Kingsgate Consolidated

With control of a large, gold rich endowment in Thailand, Kingsgate Consolidated will be producing gold for another 20 years. Cash costs are sensationally low and management has been shareholder friendly, paying regular dividends as the gold price has soared. Production is expected to hit 300,000 ounces of gold next year, making Kingsgate one of the largest gold miners in the country.

But our concerns over aquisitions have prevented us from upgrading the stock. In South Australia, Kingsgate bought the troubled Challenger goldmine. In Chile, a new acquisition awaits drilling, while a recently acquired silver project in New South Wales is similarly thirsty for cash. These all represent significant risks to an original business that is doing nicely.

Our most significant concern, the underground Challenger mine, is being addressed. As Challenger drills ever deeper, grades must rise to pay for additional digging. We’ve been sceptical about this but recent drilling results confirm that higher grades are appearing, which should lead to lower costs and higher output. With the share price having fallen heavily over the past year, from more than $11.00 at one stage to around $6.00 today, Kingsgate requires further analysis. Look out for a detailed review over the coming weeks. For now, with the share price down 24% since Panning for profits: Gold watchlist on 01 Jun 11 (Hold - $8.00), Kingsgate is UNDER REVIEW.