Akara Mining Ltd, a gold-mining company, is negotiating with a prospective Thai partner to take a 51-per-cent stake in its Chatree gold mine operation by November to comply with a Board of Investment ruling.

The company also plans to increase its investment budget to Bt4 billion to better exploit gold deposits in Phichit and Phetchabun after the government approves nine new mining leases in the two provinces, said Gavin Thomas, the company's president.

Akara Mining is a wholly owned subsidiary of the Australia-based Kingsgate Consolidated Ltd mining company. The company was initially a partnership between Kingsgate Consolidated and Banpu Plc, a local coal mining firm and power generator. However, Banpu dropped its stake in 2000 because it wanted to concentrate on its core energy business. The Board of Investment of Thailand allowed Kingsgate to keep its 100-per-cent stake for five years, but required the Australian company to cut its stake to 49 per cent by the end of November.

TMB-Macquarie Securities (Thailand) Ltd, a financial adviser and investment banker, is acting as adviser in the search for a partner.

"We cannot disclose the name of the new partner, but we believe it will be finalised in November," said Thomas, who is also CEO of Kingsgate Consolidated.

Surapol Udompornwirat, executive vice president of Akara Mining, said funds from the stake-sale would help pay for the investment plan. He said he expected the prospective investor to draw its funds from a combination of debt and equity sources.

However, the company will also secure financing from banks and bonds, he said.

He said the company is applying for nine mining leases from the government. If approved, the leases will cover 2,600 rai. The company studied the area and estimated it contains 3.8 million ounces (107.73 tonnes) of usable gold. However, it said that only 1.5 million ounces are expected to be high quality.

Referring to the possibility that the government could increase its royalty on gold mining, Thomas said few countries have such fees. He said foreigners would be disinclined to invest in Thailand if the government increased its fee beyond the current rate of 2.5 per cent of the market value of the gold at the time of export.

He said Kingsgate Consolidated had invested US$133 million (Bt4.99 billion) in Akara Mining's Chatree Gold mine operation, though its annual cash flow is $110 million. However, Kingsgate Consolidated plans to continue reinvesting in Akara mining, so the company's cash flow is likely to remain negative until 2010.

One downside to the recent spike in gold prices is that Akara is bound by futures contracts traded in the global commodity exchange, said Surapol. Thomas said Akara sold its gold at $355 per ounce, although the average price has been $525 per ounce over the past 12 months. However, the government royalty fee is based on the spot gold price, which is currently $615.

Chalida Ekvitthayavechnukul

The Nation