Digging deeperBy Tim Treadgold Published in Eureka Report on...

Digging deeper

By Tim Treadgold Published in Eureka Report on July 11
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PORTFOLIO POINT: Preliminary results from drilling at its South Boddington mine suggest Ausgold could be on to something big.

The last thing most visitors expect to find in the prime sheep and wheat country near the southern WA town of Katanning is a mineral-exploration drilling rig, let alone a fleet of six, grinding their way noisily into the rock beneath a stubble-covered paddock. But, in a few weeks time that will be the view at one of Australias more interesting gold projects, which has caught the eye of a few professional investors but is yet to make headlines.
Six rigs should lift the profile of the Katanning project and the company behind it, Ausgold, which 12 months ago was a true penny dreadful, whose share price was hovering around 12c and was market cap was below $10 million.
Interest in Ausgold started to grow late last year when it reported encouraging assays from a pilot drilling program beneath a pit abandoned by earlier explorers who had been chasing hints of gold first detected more than 100 years ago.
In the mid-1990s Glengarry Exploration made a serious attempt to develop a gold mining operation at the site, about 40 kilometres east of Katanning, digging a shallow pit and installing a small processing plant. It was defeated by the collapse of the gold price, which had sagged as low as $US250 an ounce. Modern exploration tools, better drilling technology, and a gold price of more than $US1500 has changed the outlook for Katanning and Ausgold, which has become one of the better-performing small gold stocks on the ASX.
What is driving Ausgold is not so much the assays being returned from the drilling program, which include an eye-catching 20 metres at 15.64 grams of a gold a tonne from a depth of 97 metres, but the possibility that the company is on to something very big. How big can be gauged by the ambitious name Ausgold is using for its sheep-paddock exploration, South Boddington, because its management team believes the geology near Katanning is similar to that of Newmont Minings giant Boddington mine, about 120 kilometres to the northwest and currently ranked as Australia's biggest gold producer.
Ausgold chief executive Benjamin Bell acknowledges the somewhat cheeky name for what he is chasing at Katanning, but adds that the ore genesis and geological setting are similar to Newmont's Boddington mine. If he is right, and it will take an awful lot of exploration to prove the claim, then Ausgold could be at the start of a meteoric rise because Newmont's monster contains at least 26 million ounces of gold, and will be in production for decades.
To get a better understanding of one of Australia's more interesting exploration projects, I set off on a four-hour drive from Perth to see firsthand what is happening at Katanning. The first impression is that Ausgold is working in one of the mineral world's most scenic locations, which is nothing like any other gold project in WA. Rather than being set in scrubby semi-desert, Bell and his team of young geologists are surrounded by an endless sea of farmland just starting to green from useful winter rains.
The only clue that there might be gold below comes in the final kilometres of the drive, just as the bitumen gives way to gravel at a location closer to the small town of Nyabing than Katanning. Before any drill rigs are sighted, a line of granite boulders comes into view running roughly north/south across a low hill. It is a sign that something occurred here a few billion years ago, but that's about all the information it reveals.
"The gold we are chasing is found alongside the granite, in an area where it has contacted the surrounding rock", Bell says during a walkabout near the busily-turning rigs. "We've been able to locate mineralisation of a substantial thickness and grade beneath the old Jinkas pit dug by Glengarry, and now we're extending our drilling along the line of strike".
A glimpse of what is being explored can be seen in the company's presentations, most of which need updating to accommodate the latest drilling results, although a starting point can be found at the company's website.
What Ausgold appears to have found is a depth extension of the structure mined by Glengarry in the 1990s, which it has extended using airborne magnetic and soil chemical sampling to outline a discovery stretching north/south by about 18 kilometres.
Peering over maps in an office left by Glengarry when it abandoned the site, Bell points to discolouration on a magnetic image of a stretch of WA's wheat belt covering more than 100 kilometres, seeing what he believes are future drilling targets all the way. For investors, those future targets are the classic blue sky that all exploration geologists think they see, but which only rarely yield the true discovery results that only come from drilling.
The focus today, and for at least the next year, will be along the line of granite that is acting as a signpost for Bell as he seeks gold-rich mineralisation created in two separate zones about 300 metres apart when the granite thrust its way up into older rocks. Apart from drilling close to Jinkas, Ausgold believes it is on to a significant area of high-grade gold at a site called Dingo, about 3.5 kilometres further south, where most of the rigs are currently working. They are testing rocks down to 250 metres, with several holes planned to go to twice that depth.
By small-company standards Ausgold is attempting a big company exploration project, budgeting to spend $20 million over a 12-month period in a major effort to unlock the geological secrets of South Boddington. If all goes well, Bell believes a preliminary gold resource statement could be ready by the end of 2011, with a start on a mine-scoping study early next year.
That, however, could be just the start of an interesting time for Ausgold because it has multiple drilling targets to pursue, and while farmers are cooperating today with the exploration work there is always the potential for a clash of culture when drilling rigs give way to the messy business of mining. Whatever the outcome, South Boddington makes Ausgold a stock to watch.