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Why Are CNMC Goldmine Holdings Ltd’s Shares Up By 76% In The Past Year?

The Singapore market hasn’t done well over the past 12 months. This is evident from how the Straits Times Index (SGX: ^STI) has declined by 15% since 4 July 2015.

Not every stock has performed poorly though. One big winner in that time frame is CNMC Goldmine Holdings Ltd (SGX: 5TP). Its shares are up by 76% over the past year at their current price of S$0.45. In fact, CNMC’s share price had reached a new 52-week high of S$0.49 earlier in the day.

CNMC, which was listed on the Catalist board in 2011, is in the business of exploring, mining, and processing of gold in Malaysia. The company’s current flagship project is the Sokor Gold Field Project which covers an area of approximately 10 km2 and is located in Malaysia’s Kelantan state.

In addition, CNMC announced just last week that it has signed a non-binding letter of intent for the acquisition of a 51% stake in Pulai Mining Sdn Bhd, which has exploration and mining concession in Kelantan spanning 38.4km2. For perspective, that’s an area almost four times the size of CNMC’s Sokor gold project.

With that, let’s dig into some of the possible reasons why CNMC’s shares have enjoyed such a spectacular rise over the past 12 months:

1. Shine of gold amid global turmoil

As a gold miner, it’s obvious that CNMC is directly exposed to the ups and downs of gold prices.

2016 has seen a strong surge in the price of gold. The precious metal started the year at a price of less than US$1,100 per ounce. Today, gold’s skirting US$1,350 per ounce. The current price also represents a nice gain from the US$1,150 seen a year ago.

Some analysts also expect interest rates to remain low for an extended period of time, which they say is a positive for gold.

2. Rising production coupled with low all-in costs

The company’s gold production has increased in each consecutive year over the past few years as you can see in the table below:

CNMC's gold production table
Source: CNMC’s annual reports

Meanwhile, the company has also demonstrated a good handle on its production costs.

CNMC all in production cost
Source: CNMC’s earnings report

As the chart above shows, the company’s quarterly all-in gold production costs have been steadily declining since the third-quarter of 2013. The figure has fallen by nearly 40% from US$775 per ounce to US$487 in the first-quarter of 2016. Some of the drivers for the shrinking all-in production costs are greater economies of scale achieved over the years and reduced exploration activities.

CNMC’s cost-discipline can also be seen in the company’s results. Despite the price of gold falling by around US$1,700 per ounce at the start of 2013 to around US$1,350 today as mentioned, the company has seen its business grow.

From 2013 to 2015, CNMC’s revenue had more than doubled from US$16.6 million to US$36.6 million. Meanwhile, profit had quadrupled from US$2.68 million to US$10.7 million and operating cash flow had jumped by a similar magnitude from US$4.87 million to US$20.2 million.

3. Balance sheet with very little debt

CNMC had ended the first-quarter of 2016 with US$26.2 million in cash and cash equivalents on its balance sheet and total borrowings of just US$0.14 million. Having minimal debt means the company’s facing lower financial risks as compared to a case of it carrying lots of debt.

At CNMC’s current share price, it has a price-to-earnings ratio of 10.3. For some perspective, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the Straits Times Index – has a slightly higher PE ratio of 11.8.

Is CNMC’s future growth already baked into its current share price especially when considering its breathtaking 76% gain in the last 12 months? Only time will tell.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo owns shares in CNMC Goldmine Holdings.