Kingsgate Consolidated (ASX: KCN) has settled a New South Wales Supreme Court case against its political risk insurers, including Zurich Australia Insurance Limited, for more than $82 million.
The case involved the alleged illegal expropriation in 2016 of Kingsgate’s Chatree gold mine by the government of Thailand.
Kingsgate today entered into a heads of agreement with its insurers which will provide for the hefty settlement comprising a cash payment of $77 million payable by mid-April which will be used to pay out Kingsgate’s corporate debt facility in full and provide liquidity to maximise the value of its Nueva Esperanza project in Chile through further development or sale.
The HoA also includes a compulsory $4.93 million contribution by the insurers towards the Thailand-Australia Free Trade Agreement (TAFTA), paid to Kingsgate on a pro-rata basis; as well as a sharing arrangement between all parties for future distribution of proceeds from the Chatree claim.
TAFTA outlines standards of treatment and protections for Australian investors in Thailand, and gives investors the right to refer disputes relating to the covered investments to international arbitration.
Kingsgate executive chairman Ross Smyth-Kirk said today’s settlement had been a long time coming.
“I realise it has been a long recovery process for our loyal shareholders, but this settlement transaction provides material upside for our company,” he said.
Kingsgate commenced international arbitration proceedings against Zurich and other named insurers in October 2017, after a May 2016 claim under a political risk insurance policy held by the company was denied.
The policy, which included confidentiality provisions, had a maximum liability limit of $281 million and provided coverage for events such as “expropriatory acts” which are in violation of TAFTA.
As part of its lawsuit, Kingsgate claimed the Thai Government’s decision to “unlawfully expropriate” the Chatree mine in 2016 led to Kingsgate suffering substantial loss and damage pertaining to a permanent deprivation of its assets in Thailand.
Kingsgate maintained the expropriation was not accompanied by “prompt, adequate and effective” compensation required under TAFTA, nor was it carried out under due process of law, was non-discriminatory – all conditions which must be satisfied for an expropriation to be considered lawful.
The company initially engaged in negotiations with the Thai Government to resolve the dispute as part of a TAFTA claim; however, these extended beyond the three-month period recommended under TAFTA.
When it became clear that no satisfactory resolution of the TAFTA claim could be achieved, Kingsgate commenced international arbitration against Thailand under TAFTA.
At mid-afternoon, shares in Kingsgate were trading 53.33% higher at $0.230.