Kingsgate Consolidated has kicked off legal proceedings against the Thai government to recover “substantial” losses suffered from the premature closure of its Chatree gold mine last year.

Kingsgate (ASX:KCN) said it was forced to take legal action since it had been unable to achieve any settlement with the government over Chatree’s closure.

Chatree was closed after the Thai government decided not to renew the metallurgical licence after 2016. Kingsgate’s lease for Chatree was due to run to 2028.

The decision was based on unsubstantiated reports of environmental damage and public health impacts due to the operation.

Kingsgate stated on numerous occasions that the claims were false. Chatree had not been responsible for environmental incidents, pollution or health effects on local population or its workers, the company said.

Chatree was Thailand’s biggest gold mine, employing almost 1000 workers. The open-cut mine began production in 2001.

“The Board of Kingsgate considers that the Company has excellent prospects of successfully recovering very substantial damages against the Kingdom of Thailand, and will vigorously prosecute its claim,” Kingsgate executive chairman Ross Smyth-Kirk told investors.

The action could take an undetermined time to resolve and involve significant costs with no guaranteed outcome, Mr Smyth-Kirk warned.

However the matter could still be settled on mutually agreed terms at any point.

Law firm Clifford Chance will represent Kingsgate.

Arbitration proceedings will take place under the Thailand-Australia Free Trade Agreement (TAFTA).

TAFTA was signed in 2004 to promote and improve the environment for bilateral services, trade and investment between the two countries.

The agreement provides rights to Australian investors in Thailand, including the right to seek impartial resolution of disputes with the Thai government relating to investments by way of arbitration before an international tribunal.

Today’s news comes after Kingsgate earlier this month began legal action over a $US200 million ($255 million) political risk insurance policy it was denied when Chatree was closed.

Kingsgate shares gained 2 per cent to 44c in Thursday afternoon trade.