Kingsgate Consolidated shares fell more than seven per cent on Thursday despite assurances that its underperforming Challenger mine is on track.

Australia’s second-biggest gold producer said it expects to produce more than 200,000 ounces of gold this financial year, after a big jump in profit and record sales.

The company reported a net profit of $75.2 million for the year ending June 30, well up on the $20.9 million on the previous corresponding 12 months.

Managing director Gavin Thomas said the turnaround at Challenger was taking longer than hoped.

“We have had a difficult time at Challenger,” Mr Thomas said.

“We have a contract that’s underperforming with a development shortfall and that’s mainly due to equipment availability and a lack of experienced operators.”

But he said there had been good collaboration between all the parties, leading to new management at the Challenger site in South Australia.

“Contractors have accepted these issues and we can see right now green shoots.”

Production at the Challenger gold mine in fiscal 2013 is expected in the range of 80,000 ounces to 90,000 ounces, in line with 2012 production.

But the first half of fiscal 2013 would be weaker than the second half.

Earlier this month Kingsgate said it would take six months to turn around its Challenger gold mine, which it acquired in February 2011.

Shares in the gold miner closed 37 cents, or 7.4 per cent, lower at $4.62 as the broader market slumped by around one per cent amid weaker commodities prices.

Kingsgate said its full year financial performance was driven by record gold sales of 204,145 ounces, up 78 per cent from the prior year, and a higher average realised gold price of $US1,663 ($A1,614) per ounce.

Higher gold production came from an increase at its Chatree operation in Thailand following the expansion of processing facilities there and 12 months of operations at Challenger mine.

The expanded plant at Chatree would lead to an increase in gold production of between 120,000 and 130,000 ounces.

While current market conditions were not good, Mr Thomas expects the gold price to increase in coming months.

He added that the company was in a good debt position and an equity issue would be “the very last option”.

RBS Morgans director of equities Bill Chatterton said resources companies dragged the Australian sharemarket lower on Thursday.