Kingsrose Offers Low Costs And Upside Potential

This story features KINGSROSE MINING LIMITED. For more info SHARE ANALYSIS: KRM

– Kingsrose Mining a low cost gold producer
– Way Linggo project has good exploration potential
– DJ Carmichael rates Kingsrose a Buy 

 

By Chris Shaw

Kingsrose Mining Limited ((KRM)) is an emerging gold mining company, producing from the Way Linggo project in Sumatra, Indonesia. Kingsrose has an 85% stake in this project, which has a current resource of around 165,000 ounces of gold.

Perth based stockbroker DJ Carmichael rates Kingsrose as a Buy, while reporting it is attracted to the potential for increased production as Way Linggo reaches full output of around 45,000 ounces of gold annually and as exploration adds to resources and extends mine life.

Gold production at Way Linggo is expected to be around 10,000 ounces in the March quarter, while DJ Carmichael notes a new SAG (semi-autonomous grinding ball) mill should be fitted by June. This will lift throughput to capacity of around 140,000 tonnes per year.

As production picks up so too should earnings, DJ Carmichael noting Kingsrose is a low cost, high margin producer given high grades at Way Linggo. Silver by-product credits also help keep costs low, with operating costs estimated at less than US$100 per ounce.

An increase in mine throughput offers a potential way to boost earnings, DJ Carmichael noting throughput could be lifted to 600 tonnes per day from 400 tonnes at present by only small changes to the existing mill. How soon this could occur is uncertain as there are some current constraints on underground mining.

The exploration outlook at Way Linggo is very positive in the view of DJ Carmichael, as early sampling along strike of the underground veins has delivered significant results. These include 104 metres at 20.6g/t gold and grades of between 10-20g/t gold and 150-250g/t silver on average over the full mining width.

Exploration will be a focus for Kingsrose in coming months, DJ Carmichael noting the company currently has six surface diamond drill rigs and one underground diamond drill rig in use. The Way Linggo North Vein is unlikely to be an isolated vein, as DJ Carmichael expects a field of vein systems in the region.

Elsewhere, Kingsrose currently has an 85% interest in the Sarinc Tailings Project and DJ Carmichael sees this as a potential source of additional value going forward.

An advantage for Kingsrose is a solid financial position, DJ Carmichael noting a pre-paid silver forward sale arranged with Credit Suisse raised $13 million. This has allowed the company to repay all of its outstanding debts. 

In estimating a valuation for Kingsrose, DJ Carmichael has assumed a long-term gold price of US$964 per ounce, an average gold grade of 15 grams per tone and a long-term production rate of 64,000 ounces annually.

This generates a valuation of $1.62 per share. The main risk to this valuation is if high grade gold veins are not continuous and don't extend further underground. Further drilling should address this issue in DJ Carmichael's view.

Kingsrose is capitalised at around $350 million, so is too small to receive significant coverage. As evidence of this, none of the brokers in the FNArena database provide research on the company.

Over the past year the stock has traded in a range of $0.65 to $1.55.

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