Kingsgate Consolidated

Kingsgate Consolidated (KCN) has a maintained Outperform recommendation and an upgraded 12 month price target of $8 from $6 per share from analyst Macquarie Research Equities. Today, shares in KCN have soared over five percent after the company announced yesterday that it had received the Environmental Impact Assessment (EIA) approval for the Chatree North mining leases in Thailand. This is a significant development, EIA approval is a necessary and substantive precondition to the grant of the mining leases at Chatree. The path now to mining lease approval includes regulatory approvals by the Department of Primary Industry and Mines and the Forestry Commission. But the analyst expects it will still take a few months and spill into FY08 and whilst Kingsgate Consolidated may yet suffer delays in getting there, EIA approval has been regarded as the main substantive hurdle to expanding operations. The stockmarket analyst understands that KCN's EIA approval was the first one granted in Thailand for 18 months. The Chatree operations were already constrained, resulting in a cut to FY07 production guidance from 140koz to around 90koz, with costs increasing accordingly. While operations will continue to limp along until the mining leases are formally approved, and 2H07 operating results will likely be somewhat disappointingly in line with 1H07, the EIA approval is a catalyst for project financing, production growth, renewed exploration and corporate appeal. Risk/reward dramatically improved: The analyst has been highlighting that Kingsgate Consolidated shares are a high risk/high reward proposition, balancing the significant uncertainty attached to the regulatory process with the analyst's view that the Chatree district is world class. EIA approval now materially improves KCN's ability to unlock value at that property in the short and long term. The analyst forecasts production growth from 90koz at total cash costs of US$424/oz in FY07 to over 300koz at US$256/oz in 2010. After June, KCN will be unhedged and have 100% of its production exposed to the gold price. The analyst's target price represents 1.8X KCN's DCF value, in line with its Australian gold peers, and 16.8X and 8.5X their FY08 and FY09 EPS estimates. The stockmarket analysts are genuinely excited by this news and believe the Thai regulatory overhang in Kingsgate Consolidated shares is significantly diminished by this announcement, enabling investors to focus with more confidence on the unhedged and financed growth story that the analyst now expects will unfold over the next three years.