During elevated interest rates, gold hit a record high of US$2,448.98 ($3,308.98) per ounce on May 20. Analysts predict strong performance this year, supported by strong central bank purchases.
Against this backdrop, CNMC Goldmine Holdings aims to increase production by mining higher-grade ores. In 4QFY2023, the company completed an underground mining facility at Sokor Gold Field in Kelantan, Malaysia, enabling deeper ore extraction.
Unlike ores obtained from open pits, those from deeper underground tend to be of higher grade with a higher density of precious metals, says CNMC CEO Chris Lim Kuoh Yang. “Our Sokor mine can be compared to a tree. At the surface, like the leaves of a tree, we have a large area to work with. However, the gold grade at the surface tends to be lower because the gold is spread out over a wide area.”
“As we go deeper, the branches become small veins with higher concentrations of gold. This pattern is influenced by geological processes over the past million years,” Lim adds.
Ores with higher gold content usually lead to better gold recovery during the carbon-in-leach (CIL) process, which CNMC employs to extract gold from the mined ores. This implies that the company could boost its gold doré bar output without expanding its CIL processing capacity, currently capped at 500 tonnes daily.
Diverse growth strategies
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Listed on the Singapore Exchange S68 in 2011, CNMC has run an open pit at the Sokor mine for over 10 years. As the mineral ores in the open pit area gradually deplete, transitioning to deeper underground mining becomes logical for the company. Compared to open pit mining, underground operations have a smaller environmental footprint due to causing less surface disturbance.
CNMC is also constructing a larger and deeper second underground gold mining facility. Initially slated for completion by the end of 2024, the project is experiencing significant delays due to the discovery of excessive underground water accumulation at the site.
Prioritising worker safety, CNMC has hired engineers to devise plans to address the issue. The revised timeline will be determined after implementing these plans and Lim says the facility may be completed sometime in 2025.
“We are not going to put an exact date on it until the engineer comes up with an effective solution. With mining, anything that can go wrong will probably go wrong. We are not going to take that risk,” he adds.
Due to lockdowns, CNMC was severely impacted by the pandemic, halting all mining and processing activities in Kelantan from March 18, 2020, to May 5, 2020. Operations did not resume immediately, as the company needed time to tune up its machinery and equipment after the seven-week hiatus.
Additionally, the border shutdown delayed the return of the company’s mining team from China, hindering the construction of underground infrastructure and mining activities.
The company reported its first annual loss in nine years. For its FY2020, CNMC incurred a red ink of US$3.54 million compared to earnings of US$4.4 million for FY2019.
Since then, the company has gradually returned to full operations, reflected in its financial performance, which turned profitable the following year. In FY2023, the company posted earnings of a four-year high of $4.1 million, up over 3,300% y-o-y. This is attributed to record revenue, which more than doubled to an all-time high of US$52.17 million.
Despite the improved earnings, CNMC’s share price has largely stayed sideways for the last year. It closed at 21 cents on May 21, up 5% ytd from 20 cents per share, valuing the company at $85.6 million.
In a not-unusual development experienced by mining companies, CNMC diversifies into other products. Aside from producing and selling more gold doré, the company has also introduced a new engine of growth — lead and zinc concentrate sales. Lim clarifies that the company had found through Sokor exploration that certain deposits in the area are rich in lead and zinc. However, these base metals are wasted in the CIL process.
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According to findings from an independent mining advisory, the Sokor mine had an estimated 135,290 tonnes of unmined lead and 143,510 tonnes of unmined zinc as of Dec 31, 2021. Recognising this opportunity, the company started constructing an RM20 million ($5.7 million) flotation plant to process the base meals, eventually starting the trial production in June 2022.
Upon obtaining the necessary export licence in January 2023, the company started to ship out lead and zinc concentrates, boosting its revenue. In FY2023, lead and zinc concentrate sales contributed US$18.47 million to CNMC’s revenue.
Additionally, the company inked a 10-year sales agreement with Hong Kong’s Yuchen Resources to give itself better visibility. Under this deal, Yuchen will buy lead, zinc and other concentrates or ores from CNMC at prevailing prices from Jan 1, 2024, to Dec 31, 2033. Yuchen has purchased lead and zinc concentrates from CNMC through an affiliated company since early 2023.
Sustained performance
Despite these developments fostering business growth, Lim continues focusing on its main product: Gold doré bars, particularly given strong gold prices. As of May 23, gold is trading at over US$2,376 per ounce, up almost 16.3% ytd. Citing analyst reports, Lim is positive about gold’s short- and medium-term sustained performance.
Analysts at the World Gold Council anticipate gold will continue to respond positively to a mix of persistent inflation and sluggish growth, driven by Asian investor demand and central bank purchases, as outlined in their April market note released on May 13. Analysts at the Economy Forecast Agency also predict gold could reach as high as US$2,652 per ounce by the end of this year.
“We understand that gold price movements are not something we can control. We are a mining company; our focus should be on how to continue to be profitable amid a world of rising costs,” Lim says.
The company will continue exploring its sites and is hopeful to uncover commercially viable opportunities. Aside from the Ulu Sokor concession, CNMC has two other concessions: Fully-owned Kelgold and 50%-owned CNMC Pulai. These are part of the efforts done by the company to ensure that its mining activities continue after Sokor, he adds.
Lim also notes further potential for the company at Sokor. Under a second extension, CNMC can mine unlimited ores at Sokor until Dec 31, 2034. “Based on exploration data, enough ores are underground for the company to mine beyond 2034. We can, before then, ask for a third renewal to continue providing shareholder value.”
