DIORO Exploration has become an instant gold producer with the...

DIORO Exploration has become an instant gold producer with the acquisition of Harmony Gold's South Kalgoorlie mining operations in Western Australia in a move managing director Rhod Grivas called a "company maker".

The Perth-based junior announced this afternoon it had signed a conditional agreement with Harmony to acquire a 100% interest in the South Kal project in a cash and scrip deal.

The South Kal project includes the operating Jubilee mill, which has a 1.2 million tonne per annum capacity, three years of reserves at current production rates, and a resource inventory of 1.878 million oz of gold.

The company announced that securing the mill was a boon for the company as it will create costs savings for the development of the Frog's Leg project, and a potential revenue stream from contract milling ore from other projects nearby.

Dioro, which picked up the Penfold project from Harmony a year ago, also said that following the South Kal acquisition it will have a total JORC-compliant resource inventory of 2.6Moz across its tenements.

Consideration for the project is about $45 million, with Harmony Gold receiving $25 million in cash and an additional 160 million Dioro shares, worth around $20 million. The shares will be held in escrow for 12 months.

The acquisition includes 2000oz of gold in circuit, and $2 million in consumables and around $2.2 million for the replacement of environmental bonds, Dioro added.

Dioro said the acquisition will also allow ore from the company's other projects, such as its 49% stake in the Frog's Leg mine and the ore reserves at the Penfold gold project, to be processed through the South Kal mill.

The company said the acquisition would cost it a cash outlay of $14 per oz of gold produced and total consideration of $24/oz gold.

Dioro managing director Rhod Grivas said the acquisition was an outstanding deal for the company and would be a "company maker" for Dioro.

Alongside the reserves and mill, the deal will also give the company a 1500 square kilometre land package at the combined South Kal and Penfold projects, and Grivas told MiningNews.net that it was a great deal for his company.

"Dioro is in a perfect position – it's on the growth path, it's got its 49% interest in Frog's Leg, and it needs somewhere to feed those resources," he said.

"We need all the staff, we need the mill, we've already got some of the exploration ground through the acquisition of Penfold, so it's just a win-win."

Grivas said that alongside the mill acquisition and the tenements, Dioro would also be hiring the staff who work at the South Kal project.

"They are a major asset, so we're here [in Kalgoorlie] talking to them at the same time as we made the release," he said.

"We are very fortunate that we can take these staff from harmony and re-employ them, we're very fortunate that we're half an hour from Kalgoorlie and that these staff are attracted to Kal because of the proximity to a wonderful town like Kalgoorlie."

Additionally, Ghrivas said the cash component of the acquisition would be funded by a capital raising of at least $35 million, with additional funds from the capital raising to go to the Frog's Leg development, working capital at South Kal and an "ambitious" exploration plan.

"Harmony were very good at what they did but they weren't a greenfields exploration company. We still see a huge opportunity here to build on the resources and make new discoveries," he said.

Shares in Dioro gained 1c on the back of the announcement to close at 14.5c