Kingsgate earnings hit by gold and dollar

Kingsgate Consolidated Ltd will take a $300 million dollar impairment charge against its Challenger gold mine as it seeks to slash costs amid a falling gold price and high Australian dollar.

In an update to the market, Kingsgate said it would seek to cut mine development costs by up to 30 per cent as it transitioned its focus at Challenger to the mine’s higher grade west ore body.

“Challenger will continue to focus on lowering costs, with the ‘Kingsgate Lean’ program that was introduced across the group, and the new mine plan is expected to substantially reduce capital and operating expenditure,” Kingsgate said.

“The new mine plan is the result of a strategic review of the Challenger gold mine in response to recent gold price volatility and the operating performance over the last 12 months.”

Overnight gold futures fell below $US1,200 per troy ounce on market fears of an end to the Federal Reserve's quantitative easing program.

The Australian dollar is lower following a fall in precious metal prices and mixed economic data showing the United States is growing at a moderate pace.

At 0700 AEST, the local unit was trading at 92.76 US cents, down from 93.17 cents on Thursday.

Under a new mining contract effective from August 1, Kingsgate said it would cut jobs as it reduced underground development and shifted to batch processing.

The transition period will last three months by which the miner expects to be cashflow positive

“To provide greater certainty to the operating plan and to minimise the revenue risk related to the volatility in the Australian dollar gold price, a gold hedging program is being considered during the interim mining period,” the miner said.

Under the new scheme, annual production at Challenger is expected to 70,000 to 80,000 ounces.

So far, Challenger’s west ore body has produced a grade of 6.7 grams per tonne.