Why the Kingsgate Consolidated Limited share price crashed 32% today

Credit: ryan melaugh

Kingsgate Consolidated Limited (ASX: KCN) saw its share price plunge 31.7% to just 28 cents today after the gold miner resumed trading following a five-month voluntary suspension.

The gold miner’s shares were suspended from trading on May 11 pending the company receiving renewal of the Chatree mining licence from the Thai government. Rather than receiving a renewal of its five-year licence, the Thai government allowed Kingsgate to continue operating the mine until the end of 2016.

That came amid allegations of contamination of nearby villagers with arsenic and manganese (two substances that the company claims have never been used at the mine).

Despite the company’s best efforts to continue operating the mine into 2017 and beyond, the Thai government has stuck to its original decision.

What is interesting is that the company received a low-ball bid at 4.2 cents per share from a Thai petroleum millionaire in September. Chatchai Yenbamroong’s Northern Gulf Petroleum is offering just $9.4 million for just over 50% of the company, but it seems clear that his eyes are on resuming gold mining at Chatree.

Mr Yenbamroong has told The Australian, “They’ve got no solution to the challenges in Thailand. They’re trying but it’s got to do with strategy, access to decision makers, key people, and you have to know the environment you’re in.

He added that if his bid was successful, his urgent priority would be lobbying the Thai government to renew the mining licence.

A cynic might suggest the cancellation of Kingsgate’s mining licence is purposefully designed to see the mine end up in a “friend of a friend’s” ownership. And the term “it’s not what you know but who you know that counts” comes to mind.

For any miner with one operating mine, the decision is a disaster, no matter how much Kingsgate want to talk up their other major asset, the Nueva Esperanza gold project in Chile.

It also illustrates the problem of sovereign risk, much as miners in the Philippines are now finding, including OceanaGold Corporation (ASX: OGC).

No wonder shareholders sold out en masse today – it’s unlikely to get any better.

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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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