Kingsrose Hits Triple Trouble, But Is Confident Of A Quick Revival
By Our Man in Oz
Trouble likes company, a fact that Kingsrose Mining has now discovered, in triplicate. The death of a worker at its Talang Santo mine was the first and most painful setback. As a consequence, the mine on the island of Sumatra closed for two weeks while Indonesian Government authorities investigate.
But unexpectedly high water levels in the mine have been a second stumbling block; and declining tonnage rates at the company’s other nearby mine, Way Linggo, the third blow.
It all means that the report for the past quarter, which will be filed at the ASX sometime towards the end of October, should be pretty downbeat.
“It won’t be a pretty report,” said Kingsrose chief executive, Chris Start, on the sidelines of a mining conference in Australia.
“Production is not going well right now thanks to a series of setbacks. Talang Santo is shutdown, and output at Way Linggo is declining as expected, though the timing of the slowdown could hardly be worse. If there is any good in what’s been happening it’s that it should be contained to a single quarter with normal gold production resuming soon.”
The run of bad luck brings to an abrupt end what had been a stellar start-up from Kingsrose which has not put a foot wrong since the first gold pour just over two years ago. High gold grades and low operating costs have enabled the company to claim title to being one of the world’s lowest cost gold miners, with strong profit flows leading to a maiden dividend in July.
The payout of A4 cents came from a profit of A$17.6 million in the year to June 30, though the figure which attracted most attention was the cash operating cost of US$254 an ounce after silver credits.
The September quarter dose of triple-trouble will knock all of the key metrics at Kingsrose, at least for a month or so. After that Chris is confident of getting business back on an even keel, with production returning to its annualised rate of close to 40,000 ounces of gold and 450,000 ounces of silver.
That will be bolstered by a flow of exploration news which continues to point to the possible development of multiple ore sources from a superbly endowed tenement near the southern tip of Sumatra. On the market, investors have been kind to Kingsrose, maintaining the stock at around A$1.19, as the higher gold price has offset the company-specific problems.
“The situation is quite delicate at the moment,” Chris said after delivering a presentation at the Resources Rising Stars conference on Queensland’s Gold Coast. “We can’t say when production will re-start at Talang Santo. We’re hopeful that after we have worked through the investigation process over the death with the Mines Department we’ll be back open in the next two weeks.”
While Talang Santo is the newest of Kingsrose’s mines it was shaping up to be a more significant contributor than the original Way Linggo project, a fact which makes the current closure particularly significant.
Exploration in the Talang Santo area continues to reveal additional gold-rich epithermal veins and the company is considering the possibility of developing a second shaft to access rich material roughly 400 metres to the west. “We can see the potential to expand in every direction at Talang Santo as our knowledge of the ore system expands,” Chris said.
Work so far has identified 17 epithermal zones and targets stretching across the 100 square kilometre tenement package, and some of the best-looking targets end abruptly at man-made borders. Kingsrose has applied to look across its northern border, an area abutting the Talang Santo mine, but cannot go further west because of national park restrictions.
However, the extra land to the north is likely to be granted, since Kingsrose is entitled to priority recognition on account of its existing mining operations. And if it is, the potential is there to add years to mine life, as well as additional ounces of gold.
Talk of expansion will, however, have to wait until Kingsrose gets on top of its current crop of strife, topped by changes which inevitably follow workplace death. On that issue, the company is in the hands of government mine regulators.
But the other issues are more in the hands of management, including the need for additional pumping to de-water Talang Santo, and the need to expand operations at Way Linggo to make up for declining tonnes as the mine deepens, with targets at depth and across a fault line.
Losing gold production at Talang Santo is a more severe blow than some outsiders might imagine. The mine was brought into production quickly to supplement output from Way Linggo, but then quickly became the de-facto flagship mine.
“Talang Santo has not picked up production as fast as we had hoped,” Chris said. “Before the death forced a shutdown we had been experiencing higher than predicted water levels in the mine. So, when we got down to the bottom we thought we would only be a month away from production, but there was so much water that it’s actually taking three-to-four months of de-watering.”
While Mines Department inspectors do their job after the fatality, Kingsrose is only permitted to conduct mine maintenance and de-watering activities. “We hope that once we get back in it will take about two weeks of additional work before we hit the ore and start ramping up gold output,” Chris said.
“What it boils down to is that the September quarter result will look pretty ugly,” he said. “However, we do see the problems of the past few weeks as a short-term blip. Long-term we think the Talang Santo area will be a major source of future production. It’s open in all directions and there ae veins we haven’t touched, yet.”
Source >> www.minesite.com
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