Option to Acquire Challenger Gold Mine Exercised
Kingsgate (ASX:KCN) is pleased to announce that the “Option Agreement” to sell its 100% owned Challenger Gold Mine in South Australia to a 50/50 Joint Venture between Diversified Minerals Pty Ltd (a 100% owned associate of the PYBAR Group) and WPG Resources Limited has been exercised.
As announced on 30 October this year, and after a 6 week period of due diligence, the option has been exercised which will see the Joint Venture acquire Challenger at the completion of the current life-of-mine plan and exhaustion of Ore Reserves in February 2016.
“The sale of Challenger signals the first strategic step towards securing a new future for the company,” Kingsgate Chief Executive Officer, Mr Greg Foulis said.
“We can now concentrate on pursuing new business and mine development opportunities to enhance our portfolio including pushing ahead with our exciting development, Nueva Esperanza in Chile,” he said.
Kingsgate maintains that 20,000 to 25,000 ounces of gold will be produced from Challenger between the end of the September quarter and the completion of commercial production in February 2016.
The current Group production forecast for FY16 of 165,000 to 180,000 ounces was predicated on the February closure and therefore, the full-year forecast remains unchanged.
Greg Foulis
Chief Executive Officer
Kingsgate Consolidated Limited
Response to Open Offer for Challenger Gold Mine
Kingsgate correctly assessed Challenger sale options, the conditionality and risks of potential offers, and has considered the operating capabilities of possible counterparties.
Kingsgate has concluded, and remains of the view, that the agreement with WPG and PYBAR represents the best potential outcome for all stakeholders with significantly less risk.
In relation to the Open Offer announced today by Marmota Energy Limited (ASX:MEU) (“Marmota”) for the Challenger Gold Mine, Kingsgate wishes to advise the following:
- A brief discussion with a broker representing Marmota did occur last week;
- Marmota provided insufficient evidence that they could provide a fully funded quantified offer;
- Marmota did not demonstrate to Kingsgate’s satisfaction that they have the financial capability to fund such an offer;
- Kingsgate has received no written offer or proposal from Marmota other than its announcement made to the ASX today; and
- Marmota’s Westpoint Hill prospect is an undrilled gold anomaly generated from surface calcrete sampling. These anomalies are commonplace across the Gawler Craton, South Australia.
It was also evident from the discussion with the broker that Marmota would need to undertake a period of formal due diligence before such an offer could be given serious consideration.
A key determinant in Kingsgate entering in to an exclusive Agreement with WPG and PYBAR is that it was recognised that they have both the financial ability and demonstrated skills to complete the transaction.
WPG spent considerable time undertaking proper due diligence on Challenger prior to executing the Option Agreement.
Importantly, Kingsgate has a duty of care and responsibility to the South Australian Government and wider community to ensure that any sale transaction meets all mine closure and rehabilitation obligations in a satisfactory manner, and it was deemed that WPG and PYBAR would be best placed to ensure these obligations are fulfilled.
Kingsgate also considers that the Challenger South South West Zone represents the best opportunity for exploration upside within the project tenements, which is why a royalty provision was negotiated for that specific area.
Greg Foulis
Chief Executive Officer
Kingsgate Consolidated Limited
Proposed Divestment of Challenger Gold Mine
Kingsgate Consolidated (ASX:KCN) is pleased to announce that it has executed an “Option Agreement” to sell its 100% owned Challenger Gold Mine in South Australia to a 50/50 Joint Venture between Diversified Minerals Pty Ltd (a 100% owned associate of the PYBAR Group) and WPG Resources Limited (“Purchasers”), at the completion of the current life-of-mine plan and exhaustion of reserves in February 2016.
“The sale of Challenger is a key plank in our strategy of reinvigorating the company,” Kingsgate Chief Executive Officer, Mr Greg Foulis said.
“It gives us the opportunity to refocus our priorities and pursue meaningful new business and mine development opportunities.
“Kingsgate retains a $25 per ounce royalty on the Challenger South South West Zone as a key part of the agreement, which will ensure we can capitalise on any future exploration upside with the Purchaser taking on the full closure and rehabilitation liabilities.”
Key terms of the Heads of Agreement include:
- The Purchasers will have the option, which is exercisable by no later than 31 December 2015, to purchase all of the shares in Challenger Gold Operations Pty Ltd the entity that owns the Challenger Gold Mine and associated assets;
- During the option period the Purchasers will finalise their legal, regulatory and technical due diligence and the parties will complete and execute a Share Purchase Agreement;
- Kingsgate will operate the mine up until completion of commercial production in February 2016, with the mine then placed on Care and Maintenance;
- Kingsgate will be responsible for all expenditures and liabilities up to the point of Care and Maintenance;
- The Purchasers will assume all ongoing closure liabilities;
- Kingsgate will receive a cash consideration of A$1 million to be paid in equal quarterly instalments from the commencement of mill operations by the Purchasers; and
- Kingsgate will retain a A$25 per ounce revenue royalty on the Challenger SSW Zone that takes effect after the first 30,000 ounces of production.
Kingsgate estimates that 20,000 to 25,000 ounces of gold will be produced between the end of the September quarter and the completion of commercial production in February 2016.
The current Group production forecast for FY16 of 165,000 to 180,000 ounces was predicated on the February closure and therefore, the full-year forecast remains unchanged.
This portfolio rationalisation will see Kingsgate focus activities around its core strategic assets being the Chatree Gold Mine in Thailand, and the prospective Nueva Esperanza development project in Chile.
“I firmly believe our development project at Nueva Esperanza, and South America more broadly, are keys to the future for Kingsgate and will enable the rebuilding of shareholder returns.” Mr Foulis said.
Greg Foulis
Chief Executive Officer
Kingsgate Consolidated Limited
September 2015 Quarterly Report
Highlights
- Group quarterly gold production of 43,012 ounces at a total cash cost of US$842/oz.
- Both Chatree and Challenger operations remain within FY16 production guidance, noting that scheduled overburden stripping activities at Chatree will result in a staggered production profile skewed towards a strong second half.
- Challenger quarterly gold production of 20,523 ounces at a total cash cost of US$802/oz was 8% ahead of budget reflecting a strong all-round operating and cost performance.
- Chatree gold production of 22,489 ounces at a total cash cost of US$879/oz lower quarter on quarter production is a direct reflection of lower grades during a planned mine cut back phase.
- An optimisation study on the Nueva Esperanza development project, Chile, is due for completion in November 2015. The study will provide refreshed economic and technical data, updated reserves and inform the next steps on permitting and feasibility input.
- Exploration around the Nueva Esperanza project area recommenced in October following a winter season break. The FY16 objective is to continue to define and drill gold targets on the ~45km2 alteration system with the aim of increasing the 1.9Moz AuEq Nueva Esperanza resource.
- Cash and bullion/doré totalled A$59.8 million (June Qtr: A$82.1 million), comprising cash of A$47.9 million (including restricted cash of A$12.7 million) and bullion/doré of A$11.9 million.
Group Operating Summary
Operation | Production (ounces) |
Total Cash Costs (US$/ounce) |
---|---|---|
Chatree | 22,489 | 879 |
Challenger* | 20,523 | 802 |
Total | 43,012 | 842 |
2015 Mineral Resources and Ore Reserves
Kingsgate Consolidated Limited (ASX: KCN) advises that it has completed an update to its Mineral Resources and Ore Reserves as at 30 June 2015. The update takes into account mining depletion and current economic and operational assumptions. To reflect the importance of silver and other economic by-products, Mineral Resources and Ore Reserves are quoted for relevant metals and on a gold equivalent (AuEq) basis.
GROUP MINERAL RESOURCES
Group Mineral Resources (inclusive of Ore Reserves) are estimated at 4.34 million ounces of gold and 251 million ounces of silver (295.9Mt at 0.46g/t Au and 26.4g/t Ag). This equates to a reduction of 0.39 million ounces of gold (~8%) and an increase of 1 million ounces of silver compared to the 30 June 2014 estimates. On a gold equivalent basis, Group Mineral Resources are estimated at 9.95 million ounces (295.9Mt at 1.05g/t AuEq).
GROUP ORE RESERVES
Group Ore Reserves are estimated at 1.34 million ounces of gold and 65.3 million ounces of silver (61.2Mt at 0.68g/t Au and 33g/t Ag). This represents a decrease of 0.35 million ounces of gold (~21%) and a decrease of 4.4 million ounces of silver (~6%) compared to the 30 June 2014 estimates. The decrease in gold is due mainly to mining depletion from the Chatree and Challenger operations and updated pit designs at Chatree using lower metal prices.
On a gold equivalent basis, Group Ore Reserves are estimated at 2.32 million ounces (61.2Mt at 1.18g/t AuEq).
CHATREE GOLD MINE, THAILAND
Chatree Mineral Resources are estimated at 3.64 million ounces of gold (172.5Mt at 0.66g/t Au and 6.00g/t Ag) compared to 3.84 million ounces of gold for the 30 June 2014 estimates. This decrease is in line with mining depletion over the FY15 year.
Chatree Ore Reserves are estimated at 1.12 million ounces of gold (43.5Mt at 0.80g/t Au and 8.60g/t Ag) compared to 1.39 million ounces of gold as at 30 June 2014, mainly due to mining depletion and pit optimisation at lower gold and silver prices.
CHALLENGER GOLD MINE, SOUTH AUSTRALIA
Challenger Mineral Resources are estimated at 0.19 million ounces of gold (0.81Mt at 7.47g/t Au). This compares to 0.64 million ounces of gold as at 30 June 2014. The reduction is a result of mining depletion over the year with the larger component due to the exclusion of Inferred Resources below the 215 Shear where mining is not envisaged at current gold prices. The Ore Reserve estimate for Challenger is 0.08 million ounces of gold (0.59Mt at 4.05g/t Au) compared to 0.16 million ounces of gold as at 2014.
NUEVA ESPERANZA PROJECT, CHILE
As previously reported (ASX Announcement 15 July 2015), newly discovered mineralisation at Chimberos West has added in the order of 250,000 ounces of gold and 5.1 million ounces of silver to the Chimberos Mineral Resource estimate. This has resulted in a significant increase in the Mineral Resource estimate for Chimberos to 300,000 ounces of gold and 20.5 million ounces of silver contained in 11.5 million tonnes of material. This equates to 640,000 ounces of gold equivalent. With the addition of gold and silver ounces at Chimberos, total Mineral Resources for Nueva Esperanza have increased by 21% to 34.6Mt at 1.70g/t AuEq for 1.89 million ounces of gold equivalent.
Due to metallurgical and project optimisation study work still to be finalised, Ore Reserves at Nueva Esperanza have not been updated to include Chimberos Gold and, for the present, remain as announced to the ASX on 17 March 2014 at 1.04 million ounces of gold equivalent (17.1Mt at 1.89g/t AuEq).
BOWDENS SILVER, LEAD & ZINC PROJECT, NEW SOUTH WALES
The Bowdens Mineral Resource estimate has not changed from that previously reported (ASX announcement, 18 October 2013) of 88.0Mt at 47.4g/t Ag, 0.29g/t Pb and 0.39g/t Zn for a combined 182 million ounces of silver equivalent.
The Mineral Resource estimates have been reported according to the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code, 2012).