why kingsgate sold gdr

Kingsgate would have made a loss for HY1 FY07 if they had not sold their GDR stake. Had nothing to do with the potential at Walhalla. All about saving face.

Lease issue hits Kingsgate's bottom line
Thursday, 22 February 2007
Paul Garvey

ONLY an early December sale of its holding in junior explorer Goldstar Resources has managed to keep Kingsgate Consolidated in the black, with Goldman Sachs JBWere analyst Ian Preston tipping the pain to continue until the company can secure a new mining lease over its Chatree deposit in Thailand.

Kingsgate posted a profit of $3.55 million for the first half, a figure that was bolstered by the Goldstar sale that netted a gain of $9.4 million.

Excluding the Goldstar sale, Kingsgate's half year result turned into a $5.84 million loss, a weaker result than the $4.3 million loss forecast by Preston.

Kingsgate's financial headaches stem from the continued delays in the granting of a new mining lease over the proposed Chatree expansion to the north of the existing pits. With the lease outstanding, Kingsgate has been forced to continue mining in the depths of its existing pits at much higher cash costs.

Preston said he had adjusted his earning estimates for Kingsgate on the assumption the company would gain access to the new area by early next year.

"Failure to gain access to the North Chatree lease area suggests the Kingsgate will continue to suffer from the lack of mining flexibility and indeed may be forced to treat lower grade stockpiled ore or, in a worst case scenario, lower the treatment rate," Preston said.

Preston has rated Kingsgate a short-term underperform, but has a long-term upside valuation of $6.37 a share on the assumption the new lease is granted.

Kingsgate shares gained 3c to $3.90 on the back of the results yesterday, and was up another 8c in morning trade today.