Kingston Resources to Focus on Mineral Hill Near-Mine Drilling after Pearse South Setback

Kingston Resources (ASX: KSN) has paused underground development and delayed the start of underground production at the Mineral Hill gold-copper project in New South Wales after a wall failure in the Pearse South open pit last week.

Tension cracks in the open pit’s sole access ramp were identified by crew members and mining was immediately suspended, with all equipment and staff removed from site.

The cracks continued to open in the following days, resulting in vertical slumping of the access ramp and making it unsafe for use.

An intensive geotechnical assessment attributed the instability to a soft graphitic shale recently uncovered in the base of the pit that had interacted with structures and been exacerbated by rainfall.

Pearse South Mining Closure

As remediation options could take several weeks to complete and a ramp re-design could potentially sterilise a significant amount of the remaining ore, Kingston confirmed it would not resume mining at Pearse South.

“We have evaluated the potential restart of mining the Pearse South open pit and it is now evident that the risks and costs of regaining access outweigh the benefits of mining the remaining ore at this time,” the company said.

It is the second geotechical incident in less than 12 months at Pearse South, which was originally scheduled to be mined for another four months to produce approximately 100,000 tonnes of ore before permanent closure.

The closure, related staff redundancies, and fleet demobilisations have been estimated at $5 million with an estimated gross revenue reduction of approximately $39m for the June quarter.

Kingston currently has $9.45m in unrestricted cash at hand and will receive a $10m cash payment in July via deferred consideration from the early-2025 sale of the historical Misima gold project to Papua New Guinea’s Ok Tedi Mining.

Strategic Pivot to Drilling

Kingston has been forced into a strategic pivot to maximise the value of Mineral Hill against the cashflow impact of the Pearse South incident.

The board has announced it will pause underground development and delay the start of underground production in favour of intensive resource and near-mine drilling.

The 25,000-metre campaign will employ a full-time underground diamond rig with surface diamond and reverse circulation rigs focused on depth and strike extensions at the Southern Ore Zone (SOZ) and footwall, the Jack’s Hut-Iodide Link Zone, the Jack’s Hut-EOZ Link Zone, and the new Parker’s Hill East target.

The data will inform measured and indicated resource updates at SOZ and Jack’s Hut, along with an expansion of the processing plant to 700,000tpa and the delivery of a larger ore reserve to support underground mining.

Long-Term Underground Future

Kingston managing director Andrew Corbett said that, despite the “disappointing circumstances”, the company was working to realise the full potential of Mineral Hill.

“Underground has always been the long-term future of this project and we are moving at speed to expand the resource, reserves and overall potential of the underground operations,” he said.

“We are confident this is the best strategy to build a stronger, more resilient Mineral Hill that delivers lasting value for our shareholders, our people and our local communities,” he said.

“This new direction provides an opportunity to reset and realise the full potential of Mineral Hill through the drill-bit—we are undertaking the first large-scale exploration program since the 1980s, providing the pathway to materially increase our underground resource and reserve base and derisk the restart of an enlarged, long-life copper and gold focused operation at Mineral Hill.”

$11.6m Capital Raising

The strategic pivot will be supported by an $11.6m capital raising that will consist of a $2.55m share placement to Kingston investors via the issue of 36.4 million new shares priced at $0.07 each, along with a $9.1m entitlement offer on the basis of two new Kingston shares for every 13 shares held.

The issue price represents a 19.5% discount to the last closing price of $0.087 and a 18.9% discount to the five-day volume weighted average price of $0.086.

Largest shareholder Farjoy has agreed to sub-underwrite the entitlement offer up to $8m, while Kingston chair Mick Wilkes and non-executive director Stuart Rechner have committed to take up their entitlements in full, representing 900,000 shares for $65,000.

Farjoy’s current 17.6% equity in Kingston will increase to 19.7% after the placement, and potentially 28.5% if eligible shareholders do not take up their entitlements.

Funds from the capital raising will be used for the drilling campaign, resource and ore reserve updates, redundancy and fleet demobilisation costs, care and maintenance costs, and general working capital purposes.