WHEN Bahvest Resources Bhd announced its plan to venture into gold mining in November 2016, many in the investing fraternity wondered what sort of future lay ahead for the Sandakan-based integrated aquaculture group.

Given that Bahvest had been focusing on the production of marine fish in the last 15 years since commencing operations in 2004, certain quarters were sceptical about the group’s decision to undertake a business in which it had no experience.

As it happened, Bahvest struck gold literally in Bukit Mantri, Tawau, Sabah, with the acquisition of Wullersdorf Resources Sdn Bhd for RM96 million in January 2017, and obtained a 35-year sublease — ending in 2048 — to set up gold mining operations on a 317.7ha tract there.

Back then, the response of doubting Thomases ranged from “Another gold mining company in Malaysia?” to “They are not going to find any gold there”.

Bahvest managing director and CEO Datuk Lo Fui Ming acknowledges that it was indeed an uphill task to convince the market that he was serious about gold mining. But today, the gold production figures are not lying, he adds gleefully.

“Two years ago, we didn’t have a track record. We had nothing to show. To make things worse, there was an overall negative perception of gold miners locally. Today, we have gone into actual production and the numbers have been very remarkable. It is easier to convince people now because it is real,” he tells The Edge.

The 62-year-old is the single largest shareholder of Bahvest with a 15.42% direct stake. He had started his own logging company in 1980 before venturing into the plantation industry in 1995.

On March 19, Lembaga Tabung Haji ceased to be a substantial shareholder of Bahvest but it still has a 4.99% direct stake in the company.

Investor scepticism about Bahvest’s new business was understandable, considering that many gold mining companies had seen lower production in recent years while some had even halted operations.

For instance, the shares of Malaysian-owned Peninsular Gold Ltd were delisted from London’s Alternative Investment Market (AIM) in 2015 after its mining operations in Raub, Pahang, were halted in 2014, pending environmental approval from local authorities.

Australia-listed Global Gold Holdings Ltd, which derived all its revenue from gold trading in Malaysia in 2014, has also ceased operations.

Meanwhile, Borneo Oil Bhd, a market darling at one time, has reported rather dismal gold production figures from its mining operations in Merapoh, Pahang.

Fortunately, says Bahvest group executive director Ben Lo Teck Yong, the Sabah company stands apart from the rest by continuing to deliver tangible results.

“To us, what is more important is that we have delivered. Two years ago, when we went to the capital market to raise funds for the construction of a gold-processing plant, not many people believed in us. But today, our plant is up and running and we are producing decent amounts of gold every month,” remarks the 37-year-old, who is Fui Ming’s son.

Teck Yong was appointed to the Bahvest board of directors in May 2005.

Meanwhile, out of the 317.7ha, Bahvest has allocated 28ha, which represent only 8.8% of the total land area, for its mining operations. It reported a maiden gold production of 23.69kg in September last year with monthly production reaching as high as 76.82kg in April this year.
 

Gold price promising

The timing of higher production could not be better as Bahvest, being one of the few Bursa Malaysia-listed gold mining companies, is a beneficiary of soaring gold prices.

In a non-rated May 23 report, RHB Research analyst Lee Meng Horng notes that gold prices have been on an upward trend, hitting US$1,304 per troy ounce in the first quarter of the year compared with US$1,230 per troy ounce in the fourth quarter of last year.

Based on consensus estimates, gold prices are expected to reach US$1,304 and US$1,313 in the third and fourth quarters respectively.

“The mining stock is expected to gain traction with the upcoming ramp-up in monthly production and sustained gold price, coupled with low production cost,” Lee writes.

At the time of writing, gold was last traded at US$1,410.56 (RM5,852.41).

Hong Leong Investment Bank (HLIB) research analyst Loui Low Ley Yee concurs.

“Bahvest is a direct proxy for the more promising gold outlook as investors are now returning to the traditional safe haven, thanks to the protracted US-China trade war, rising geopolitical tensions, heightened fear of a global downturn coupled with sliding bond yields amid growing expectations of a Fed rate cut in 2H19,” Low writes in a June 7 report.

Scratching the surface

Bahvest, which was previously known as Borneo Aqua Harvest Bhd, was involved mainly in the breeding and rearing of marine fish. It owns carriers to transport live fish to customers in Hong Kong, southern China and other parts of Asia-Pacific.

To recap, Bahvest paid for Wullersdorf via the issue of 102.13 million new shares at 94 sen apiece in early 2017. It is worth noting that Fui Ming had a 70% controlling stake in Wullersdorf prior to the acquisition. In other words, he injected his privately owned gold mine into Bahvest for about RM67.2 million.

More importantly, the deal enabled him to use the listed Bahvest to raise funds.

In March 2017, Bahvest undertook a private placement at 77 sen per share to raise RM36 million for capital expenditure (capex) and working capital for the mining operation as part of its diversification plan.

Being one of the few gold mining sites in Malaysia and the only one in Sabah, Wullersdorf had constructed an initial gold-processing plant — a carbon-in-leach plant — with the capacity to produce 1,200 tonnes per day.

In the first five months of operations — after production had kicked off in August last year — Bahvest faced some technical issues but it turned out to be a happy problem.

“Our initial plan was to cut down the trees, clear the top soil, go straight to the rock and blast it with crushers. But we then realised that there’s gold in the soil too. So we are cutting the soil layer by layer. We haven’t even touched the deposit yet. We are just on the surface,” explains Fui Ming, who thinks nothing of staying in the staff living quarters at the gold mine.

“Our processing plant was initially designed for rocks. But since we found gold in the top soil, we have changed our plans. We had to make some adjustments to our processing plant because the stickiness of rock and soil is different.”

Teck Yong points out that Bahvest’s gold production started to increase in January this year but the plant is not running at full capacity yet.

“We are running at about 1,000 tonnes per day now. As we go down and hit the rock, possibly about a year later, we can run faster. Generally, we expect to have more gold down there,” he remarks.

The Edge understands that about RM50 million has been invested in the plant and that there will be no other major investments in it.

“We will increase our production capacity using alternative ways. We will modify our system for more efficiency,” says Teck Yong.

Fui Ming points out that when Wullersdorf was injected into Bahvest, the valuation was based on the identified area of 28ha only.

“It costs a lot of money to conduct a survey. When we started, we didn’t have enough money. So, we could only afford to do valuation of the 28ha. On hindsight, it now looks very cheap for Bahvest,” he says.

In its fourth quarter ended March 31, 2019, Bahvest saw its net profit plunge 87% year on year to RM8.62 million partly due to its adoption of the Malaysian Financial Reporting Standards (MFRS) framework. This offset the contribution from higher quarterly revenue, which soared to RM31.82 million from RM755,000 a year ago.

In its full financial year 2019, Bahvest’s net profit slumped 70% year on year to RM5.55 million despite revenue almost tripling to RM65.02 million from RM22.22 million a year ago.