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I tipped AIM listed gold producer Goldplat (LSE:GDP) at 11.5p in October 2011 and after the publication today of results for the year to 30th June I am now 56% ahead with the shares at 16.75p. Not bad. But there is far more to come. I have just come off the phone with the company’s Nominated Adviser and that has helped clarify my thoughts and I reckon that the shares should, within a year, be trading at 30p plus. And here is why…
The company currently generates cash largely from two gold tailings retreatment plants in Ghana and South Africa which last year produced 31, 354 ounces. The quality of tailings going through these plants can vary so that figure will move up or down by a few thousand ounces a year but it is fair to assume that it will continue at roughly that level for many years.
A third leg is a small Kenyan gold mine at Kilimapesa. It poured its first gold in January 2012 but do not expect fireworks. Despite increasing the JORC compliant resource by 162% to 649,804 ounces at 2.44 g/t gold Goldplat says output will build to a stable 10,000 oz per annum by the end of the 2014 financial year. At such a rate assume a cash cost per ounce of $790. Now you may well say “if there is so much gold there (and indeed the company indicates in today’s statement that there is real exploration upside on the site) why not increase output?” Fair point.
My guess is that a) this is Goldplat’s mine as opposed to tailings plant so it is “feeling its way” and b) this company stresses that it is self funding and so as more cash rolls in it will invest some of that in expanding output and so cutting the cost per ounce. But that is a story for 2015 inwards.
Leg 4 is a proposed tailings plant in Mali. This would cost sod all to establish and could be done so quite quickly. We have no timelines on that. I forecast a zero contribution this financial year but could be wrong. But by 2014 it should be helping shift group output towards the 50,000 oz per annum mark. There are also two exploration projects but for now I shall ignore them.
Results for last year were pretty damn impressive. Pre-tax profits surged by 52% to £5.44 million. Net cash raced ahead by 52% to £4.57 million. And on the back of that Goldplat is to pay a maiden dividend of 0.6p per share (costing it £1.01 million). It talks of a progressive dividend policy and it could easily afford to pay 0.8p this year and 1p next time on the back of increasing output (and cashflows) from Kilimapesa and from Mali when it comes onstream.
So, assuming that the gold price stays at round about the level of the 2012 FY average (just below $1600) what might Goldplat deliver this year just from its first 3 legs (with Kilimapesa producing 4,000 oz)? I would forecast a pre-tax profit of c£7.5 million. And that even if it builds Mali (and it produces nothing) net cash will end the year materially higher than it is now. Next year with Mali onstream and Kilimapesa up to 7,500 oz (rising to 10,000 the year after) I would look for £12.5 million and £14 million is possible for the year to June 30th 2015. Of course I expect a higher gold price than $1600 and that would add materially to profits.
So what is this worth? Well I make the point that the June 2014 forward yield is 5.98% which looks far too high for a growth company with pots of cash (and a growing cash pile). A forward yield of 3% is probably fairer and implies a one year target price of 33.5p. And at that sort of level the company would trade on a forward PE of c6. For a growing, cash generative company, with diversified geographical production (to reduce risk), a strong balance sheet and real growth potential at Kilimapesa (plus the ability to pick up other tailings project funded with free cashflow) that is far from demanding. These shares look very cheap indeed.
For a couple of other very cheap gold stocks read my recent articles on Vatukoula and on Chaarat
Hi Tom,
I will be great if you can share your views on what is going behind Shanta Gold, there are rumours about Equity dilution & GBG, share price have dropped significantly, nevertheless GoldPlat one of my another favourite.
Regards
Pankaj
P
Will do. Only so many hours in the day!
t
Hi Tom,
If you were to hold one gold share for the next few years, which one would it be???
Many thanks
Nas
Nas, I agree. I would like Tom to the above question. I don’t want to invest 20-30 stocks, some of which go bankrupt …some stay the same.. some make 1000%. I just want 2-3 stocks which go up 1000%
Hi James,
I think we’ll have to chase, and corner Tom for an answer, for above question…lol
Given the performance of Norseman Gold (NGL)which was the nap for 2012 by Tom on t1ps.com I am a little surprised by your requests. Nevertheless good luck with your quest.
Thanks a lot Tom, pls. do in your own sweet time, I will wait for more info on Shanta Gold.