30 RESOURCES RISING STARS

High grades, low costs, fat margins and huge explora-tion upside. It’s no

wonder the Indonesian miner’s new MD is so delighted with his role.

In the mining industry, high prices hide any number of sins. As a result, many investors tend to pay less attention to costs at times of record prices.

But while a company’s survival may not be of such concern against a backdrop of booming prices, margins and therefore profits are still heavily determined by its costs.

The utopian combination of stunningly low costs and record prices has turned Kingsrose Mining into a cash cow. At its Way Linggo gold mine on the Indonesian Island of Sumatra, cash costs came in at just $25 an ounce in the March Quarter after allowing for the sale of its silver pro-duction. In the June Quarter, the “lumpy” nature of the operation meant they rose – and still reached only $145/oz after silver credits. Gold production totalled 8756oz – leaving Kingrose with a highly enviable kitty boasting $28 million in cash and bul-lion and no debt at June 30, 2011.

Managing Director Chris Start, who took up the reins on July 1, says he was lured to the position by the combination of a phenomenal production story and huge exploration upside in an area known for its high grades. “I have been given a fantastic opportunity,” he told Resources Rising Stars. “The mine is small but high-grade and the exploration potential is sensational.”

When it comes to measuring grade, it seems that Way Linggo is always way off. The mine’s resource is 636,000 tonnes at 8.8 grams of gold per tonne for 166,000oz of gold. After allowing for the silver, this is increased to 208,000oz of gold equiva-lent. But the head grade being mined is averaging a whopping 14.8gpt gold. Start explains that one explanation for the dif-

ference is that the mineralised clay is being washed out of the core during drilling, resulting in lower assay grades.

However, the narrow vein nature of the orebody means Way Linggo has no reserve estimate. “We mine the gold, we don’t mine the tonnes,” Start quips. “We use local miners working with old mining methods on the veins that run from half a metre wide to 8m wide with an average of 4.5m. We don’t employ heaps of expats and this local approach has enabled us to maintain a very good relationship with the local community.”

The higher-than-expected grade has offset the processing problems associated with the clay, which restricted the crush-ing and screening parts of the process, therefore delaying the plant reaching its nameplate capacity of 140,000tpa. The plant is now approaching that number and a SAG Mill is currently being installed to overcome the clay handling issues as well as give it the ability to increase future capacity – and this is where the Kingrose growth story begins.

Start says he is eyeing exploration suc-cess to augment ore supply and ultimately underwrite a plant expansion to more than 200,000tpa. “We have a cash cow so we are going to plough a portion of the money back into exploration,” he says. “We have a stockpile that will help keep the plant running at capacity for another three or four months, so there is an explo-ration push underway now.”

And the concerted effort is already paying dividends. The Kingsrose team has made a discovery at Talang Santo, 7km north of Way Linggo, where multiple mineralized veins have been outlined over a 200km strike, remaining open along strike and at depth. Intersections include 1.1m at 46.9gpt gold and 87.9gpt silver from 176.6m and 4.35m at 10gpt gold and 25.2gpt silver from 195.8m. “This is potentially a large vein system and we

Low-cost Kingsrose proves some ounces more equal than others

“We already have what we believe could be a

second mine. There is huge potential for find-

ing more Way Linggos.” - Kingsrose MD Chris Start

Talang Santo

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RESOURCES RISING STARS 31

are already finding additional outcrop-ping veins in addition to the geo-chemical anomalies that got us interested in the area,” Start says.

Gold has also been discovered at Talang Samin to the west of Talang Santo, further adding to the attraction of this area, which is already connected to the Way Linggo plant by an access road that was recently constructed to a standard that would enable it to also serve as a haul road. A decision on how to approach the potential mining of Talang Santo is expected next quarter with an exploration adit possible by the end of the year.

Kingsrose also has highly prospective targets closer to the Way Linggo mine which Start intends to explore soon, though the northern areas provide a more immediate source of ore.

To emphasize his immense confidence in Way Linggo’s exploration potential, Start points to maps which show numer-ous examples of lineament structures intersecting with fault lines. So far these intersections line up with geo-chem anom-alies and prospect areas. They also host the existing discoveries. All up, Start says this

evidence suggests there are many more discoveries to be made at Way Linggo.

“We are at a very, very early stage of exploration and we are already finding some really interesting stuff to follow up,” he says. “We already have what we believe could be a second mine. There is huge potential for finding more Way Linggos. Usually with these high-grade epithermal systems you don’t just find one.”

With such strong cashflow and explora-tion potential, it is little wonder that Start is so excited by his new opportunity. In a move that would make him the envy of many of his peers, he has allocated $600,000 a month to drill these explora-tion opportunities and says that later this year, Kingsrose will even consider the holy grail of mining – a maiden dividend.

The huge opportunities at Way Linggo are certainly in the hands of those who would recognise them. Industry veteran John Morris is Non-Executive Chairman and Peter Cook and Bill Phillips hold the posts of Non-executive Directors. Start is a metallurgist who has held senior posi-tions at major operations such as Gold-corp’s Musselwhite gold mine in Canada,

Placer Dome’s Granny Smith gold mine in WA and Aurora Gold’s Mt Muro project in Indonesia.

Between them, these men have seen a few golden opportunities. But even by their standards, a company such a King-srose, rich with cashflow, fat margins and the overwhelming likelihood of find-ing more high-grade deposits, must be a stand-out.

2011 broker research:RB Milestone Group – 17 May, Target: $1.77

Resource Capital Research – 28 March, Target: $1.64

Bell Potter – 27 July, Target $2.10

KINGSROSE MINING SNAPSHOT

Stock Exchange ListingsASX: KRM

Issued shares264.2M

Market capitalisationA$370M at $1.40

Looking along strike at Talang Santo

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