At time of writing, the share price of Kingsgate Consolidated Limited [ASX:KCN] is up 51.33%, trading at 22.5 cents.
It’s been a tough year for the stock:
The massive gains for the Kingsgate share price come on the back news out of the company, outlining a settlement with its Political Risk Insurers to the tune of more than $82 million.
Kingsgate share price reacts to settlement
The Kingsgate share price jumped as high as 28 cents when it came out of a trading halt with the release of the announcement.
The announcement outlined a legally binding Heads of Agreement with its insurers with the following features:
- Kingsgate to receive a cash payment of US$55 million by mid-April 2019
- Insurers are required to contribute up to US$3.5 million of future costs towards the TAFTA Arbitration. Their funding contribution will be paid on a pro-rata basis with Kingsgate.
- A sharing arrangement to exist between Kingsgate and the Insurers for future distributions of TAFTA Claim proceeds.
This sharing agreement operates on the basis of the Insurers being entitled to the amount of their original contribution including interest, with Kingsgate keeping any TAFTA Claim proceeds that are in excess of that contribution.
The TAFTA Claim refers to a claim made under The Australia-Thailand Free Trade Agreement — based on a May 2016 move by the Government of Thailand to expropriate Kingsgate’s Chatree Gold Mine.
In the years leading up to the move, the mine had been producing around 125,000–135,000 ounces of gold and silver.
What does the future hold for Kingsgate?
Kingsgate has not rested on its laurels since its operations at its Thailand mine ceased. And it looks like they have some exciting improvements in store.
Since 2009, they have been developing the Nueva Esperanza Project. In 2016, they released a Pre-Feasibility Study for the project with some attractive metrics.
These include an 11.6-year life of mine, US$642/oz AuEq60 (gold equivalent based on a ratio of 60oz silver per 1oz gold) average cash cost, and an all-in cost of US$849/oz.
The gold price currently sits at US$1,299/oz.
As per the Pre-Feasibility study, the proposed mine would have an Internal Rate of Return of 25% and a payback period of three years.
Kingsgate’s Executive Chairman, Ross Smyth-Kirk, elaborated that the settlement’s ‘excellent outcome’ would provide enough funds to pay out in full the company’s corporate debt facility and that it will provide the liquidity necessary to maximize the value of the Nueva Esperanza project.
Given these factors, Kingsgate shapes as a legitimate investment for the future, even if short-term investors engage in profit-taking over the next few days.
If macro-risks continue to escalate, gold stocks as a sector could be poised to benefit.
If you are curious about gold’s potential in the months ahead, Greg Canavan takes an excellent look at the three reasons why you should add gold to your portfolio in a research report which can be downloaded here.
For Money Morning