KINGSGATE CONSOLIDATED LIMITED
CLEAR VALUE IN CHILE, WITH THE BONUS OF POTENTIAL WINDFALL THROUGH CHATREE LITIGATION<
- Kingsgate Consolidated Limited (KCN) offers compelling value, with its Chilean project, Neuva Esperanza nearing the end of DFS, and our valuation based on PFS data (discounted by 25%) generating a valuation of $1.25 vs. KCN’s current share price of $0.43. We do not include Chatree in our base case valuation, but highlight the upside on the current insurance claim is $200m, or $0.89 per KCN share, with further potential upside through the current international arbitration with the Thai Government.
- Nueva Esperanza a world class asset. The silver-gold project, located in the highly prospective Maricunga Belt in Chile boasts 1.9Moz of gold equivalent resources (AuEq60 – meaning silver converted to gold on a ratio of 1 to 60), with the PFS released April 2016 showing average annual AuEq60 production of 91koz per annum, at AIC of $US913/oz. DFS is due for completion 1H18.
- Chatree the wild card. Since commencing production in 2001, the Chatree Gold Mine (Thailand) has produced approximately 1.8Moz gold and more than 8.6Moz silver, averaging 125-135koz gold per annum over recent years. In May 2016, the Thai Government announced all gold mines in Thailand (of which Chatree was the only one) were to be shut down by the end of 2016. KCN are currently pursuing the Kingdom of Thailand via The Australia Thailand Free Trade Agreement (TAFTA). In addition, the Company is pursuing a $200m claim under its political risk insurance (mediation set for March 2018). We haven’t assumed any value for this asset under our base case, but highlight the upside could be of the order of several $100m.
- Further exploration upside. KCN continues to enjoy exploration success in Chile, with the recent success at Cerro Blanco West. The Company holds 45km2 within the Maricunga Belt in Chile, the site of defined gold resources of over 100Moz of AuEq60, including mines such as Salares Norte and La Coipa.
- Current Board Challenge not expected to be successful. Metal Tiger PLC who owns 6.7% of KCN has requested a spill of the current board. Metal Tiger is an AIM listed Company capitalised at c£21m. We do not view their challenge as likely to succeed.
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The Directors of Kingsgate do not endorse the value statements or projections set out above, which may not be reliable in any event. This extract from the Patersons’ Report is referred to in order to reinforce the Kingsgate Board’s view that Kingsgate’s principal focus is Nueva Esperanza, with the PRI and TAFTA claims representing potential upside.