Kingsgate: A Quick Look

Kingsgate Q213 gold production of 46,149oz remained below capacity but marginally ahead of Q1. Weakness was expected and reflects temporary issues including forced downtime at the Thai Chatree plant while awaiting a metallurgical license, and an emphasis on development at Challenger mine in South Australia. A much stronger second half is expected and by Q413, a sustainable run rate for its two mines combined of 240-250,000 oz per annum, a big improvement. In addition to announcing positive future developments at its current mines, progress has been made in advancing silver projects at Nueva Esperanza, Chile and Bowdens, NSW.

Potential For Further Production Increases And Lower Costs
With the Chatree plant now operating at 6.2 million tonnes per annum, feasibility work is underway to expand the combined capacity of its plants to 7 million tonnes per annum at minimum capital expenditure. Investigation of the deeper high grade potential of A pit is also continuing which could increase resources and mined grades. At Challenger, tenders have been invited for a replacement mining contract from 1 August 2013, potentially lowering costs and increasing efficiencies.

Heap Leach To Accelerate Nueva Esperanza?
To mitigate current power supply issues for its Nueva Esperanza silver/gold project in Chile, the feasibility study is now incorporating on-site power generation and a less power hungry heap leach route with conventional milling for non-leachable ore at a later stage when cheaper power becomes available. It is possible production could start before the end of 2014 at a 120,000 oz gold equivalent per annum rate.

Bowdens – Getting Bigger, 1:1 Stripping Ratio, Long Mine Life
Following the completion of the 2012 drilling programme, resources at the Bowdens silver project have increased by 40% to 182MozAgEq. Measured, indicated and inferred resources now comprise 88 million tonnes at an average grade of 64.4g/t silver equivalent. Significant high grade mineralisation occurs near surface. Subject to approvals, Bowdens could be producing >8 million oz silver equivalent per annum in 2016.

Valuation: Re-Rating Likely As Milestones Are Delivered
On a gold equivalent basis, for operating and non operating assets, Kingsgate has an enterprise value (EV)/resource ounce of c $60/oz, compared with an average of just >$100/oz. Even allowing for the imperfections of this measure, this seems low. A re-rating is likely as production and project milestones are delivered.

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