Kingsgate Gets Ready To Expand If The Thai Government Lives Up To Expectations
By Our Man In Oz
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Out of the forest and into the gold. That’s one interpretation of how investors have been treating Kingsgate Consolidated over the past six weeks. Since mid-April, the Australian-based goldminer with its major asset in Thailand, has enjoyed a remarkable 50 per cent share price rise from A$3.69 to recent trades at A$5.54. What makes that increase particularly interesting is that over the same time the gold price has fallen 5 per cent from US$929 an ounce to around US$885/oz today. Newcomers to Kingsgate might imagine that the cause of the difference is the discovery of more gold near the company’s flagship Chatree mine. They would be wrong. The cause is approval from the Thai Government’s Forestry department to expand the Chatree mine – not that this means Kingsgate is totally out of the woods just yet.
“It was a significant development, but we’re still waiting on a final Ministerial sign-off,” was how Kingsgate chief executive, Gavin Thomas, described the Forestry approval. He told Minesite’s Man in Oz during a brief chat in his Sydney office that the process of obtaining government approvals for the expansion, which will effectively double the size of Chatree, was coming to an end. “There’s no doubt that the government is keen to see Chatree expand,” he said. “And there’s also no doubt that it wants to avoid a situation similar to what happened at Padaeng.”
Padaeng? What, asks Minesite, has a zinc mine in north Thailand got to do with a gold mine further south. “Ahh,” says Thomas. “Padaeng was a mess created by an approvals delay similar to ours.” What followed was a long explanation from Thomas on how the Thai mining and investment approvals process operates, which is far too detailed for anyone other than a student of government (poor sod). Cutting through the red tape, green tape and fine print, it’s sufficient to say that what’s been happening in Thailand is a combination of departments trapped in the middle of changes in government – with a military coup tossed in to spice up the brew. The result is that Chatree’s expansion paperwork has been delayed to a near-critical point. Padaeng’s paperwork delay went critical, forcing the closer of the zinc mine, workers laid off, and minimal zinc production, made possible only by importing feedstock for the project’s smelter.
“That is a situation the Thai government does not want to see repeated,” Thomas said. “It’s one of the reasons why we believe that this time we are very close to finalising what has been a two-year process.” If he’s right, and the stock market says he is, then Kingsgate’s share price recovery could easily continue as analysts re-rate the company’s production profile and future profits. What they like is the plan to lift production from a modest 86,000 ounces last financial year (and a forecast of between 65,000oz and 80,000 this year), to a much more respectable target in 2008-09 of up to 140,000oz and then up again to 300,000oz from 2010 onward. With the benefit of low-cost hydro-electricity, a skilled workforce, and every other service a mine needs within easy distance that should mean a significant cut in costs which were running at US$404/oz in the March quarter.
Thomas says he is pleased with the way Chatree has been operating despite being forced to mine low-grade ore ahead of the expansion approval. Over the past two years the average gold grade has been a lowly 1.2 grams a tonne and 1.1g/t respectively. Expansion, and the move into fresh ore, means a doubling in grade to 2g/t from next year. Getting to that point will not take long. Kingsgate has ordered all of the major equipment needed, including new ball mills, and is expanding its mining fleet. The construction contractor, Ausenco, is on standby to move, and exploration crews ready to bolster the resource and reserve position in what is already recognised as one of Asia’s biggest gold systems.
By the time Minesite readers absorb this latest, exclusive, Kingsgate update there might even be more information in the market with Thomas due to speak today (Tuesday) at a Macquarie Bank gold forum in Sydney. That might be an ideal opportunity for a more detailed explanation of the expansion plan, construction crew readiness, and the arrival in Thailand of more equipment. But, on the flipside of the good news, Thomas might also outline precisely how tight the situation has become for Kingsgate which has been forced by the delay in government approvals to scrounge around looking for small pods of residual and remnant ore to keep its mill turning.
“I’m not saying we’re desperate, but it’s heading that way,” he told Minesite. “You can only exist on remnant ore for a certain amount of time, and we’re getting close to that point.” As an example, Thomas talks about a surface pod of low-grade ore left behind when Chatree opened, but which has just been mined to extract 2,500 ounces of gold, little more that one week’s output, but important to the project (and the company). “The government understands the position we’re in, that’s why we’re confident, and that’s why the Forestry approval was so important,” he said. “They’re very keen to avoid another Padaeng situation, and they’re very keen to get Thailand back to the position where it is one of Asia’s fastest growing economies, and a prime destination for foreign investment.”
For keen followers of Kingsgate unable to make the Macquarie Bank gold seminar in Sydney that means keep an eye on Minesite for any announcement on developments in Thailand. If the market’s 50 per cent increase in the Kingsgate share price is an accurate pointer to the breaking of a two-year log jam then it might also represent the potential for a further re-rating of the company – if the Thai Government delivers on the signals it is sending. |
