net profit for CNMC based on a per ounce net profit of US$300 to US$500. Conversely, CNMC's net profit was US$0.1 million in Q2 FY2013, on 1,388 oz of gold output.

There is some upside risk in the estimation of Q3 net profit as unit costs have most likely been driven lower by economies of scale.

CNMC further reported recently that it produced 1,526 oz of gold dore in a single gold pour in October 2013, suggesting that the strong performance in Q3 is being carried forward into Q4. Our calculations indicate that CNMC need only produce another 3,350 oz of gold in Q4 to meet our full-year forecast of 12,000 oz - an achievable target given recent output levels, but subject to weather considerations.

According to CNMC's announcements, growth was driven by factors such as technical enhancements to the production process, more effective ore selection to yield higher grade ore for leaching and growth in operating leaching capacity.

CNMC's first leach pad of 70,000 tonnes of ore per leach cycle was commissioned on Dec 30, 2012. The second leach pad of 140,000 tonnes of ore per leach cycle commenced production in September 2013. A third leach pad of 70,000 tonnes per cycle is being constructed to achieve estimated leaching capacity of one million tonnes of ore per annum.

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