Excerpts from analyst's report
NRA Capital analyst: Liu Jinshu
High Quality Mine Offers Immense Potential  ♦ Attractive upside from early stage mine. We view GCCP Resources Limited as an above-average return/high risk investment proposition. Upside is presented by maiden contribution in 2Q 2016 onwards from its new crushing plant at its second and larger calcium carbonate quarry. Potential catalysts include new contracts with top global customers, which will ensure sales volume. On the flip side, the quarries are still in the early stage of their production phase and as such, are subject to execution risk. |
| GCCP Resources | |
| Share price: 6.8 c |
Target: 13.5 c |
♦ High quality mine supports fundamentals. While limestone is a relatively common resource, GCCP’s quarries are comparatively rare as they contain high-grade limestone with 96% to 98% calcium carbonate.
Such limestone products are well suited to serve industrial customers that demand high purity products of high brightness, especially in the papermaking and paint industries. Other potential industries that GCCP can target include the food and pharmaceutical industries, which hold the promise of higher margins.
♦ Existing infrastructure and integrated quarry lowers costs. We also like GCCP’s quarries for their proximity to existing infrastructure. The two quarries are near Ipoh, Malaysia, and are accessible via road – thus facilitating transportation. The second quarry will also be highly integrated.
Mining, crushing and the future production of GCC powder will be centralised at the quarry, thus saving on transportation and utility costs, with its own generators and water supply. Both quarries are also located near other downstream processing plants, including those owned by MNCs such as Lhoist, Omya and Imerys. Both Omya and Imerys are among the world top three producers of calcium carbonate products.
| ♦ Base case valuation at 13.5 cents |
 "We value GCCP at S$0.135 per share assuming existing designed capacities and that approximately 30% of estimated resources will be extracted over a 20-year mine life. Under the aggressive scenario, we would have arrived at a higher valuation of S$0.193 per share if we assume additional capex at a later stage."-- Liu Jinshu (photo) |
♦ 1Q16 results show improvement. GCCP’s 1Q16 results show that revenue grew by 64.8% quarter-on-quarter and gross margin jumped from 24% to 63%. The higher contribution margin of the additional margin is a sign of improving economies of scale and production efficiency.
Net loss narrowed to MYR2.63m in 1Q16 from MYR18.99m in 2015. Excluding one-off IPO related expenses of MYR14.53m, GCCP had only lost MYR4.5m in 2015. Going forward, we expect contribution from the second quarry to help GCCP achieve breakeven and we forecast a loss of MYR2.94m for the full year, followed by a net profit of MYR19.08m in FY17F. Hence, the upside is attractive relative to near term losses in the early stage of GCCP’s growth. We highlight such losses are typical among early stage mining companies.
Full report here.