Is this the end of Kingsgate Consolidated Limited?

Gold miner Kingsgate Consolidated Limited (ASX: KCN) has suspended trading in its shares until May 27, 2016, until it can clarify an announcement by the Thai Minister of Industry concerning the renewal of its mining licence at the Chatree gold mine in Thailand.

Chatree is Thailand’s and Kingsgate’s only producing gold mine, and Prime Minister Prayuth Chan-ocha told reporters this week that gold mining would be abolished by the end of 2016. The mine is operated by Kingsgate subsidiary Akara Mining.

That news comes after a government investigation team reported in January 2015 that more than 300 people had tested positive for arsenic and manganese at the mine. The mine reopened after a 44-day suspension. Kingsgate defended the findings, suggesting that investigations linking the findings to the mine were inconclusive.

Chatree remains in operation, but it appears that the Thai government is pushing for its closure. Kingsgate has two other assets – Nueva Esperanza in Chile, and 15% of the Bowdens Silver Project, but that appears non-key now.

Kingsgate sold its Challenger gold mine in South Australia earlier this year to WPG Resources Ltd (ASX: WPG) and Diversified Minerals Ltd for just $1 million. Challenger was expected to exhaust its mineral reserves in the March 2016 quarter. Despite that, WPG has seen its share price soar 200% so far this year – as investors speculate that the company can successfully reactivate the mine.

The company also sold 85% of its interest in the Bowdens Silver Project for $20 million this year to unlisted Silver Investment Holdings Australia. But despite the asset sales, Kingsgate still has debts of $73 million – against a market cap of just over $91 million at the current share price of 41 cents.

Foolish takeaway

Should Chatree be forced to close – that will be a major issue for the company.

The problem is that cash flows from Chatree have funded development of Kingsgate’s other projects including Nueva Esperanza. Without the gold mine, shareholders will be forced to cough up the funds to progress the company’s other projects – that is if its bankers allow the company to continue with no income. The odds of that appear highly unlikely.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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