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China Nonferrous Gold Limited: THE INVESTMENT CASE

China Nonferrous Gold eyes October for first production

“We are targeting the completion of the processing plant in September and the smelter in October.”
China Nonferrous Gold eyes October for first production
INVESTMENT OVERVIEW: CNG The Big Picture
The bankable feasibility study conducted by SRK Consulting worked off the basis of a 4.7 mln ounce resource.

The Pakrut gold project in Tajikistan owned by China Nonferrous Gold (LON:CNG) looks to be on track for first production by October, according to managing director David Tang.

Speaking from his office in Beijing, Tang struck an upbeat note, following earlier delays relating to adverse winter weather conditions and problems with the company’s plans to import a Chinese labour force.

“We are targeting the completion of the processing plant in September and the smelter in October,” said Tang. “We should be producing first gold in October.”

Long-term investors will know that this has been quite a journey.

In the company’s previous incarnation as Kryso Resources, Pakrut always looked a promising, but far-away project.

Far away not just from its original UK investor base, but from any sort of infrastructure or major industrial hub.

It took the can-do attitude of major Chinese resources player China Nonferrous Metals International to unlock the value, a process that began back in 2010 when an £11mln investment secured it a 30% stake in Kryso.

Five years on, and China Nonferrous Metals now owns more than 38% of the company, a position of influence that was reflected in the change of name to China Nonferrous Gold that went through in November of 2013.

Other Chinese investors now account for major blocks of shares too, so the transition of Kryso into a Chinese majority-owned company is now largely complete.

Having said that though, there are no plans for China Nonferrous Gold to abandon its Aim listing.

“We will keep the London listing – why not?” says Tang. “We cherish the platform in the UK.”

At one stage, it’s true, there were plans to seek a listing in Hong Kong, but the Hong Kong Exchange objected to the listing on the basis of certain elibility considerations.

That’s a factor that’s at times troubled investors in the UK too, but the listing authorities in the UK have tended to take the view that investors can wear their own risk and London’s junior mining markets have thrived accordingly.

Tang knows this. “We’ve been in the London market so many years it makes sense to stay,” he says. “The investor base is very familiar with us.”

And although Tang is still of the view that China Nonferrous Gold’s shares are undervalued, it’s clear that the market does remain supportive.

Over the past 12 months the shares have declined from around 30p to the current price of 23.5p.

That’s not bad given the corresponding decline in the gold price, the way some peer companies have been all but wiped out, and the fact that China Nonferrous Gold’s own development programme has suffered serious delays.

What’s helped is the heavyweight backing of the parent, China Nonferrous Metals.

And on that score, Tang is fairly candid.

Because the Tajik government delayed the issuance of visas to China Nonferrous Gold’s majority Chinese workforce, and because bad weather hindered the connection of electricity to Pakrut, the scheduled completion date has slipped back by a couple of months.

Is there therefore likely to be an interim fundraising to tide the company over?

“We have sufficient funds after taking into account revenue from projected gold sales with effect from November 2015,” says Tang. 

The real focus is on meeting the new timetable.

“We are pushing everybody to meet the October deadline,” says Tang.

Initial production looks set to run at around 1,000 tonnes a day, rising to 2,000 tonnes as the ramp-up of phase one completes at the end of year two, and then rising again to 4,000 tonnes per day for the rest of the 19 year mine life.

Precisely how many ounces of gold will initially be produced remains to be seen.

“It’s the beginning of production,” says Tang. “The grade may not be very stable. We need to see.”

But the resource is big, there’s no doubt about that.

The bankable feasibility study conducted by BGRIMM worked off the basis of a 4.7 mln ounce resource.

Cash costs including depreciation and amortisation were set at US$576.

So, most of the heavy lifting has now been done, and China Nonferrous now looks set for an imminent transformation into a cash cow.

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