Saturday, November 10, 2007

Thailand doubles Aussie goldmine royalty

GOLD miner Kingsgate Consolidated has been slugged with a near doubling of the royalty it pays at its Chatree gold mine in Thailand, but is hoping the move will open the way for the Thai Government to approve a key expansion.

Last week the Government surprised its relatively small mining industry by unilaterally increasing royalties across a range of commodities including gold, base metals, coal and limestone.

Kingsgate said that at current prices and exchange rates, its royalty payments would increase to about $US39 an ounce, from $US20/oz.

While the news sent Kingsgate shares down on Friday, the stock bounced yesterday on hopes the Government will soon finally grant Kingsgate access to the all-important adjacent northern mine lease that will guarantee Chatree's long-term future.

"There is a possible flipside to this," Kingsgate business development manager Stephen Promnitz told The Australian.

"If you are going to have royalty payments you need to have mines."

Access to the higher-grade northern lease will allow Kingsgate to immediately boost production at Chatree to up to 170,000oz a year, up from 80,000- 120,000oz now.

More importantly, it would allow it to go ahead with an expansion to double output to around 300,000oz a year.

But without the northern lease the existing Chatree desposit will be exhausted within a year.

The gold royalty applies progressively depending on the gold price, but with the yellow metal trading around $800/oz the royalty will be levied on Chatree at a top rate of 10 per cent, which is substantially higher than rates in major gold producing countries.

In Australia, a flat 2.5 per cent royalty is levied in line with the US, Canada and South Africa.

"It is a surprise. We had no knowledge that it was going to happen," Kingsgate chief executive Gavin Thomas said.

"It sends a very poor signal in term of attracting mining investment long term."

The Thai royalty hike is the latest in what is a global trend in which governments are raising taxes on resources companies to grab a higher share of the windfall profits being delivered by the commodity boom.

"It is something we are likely to continue to see more of whereby governments are going to seek, in some circumstances quite rightly, a greater slice of the pie," Fat Prophets resources analyst Gavin Wendt told The Australian.

Macquarie Equities said the hike was "brutal" but that it could be interpreted as adding "further impetus" for the Government to approve access to the northern lease.

Macquarie maintained its "outperform" recommendation, but Goldman Sachs JBWere downgraded the stock to a "hold" from a "buy".

Kingsgate shares gained 19c, or 3.75 per cent, to $5.25, having traded as low as $4.72 on Friday.

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