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Broker's take: 'Worst is over' for CNMC Goldmine as KGI reinitiates with 'buy'

THE worst is over for CNMC Goldmine Holdings, with the gold ore mining company expected to post a rise in its 2018 and 2019 earnings after a "challenging" 2017, KGI Securities wrote in a research note on Tuesday.

CNMC Goldmine's 2018 earnings are forecast to rise 52 per cent to US$4.2 million year-on-year (y-o-y), with its 2019 earnings expected to jump 170 per cent y-o-y to S$11.4 million, the broker wrote, assuming gold prices average US$1,285 per ounce (oz), and all-in-costs to decline from US$1,150 per ounce in fiscal 2018 to US$850 per ounce by 2019.

KGI is reinitiating coverage on CNMC Goldmine with a "buy" call at a S$0.38 target price. The Catalist-listed counter was trading flat at S$0.27 apiece at 11.30am on Tuesday.

"2017 was a very challenging year for CNMC. Gold production fell to 14,817 oz in 2017 from 27,404 oz in 2016. The key reason was a setback to the group's plan to add a new facility to process high-grade ore at its Sokor gold mine, which was delayed until Q2 2017 and did not contribute for the year," KGI said in its note.

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The group had completed its new ore-processing facility - with a 500 tonne ore-processing capacity - with an additional 500 tonne facility set to come online, allowing the group to diversify to base metals, KGI wrote.

To increase the group's market visibility and widen its investor base, CNMC Goldmine is also seeking a dual primary listing on the Hong Kong stock exchange.

KGI cautioned that as the group's revenue is based on production volumes and gold prices, both adverse weather conditions and low ore grades could affect CNMC’s gold production volume and lead to higher production costs per
unit.

The broker highlighted that as at end December 2017, CNMC had some 724,000 oz of JORC (Joint Ore Reserves Committee)-compliant gold resources, the highest amount since it started exploration works in 2007, not including potential resources from its two other mines, KelGold and Pulai Mining.