PERTH-BASED junior explorer Trafford Resources has lodged a...

PERTH-BASED junior explorer Trafford Resources has lodged a caveat over ground surrounding Kingsgate Consolidated's Challenger goldmine in South Australia in a move that could complicate Kingsgate's efforts to revitalise -- and possibly sell -- the operation.

Documents obtained by The Australian show that a subsidiary of Trafford has lodged a caveat over EL 4468, an exploration licence that envelopes the Challenger mine.

The proximity of the disputed tenement to the underground mining operations suggests the gold mineralisation may extend into the disputed licence, but the caveat could impact any efforts to extend the mine into the area.

Kingsgate has registered a mineral claim -- a precursor to a full mining lease -- within the disputed area, suggesting it believes it will eventually extend the Challenger operations into the lease.

Underground mining operations at Challenger are estimated to be between 50m and 100m from the disputed tenement boundary. It is understood Kingsgate believes it holds outright ownership of EL 4458.

The Challenger mine has been problematic for Kingsgate since it was bought through a $376 million acquisition of Dominion Mining in 2010. The company has since written down almost the entire purchase price as Challenger battled with high operating costs.

Recent efforts to overhaul the operation showed some signs of success in the last three months of last year, production increasing 10 per cent to its highest level in two years and operating costs dropping 17 per cent. The mine produced 20,318 ounces of gold in the December quarter at a total cash cost of $US1214 an ounce.

There have been suggestions Kingsgate could be looking to sell Challenger, with a number of parties believed to have looked at the mine. In its latest quarterly report, Kingsgate said it was continuing "to pursue strategies to adapt to the volatile operating environment for gold producers" which may include the "potential rationalisation of the asset base".

The caveat over EL 4458 could well unsettle any parties considering a potential purchase. Trafford announced its purchase of a 51 per cent interest in EL 4458 in August 2012 as part of a broader acquisition that saw it more than double its land position in South Australia's Gawler Craton to more than 5600sq km.

It paid $500,000 and three million of its shares for the package of tenements from fellow junior Southern Gold. The company has since identified more than 300 gold anomalies in the exploration leases around Challenger that are yet to be investigated, and the Challenger processing plant and infrastructure would be the logical hub for the development of any anomalies that eventually translate into gold discoveries.

Trafford managing director Ian Finch declined to comment when contacted by The Australian yesterday, while Kingsgate managing director Gavin Thomas could not be reached for comment.

Shares in Kingsgate were down 1c to $1.115 yesterday while Trafford was untraded at 10c a share.