Ann: Chalice Upgrades regional potential at Zara , page-4

re: Ann: Chalice Upgrades regional potential ... October 20, 2009

Chalice Gold’s Eritrean Ground Offers Plenty Of Good-Looking Exploration Targets To Compliment The 944,000 Ounce Koka Development Property.

By Alastair Ford / www.minesite.com

There’s been plenty of activity on and around Chalice Gold’s Zara property in Eritrea recently, as Chalice chief Doug Jones explained when Minesite rang him up in his office in Perth for a chat the other day. Around a month ago the company sent some satellite imagery on Zara and the surrounding ground over to Peter Wilson, a well-known consultant in Perth, for analysis. That analysis duly showed up around 60 anomalies that are, according to the Chalice press release, “indicative of gold or base metal targets”.

That certainly makes for decent enough looking pipeline of work to run behind, or even in parallel with, Chalice’s flagship Koka deposit, which currently boasts an indicated and inferred resource of 944,000 ounces, most of which is in the indicated category. Upgrade work on Koka has been held up slightly by the non-arrival of the drill rigs the company was hoping to source from Pakistan. But new rigs coming down from Serbia are due on site within the next month or so, at which point work on moving the resource up to measured and indicated status will commence.

Despite that slight delay, the ongoing scoping study on Koka is continuing unabated. “The scoping study has been coming along”, says Doug. One of the early issues facing potential development at Koka will face will be access to water, but Chalice already has that well in hand. “The water drilling has been very successful”, says Doug. “Three bores have hit water and have sufficient water flows”. So that ticks that box, at least for now. In terms of metallurgy, progress has been good too. “We conducted some testwork in terms of hardness and grindability”, continues Doug, “and were pleasantly surprised by the results. It’s not going to be a tough rock to grind down”.

It’s a fairly coarse grind, too, so the current thinking is that a simple crushing and grinding operation with a ball mill will suffice for the front end of the plant, with around 60 per cent of the contained gold likely to be recovered via a gravity circuit. Overall, says Doug, with gravity and cyanide, recoveries ought to come in at around 95 per cent or better. It’s easy to see why Doug calls Koka “robust”. Those numbers are enough to tempt anyone in for a closer look.

It’s not all been happy news, though. A company surveyor and a government hydrologist on Chalice business were recently murdered when their car was ambushed by bandits while they were driving towards Keren, Eritrea’s second city. This tragic development has caused a major security rethink on Chalice’s part, and on the Eritrean government’s part too. That the murders didn’t actually occur on Chalice’s ground is no real consolation, and that such deaths are relatively rare in Eritrea isn’t either. As yet the precise motive isn’t clear, as nothing was stolen, although it’s thought that the killers may have been disturbed by the approach of another vehicle. A police investigation is ongoing.

Still, on a more prosaic level, investors in Chalice haven’t been overly spooked by the killings. That’s perhaps because the political risk discount for a place like Eritrea doesn’t necessarily get any greater just because events show that investors were right to apply a discount. More significantly from the perspective of the share price has been Chalice’s progress in consolidating the Zara ground such that it now holds 80 per cent of the title, with partner Dragon holding the rest. As that consolidation process, involving the absorption of previous title-holder Sub Sahara, continued, Chalice’s shares have risen fourfold.

Chalice has made no secret of its desire to go up to 100 per cent on Zara, but Dragon, it seems, is quite happy to sit on its 20 per cent and watch the value grow. A strengthening gold price has also been helpful, as perhaps, has Chalice’s immunity from the Aussie dollar costs that most of its peers on the ASX are either currently facing or looking to face in the future. It’ll be interesting to watch what happens next.