Tuesday, February 24, 2015

Local Gold Companies?

Yesterday I only had a half day at work, so I thought I'd write up about these 2 Gold companies that are listed on the SGX.

I think a lot of people hear about LionGold (LG) and get a bit anxious and uncomfortable. That's normal, since they crashed along with the other penny stocks, Asiaons and Blumont. Don't worry, I'm not asking you to invest in it.

I never knew that there was another gold mining company listed on the SGX. Have you even heard of CNMC Gold Mines (CNMC)? Well, once I had stumbled upon it last week, I carefully peered into their financials and I was quite surprised with what I found.

Compared to LG, CNMC has a market cap about 10 times larger! CNMC is actually a profitable gold mine and their costs are much lower compared to LG. LG is not even making money at this point. In fact, it's bleeding fairly quickly. CNMC on the other hand is raking in heavy profits even with gold at this price.

Looking at their balance sheets, CNMC has a lot of cash on hand, most of its debt is in the form of payables and it has an extremely low amount of debt for a mining company. While CNMC checks all the right boxes, LG checks all the wrong ones.

LG does not pay dividends and has issued rights twice as its last 2 corporate actions. CNMC pays out a nominal sum of dividends, but that is a good plus in my books.

Valuation wise, LG is priced as if it will be liquidated and even then no one wants to take the risks of being able to salvage anything from the wreckage. CNMC is valued at a very high P/NAV ratio, which I feel is not very useful in this circumstance. However, based on EV/EBITDA, they are priced pretty attractively.

My personal thoughts are that gold mining companies are not your traditional sort of companies. They do not follow the local index at all, instead they track the price of gold. Considering that gold seems very low to me, I feel that the downside risks of investing in gold miners is capped. This means that any gold mining company that makes reasonable profits under these current poor environment should be able to thrive when the price of gold goes up.

Along that line of thought, I would not touch LionGold. It's company that doesn't make any money. Why would anyone invest in that is beyond me. CNMC on the other hand seems like a rare gem that I found. I am definitely keeping this guy on my watchlist.

Any thoughts on CNMC? I can't believe I never knew about it before.

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