The Speculator

Record gold production from Kingsgate hasn’t flowed through to its shares, but wait for a rebound as the market improves.

PORTFOLIO POINT: Nearly all listed stocks are well off their highs, but sold-down companies with sufficient funds to maintain their program now have potential for recovery or takeover.

Kingsgate results point to a rebound

Gold miner Kingsgate Consolidated (KCN) this week announced record annual production of 208,760 ounces – up 85% from the previous financial year at a total cash cost of $US720/oz.

But the market was disappointed. Kingsgate shares, already down from a 12-month high of $9.50, fell from a trading range last week of between $5.08 and $4.78 to a new 12-month low of $4.44.

There was no panic selling. Share turnover last week totalled 2.74 million and a bit more than a million in the first days of this week – not excessive for a company with 151.26 million shares on issue.

It does underline the fact, however, that there are few willing buyers out there, with so many spooked, if only temporarily, by the world economic outlook.

Kingsgate derives about 60% of its gold production from its Chartree mining project in Thailand (121,372oz in 2011-12) and the rest from its somewhat underperforming Challenger mine in South Australia (87,388oz). Production from the Challenger project was inhibited through low underground equipment availability in the latest quarter, excessive stope dilution and advancing the access decline through a fault zone.

Although cash costs/ounce held for the entire Kingsgate operations at $US720 (including royalties of $US118/oz), depreciation and amortisation costs over all over all operations added another $US308/oz to bring total group production costs to $US1028/oz.

That was well covered by the average cash gold price received of $US1663/oz for the year to June 30, 2012.

The profit-margin in the whole operation also remains well covered, with the gold price this week hovering above $US1580/oz.

Managing director Gavin Thomas said: “This has been a cracker of a quarter – and it’s pleasing to see gold production records.”

He expects full-year total gold production in financial year 2012-13 to exceed total gold production in the last full year.

The Speculator and his readers have done well out of several dabbles into Kingsgate in the past. The first was in the 1990s after chairman Ross Smyth-Kirk drew my attention to the fact that the shares were trading around 55c and obviously then well undervalued.

While the shares today are a bit out of The Speculator’s usual pennyweight price range, they remain a good example of a leading stock that will rebound when market sentiment improves.

As things now stand, I intend to stick with our other gold hopefuls in our portfolio: Cortona Resources, Scotgold and Robust Resources, all of which are well off their 12-month highs.

Potash West plans scoping study before year’s end

Our Western Australian fertiliser hopeful Potash West (PWN) announced this week it expected to deliver a JORC-compliant resource estimate in late September following continuing drilling on its Dandaragan Trough project centred 60 kilometres north of Perth.

Managing director Patrick McManus reported widespread intersections of potash-bearing greensands at the company’s Dinner Hill prospect.  So far 3272 metres have been drilled totalling 86 holes at Dinner Hill covering an area 2.6 kilometres by 3.6 kilometres. Greensands were identified in all holes over thicknesses from 9 to 14 metres, with 2262 samples currently awaiting assay.

Results are expected by the end of July, at which time shareholders may look forward to seeing the company’s cash at June 30 in the forthcoming quarterly report, plus its plans for the present September quarter.

A geological model of the Dinner Hill mineralisation is nearing completion and work on estimating the resource in that location is scheduled for completion in late September.

In the June 6 edition of Eureka Report, I suggested Potash West shares (then 21c) might be considered a long-shot nest egg for the grandchildren is recent analyst projections of a “fair value” price range for the shares come up trumps.

New York investment research house Arrowhead  Buisiness and Investment Decisions LLC projected then that Potash West’s “fair value” share price range should be within a range of $A2.03, at the conservative end, to a more optimistic $A4.84.

Potash West shares were then trading at 21c and at 20.5c this week remain near the bottom end of their 12-month low at 15c and high of 35c. At 21c, the company’s 84 million shares carry a market capitalisation of just $17.64 million with 38% of the shares escrowed from sale before May 2013.

This week’s announcement confirmed the company is preparing to commission a recognised engineering firm to undertake a Scoping Study for PWN’s new process for extracting potassium sulphate from glauconite greensands.

Managing director McManus, who holds a degree in minerals processing from Britain’s Leeds University and an MBA from Perth’s Curtin University, said: “The company is on track to meet its objectives of having a JORC-resource by September and completion of a scoping study by year-end.”

-The Speculator portfolio, as at July 25
Company
Code
No of shares
Bought
Purchase price
Current price
Current value
Image Resources
IMA*
15,000
31/12/2010*
0.362 av
$0.300
$4,500
Viralytics
VLA
19,995
20/12/2011
$0.308
$0.270
$5,399
Robust Resources
ROL
6,000
31/12/2010*
$1.49 av
$0.680
$4,080
Scotgold Resources
SGZ
27,500
31/12/2010*
5.5 av
$0.060
$1,650
GoConnect Ltd
GCN
250,000
31/12/2010*
0.034 av
$0.017
$4,250
Minemakers
MAK
20,000
25/01/2011*
0.425 av
$0.145
$2,900
Platsearch
PTS
20,000
8/02/2011*
$0.130
$0.075
$1,500
Broken Hill Prospecting
BPL
30,000
22/02/2011*
$0.132
$0.093
$2,790
Austpac Resources
APG
40,000
2/03/2011*
$0.060
$0.031
$1,240
Potash West
PWN
11,050
30/03/2011*
$0.200
$0.205
$2,265
Cortona Resources
CRC
25,000
13/04/2011*
0.146 av
$0.088
$2,200
Golden Gate Petroleum
GGP
408,500
20/04/2011*
0.0145 av
$0.010
$4,085
TNT Mines
TNT
4,440
22/07/2011*
$0.000
$0.250
$1,110
Quickstep Holdings
QHL
20,000
23/11/2011*
$0.185
$0.175
$3,500
Orpheus Energy
OEG
19,250
17/08/2011*
0.164 av
$0.095
$1,829
Black Mountain Resources
BMZ
10,000
17/04/2012
$0.300
$0.250
$2,500
Gullewa
GUL
40,000
22/05/2012
$0.063
0.080
$3,200
a
Total value of portfolio
$48,998
Cash at bank
-$7,530
Total
$41,468
a
Portfolio change since January 3, 2012 (started with $50,000)
-14.25%
All Ordinaries change since January 3, 2012 (then 4155.22)
0.48%
*Shares held from previous year, carried at their December 30, 2011 closing price.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.

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