An option for De Grey Mining (ASX: DEG) to buy Kalamazoo Resources’ (ASX: KZR) 1.44 million-ounce Ashburton gold project in Western Australia’s southern Pilbara region for a cool $33 million is gaining momentum, with the former putting staff on site for due diligence assessment.
After signing the 12-month option agreement in February, De Grey has been conducting its due diligence studies that include diamond drilling at the Mt Olympus deposit in a bid to obtain metallurgical samples. The drilling program is understood to be advancing well, with seven out of 10 planned holes already completed.
The work has been complemented by the recovery and analysis of historical drill-core samples, aerial drone photography and geotechnical studies.
De Grey, a Western Australian mining giant with a $2.9 billion market cap, has already paid a non-refundable option fee of $3 million and if it decides to exercise its plans – which it can do at any stage – the company will pay an additional $30 million, either in cash or shares, to complete the acquisition.
We are delighted to report that as part of the Ashburton Gold Project sale process, De Grey is on site and making significant progress towards completing its due diligence studies. The outcome for Kalamazoo would be consistent with our strategy of identifying, acquiring and discovering projects which we can enhance and thereby create tangible shareholder value.
Kalamazoo Resources CEO Dr Luke Mortimer
The Ashburton resource is made up of ore from four deposits and sits at 16.2 million tonnes grading 2.8 grams per tonne gold for the 1.44 million ounces across the indicated and inferred categories.
Part of the rationale behind Kalamazoo’s decision to sell the asset is that the company would not be exposed to longer-term development and financing risks inherent in a big new mining project during the currently challenging economic times. It also plans to use the funds to continue its exploration efforts and perhaps, the acquisition of new projects.
Another particular focus for the company is its 80 per cent-owned Mallina West gold project in the Pilbara. The tenements sit on 484 square kilometres of ground, which it sees as highly-prospective for intrusion-related “Hemi-style” gold deposits, similar to that seen at De Grey’s flagship Hemi project, 50km to the north-east.
Kalamazoo recently identified several gold targets along the same major shear zone as Hemi using magnetic and gravity surveys and 3D magnetic modelling from previous work done at site. In particular, one such target has married up with an earlier high-grade bottom-of-hole intercept of 10.35g/t across a 1m width at the Wattle Plains prospect.
The gravity and aeromagnetic anomaly has been defined as an intrusion-related target and will be the focus of some intense exploration going forward.
If De Grey pulls the trigger, an acquisition of the Ashburton gold project is set to benefit both companies. From De Grey’s perspective, the project would integrate well into its existing operations and from Kalamazoo’s viewpoint, the cash would provide for a rapid expansion of drilling activity as it looks to develop its next cab off the rank.
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