Kentor Gold listed on the Australian Stock Exchange in February 2005 with an issue price of $0.50 per share which raised $6 million. The proceeds of the offer were to be applied towards the exploration of the company’s tenements in the Kyrgyz Republic.
In March 2005 there was a change of Government with the “White House” stormed and the President and Administration in Bishkek removed from power. This was the third revolution in the history of the Kyrgyz Republic and the interim Government promised elections within 3 months. Kentor continued to operate during this period and its people, offices and assets were safe and unaffected.
The next couple of years were largely uneventful with the company exploring in various regions, branching out into Geothermal exploration and even Uranium exploration in the Northern Territory (Australia). During this period the most important event in my opinion was the appointment of Simon Milroy as the Managing Director and Chief Executive Officer. Since his appointment there has been significant improvement in the company’s strategy and ability to move forward with projects (in my opinion).
Throughout 2009 there were plans to establish a small mining operation of 10,000 oz per annum in the Kyrgyz Republic (Savoyardy Gold Project), however, the option to acquire the Andash Gold-Copper Project which surfaced in July 2009 shifted the company’s focus due to the size and potential of this mining operation.
An option to purchase the Andash project was announced on 1 July and would give Kentor the opportunity to purchase an 80% interest in the project. The project came with a JORC compliant resource estimate of 680,000 oz of gold and 77,000 tonnes of copper with the feasibility study, environmental and social impact assessment and mining licence all completed (i.e. the project was development ready).
Under the option agreement Kentor would pay the current owner (Aurum) US$100,000 for an initial exclusive 3 month option to purchase 100% the company which held the Andash stake and the mining fleet/construction equipment. A three month extension could also be granted for an additional payment.
The purchase price for the 80% Andash stake was US$10,000,000 with a further US$5,000,000 payable to securing the mining fleet and construction equipment. The option was exercised on 20 October 2009 with the start of production targeted for 2011.
Kentor considered both debt and equity financing for the deal , with Macquarie Bank offered a US$15,000,000 loan facility, however the company decided to raise $28,000,000 via a share placement (which was oversubscribed) before completing the deal on 23 December 2009.
On 31 March 2010 Kentor Gold announced the outcome of the feasibility study which highlighted the following project attributes:
· Technically and economically robust project.
· Average annual production of 60,000 oz gold and 6,800 tonnes of copper over an initial six and a half year life.
· Initial capital cost USD$102.36 million.
· Very low cash costs (gold US$38/oz including royalties after copper credits)
· Project NPV USD$107m at gold $1,000/oz and copper US$2.75/Ib.
· Strong market demand for Andash gold-copper concentrate
· Study expects further exploration will extend mine life.
The announcement also stated that site development works would commence in April 2010 with production scheduled for late 2011.
Also on 31 March 2010 Kentor Gold announced that they had negotiated a deal to secure a further 10% of the Andash project from Aurum for an additional fee of US$2.2million, which was to be paid in three instalments by 30 July 2010. However, this changed when in April 2010 there was a further uprising in the country and an ousting of the Government . Roza Otunbayeva took over as interim leader. None of Kentor’s projects, people or assets were adversely affected by the uprising. As a result Kentor decided not to proceed with the acquisition for the additional 10% stake in the Andash project at this time. (Additional Information: Since this time a legal dispute has also surfaced about the 20% of the Andash project not held by Kentor which further clouds the picture.)
Other notable events during that occurred between 2010 and early 2011 in relation to the Andash project include the securing of a $50 million facility from Macquarie Bank and a $65.2 million capital raising both of which would help fund the development of the mine and future projects.
On 1 April 2011 Kentor Gold announced that they had made an agreed takeover for Jinka Minerals (an unlisted company with 1,400 shareholders). The acquisition would provide Kentor Gold with 100% ownership of the following projects:
· Burnakura Gold Project
· Gabanintha Gold Project
· Jevois Base Metals Project
Under the terms of the take over Kentor would pay out $7.8 million in cash and assume $4.9 million in debt (which would also be due and payable at the time of the takeover). The total $12.8 million would be funded from existing cash reserves.
The first priority for Kentor was to establish JORC Resource estimate for each project and to prepare a feasibility study on Burnakura which was in care and maintenance mode. This would provide Kentor will the ability to recommence gold mining operations within a relatively short period of time. All the projects are on granted mining leases and Burnakura came with existing plant and equipment and a 90 person camp. I will be detailing the potential of each project in my future posts as this is just to provide a brief summary of events in Kentor Gold’s history. Kentor Gold took control of Jinka Minerals on 12 May 2011.
On 20 May 2011 the markets attention swung back to the Andash project with an announcement by Kentor highlighting that the project would be delayed for a number of reasons, primarily local opposition to the project. This announcement was followed by a further update on 28 June 2011 announcing that a Member of Parliament, Akylbek Japarov had opposed the mine and put forward a resolution that was adopted by parliament. The resolution revoked the land use permit and mineral licences for the Andash project.
This is however where things get complicated because under the separation of power the Parliament does not have the power to revoke mineral licences or land use permits. This is the responsibility of the Executive arm of the Government. Kentor Gold proceeded to say that they had received a letter from the Ministry of Natural Resources confirming that “Andash Mining Company complies with all legal requirements to and standards of licence activity in the Kyrgyz Republic”.
The Minister also went on to say that by the end of 2011 consideration will be given to the work plan and issues related to the fulfilment of the conditions under the license agreement. We also need to keep in mind that there are elections due in October 2011.
As part of my research and analysis into Kentor Gold I have assumed a zero percent chance of the Andash project going ahead when calculating a future value (share price) for KGL. However, if we consider the fact that mining (and in particular the Canadian owned Kumtor Gold Mine) represent a huge percentage of the country’s GDP and contributes towards providing high paying jobs to local citizens then the Andash project cannot be ignored by the Kyrgyz Government. This is especially true when previous governments have been ousted due to corruption and a failure to improve living standards throughout the country. The Andash project is expected to create 450 jobs and contribute $200 million to the national budget over its initial six years. Based on this and Kentor Gold’s long standing operations in the country I do believe that there is a greater than 50% chance of the project proceeding at some point in the future. The focus at the moment is however on the Australian assets, which may prove more valuable than Andash anyway.
Since the acquisition of Jinka Minerals, Kentor has released the following JORC compliant resources:
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