Appendix 4E and Annual Financial Statements for the year ended 30 June 2016

Operational performance

Kingsgate is a gold and silver mining, development and exploration company based in Sydney, Australia. Kingsgate owns and operates the Chatree Gold Mine in Thailand. In addition, the Company has an advanced development project; the Nueva Esperanza Gold/Silver Project, in the highly prospective Maricunga Gold/Silver Belt in Chile.

Group gold production for the year was 146,502 ounces with Chatree contributing 97,510 ounces and Challenger 48,992 ounces.

Kingsgate suffered a major setback during the year when the Thai Government announced on 10 May 2016, that the Chatree Gold Mine must cease operations by 31 December 2016. In effect, the Thai Government’s actions or lack of action over the past 12 months, and their inability to articulate a valid reason for the decision has now irrevocably damaged Kingsgate and its Thai subsidiary Akara Resources Public Company Limited’s (“Akara”), business and reputations.

Since the initial closure announcement in May, the Thai Government has also rescinded the original Cabinet resolution to close the mine and via a new Cabinet resolution empowered the Thai Industry Minister and other key government officials to oversee the closure of the mine by the end of the year.

The Thai Government has expressed that the closure is in no way a reflection of the way the mine is operated which validates Kingsgate’s view that the mine is and always has been a socially responsible, internationally accredited mining operation employing modern techniques. Chatree continues to comply with stringent health and environmental laws, and is one of the most heavily regulated mining operations in the world.

A great deal of uncertainty still remains in how Akara might continue to operate the mine until the end of the year, as the Thai Department of Primary Industries and Mines has issued various instructions in the wake of the 10 May decision only to revoke some less than a month later.

The Thai Industry Minister Atchaka Sibunruang, on 18 August 2016, once again told the media that governmental committees set up in October 2015 to investigate alleged health and environmental issues around the mine have found that there have been no problems caused by the mine. However, the Committee will not conclude its findings until the end of the year.

The Industry Ministry went on to say that the Cabinet’s 10 May 2016 resolution to shut down Akara was cancelled because the resolution did not comply with Thai law, and was further explained by saying the 10 May resolution could put the Cabinet at risk of legal action by Akara as cancelling a concession that has already been approved and still remains valid does in fact break the law.

Akara has however, in light of this ongoing uncertainty, implemented a revised mine plan up until 31 December 2016 that is expected to generate sufficient cash flow to cover all of Akara’s liabilities and obligations.

While Kingsgate is extremely disappointed with the situation it now finds itself in, the Company continues to vigorously pursue a range of potential remedies for the situation, which include both legal and diplomatic options.

Both the Kingsgate Board and Management are seeking compensation on behalf of shareholders for the material impact of the Thai Government’s decision, and as noted previously, it is appropriate that Kingsgate’s shares remain voluntarily suspended while these options are being pursued.

Kingsgate also appreciates that while the voluntary suspension may be frustrating for some shareholders, it is necessary to protect against volatility created by this uncertainty.

In other Thai specific matters, Kingsgate also sought clarification from the Thai Securities and Exchange Commission (“SEC”), with respect to the SEC’s announcement on 2 October 2015, in relation to the status of the Initial Public Offering (“IPO”) of Akara. The SEC suggested that they had rejected the IPO application. As far as Kingsgate was aware, the IPO application was still under consideration by the SEC. The Board of Kingsgate was in any event, as a result of market conditions at the time, considering making an application to the SEC for deferral of the IPO. Akara submitted an application to the SEC to defer the IPO in October 2015.

Given the events of 10 May 2016, and the Thai Government’s decision to close the Chatree Gold Mine prematurely, there will be no further consideration given to the IPO.

The National Anti-Corruption Commission (“NACC”) of Thailand contacted Akara Resources in November 2015 to inquire into facts and gather evidence in respect of allegations made against a number of parties, including Kingsgate and Akara Resources.

Kingsgate and Akara Resources are unaware of the details of the allegations, nor are they aware of any matters that would justify such an inquiry. Kingsgate has not been formally contacted to date. The NACC Committee established to oversee the matter has been reconstituted and a new Chairperson has been appointed, but there has been no further activity to date.

Kingsgate’s other operating asset, the Challenger Gold Mine, made a solid contribution to group production for the year before its sale to WPG/Diversified Minerals Pty Ltd in March 2016.

Challenger contributed 48,992 ounces at a total cash cost of US$763 per ounce, with underground mining ceasing in December 2015, and the remaining ore being sourced from the SEZ open pit.

Kingsgate’s after tax loss of $229.5 million for the year is primarily due to a non-cash impairment charge of $227.6 million against the carrying value of the Chatree Gold Mine.

As at 30 June 2016, the Group’s current liabilities exceeded its current assets by $36,855,000.  This was largely a result of the reclassification of the external borrowings of Akara as current liabilities due to the Thai government’s decision that the Chatree Gold Mine must cease operation by 31 December 2016.  As a result of this matter the independent auditor’s report refers to a material uncertainty regarding continuation of the Group as a going concern.  A plan has been implemented to enable the Group to continue as a going concern. For further information refer to the going concern disclosure in Note 1 of the financial statements together with the auditor’s report.


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