Higher gold output more than offsets lower gold price. Average daily gold price fell by 8.3% from US$1,266.2/oz in 2014 to US$1,160.6/oz in 2015. Nonetheless, CNMC is still likely to report higher revenue in 2015 in spite of lower selling prices. Based on the average daily gold price of US$1,105.2/oz during 4Q15, we estimate that full year revenue may come in at around US$36m to US$37m, implying 4Q15 revenue of US$8.8m to US$9.8m.
Figure 1: CNMC's quarterly gold production output and revenue
Source: Company
4Q profitability likely higher on some foreign exchange gain. CNMC’s net profit attributable to shareholders for 3Q15 fell by 45.8% year-on-year due to foreign exchange loss of US$2.8m. Excluding this foreign exchange loss, 3Q15 profit before tax would have risen by 14.0% year-on-year. The foreign exchange loss came about due to CNMC’s cash balance being held in Malaysian Ringgit and the Ringgit had depreciated by about 20.7% against the US Dollar during 3Q15. Such an arrangement is a natural hedge as its operating costs are mainly incurred in Ringgit. Nonetheless, the company has since started exchanging excess cash into Singapore and US Dollars to minimize foreign exchange exposure. The Ringgit has since appreciated by about 2.6% by the end of 2015. Hence, we may see some foreign exchange gains and improved profitability in 4Q15. That said, the Ringgit has fallen by 2.2% to 4.401/US Dollar as of 12 January 2016 versus 4.3043/US Dollar as of 31 December 2015. Hence, some of these gains in 4Q may be reversed in 1Q.
Figure 2: USDMYR rate from 30 September 2015 to 12 January 2016
Source: Bloomberg
Gold prices have since stabilized. Our observation is that gold prices have stabilized since the 14 December 2015 Fed rate hike decision. Gold hit a low of US$1,054.5/oz on 3 December 2015, ended the year at US$1,061.7/oz, and spike up to US$1,102.5/oz as of 8 January 2016. Indeed, the recent turmoil in the financial markets has helped to support gold prices. However, we also highlight that gold price did not fall much immediately after the rate hike decision. In fact, gold prices have remained above US$1,050/oz even though Fed officials signaled the potential of further rate hikes in 2016. In the December 2015 projections by Fed officials, the median Fed funds rate for 2016 was 1.4% and 2.4% in 2017.
Figure 3: Gold price from 1 December 2015 to 12 January 2016
Source: Bloomberg
Key Takeaways. We reckon that CNMC will likely report higher net profit for 4Q15 compared to 3Q15. On a full year basis, revenue will likely grow due to higher production, but net profit may stay flat or come off slightly in the absence of one-off tax credit recorded in 2014. CNMC has previously remarked that it adding capacity by applying to restart its vat leaching operations, which may provide additional output upside in 2016. Gold prices staying above US$1,050 is a positive. The recent turmoil in the financial markets may bode well for CNMC which will benefit from higher selling prices.