News & Analysis » Singapore

Think Environmental: Mining Its Gold Business

Contributed by Shares Investment

By Louis Lee  

Think Environmental : Mining Its Gold Business

In issue 406, I did a write up on Think Environmental (ThinkEnv) Think Environmental Thinks Big, which saw ThinkEnv stepping afoot on unfamiliar territory that doesn’t relate to its renewable energy business then.

ThinkEnv has grown from exploration to production of gold. In its efforts to achieve congruency, it has proposed to change its name to “LionGold Corp” and will also steer the course of its main activities to the exploration for and exploitation of precious minerals and natural resources. Moving forward with absolute finesse, a team with extensive mining experience has been gathered by ThinkEnv and has been instrumental in helping it settle into said field with ease.

Having placed its second order for 5 sets of modular gold recovery plants, the first and second orders of modular gold recovery plants will be deployed in Phase 1, which will see production kick start in 2H11.

Mongolia’s Gold Pour Milestone

ThinkEnv announced on 4 July that its gold recovery operations in Tsagaan Jalga, Mongolia, has produced its first gold pour of 459.99g with an excellent recovery rate of 95% under a 21 hour production trial. Historically, production rate at existing recovery plant ranged between 300-400g per day with approximately the same recovery rate.

“We are very excited that the first successful gold recovery trial in Mongolia also represents the Group’s first gold recovery across all of our tenements. It has delivered ahead of schedule. Mongolia’s Tsagaan Jalga property has indeed exceeded all expectations by catapulting in front of the rest of our tenements,” said Tan Sri Dato’ Nik Ibrahim Kamil, Executive Chairman and Group Chief Executive Officer of the company in the announcement report.

ThinkEnv intends to rapidly stabilise production by taking advantage of the favorable climate

conditions at this time of the year.

“Notwithstanding the modest nature of the existing recovery plant, we have a solid base operation to build upon and the results were excellent,” Kamil added.

In line with its plan to accelerate early gold production as soon as a tenement has been acquired, ThinkEnv has signed agreements to acquire significant gold stakes in 16 concessions in Mali, Ghana, the Philippines and Mongolia.

Stepping Up Production

ThinkEnv’s strategy to accelerate production concurrently with ongoing exploration adds plus points to its cash flow. As geological work needs funding, the cash generated during early production helps to smooth cash flow troubles for the geological work.

In the past 7 months, ThinkEnv has gathered more than 100km2 of mining acreage and has also been amping up equipment orders. Besides translating into possible elevated production output, this also suggests that ThinkEnv sees promising extractions pertaining to its investments in quality concessions.

ThinkEnv intends to have 12-20 mines put to production by March 2013. Decking reasonable production output against companies such as Gold One International or Resolute Mining, which see production capacity of more than 50,000-100,000 oz per mine each year, ThinkEnv’s mines in Keikoro, Mongolia and Ghana looks set to hit such scale.

Potential Catalysts And Risks

In a nutshell, mining and exploration companies are valued based on a mix of profitability and discovered resources. That said, with ThinkEnv’s constant push of discovering quality concessions and having several mines of significant potential resources, it is evident that said resources may not have been priced in fully for ThinkEnv yet.

The consideration of what takes into valuation mentioned above, coupled with higher forecast production and delivery of exponential profit growth will also drive the stock price of ThinkEnv.

In order to meet the production targets that ThinkEnv has set for itself, it would have to accumulate sizeable resources and one of the risks for such actions would be that which relates to financing, as acquisition of more sites would mean the need for more funds. ThinkEnv has however been able to mitigate this by its “early production strategy” as mentioned above.

Fluctuation of gold prices would also be a factor that could impede ThinkEnv’s mining margin. However, the fact that demand for gold as an investment safe haven remains ever strong seemed to have effectively smoothed over said risk. In addition to that, ThinkEnv could also hedge downside risks in gold prices by selling its production forward in the futures market.

According to AmFraser’s fair value of $1.04 for ThinkEnv, ThinkEnv’s price of $0.82 as at 11 July is at a 26.8% discount to the said fair value. Factoring the possibility of finding more quality gold concessions, better than expected production output, or reaching yet another milestone like that of its Mongolia’s gold pour, ThinkEnv’s name in the gold mining business is expected to be shining quite brightly among its mining peers.