CNMC expansion plans on track despite HK dual listing setback

CNMC Goldmine's plans for a dual listing in Hong Kong may have hit a roadblock, but strong gold prices and an adequate cash pile will keep the company's expansion plans on track, say management and analysts of the Malaysia-focused gold-mining company.

"This is not in any way going to upset our expansion plans and whatever plans we have set for the group overall," CNMC chief executive Chris Lim tells The Business Times in a phone interview.

CNMC announced on Dec 24 that the Stock Exchange of Hong Kong had rejected its application for a dual listing. In its rejection, the bourse's listing committee said it was not convinced that the company could achieve its goal of creating "meaningful liquidity" for its shares in Hong Kong or meet the Hong Kong main board's minimum market capitalisation requirement of HK$500 million (S$87.04 million).

Mr Lim said that the intention to pursue a dual listing, which was announced at the start of 2018, was not to raise immediate funds, but to pave the way for future capital requirements.

In 2017, CNMC acquired a 51 per cent stake in Pulai Mining Sdn Bhd and a full stake in KelGold Mining Sdn Bhd. Right now, it is in the midst of exploration works at all three of its concessions, namely CMNM Mining Group (Sokor Gold Project), CNMC Pulai Mining and Kelgold Mining. The latter two are not yet in production.

"Once commercially viable ores are located, we intend to bring these projects to production level, and depending on the scale of these projects, extra funding may be required to build up dedicated extraction and processing facilities," he said.

"In mining, we talk about planning for the long-term future, because mining projects are usually capital intensive and on a long-term basis. Previously, our dual listing plan was to pave the way to help us better prepare ourselves for future expansion programmes, because the group has been expanding steadily over the last few years, slowly but surely," he said.

"There will be a point in time when our expansion plans require us to go out to the market to raise additional funds, but now, there's no need for it as the group has more than US$15 million in cash and cash equivalents as at Sept 30, 2018."

Part of the rationale for seeking the dual listing at this juncture, even though the company is not in urgent need of funds, is because a listed company needs time to build awareness and understanding among the investing community before it can tap the market for capital.

"The listing process is not an overnight thing, but a long process and the company needs to be in the market for a certain amount of time to communicate with shareholders, for the market to understand the company before it can raise funds," he said.

Mr Lim would not comment on whether the company was planning a listing on any other bourse in the region after the latest rejection in Hong Kong, repeating the company's earlier announcement that "the board will re-evaluate the company's plans for the proposed dual listing and... make announcements to keep shareholders updated on any material developments".

Analysts however doubted that it will make a second attempt as it had already spent a couple of million dollars in listing expenses, going by past financial statements.

Still, the analysts do not seem concerned about the lack of a dual listing.

Among the analysts covering the stock is Lin Jinshu from Tayrona Financial, the equity research firm formerly known as NRA Capital. He believes that CNMC's failure to obtain approval for a dual listing in Hong Kong will probably not affect the company's financials.

This is because gold prices have recovered in the last few months as investors sought shelter in gold. The commodity rose to its highest in six months on Dec 28 at US$1,279 an ounce, and has held near there since.

CNMC reported net losses of US$337,000 in Q2, and a 75 per cent decline in net profit to US$236,000 in Q3.

"To some extent, CNMC's second- and third-quarter results were affected by lower gold prices, so the recovery in gold prices should lend some stability to its profitability," Mr Liu said. At the same time, its new leach pad should aid gold recovery, and improve both sales volume and profitability.

The rejection by Hong Kong may also have opened the door for company insiders to buy up shares on the open market.

Since the announcement was made, Mr Lim has beefed up his stake from 26.51 per cent to 26.64 per cent. Meanwhile, founder and executive chairman Lin Xiang Xiong also increased his stake from 26.51 per cent to 26.63 per cent last week.

Asked about his reasons for buying the company's shares, Mr Lim said: "Prof Lin and I have been wanting to buy the company's shares for quite some time because we both felt that the company's share price is undervalued."

They were not allowed to by a Hong Kong stock exchange rule which disallowed dealing in the securities by any "core connected person of the issuer" from the time of submission of the formal application for listing to the time listing is granted.

The counter has fallen 27 per cent since its peak of S$0.295 on Jan 15, 2018.

Lee Meixian

01 January 2019