July 31, 2002 BUSINESS AND INVESTING > THE SPECULATOR
SPECULATOR: GOLDEN OPPORTUNITY
In all the gloom, Kingsgate Consolidated stands out as an ultra low-cost gold producer about to announce robust profits and a maiden dividend to shareholders. In last week's panicky selling, however, the stock plunged in just two days on a tiny turnover of fewer than 600,000 shares from a week's peak of $2.55 to a low of $2.25 on July 23. Then, on July 24, the company released its June quarterly report, confirming all forecasts for its Chatree gold project,
which opened in Thailand late last year. On the same day, broker Macquarie Equities issued a report to clients predicting a short-term price target for the stock of $3 a share.
Finding the gold deposit and opening the mine has been a long haul for Kingsgate managing director Mike Diemar, a geologist who first became involved in prospecting in Thailand in 1987, when the government opened the doors to foreigners to look for gold in that country. Kingsgate first invested in the project in 1993 and later lifted its equity to 100% ahead of the opening of the mine late last year based on a resource of 14.5 million tonnes of 2.6g/tonne gold and 12g/t silver. Of that, initial open-cut proven and probable reserves were 8.2 million tonnes of 3.1g/t gold and 14g/t silver for 807,000oz of gold and 3.8 million ounces of silver. The reserves were contained in two proposed pits, the Chantra, or Moon Pit, and the Tawan, or Sun Pit, with a mine life of 6.5 years at 1 million tonnes of ore a year for the first two years and 1.5 million tonnes a year thereafter. Waste to ore ratio is 2.9:1. The mine is 280kmnorth of Bangkok on an all-weather bitumen road.
At first glance the project appears to have a comparatively short mine life and, on top of that, the company is expected to sell 51% of the project to Thai interests in 2006-07 for a probable price of $50m. Offsetting that, to some extent, the company has within its tenements three large gold anomalous prospects yet to be explored and has an eight-year holiday from 2000 on both corporate tax and withholding tax on dividends. Initial drilling on "prospect A", 1km north of the Tawan pit, should yield a resource estimate this month.
Production for the first two quarters of calendar 2002 exceeded expectations, with 40,939oz of gold recovered in the March quarter for a total cash cost of $US58/oz and 41,326oz in the latest June quarter for $US65/oz. Those costs would be among the lowest in the world and certainly lower than anything in Australia.
That helped prompt another broker, BNP Paribas, to predict late last week that Kingsgate would score earnings/share of 43.2¢ for the latest year to June 30 (with only two full quarters of production) and 63.3¢ in the current year based on Kingsgate's apparently conservative production forecast of 160,000oz of gold in the full year. At that rate, Kingsgate shares at $2.40 are trading on a lowly multiple of less than four times current year predicted earnings.
Kingsgate has 71.5 million shares on issue and at $2.40 is capitalised at less than $170m. The shares have sold up from a low of 71¢ last year to a high of $2.90. Top 20 shareholders have nearly 55%, including Diemar, 3.6 million, and chairman Ross Smyth-Kirk, 3.04 million. Other directors are geologist John Shaw, lawyer Peter McAleer and company secretary Peter Falconer. Mine manager is Phil MacIntyre, former general manager of Queensland's Kidston mine.
The Chatree gold project was 100% debt financed with a loan of $US35m ($64.77) from Macquarie Bank. Thanks to extraordinarily low costs and revenues of more than $US26.7m in the past six months, net debt had been cut to $US25m by June 30 and the company still held $US14.2m in cash.
Good news didn't do much for any other companies in our portfolio last week, when few people were listening. Dioro Exploration was trying to sterilise an area for a waste dump east of its soon-to-be-opened Frog's Leg gold deposit 25km west of Kalgoorlie in WA. Instead, its aircore drilling has found a new gold anomalous zone at the site, together with encouraging intersections north of the known deposit. The shares eased 0.5¢.
Sold
250,000 AGD Mining @ .009¢ $2205 (AGD.AX)
(Bought @ 1.1¢; 18.10.01)
Bought
2000 Kingsgate Consolidated @ $2.31 $4712
Bought as ordered
20,000 County Diamonds @ 15¢$3060
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