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An artist's dream turned gold
IT ALL began as a wish by a budding artist to free himself from having to bow down to commercial pressure in his craft. Many twists and turns later, that wish has transformed into the shape of CNMC Goldmine, a growing gold mining company listed on the Singapore Exchange. Lin Xiang Xiong was born in Guangdong, and came to Singapore at 11 to study art. He obtained a diploma from the now-defunct Singapore Art Academy, and then spent three years in Paris furthering his studies in art.
The artist, however, wanted to keep his art pure, rather than to create paintings that pander to popular taste. "Very early on in his life he decided that he wanted to survive through other source of income than to sell his paintings," his son, CNMC's chief executive Chris Lim, recalls. "And when he has financial stability, then he can paint whatever he likes."
When Mr Lin came back to Singapore, he started a design firm, taking on jobs ranging from landscape to interior designs. After a while, he branched out into contracting work and started importing Italian tiles after seeing an opportunity there.
One thing led to another, and soon, Mr Lin moved into the quarrying business in China, shipping granite and marble slabs to customers in Japan and elsewhere. Cutthroat competition, however, led to very thin margins for these products.
Nonetheless, because of his experience and relationship with the Chinese government, Mr Lin was hired as the economic adviser to the Kelantan state government in 2004. The Parti Islam SeMalaysia (PAS) party that was in charge - then the only opposition state government in Malaysia - had come under fire for not doing enough to develop the state. Its chief minister therefore wanted help in attracting foreign investments, and in particular, those from China.
The state dangled a gold concession as a carrot for foreign investors, and Mr Lin subsequently secured a mining deal between the state and a Chinese state-owned enterprise (SOE). But a few months after the deal was signed, the chairman of the Chinese SOE stepped down, and his replacement wasn't keen on continuing with the project.
In 2006, as elections were nearing, the chief minister of Kelantan asked Mr Lin what to do about the stalled project. Mr Lin offered to take the company private instead, and to run it himself. With the blessings of the chief minister, CNMC took an 81 per cent stake in the Sokor project. It also holds the rights to mine and produce gold, silver and base metals from the 10-square-kilometre strip of land which contains total inferred, indicated and measured gold resources of 618,000 ounces as at Dec 31 last year. The firm started exploration work in 2007, and in 2010 produced its first gold bar. "After that, the rest was history," says Mr Lim.
The next year, CNMC was listed on the Catalist board of SGX through a primary listing. With the firm having negative working capital and operating cashflow, funding was urgently needed then. "Investing in a mine is not a small investment," says Mr Lim. The initial exploration programme had been self-funded, but a larger amount of external funding was needed to raise the project to the next level, he explains.
"Unfortunately banks and the finance sector are not very keen to lend money for mining projects. The next best alternative is to get yourself listed." Listing also meant that the company would have to adhere to higher standards of corporate governance and transparency, which helps the company in deals, Mr Lim says.
As the first gold mining company to be listed, however, it was an uphill task to raise awareness of the sector among investors here. When CNMC first listed, there was a lot of doubt, he recalls. "Is there gold in Malaysia? That was the big question. In order to address this question, we needed to be very proactive and open our doors to investors."
The group initially met with investors every month. With gradually improved investor understanding of the company, it has since reduced this to six times a year. It holds investor dialogues every time it releases its quarterly results, and also an event with the Securities Investors Association (Singapore) (SIAS) before the annual general meeting (AGM), on top of the AGM itself.
The group has raised its gold production from 553 ounces in 2010 to over 30,000 ounces last year, and is now expanding its ore processing capacity by an additional 200,000 tonnes a year which would further boost production.
With an all-in production cost of US$487 an ounce, CNMC is among the lowest-cost gold producers in the world, says Mr Lim. "So there is a good buffer in the event that the gold price were to retreat. And if it goes back up north, the profit margin widens even further."
The next step for the company is to acquire another mining concession in Malaysia, where it can hopefully duplicate what it is already doing with the Sokor project. After that, with an increased scale, it would then look to expand out into the region.
CNMC is still a "nano" company compared to the global mining sector, says Mr Lim. "We want to take it step by step, not taking excessive risks, and slowly grow it into micro, small, medium level and hopefully we can reach the big miners' status."
The biggest challenge, as he sees it, is for CNMC to keep its costs low, especially as expenses increase the deeper the firm has to dig. The company is also at the mercy of a volatile market. To mitigate its impact, CNMC is actively looking at diversifying into base metals, the prices of which tend to be inversely correlated to gold prices, Mr Lim says.
Asked what he enjoys most about the industry, Mr Lim remembers how, when the company first started, he and the workers had to travel by foot from a logging track to get to the concession. Today the land has been cleared and the concession is a "kampong" on its own, with a staff canteen and even WiFi connection. "This industry is really one where you create something out of nothing, in the middle of nowhere."