Excerpts from analyst's report
NRA Capital analyst: Liu Jinshu
High Resource Growth Proves Upside
 CNMC's goldmine in Kelantan. Photo: CompanySurprise acceleration in resource growth. CNMC Goldmine Holdings Limited (CNMC) recently announced a 22% increase in gold resources from 506,000 ounces (oz) a year ago to 618,000oz as of 31 December 2015. We are surprised by the acceleration in growth, following the 8% increase in 2014 and 20% higher production in 2015. In this update, we revise forecast gold production upwards by 13.8% to 360,100oz over the projected mine life from 2016 to 2025, after accounting for process recovery. |
Growth driven by expansion of key deposit. New inferred resources at the Rixen deposit of the Sokor mine accounted for 77% of ore growth and almost 100% of gold resource growth. Exploration in 2015 extended Rixen by100m along strike to 2km (north-south) and 200m across strike to 500m (east-west).
The growth of Rixen’s estimated resources is significant as Rixen has been the key output contributor over the last two years, and the growth implies that Rixen’s lifespan may be longer than initially estimated.
Lower gold grade indicates additional resources. The gold grade of ore mined fell from 0.94 grams per tonne (g/t) in 2014 to 0.61g/t in 2015. The 2.2m tonnes of ore mined in 2015 was equivalent to 27% of Rixen’s resources at the end of 2014 and should have led to a downward revision in gold grade. However, the gold grade of reported resources at Rixen has remained unchanged at 1.2g/t across 2014 and 2015.
| ♦ Attractive reward/risk profile |
 "We revised our valuation of CNMC to S$0.425 due to the depreciation of the USDSGD rate from 1.41 previously to 1.35. Nonetheless, we still view CNMC as a high return/low downside risk investment. "Our model works back to a valuation of 21.5 cents only at a gold price of around US$810/oz., translating to a decent buffer of 34% from the current price of US$1,227/oz. In contrast, the annualized volatility of gold price over the last 360 days is only about 16%." -- Liu Jinshu (photo) |
Therefore, we suspect that CNMC has been mining or processing ore outside of the reported resources at Rixen, which is possibly more efficient than to strictly follow the defined ore body. Not all known ore can be reported as resources due to exploration and cut-off requirements as stipulated by the JORC code.
Reiterate addition of new capacity in 2Q16. We take this opportunity to repeat that CNMC is expanding its capacity by 0.2m tonnes of ore per annum to process ore from its southern gold deposits (e.g. at New Discovery). As the ore at these deposits are of higher grade, the increase in gold production capacity is equivalent to 40% to 60% over heap leaching at Rixen.
The expansion should be completed within 2Q16 and we conservatively expect this facility to process 75,000 tonnes of ore and produce close to 6,000oz of gold in 2016. Overall, we expect CNMC to produce about 35,600oz of gold in 2016, 14% higher than that of 2015.
Full report here.
