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In The News - Kingsgate Consolidated

Published: 10:15 17 Oct 2016 BST

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Kingsgate Consolidated
ASX:KCN | A$0.28 | US$47m


Resumes Trading and Issues Target Statement
Kingsgate Consolidated has re-commenced trading on the ASX, having requested a suspension from trading back in mid-May owing to uncertainty surrounding the renewal of a metallurgical licence at Its Chatree gold mine in Thailand. The company also published a Target Statement recommending shareholders reject the proportional cash offer that it received from a private Thai company, Northern Gulf Petroleum, on 16 September.
COMMENT: We think that the opportunistic A$0.042/share cash offer for 50.1% of the outstanding Kingsgate shares from Northern Gulf Petroleum has little chance of success. The price offered is approximately 10% of the closing price of A$0.41 on the suspension in May, and 15% of the A$0.28 price on the resumption of trading. Also, the offer price is just 10-15% of the A$0.28-0.42/share range estimated by the Independent Expert in the Target Statement. Unless extended or withdrawn, Northern Gulf Petroleum’s offer closes on 4 November 2016.
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Trading suspended at A$0.41/share on 11 May 2016 pending clarification regarding an extension of the metallurgical licence — On 10 May 2016 the Thai Government stated that all gold mining would cease in the country by the end of the year. As a result, Kingsgate only received an extension for its metallurgical licence to operate until the end of 2016 and not for the expected five-year period. Kingsgate then requested a trading halt on 11 May pending clarification regarding the licence and associated conditions for operations. As a result, the company has completed a revised mine plan up to the end of the year, presumably to maximise the cashflow from the operation over this period.
Unsolicited proportional cash takeover offer at A$0.042/share for 50.1% of shares received on 16 September — On 16 September the company announced that it had received an unsolicited proportional takeover offer for 50.1% of the shares by Northern Gulf Petroleum Pte Ltd at a cash offer price of A$0.042/share (for a total of A$4.7m, valuing 100% of the company at US$9.4m), subject to Foreign Investment Review Board (FIRB) approval. The directors recommended that shareholders take no action. In summary, Northern Gulf Petroleum has stated that its principal, Mr Chatchai Yenbamroong, will leverage his Thai experience to seek to get the metallurgical reinstated for a 3-5-year period.
Independent Expert report values Kingsgate in the range of A$0.28-0.42/share — The Target Statement includes a valuation of the Chatree gold mine in Thailand for the three months to the end of 2016 only, net of rehabilitation and redundancy costs. The statement notes that the value of Chatree could vary significantly from the range presented, depending on the outcome of ongoing discussions between the company and the government regarding its future.
The Nueva Esperanza silver/gold development project in Chile was valued on the basis of the pre-feasibility Study undertaken on the project in April 2016 — This assumed long-term silver and gold prices of US$19/oz and US$1,200/oz respectively. The valuation used a real discount rate of 9.5%.
At the end of September 2016, net debt was A$34m — This comprised:
• Cash of A$48m, excluding restricted cash.
• Outstanding debt of A$72m:
o A$5m of revolving credit facility at the corporate level, due for repayment in January 2017; and
o multi-currency loan facility of A$67m secured against the Thai assets.
• Kingsgate preference shares of A$10m.

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