The 2006/07 year had many challenges at Chatree due principally to the uncertainty of the timing of the granting of the Chatree North Mining Leases that has frustrated long term planning. World-class standards at the mine have been maintained and improved and we are still ‘on track’ for an expansion to the mine and plant.

Operations
Gold production was reduced significantly this year to 85,994 ounces of gold as low grade ore was mined from the peripheries of the main C-H pit at Chatree on the existing granted mining leases. The main C-H pit became deeper and tighter to operate. This reduced ore supply to the mill, and with limited feed from the A pit, mill feed was supplemented with low grade stockpile ore. Lack of higher grade ore which had been expected from Chatree North meant a lower than forecast gold production.

Lotus Hall, the mining contractor, suffered some equipment availability issues as the current fleet is not ideal for current ore movement requirements, although this will be improved early in 2008 as a new fleet arrives.

Annual mill throughput was 2.4 million tonnes which was above nameplate capacity and 20% higher than the previous year. Gold recoveries remained at 90.1% which was achieved on a gold feed grade of 1.23 grams/tonne, half the grade of the previous financial year.

Although cash costs per ounce have increased to US$440 per ounce of gold due to the low grade of ore processed, the cash operating cost per tonne remained reasonably constant, only increasing 14% over the last three years.

This was exemplary given the cost pressures on the industry and was a result of the mill being able to process ore to its full capacity, to lower treatment costs and stable electricity costs due to grid power. Such results provide good guidance that cash costs per ounce will return to lower levels once higher grades are mined at Chatree North.

Expansion
The Environmental Impact Assessment (EIA) for the Chatree North Mining Leases was approved in April 2007 paving the way for granting of the leases. Our new Thai investors have been working diligently to ensure a timely grant of new leases to allow the expansion to proceed. Thai investors helped Kingsgate successfully fulfil its Thai ownership obligations for its subsidiary, Akara Mining Limited (Akara) in 2006.

Long term planning for the Chatree Mine and plant expansion has progressed, albeit on a slower schedule than planned.

An updated plant design from Ausenco has been completed and Lotus Hall has been selected as the mining contractor. These decisions are aimed at maintaining the schedule for the expansion plan. Completion is expected by December 2008. Lotus Hall will provide a larger fleet to optimise the mining operation and enable it to be ramped-up to full operating capacity.

Sustainability
Chatree maintained its world record safety performance, based on publicly available information, with 7.4 million hours worked since the last and only Lost Time Incident. Environmental management continues to be world-class with no reportable environmental incidents. Independent auditing confirmed that the environmental aspects of the Chatree operation are at the highest level internationally. Cyanide levels in waste ore pumped to the TSF were well below government requirements of 20 ppm total cyanide, and below standard levels in the gold industry.