1. What is CNMC Goldmine’s business, and what are its key business segments?
We are a Singapore-headquartered mining company operating in Malaysia’s Kelantan state. Our flagship project, the Sokor Gold Field, spans 10 sq km and has been producing gold for more than a decade. Our gold doré bars are sold to licensed buyers in Malaysia. In 2022, we broadened our portfolio to include lead and zinc concentrates from gold. These concentrates — powdery substances meant to be processed into pure lead and zinc — are sold internationally, providing a new revenue stream.
2. CNMC Goldmine’s net profit has steadily increased since 1HFY022, reaching US$5.5 million ($17.2 million) in 1HFY2024. What have been the key drivers of growth?
Rising gold prices in recent years have given a significant boost to our bottom line. Prices of gold have been going up for various reasons. These include strong buying interest by central banks worldwide as they sought to diversify their reserves and reduce dependency on the US dollar, as well as gold’s perceived status as a safe haven asset and as a hedge against runaway inflation.
Other key drivers of our profit growth since 1HFY2022 include increased production and sales. Our carbon-in-leach (CIL) plant produced 9,357.02 ounces of fine gold in 1HFY2024, up 27% y-o-y. We also started recognising revenue from the sales of lead and zinc concentrates in 2023, which are a new source of income.
An independent consultant for our Sokor Project has provided mineral resource estimates for 918,000 ounces of gold from both CIL and flotation processing as of Dec 31, 2023. We have also received resource estimates for 6.9 million ounces of silver, 76,850 tonnes of lead and 96,270 tonnes of zinc.
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3. Who are your key competitors in this sector, and how does the group differentiate itself from competitors in the same space?
Mining companies, including ours, generally hold their own mining concessions or rights and do not encroach upon each other’s territories. As a result, there is no direct competition like in most other industries. Moreover, gold has strong and consistent demand globally. This ensures that all gold miners find their market regardless of regional differences. In this sense, there is no direct competition among us.
4. Does the group have a dividend policy? How is the group rewarding or sharing growth with shareholders?
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We maintain a dividend policy that typically allocates up to 30% of our annual earnings as dividends. Over the past decade, the only year we did not pay dividends was during the Covid-19 pandemic in 2020, when the group incurred a loss. This resulted from global lockdown measures, including those implemented by Malaysia, aimed at controlling the spread of the virus.
On various occasions, we have also distributed significantly more than 30% of our earnings as dividends. Specifically, in 2023, we paid out 66% of our earnings to shareholders, demonstrating our strong commitment to rewarding investors.
5. Does the group have any expansion or acquisition plans, and what are the strategies?
We are in the process of adding additional capacity to our carbon-in-leach (CIL) plant, which is our main gold production facility at the Sokor Gold Field. Gold-bearing ores unearthed from our mining operations are sent to the CIL plant to be processed into gold doré bars.
The expansion will cost up to RM9 million ($2.73 million) and increase the CIL plant’s processing capacity to 800 tonnes of ore per day from 500 tonnes per day currently. This exercise will be fully funded using internal resources and is expected to be completed by the first half of 2025, barring any unforeseen circumstances.
We are also building another underground gold mining facility at Sokor. Expected to be completed by next year, this facility will enable us to extract more higher-grade gold ores for processing at the CIL plant.
6. Given that a large portion of CNMC Goldmine’s revenue is tied to gold prices, how does the group manage the potential volatility?
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As a mining company, we are a price taker. We have no control over gold prices, which are determined by market forces. What we can reasonably control to a certain extent, though, is our operating costs, which we keep a close watch on as we want to generate a profit margin even if the price of gold comes down. We do not hedge the selling prices of our gold bars. Whatever we produce, we sell at the prevailing spot rate.
Having said that, we are mindful of being solely dependent on gold as our source of revenue. We have been fortunate that our flagship mine also contains other metals besides gold. We diversified into the production of lead and zinc in 2022 and started exporting them the following year. This additional source of revenue has since become a contributor to our bottom line.
In 2017, we also acquired two mining properties in Kelantan with 51% interest in CNMC Pulai Mining and 100% interest in Kelgold. At this time, both the Kelgold and Pulai projects remain in the exploration stage.
7. What other risks are there in your business, and how is the group mitigating it?
Mining is a high-risk business and there is no guarantee of success even after a mining company has invested heavily in trying to find gold or any other metal. Over the years, we have been fairly successful in locating and extracting gold and other metals, as seen from our profit track record.
Still, risks are plentiful in mining. These include ensuring the safety of our workers, keeping the area surrounding our mine site free from pollution, geological issues and contamination, ensuring the local community in the area where we operate is not displaced but cared for, and complying with local laws and regulations. Our overall risk management framework has served us well, helping to keep us in business for over a decade.
8. Sustainability and ESG (environmental, sustainability and governance) have increasingly been a key focus. How is the group committed towards sustainability?
We are committed to mining gold and other metals in a manner that respects the environment and all our stakeholders, including the residents living near the area in which we operate.
Our ESG focus aims to align with UN Sustainable Development Goals. We make it a point, for instance, to minimise waste generation. One way we do this is by using overburden — rock or soil overlying a mineral deposit — to backfill our mines and fill roads with non-hazardous tailings.
Also, water used for operations is often treated and reused instead of discharging it into the environment. As part of our ongoing efforts to manage and reduce our carbon footprint, we have integrated more energy-efficient power generators into our operations. Additionally, we are actively collaborating with our equipment suppliers to explore the possibility of utilising larger capacity heavy equipment. This strategy aims to reduce the total number of machines required on-site, further enhancing operational efficiency and minimising environmental impact.
9. Why should investors take a closer look at CNMC Goldmine?
We are among a few junior gold mining companies that consistently generate profits and pay dividends. We believe investors have yet to appreciate our value proposition fully. There are many mining companies worldwide with projects much larger than ours. However, many are still in the exploration phase and have yet to monetise their mineral reserves and resources.
Mining is a very capital-intensive and high-risk business. Still, we have a proven track record in profitability and sharing the fruits of our labour with shareholders. Much work has gone into getting our flagship project off the ground. Not only have we succeeded in discovering and producing gold, but we have done so in a way that is commercially viable, achieving profitability in nine out of the past 10 years. We have also maintained a strong commitment to paying dividends regularly.
10. What is the group’s value proposition to its shareholders and potential investors? What do you think investors have overlooked?
A mining company can have a project with huge mineral reserves and resources. But until these are taken out from the ground, processed and sold, they remain only assets on paper. Some gold deposits are difficult and very expensive to extract. As a small mining company, we are nimble and can get things done quickly. That is why we have produced gold consistently over the years.
The world today is fraught with uncertainties, whether on the economic front or in terms of geopolitics. Against this backdrop, we think gold as a safe haven will continue to do well. However, the supply of gold is finite, so many gold miners worldwide are consolidating through acquisitions or mergers. They know that the value of gold will only appreciate given its limited supply and as global uncertainties increase. Such an environment is highly favourable to us. With gold prices now at all-time highs, we are certainly a prime beneficiary.
Raphael Lim is associate director of research and FinLit at SGX Group
