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Goldplat plc: THE INVESTMENT CASE

Goldplat’s incremental turnaround continues

Goldplat's turnaround continues, as local currency weakness enhances the benefits of increased gold production
Goldplat’s incremental turnaround continues
INVESTMENT OVERVIEW: GDP The Big Picture
Goldplat's gold production is on the up

The gold price has been rising of late, but it’s not just that that’s putting a smile on Gerard Kisbey-Green’s face.

As the chief executive officer of Goldplat (LON:GDP), a company specialises in the extraction of gold from mining by-products, he’s presided over a quietly orchestrated turnaround of the business since he took over last year.

In the first six months of the current financial year the company produced nearly 18,000 ounces of gold from two by-product recovery operations, one in South Africa and one in Ghana, with a small contribution also coming from a mine in Kenya.

That compares pretty well to the 24,900 ounces that the company produced across the entire 12 months prior and shows that the measures that Kisbey-Green is taking are starting to have an effect.

The most significant of these has been the installation of what’s known as an elution column at the South African operation. This effectively allows for the washing of the by-product materials in far greater volumes, and has increased capacity, according to Kisbey-Green, from around 1.5 tonnes per day to “in excess of 8 tonnes per day.”

“It allows us to capture a lot more of the value chain in-house,” he says. “The next step is to install one in Ghana.”

Broker VSA reckons the new Ghanaian plant is likely to be installed this year, and has built that assumption into its forecasts for the next couple of years.

The broker reckons that sales will jump from £16.6mln in 2015 to £21mln in 2016. Further out the numbers are harder to divine.

Expansion at the Kilimapesa gold mine in Kenya is also on the cards, as the interim production number of just 932 ounces of gold ranks it currently as a true tiddler.

And then there’s the newly established JORC resource of 82,000 ounces of gold with associated silver and uranium oxide at the South African operation.

This material comes with certain complexities. Having previously been processed and then stockpiled as waste, it is by no means a homogenous body and the metallurgical challenges involved in the extraction of the metals could be significant.

On the other hand, as with all tailings projects, there are no mining costs to contend with, so even if there has to be some sacrifice of recoveries, margins could well come in at a very healthy level.

Work on that resource base will continue as the year progresses, but at this stage Kisbey-Green is talking of estimates from metallurgists and engineers that the company should be able to extract around 40% of the mineralisation before the capital intensity starts to look prohibitive.

“There’s quite a lot of work to be done,” he says. “That work begins now.”

It’s helpful, of course, that this is a company that is generating cash. Not every junior company in the mining and metals company can say that, and those that aren’t are finding that funding development work is becoming a real uphill struggle.

Not so for Goldplat. It spend around £600,000 in the first half of this financial year, and is perfectly willing to spend the equivalent amount again, supported by cash generated from selling the gold from South Africa, Ghana, and to a small extent Kenya.

Much of the spend in the first half went on incremental improvements to plant, and it’s likely to be the same story again in the second half, with a little bit more emphasis on the South African resources.

Meanwhile, on a bigger scale, plans to expand into South America remain in place, although Kisbey-Green concedes that here things haven’t progressed as fast as he’d hoped.

Still, you can see the appeal. One small operation production just over 20,000 ounces a year, as the South African operation does, is fairly small potatoes. Add in Ghana, and there’s beginning to be scale.

With two or three more operations across the South American continent, production might suddenly rocket towards the 100,000 ounce mark, the traditional entry point into the ranks of the mid-tiers.

That surely must be the long-term goal. But there’s upside in the short-term too, as Oliver O’Donnell, the Metals & Mining analyst at VSA Capital writes: “With an operational recovery now well underway, we believe that Gioldplat’s turnaround is sustainable which is likely to drive a rerating of the stock.”

He sets a target of 7.1p for the shares, implying 43% upside potential.

 

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