Ok Kingsgate $KCN.AX, let's do this. Aussie gold miner special sit. This is not without risk so big boy pants on, DYODD, I am long and think its compelling but again - caveat emptor bigly on this one.
That said - the stock is $1.25, i think imminently its $2+ and heading to $3-4
That said - the stock is $1.25, i think imminently its $2+ and heading to $3-4
https://twitter.com/puppyeh1/status/1442297485121122304
Mkt cap today is ~$275mm (AUD), $10mm cash, no debt.
Two main assets: the Chatree gold/silver mine in Thailand; and a development asset in Chile (Nueva Esperanza).
NE agreed sale to a Canadian junior for $69mm. Hasn't closed - let's forget it for now.
Two main assets: the Chatree gold/silver mine in Thailand; and a development asset in Chile (Nueva Esperanza).
NE agreed sale to a Canadian junior for $69mm. Hasn't closed - let's forget it for now.
Chatree in Thailand. V complex story. Mine shut down in 2015 bec the Thai govt basically removed $KCN.AX licence overnight due to environmental concerns. These were never proven (in fact the opposite). Chatree had been mining since 2001, $KCN had invested >$1bn over time.
$KCN.AX tried negotiating btu ended up going to arbitration (in Singapore), under TAFTA (Thai/Australia free trade agreement).
This took ages. Stock got obliterated. No sell-side. Most all stopped following.
This took ages. Stock got obliterated. No sell-side. Most all stopped following.
Cpl extra notes: $KCN.AX management has been v conservative in communications over the yrs. the arbitration process was behind closed doors (at Thai govt request). V few leaks, none from $KCN.AX. $KCN.AX barely puts out 2-3 announcements a year. Not promotional.
$KCN.AX now saying 'negotiations are in final stages' to essentially get back the mine.
Not only that but the resource base will 'more than double' given incr in gold price since 2015.
Also apparently they will get access to higher-grade tenements, etc etc.
Not only that but the resource base will 'more than double' given incr in gold price since 2015.
Also apparently they will get access to higher-grade tenements, etc etc.
Other key deets - the Singapore arbitration decision was pushed back to end-Oct by MUTUAL CONSENT from Thai govt + $KCN.AX. Strongly suggests settlement before then.
In meantime, the Mineral Processing Licence - key licence in Thailand - has been reinstated. Pretty key.
In meantime, the Mineral Processing Licence - key licence in Thailand - has been reinstated. Pretty key.
Now, how are we to interpret all this?
The key in special sits is reading b/w the lines. I think most all the value here is from delineating what mgmt is telling us w/out telling us.
Reality is this mgmt team basically said nothing of substance re the dispute for YEARS.
The key in special sits is reading b/w the lines. I think most all the value here is from delineating what mgmt is telling us w/out telling us.
Reality is this mgmt team basically said nothing of substance re the dispute for YEARS.
Now all of a sudden we get a play-by-play of the negotiated items. A reinstated MPL. And an extremely positive tone. Why?
I believe the Thai govt may well have sanctioned this PR. Recall both parties obvi know how arbitration went, they saw all the evidence - but we don't know.
I believe the Thai govt may well have sanctioned this PR. Recall both parties obvi know how arbitration went, they saw all the evidence - but we don't know.
This is like watching a poker game where both players know the cards but we can't see the cards...only the bets they're making.
It appears to me both players are betting like $KCN.AX has a monster hand.
It appears to me both players are betting like $KCN.AX has a monster hand.
If Thai govt was reasonably confident in their claim, why negotiate at all. Why not let the Sg tribunal hand down its decision?
Ok so let's proceed from this idea, that a settlement and getting the mine back is highly likely. What's $KCN.AX worth?
Ok so let's proceed from this idea, that a settlement and getting the mine back is highly likely. What's $KCN.AX worth?
Method 1) simplified DCF of new reserve base (I think 2.2mm oz), assuming say 120k oz/yr (ie no higher prod runrate), current gold pxes, and say $950-1k AISC. Also I assume prod doesn't restart for another 15mos (refurb time etc).
Let's also slap a high discount rate (15%)...
Let's also slap a high discount rate (15%)...
....even so I get $2.7 a share in NPV. In reality 1) production run-rate prob higher; DR prob a bit lower; and costs maybe lower (higher grades are mentioned).
Again - you don't need any of that to win, big. Just getting the mine back gets you $2+ easily.
Again - you don't need any of that to win, big. Just getting the mine back gets you $2+ easily.
Keep in mind this is just the new reserve base, and the resource base is multiples of this. Also this mine was operating for 15yrs pre this robbery; and this is an open pit, epithermal operation (not some crazy underground complex job).
The question is what's the right discount for this kind of asset - assuming the legal/right to mine equation is settled satisfactorily?
It's hard in any context to see how its much less than high $2s. Less developed mines w higher cost profiles go for $200/oz EV/reserves...
It's hard in any context to see how its much less than high $2s. Less developed mines w higher cost profiles go for $200/oz EV/reserves...
...again that implies ~$2.75 a share to $KCN.AX. With nothing for the resources; the Nueva Esperanza project, etc.
But what if negotiations fail? What if we go to a tribunal decision? How much could $KCN.AX actually hope to get?
But what if negotiations fail? What if we go to a tribunal decision? How much could $KCN.AX actually hope to get?
Even in this case the current price seems to imply far too low a chance of success. I believe the award starts at $750mm (AUD) and could be much higher.
$KCN.AX has already written off $300m in impairment from the theft. There was obvi pre-depreciated $$ that was lost too...
$KCN.AX has already written off $300m in impairment from the theft. There was obvi pre-depreciated $$ that was lost too...
...and under old mining license they had ~11-12 yrs left before the mine was shut, which - at then gold prices - would have generated ~$70mm AUD in EBITDA, so call it $40-50mm in annual FCF if allowed to operate.
NPV that (lost earnings), add to impairments + sunk costs...
NPV that (lost earnings), add to impairments + sunk costs...
...and tack on a claim for punitive damages and the number could well be close to $1bn AUD.
But even at $750mm AUD and a high discount to adjust for collecting on the claim - 40%? - and you STILL get a $2.05/share stock price.
Again, before adding back anything for NE...
But even at $750mm AUD and a high discount to adjust for collecting on the claim - 40%? - and you STILL get a $2.05/share stock price.
Again, before adding back anything for NE...
I believe this is all largely moot though. As above given reading of the tea leaves and fact pattern, it seems overwhelmingly likely they get the mine back, new and improved, w a mandate to expand and maximize the asset.
I am not saying I'm sticking around to see it...
I am not saying I'm sticking around to see it...
...get back to $4+, but that resolution alone should be worth well over $2 a share.
The mkt has a really hard time digesting big moves. The stock is +50% in a week since the announcement. Lots of long-suffering small guys are taking profits. I get that.
The mkt has a really hard time digesting big moves. The stock is +50% in a week since the announcement. Lots of long-suffering small guys are taking profits. I get that.
But I believe the 23Sep announcement substantially derisked the outcomes here and in most states of the world this is worth something between $2 and $4+.
If/when this is operational again at current gold pxes it should do close to $100mm (USD) in annual EBIT. With a 20yr life..
If/when this is operational again at current gold pxes it should do close to $100mm (USD) in annual EBIT. With a 20yr life..
The mkt cap - in USD - is $200mm today, and there is no debt. You be the judge.
Moreover the board of the co only has 3 people. And the exec chairman (who owns 5%) is 75 and just fought a 6 year litigation to get the asset back.
Moreover the board of the co only has 3 people. And the exec chairman (who owns 5%) is 75 and just fought a 6 year litigation to get the asset back.
Indeed they SPECIFICALLY mention 'optionality' re the asset, and a potential sale, or listing on the Thai stock market: 
Is this going to get listed in Thailand at 0.5x P/NPV? Less, if you give any value to the resource base?
Is it going to get sold at 2x EV/new normal EBIT?
I don't think so. Must be higher in any strategic transaction. Which seems much more likely post this announcement.
Is it going to get sold at 2x EV/new normal EBIT?
I don't think so. Must be higher in any strategic transaction. Which seems much more likely post this announcement.
In sum - I don't have all the answers, but given a close reading of disclosures and event history here this seems a pretty mispriced bet.
Disclosure: long $KCN.AX. DYODD. As mentioned big boy pants only. This is risky.
Disclosure: long $KCN.AX. DYODD. As mentioned big boy pants only. This is risky.
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