Have neglected posting updates here but I am still holding and letting this grow in a "quiet corner of the garden" so to speak.
Overall not much has really changed. Mark Clark and team quietly going about their job.
Probably the only concern is how Mt Gibson will pan out.
[held]
The info in this one was totally out of date, as was my previous low valuation from a few years back.
They don't look cheap up here, but they have an outstanding management team that are kicking goals and have been very good across all areas, especially with capital allocation decisions including M&A. CMM have outperformed even when many in the Aussie gold industry have underperformed.
Here's their Five Year Chart:
Source: Commsec.
And here's how they've performed compared with a few gold ETFs, being the Van Eck Gold Miners ETF (GDX) and two physical gold bullion-backed ETFs, Perth Mint Gold (PMGOLD) and the Betashares currency hedged Gold Bullion ETF (QAU). Those 3 ETFs have returned between +49% and +97% over 5 years, but they look like they've flatlined compared to the +1,183% that Capricorn has provided.
Like I said, they don't look cheap up here, but they haven't looked cheap for a couple of years now, and they still keep rising. And the gold price isn't doing them any harm at all:
Source: https://goldprice.org/
The left side charts and tables are in US$ and the ones on the right are in Aussie Dollars.
Interesting that the returns over 4 of those 6 time periods there were better in A$ than they were in US$ - in percentage terms. Only the returns over 1 day and over 6 months have been better in US$. Over 30 days, 1 year, 5 years and over 20 years the returns have all been better in A$.
I like my Aussie gold miners. It's not the same as investing in physical gold; it can sometimes be even better, and CMM is a great example of that.
That said, I am not currently holding CMM, except here in my Strawman.com portfolio. I have held them in prior years in a real money portfolio, but do not hold them today. They remain on a watchlist. They've performed exceptionally well.
Obviously I wish I still held them in that real money portfolio, however you can't back every winner.
Sold here but didn't follow through in real life
Guidance lowered
Hindsight is a wonderful thing...
[held]
As expected.
However, we really need an updated reserve estimate soon on Karlawinda otherwise share price will stay around $4.
So only a hold for me until we wait on Mt Gibson or upgraded reserve estimate for Karlawinda.
[held]
Despite the bad quarterly, Capricorn did something surprising which I didn't think was possible.
Capricorn bought put options to hedge their forward contracts used for development financing.
So if I'm not mistaken, instead of selling their gold at around $2247-2296 /oz on the forward, they sold instead at $2810 /oz via the put on the contract. Then used the funds to close the forward contract on delivery of the gold and pocketing the difference.
Derivatives 101? Quite interesting. Correct me if my explanation is incorrect but I'm going by my basic knowledge of derivatives and forward contracts.
Either way it seems like a well executed move by Capricorn. Again a great example of Mark Clark adding or preserving shareholder value for the firm.
Wonder if that's possible in hedging currency risk (ie: CSL)? Food for thought...
[held]
I know many won't be interested and I admit I spend way too much time here. But it will be good if someone can scroll to the bottom and check the formula that includes probability as Karlawinda and Mt Gibson numbers are "Probable reserves". Maybe you can use what I've done for your other firms as it doesn't just apply for Gold but say replace the price with the price of a product?
Anyway NPV/sh after tax valuation is $5.14 assuming Capricorn reaches 100% production target as shown below:
So for valuation, I will use the after tax NPV of $5.14
NPV before tax valuation is $7.34
Valuation sensitivity with the probability of Mt Gibson and Karlawinda production targets (before tax)
Valuation sensitivity after tax. Expect 95%+ prob for Karlawinda.
Formula for the rough scrap paper NPV with probability (I probably should remove the hardcoding).
[held]
CMM taking a hit today after posting their quarterly.
Cost guidance higher than expected and providing some fuel to the shorters this morning before recovering
Although my holding was small,still a big hit for me.
But expecting big hit in Strawman as my holding was oversized deliberately to give the stock some coverage.
I guess the gold bears were correct. Hats off to the gold bears!
[held]
Doing more work on my Capricorn model to incorporate Mt Gibson soon. Including depreciation and after tax values as well.
All very rough right now...
Intrinsic Value of Capricorn versus Gold Price below:
I assigned a NPV of 30m for Mt Gibson which is around the acquisition price.
To get the value excluding Mt Gibson, take about 8c off the NPV per share in the table and you get the current price of Capricorn which is close to $4.31 at a gold price of 2700
Unlike NST, the intrinsic value has much less variability on changes in the gold price. More importantly, Capricorn is trading within intrinsic value while NST is still trading at a premium.
Don't mean to offend NST holders here but the numbers don't lie. Capricorn is still a much cheaper gold miner.
Perhaps NST trades at higher premium from several factors. Ability to convert resources to reserves better than CMM. Proven operator compared to CMM which is still a young company.
On the other hand CMM still has time on it side with Karlawinda in its first years of operation with many more to come. And also we await the Mt Gibson study which could provide a surprise upside risk.
CMM is currently my only exposure to gold. Although I could count S32 which has some small gold exposure via Sierra Gorda.
[held]
Despite rally in gold price, I'm maintaining my valuation as 6 months of production now has to be subtracted from model below
Also I'm guessing maybe some are nervously awaiting the Mt Gibson study.
Will they do a Chalice and delay the study and instead announcing drill results to be included as part of the modelling and push out the study to next quarter?
Or commit fully to announcing the numbers?
[held]
To get a estimate of Mt Gibson, I thought I'd go back to 2019 during the years when Mark Clark took over and was scaling up Karlawinda.
Using my own very crude multiples estimate, if we take that 1.52M Oz resource estimate of Karlawinda highlighted above with resource of 0.89M Oz and Capricorn at 167.2M then maybe Mt Gibson would be 167.2 * (2.8/1.52) = 308M. That's assuming we get 50% reserve figure from the resource similar to Karlawinda in 2019.
If current base dcf valuation at 4.40 and current share price is 5.20, then we have Mt Gibson at 0.8*370= 296M. And that is without a defined reserve.
Have a feeling that now buyers are buying for the management. As a reminder, both the CEO and Chairman grew Regis and Equigold from less than 100m to billion dollar plus market caps before they joined Capricorn. Very hard to find anyone on the ASX who has this sort of track record of growing a company to a billion dollars.
Just an fyi, I have held Capricorn since 1.35 (when it was less than 300m market cap) as this still represents a small proportion of my real life portfolio.
But I sold a small portion today in Strawman as it indeed has got quite big and looking at other opps.
[held]
Finally got our quarterly. I guess it was late so they can squeeze in the drill results.
Numbers look good. Capricorn managed to reduce the strip ratio and waste mined. Apart from the unfortunate worker fatality which caused production to temporarily halt, the quarter performed as expected.
[held]
01-July-2021: First Gold Poured at Karlawinda
- Gold bars weighing 12.0 kg (386 ounces) were poured in the first smelt on site on 30 June 2021.
- Optimisation of the three-stage crushing circuit to deliver the most suitable product size for ball mill feed in laterite ore is continuing. The crushing circuit has run at in excess of 1,000 tonnes per hour (tph) (6.1 million tpa at 70% availability) at times during the 6 days of start-up operations to date.
- The 7.5MW ball mill has operated at an average of 91% availability during start-up as final testing, inspections and alignments are completed.
- The ball mill has achieved a throughput of up to 480 tph (4.25Mtpa) on an ad-hoc basis during the 6 day start-up period. This is encouraging as 4.25Mtpa is the budget throughput for laterite feed used in generating expected long-term throughputs of:
- 4.5 – 5.0 Mtpa in oxide/fresh blend; and
- 4.0 – 4.5 Mtpa in fresh rock.
- Run of mine (ROM) ore stocks continue to build with in excess of 450,000 tonnes of ore now on the ROM pad.
- Ramp up and optimisation activities continue across crushing, processing and plant services areas.
[Disclosure: CMM are in my Strawman.com virtual portfolio, but I do not currently hold any CMM shares IRL. Also, in August last year, Capricorn (CMM) awarded MACA (MLD) a five-year contract for open pit mining services at Karlawinda. I do hold MLD shares.]
24-June-2021: Ore Processing Commenced at Karlawinda
The board of Capricorn Metals Ltd (CMM) is pleased to advise that it has completed construction of its wholly owned Karlawinda Gold Project and has started continuous ore processing.
Commissioning activities were completed to plan over the last three weeks and culminated in the ball mill and crushing circuit being ready for full operations in the last week.
Processing has commenced with low grade ore and will transition to run of mine grade ore over the next week as the operation moves to steady state. The project is now building gold in circuit and is expected to pour first gold in around one week.
Capricorn Executive Chairman Mark Clark commented:
“The commencement of continuous ore processing at the Karlawinda Gold Project is a significant milestone for Capricorn. It is the culmination of a huge effort from our construction team and key contractors. We now look forward to transitioning to full steady state operations and turning the project in to a profitable, long life business.”
--- for the full announcement, click on the link above ---
[I do not currently hold CMM shares, however they are in my Strawman.com portfolio and I do follow them closely because of the pedigree of their board members and senior management - most of them being ex-Regis Resources (RRL) and Equigold (which merged with Lihir Gold in 2008 in a transaction worth $1.2 billion, and Lihir was subsequently taken over by Newcrest Mining, Australia's largest gold miner (NCM).]
Possible short covering might explain the rally. Still 5.2m shares short sold.
Not sure why anyone would sell short on a company with top performing management and creating price distortions.
[held]
Mt Gibson Mineral Resources Increase to 2.8 Million Ounces
Another MRE update in another few months.
Not sure if this updated warranted 9% increase. But good to see goldies NST and CMM giving my portfolio an unexpected lift for a change.
[held]
The following is an OLD (2018) straw, however I've just added a heap of new stuff to the end of it.
24-Sep-2018: Capricorn Metals (CMM) is now in play. Regis Resources (RRL) has made a takeover offer priced at 11.4c/share. CMM closed on Friday at 5.9c, so the offer is 93% higher than Friday's close. Understandably CMM is rocketing up today.
Please note that while the offer is currently unanimously supported by the CMM board, it is still subject to shareholder approval, including CMM's substantial shareholders. Therefore, this deal may or may not proceed, and if it doesn't - there could well be downside from here.
See CMM's announcement here.
And RRL's announcement here.
Regis reserve the right to terminate discussions (and withdraw their offer) if they can not secure the support of Hawke's Point, who own 18.9% of CMM. Hawke's Point are not currently supporting Regis' proposal.
For CMM's latest corporate presentation (at the Precious Metals Summit in Beaver Creek, Colorado, last week), see here.
Disclosure: I do not currently hold any CMM shares, and after looking at these announcements, I decided to stay on the sidelines with this one. By the time I read them, CMM had already risen 50% today, and there is downside from here if RRL can not get Hawke's Point onside. Read the RRL announcement for further details. I do hold RRL shares.
16-Oct-2018: Update: On October 1st, CMM announced that Regis had not been able to secure the support of CMM's largest shareholder, Hawke's Point Holdings (who own 18.93% of Capricorn Metals) and had decided to withdraw their takeover proposal and cease discussions with CMM. That announcement can be viewed here.
The accompanying announcement by RRL (Regis Resources) can be viewed here.
On October 3rd, CMM announced that Heath Hellewell had stepped down as their board Chairman but would continue as Managing Director of CMM. Ms Debra Bakker who was an independent Non-Executive Director of Capricorn has assumed the role of Non-Executive Chairperson. That sounds like a better arrangement. It is usually better to have an independent Chair rather than have the MD also chairing the board.
22-Mar-19: Update: The CMM board has now been rolled and the MD has quit. So has the CFO (Chief Financial Officer) - see here for that 6-Mar-19 announcement. One week later (on March 13th - 9 days ago) their new management released a "Company Update" which suggests to me they would like to sell Karlawinda, or the whole company, rather than proceed with the development themselves. (I still don't hold CMM).
05-Apr-2021: Update: I just came across this "stale" straw from September 2018 originally. Hawke's Point (CMM's largest shareholder at that time) blocked the Regis (RRL) takeover of Capricorn (CMM) by refusing to sell their CMM shares to Regis, so Regis withdrew and have never made a subsequent offer for CMM, despite the fact that Karlawinda would have been a nice bolt-on asset for Regis. My own thoughts were that it was a value play for Regis back in 2018 and they saw upside in developing the project themselves, and now that the KGP processing plant has been modified (greater ore throughput capacity but at a much higher construction cost) and the share price has appreciated so much, it's not attractive to them any more, or not attractive enough.
Hawke's Point later mounted their own takeover campaign for Capricorn Metals (CMM) at LOWER price than what Regis (RLL) had offered. Understandably, that lower offer was rejected by the CMM board, especially after Hawke's Point had been the one and only reason why the earlier offer (from RRL - at a higher price - which at the time had been unanimously supported by the CMM Board) had fallen over.
My last update above (on 22-Mar-2019) mentioned that the new CMM Board in March 2019 was keen to sell the project, or the whole company. They wasted about 4 months going down that road, paying Macquarie (MQG) millions in fees to try to find a suitable buyer, but none emerged during that time. Meanwhile, CMM had to renegotiate a new $100m debt and bank guarantee package with MQG after the previous agreement was allowed to lapse during the period in which the old board and management either walked out or were replaced when the remaining board members were rolled (and the lack of progress achieved on the KGP during that period). It was not a happy time to be a CMM shareholder - and I was not one. So much promise, and so little progress!
And then, on July 3rd 2019 the CMM Board released an announcement to the ASX saying that they had listened to shareholder feedback and now agreed that the best course of action was for CMM to go ahead and develop the KGP (Karlawinda Gold Project) themselves. This happened to coincide with a number of ex-Regis Resources (RRL) people joining the board and management at CMM (further details of that below).
During this time, GR Engineering Services (GNG) were quietly dropped as the designated EPC (engineer, procure, construct) contractors for Karlawinda, and the new CMM Board expanded the capacity of the plant, at a significantly higher construction cost, and they raised fresh capital, a number of times.
The MQG $100m facility was dependent on CMM raising the rest of the KGP construction costs themselves, so they did, over a number of raisings with mixed success, and existing shareholders (again, I was not one of them) were dilluted, as usually happens, as well as being asked to tip in more money themselves via a 1:5 (one share for every 5 shares held) retail entitlement offer in April/May 2019 which was 33% undersubscribed (they raised A$4.6m of the A$6.9m total they were aiming for). The outcome for CMM of the institutional component of that entitlement offer was even worse - they only raised A$3.18m, a rather pitiful response really, considering the shares were offered at only 6.5 cents ($0.065) each and the share price had been over 8c and up to 9c during and just prior to the offer period.
Capricorn (CMM) did a 1 for 5 (1:5) share consolidation in late 2019, so their share price chart will show that their share price was up to 46 cents during that entitlement offer period in late April and early May 2019, but it was actually one fifth of that at the time because the chart has been adjusted for that 1:5 consolidation.
After that very poor result from the entitlement offer, they went on to raise $18.26m in July 2019 from two placements, and one of those was to Hawke's Point again, and at 6.5cps again, being a 27% discount to the last traded price of Capricorn shares at the time of that announcement (and a 24.5% discount to the 5-day volume weighted average market price of CMM shares at the time). That's what I mean about ordinary retail shareholders getting severely dilluted.
They also added two ex-RRL Marks to their Board in July 2019. The first was Mark Clark, with 28 years’ experience in corporate advisory and public company management. He was a director of successful Australian gold miner Equigold from April 2003 and was their Managing Director from December 2005 until Equigold’s $1.2 billion merger with Lihir Gold in June 2008. Lihir was subsequently acquired by Newcrest (NCM). He was closely involved in the development and operation of Equigold’s gold mines in both Australia and Ivory Coast. Mark was appointed Managing Director of Regis Resources in May 2009 and became RRL's Executive Chairman in November 2016. He retired as an executive of Regis in October 2018. Mark oversaw the development of Regis’ three operating gold mines at the Duketon Gold Project, which culminated in the project producing well over 300,000 ounces of gold per annum. In Mark’s time at Regis, the company grew from a small explorer with a market capitalisation of around $40 million to the significant gold producer it is today with a market capitalisation in the order of $2.5 billion (that was in July 2019, RRL's m/cap today is closer to $1.5 billion). Mark is well known in the industry for his strong financial stewardship and focus on delivering shareholder returns. Mark Clark is now CMM's Executive Chairman and an executive director of the company.
The second addition to the CMM Board in July 2019 was Mark Okeby, who began his career in the resources industry in the 1980s as a corporate lawyer advising companies on resource project acquisitions, financing and development. He has a Masters of Law (LLM) and over 30 years’ experience as a director of ASX listed mining and exploration companies. At the time of his appointment to the CMM Board in July 2019 Mark was also a director of Red Hill Iron Ltd (appointed in 2016) and previously has been a director of Hill 50 Ltd, Abelle Ltd, Metals X Limited, Westgold Resources Ltd, Lynas Corporation Ltd and Regis Resources Ltd. Mark joined the board of Regis Resources in July 2009 as a non-executive director and was a major contributor on the board that transformed Regis from a small gold explorer to one of Australia’s largest gold producers. Mark has a deep knowledge of the Australian resources landscape and the regulatory regimes around mine development and operation. He also has significant experience in the commercial and legal aspects of project development, financing and corporate transactions.
Capricorn’s Non-Executive Chairman, Mr Doug Jendry, said: “The board recognises the very strong feedback from shareholders in recent times that in the current gold price environment the best prospect for Capricorn to deliver maximum shareholder value is for the Company to develop the Karlawinda Gold Project itself. To this end we are very pleased to have attracted two highly credentialed mining executives in Messrs Clark and Okeby to join the board and drive the development of the project. The funding secured through the placement also further bolsters Capricorn’s cash position and will allow the company to expedite the work required to progress towards development.”
They went on to raise another $65 million in August 2019 via a share placement at 16 cents per share (also pre-1:5-share-consolidation, so equivalent to 80 cps now). The issue price of 16.0 cps represented a discount of 15.8% to the last closing price of 19.0 cps on 9 August 2019 and an 11.9% discount to the 5-day VWAP of 18.2 cps. The placement was cornerstoned by two of Capricorn’s substantial shareholders at that time (Paradice Investment Management Pty Ltd and Hawke’s Point once again) and several Australian institutional investors who had been long term supporters of the (new) management team. Also, several of the founders of Equigold, three of whom have also previously been directors and shareholders of Regis Resources Ltd, subscribed for a total of $10 million.
That August 2019 equity raising enabled Capricorn to satisfy a key condition to enable finalisation of the previous (lapsed) offer of $107 million debt and gold hedging facility from Macquarie Bank Limited (MQG) for the development of Karlawinda.
The following day (14-August-2019), CMM announced that they had secured 200,000 ounces of gold hedging with a 31 December 2019 maturity and a price of A$2,249 per ounce. My understanding is that this hedging has been subsequently rolled into further hedging with a later maturity date.
On 16-Sep-2019, CMM announced another 4 Management and Board appointments that were all ex-Regis Resources people:
- Mr Kim Massey as the new Chief Executive Officer (CEO) of CMM
- Mr Paul Thomas to the Chief Operating Officer (COO) role
- Mr Stephen Evans as the General Manager of Operations; and
- Mr Myles Ertzen as a Non-Executive Director of the CMM Board.
At this point (September 2019), while Regis Resources had failed in their 2018 attempt to takeover Capricorn Metals (CMM), CMM was now completely loaded with Executives and Board Members who were all ex-Regis Resources (RRL).
In mid-October 2019 CMM announced that they were consolidating their shares on a 1:5 (one for five) basis, which became effective in November, effectively driving their share price up by a factor of 5 (from around 20c to 24cps to $1 to $1.20/share). Obviously all shareholders at the time also had their holdings reduced by 80%, for example: If you held 100,000 CMM shares worth 20c each (worth $20,000) pre-consolidation, that became 20,000 shares worth $1 each (still $20,000) post-consolidation.
On 15-Nov-2019 they announced that Ms Tammie Dixon was their new Chief Financial Officer CFO) and Joint Company Secretary. She had held senior management roles with several ASX listed companies, including Regis Resources, Equigold and Hardman Resources. They were REALLY getting the old team back together, eh!?! The other company secretary later left the company (in late Feb 2020) leaving Ms Dixon as the sole Company Secretary and the CFO. Tammie Dixon herself gave notice as CFO and Company Secretary of CMM in early March 2021, but she agreed to continue to assist the Company as required on a contract basis for 12 months. CMM's CEO Kim Massey will oversee the Company’s financial functions and perform the role of Company Secretary on an interim basis until a permanent replacement for Tammie is appointed. Tammie is still listed on the CMM website as being their CFO and Company Secretary, but on the ASX and CommSec sites, Kim Massey is listed as being both the CMM CEO and their Company Secretary. I assume Tammie is continuing to perform the role on a contract basis (from her home or other place of business) until at least March 2022 however Kim has assumed the official "Company Secretary" title and the responsibility that goes with it with regard to the ASX and ASIC.
On 17-Apr-2020 CMM announced:
- Karlawinda Gold Project (KGP) Ore Reserves had increased by 35% to 1,201,000 ounces (from 892,000 ounces); and
- KGP Mineral Resources had increased by 41% to 2,145,000 ounces (from 1,525,000 ounces).
With their vast experience in new gold mine and gold processing plant construction and optimisation, it appears that Capricorn's Board and Management are pretty much building Karlawinda themselves, hence why GR Engineering (GNG, who did the original PFS and DFS for the KGP for the previous management at CMM) were dropped when all of the ex-RRL guys took over at CMM. They don't believe they need to pay another company to manage the process when they can do it themselves.
Further Reading:
27-July-2020: Project Update and Upscale of Process Plant Throughput
29-July-2020: $32.3m Capital Raising
27-Aug-2020: MACA Ltd Selected as Preferred Mining Contractor [MACA (ASX:MLD) do all of the open pit (OP) gold mining for Regis Resources]
13-Oct-2020: Diggers and Dealers Presentation
20-Oct-2020: Karlawinda development progressing on time & budget
18-Nov-2020: Further significant milestones on Karlawinda development
[On 18-Nov-2020 Mark Clark (CMM's Executive Chairman) bought another $73K worth of CMM shares on-market at between $1.66 and $1.67/share.]
20-Nov-2020: 2020 AGM Presentation
20-Jan-2021: Strategic Investment in DiscovEx Resources Ltd
01-Apr-2021: Quarterly Activities Report
Home | Capricorn Metals (capmetals.com.au)
Analyst Coverage | Capricorn Metals (capmetals.com.au)
KGP (Karlawinda Gold Project) Overview Video
Karlawinda remains on track for first gold pour in the current (June 2021) quarter.
I am not currently holding CMM shares, but I'm thinking about it. I consider this a risky point in their history, with possible cost blowouts and possible commissioning issues, however if the ex-Regis guys now running Capricorn are as good as their reputations and track records suggest they are, then they might sail through this quarter smoothly and get a positive rerating by the market when they announce they are now producing gold at Karlawinda at the plant's nameplate capacity. They are not there yet however, and a lot can go wrong, so for now I'm just on the sidelines watching closely.
They certainly have the potential to become a strong up-and-coming gold producer, with excellent near-mine exploration potential. And they will be first cab off the rank in terms of first gold pour - before Calidus Resources (CAI) with Warrawoona - their first gold pour is expected during H1 of CY 2022, and Bellevue Gold (BGL) who are targeting first gold production towards the end of 2022. Capricorn (CMM) is therefore the potential big 2021 gold story, if everything goes to plan.
Disclosure: Of the companies I have mentioned in this straw, I currently (as at 05-Apr-2021) hold shares in RRL, GNG and BGL. CAI and CMM are both on my watchlist.
