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Goldplat – under the gold fever radar

With almost no debt and annual earnings per share of 1.67 pence, it doesn’t appear the market is giving the company much credit for progress to date.

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Invest in gold, switch to gold, buy gold – are the words heard very often these days (may be not quite as often as six months ago, but nevertheless). We have even seen an ad in a newspaper advertising gold bullion with a huge photo of the precious metal.

Gold has been perceived by investors to be the best instrument to insure against uncertainty, instability and protect against risk for a huge number of years. A perceived long term positive price outlook (demand will always overwhelm the available supply) has generally provided for a solid rational for investment in gold.

With jewellery accounting for three quarters of global gold demand, and Americans (wealthy consumers) together with Indians (populous consumers) being the hungriest buyers of all, it seems the long term consumption fundamentals are in place.

The 400 or so operational gold mines around the world currently churn out some 2,500 tonnes of the metal annually. One of the smaller operators in this, currently fashionable, industry, still appears to be under the radar.

London-listed Goldplat (AIM: GDP)  is, despite its size, proudly declaring itself a market leader in gold recovery from by-products of gold and platinum mining process. The company runs its recovery operations in South Africa and Ghana. The supply of raw material for gold recovery comes in the form of purchased by-products from the local mining houses, which in turn get a safe and economical disposal of generated waste. The client base of Goldplat consists of many blue chip gold producers, including AngloGold Ashanti, Goldfields and Harmony.

Goldplat’s recovery plants collectively produced 21,068 ounces in 2009. And as the stocks of materials continue to increase, currently, gold contained in stockpiles is already around 88,000 ounces. To handle this developing business, the flotation capacity was upped at the company’s South African plant in 2009, and a larger mill was commissioned. The plant in Ghana has also seen an installation of an incinerator (to burn fine carbon) and a spiral plant.

There is another asset that is about to become accretive to Goldplat – Kilimapesa. The company has completed the acquisition of the remaining 50% stake in this mining project, which is located in the historically gold producing region of western Kenya.  Goldplat now owns 100% of Kilimapesa  Gold and its  Lolgorien gold project, which
includes the operating Kilimapesa Hill gold mine and adjacent exploration assets. It expects to announce a JORC compliant resource at Kilimapesa Gold in the near future.

The seller is International Gold Exploration AB, a Swedish company listed in Oslo. Goldplat has already done the refurbishment work and initiated the conversion of licence from exploration to mining. Despite the concerns some investors, the management says the granting of the mining licence will occur (a condition before gold sales can commence). This project represents an extension into traditional gold mining for Goldplat, from its processing model – a well stated ambition since the company listed on AIM. Gold sales from Kilimapesa mine are expected towards the end of Q3 2009.

Looking into the future what is of note is that Goldplat is utilising its relationship with International Gold Exploration AB well, by the set up of a joint venture, Lolgorien. This will explore the potential of ten, already identified, developing targets in a 213 sq km licence area in western Kenya. The management is also interested in acquisition of additional, small, known deposits of 200,000 – 1m ounces of gold (too small to be of interest to larger miners). 

Goldplat’s capital structure is fairly solid; there is only £647k worth of debt, while equity stands at £11.5m. Debt to Capital Ratio is hence a lowly 5.3%. The cost of capital is around 8% (CAPM, including country risk).

The annual revenue to June 2009 increased by 44.5% compared to previous reporting period and came in at £11.1 million. However, higher cost of sales in 2009 caused operating profit to progress by only 4.9% on 2008.

However, annual EPS for 2009 was 1.67 pence (0.95 pence in 2008), an uplift of almost 76% on previous period (greatly assisted by profit generated on sale of subsidiary, increased finance income and decreased finance expense). This kind of income gives us return on equity of 16.3%, indicating a clearly profitable business.

Total Assets added up to £14.4m at 30.6.09 (£11.2m in previous period). The increase has come from higher capital assets, increased receivables and higher cash (cash was £2.2m at end of 2009). Total liabilities added up to £2.8m at 30.6.09 (£2.2m in previous period). The increase was caused by higher borrowing, as well as higher payables.

Liquidity is exceptional at Current Ratio of 3.22. The entire cash inflows from operations, £1.1m in 2009 (£775k in 2008), went towards CapEx investments.

The current quotation of 10 pence a share for a gold miner with cash in the bank, almost no debt and annual earnings per share of 1.67 pence doesn’t suggest the market is giving the company much credit for progress to date.

 On a P/E (Price/Earnings) valuation the stock must be worth at least 15 pence a share on current fundamentals, without taking into consideration future discoveries and mine developments (assumptions: Return on Equity (high) = 16%, (stable) = 14%, Growth (high) = 15%, (stable) = 10%, Cost of Equity (high) = 12%, (stable) = 11%).

Despite shareholders’ voiced issues on internet chat rooms about trading volumes and Demetri’s (CEO) large shareholding, the company is clearly heading places.

Already operating in Africa’s largest (South Africa) and second largest (Ghana) gold producing regions, Goldplat continues to search for additional opportunities in its current locations as well as in Tanzania and Zambia.

Add to this the company’s management all having mining experience and the fact that all are based in Africa and you have got an interesting little miner.

Quick facts: Goldplat PLC

Price: 2.7 GBX

AIM:GDP
Market: AIM
Market Cap: £4.52 m
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