South Kal Project, Kalgoorlie

The South Kal tenements are located in the eastern goldfields of Western Australia, between Kalgoorlie and Kambalda and yield an annual production of around 80,000oz of gold.

At the end of July 2007, Harmony Mining agreed the sale of the South Kal Project to Dioro Exploration, in a combined cash/scrip deal amounting to a total consideration of around A$45m (R270m). The full asset package includes the existing Jubilee 1.2mtpa mill, three years of reserves at the current production rate and an estimated resource inventory of approximately 1.878 million ounces.

In October 2007, Dioro shareholders approved the deal, which gives Harmony A$25m (R150m) in cash and shares to a deemed value of A$20m (R120m).

The acquisition includes at least 2,000 ounces of gold in circuit, $2m in consumables and approximately $2.2m to replace a number of environmental bonds.

GEOLOGY

The lode is sub-vertical and hosted within a gabbro unit, which is itself bounded by ultramafics with late porphyry intrusions. The Shirl deposit was originally discovered by drilling an aeromagnetic anomaly beneath otherwise apparently barren surface geochemistry. While previous finds had always exhibited some surface signature indicative of a subterranean orebody, Shirl demonstrated that the area is home to significant underground orebodies which lack discernible surface geochemical signatures – a finding which has significant implications for exploration.

The resource remains open at depths below the existing intercepts – including 21m at 8.3g/t Au from 220m – while data supports the hypothesis of a northerly incline towards high grade mineralisation and a main lode strike increasing with depth.

EXPLORATION

South Kal first achieved on-mine exploration success with the identification of the 121,000oz Shirl resource. This was an important discovery, since not only did it provide feed to the mill, but it also opened up potential targets for exploration which had previously been considered non-prospective. Prior to the sale, Harmony had begun work to investigate along the strike and down dip; following up on the quality indications of previous drill holes, including 16m at 4.9g/t from 267m, 21m at 8.5g/t Au from 241m and 2m at 16.8g/t Au from 334m.

Exploration was also planned to look at the larger base load targets along the main Boulder Lefroy Fault, which also hosts the Hampton Boulder Jubilee pit, Gold Field’s St Ives’ orebodies to the south and Kalgoorlie’s Super Pit to the north. Harmony’s stated intention had been to mine around 50,000oz of ore during the 2007 financial year, hauling it the 35km to the Jubilee mill, with a $3m budget having been approved for the exploration work.

THE FUTURE

Acquiring the South Kal Mine has been described as a ‘company maker’ for Dioro, allowing it to gain producer status at a stroke. The new asset complements the interests the company already has in the region: Penfolds and Frog’s Leg. This makes Dioro one of the largest tenement holders in the Kalgoorlie area, with a total JORC compliant resource inventory amounting to 2.6 million ounces of gold.

In addition, milling costs in the region are high, and the provision of new facilities is hampered by prohibitive construction costs and long lead times. Having secured the South Kal 1.2mtpa mill at relatively low cost, Dioro feels it has gained a major competitive advantage.

The mill is well placed to benefit from the need for milling capacity likely to arise from a number of adjoining third-party workings, which will be coming into production in the next few years. This, coupled with the new mill’s convenience for processing its own expanded ore production, should significantly impact on profitability.

Plans are being developed to supplement the current reserve base by a series of aggressive exploration programmes on the highly prospective land parcel extending to more than 1500km², spread over both South Kal and the adjacent Penfolds project.