De Grey Mining
(ASX:DEG) has entered into an exclusive option deal with Kalamazoo Resources to potentially acquire the Ashburton gold project in WA's Pilbara. If the deal goes through, De Grey will need to pay a total of $30 million to gain control of the Ashburton prospect, which has a history of gold production.
The deal involves a $3 million upfront option fee payable to Kalamazoo within five business days of the option execution by De Grey. Ashburton comprises granted mining leases and exploration licenses, including Kalamazoo's existing 1.44 million ounce gold resource, covering 217 square kilometers located 290 kilometers south of De Grey's 12.7 million ounce Hemi gold prospect, southwest of Port Hedland.
The option period ranges from 12 to 18 months, at De Grey's discretion, with De Grey committing to spend a minimum of $1 million on exploration, testwork, and studies as part of its due diligence on Ashburton, a 1.2 million ounce gold prospect.
De Grey revealed that "Ashburton historically produced approximately 350,000 ounces of gold between 1998 and 2004," primarily from 3.2 million tonnes of oxide (and minor transition) ore at an average grade of 3.3g/t Au1. The majority of the gold came from the Mt Olympus deposit, which produced 242,000 ounces of gold from 2.5 million tonnes at an average grade of 3g/t Au, with a recovery rate of 92% and a strip ratio of 3:1.
In February 2023, Kalamazoo reported an independently reviewed JORC Mineral Resource Estimate ("MRE") for Ashburton of 16.2 million tonnes grading 2.8g/t Au for 1.44 million ounces, spread across five deposits – Mt Olympus, West Olympus, Zeus, Peake, and Waugh, with Mt Olympus contributing 977,000 of the contained ounces.
De Grey stated that it has established separate business development and studies teams, distinct from the Hemi Project development team, to conduct the due diligence on Ashburton.
Exercising the option "following or during the Option period would result in a payment of $15 million and an additional $15 million within 18 months of exercise. Payments can be made in cash or De Grey shares, at De Grey's discretion."
De Grey indicated that preliminary due diligence suggests the potential to economically deliver concentrate from Ashburton to the proposed Hemi pressure oxidation (“POx”) plant in the future, potentially increasing Hemi's annual gold production rate and/or extending its operational life. With a potential acquisition cost of under $25 per ounce of gold, Ashburton represents an attractive opportunity for De Grey in consolidating regional opportunities around Hemi.
De Grey CEO Glenn Jardine commented on the agreement, emphasizing the strategic value of the proposed 10 million tonne per annum gold plant at Hemi, including an 800,000 tonnes per year POx circuit, which could potentially treat gold ore and concentrates from other regional gold projects, ultimately increasing Hemi's annual gold production rate, economic returns, and project life. However, this would only happen after Hemi becomes a producing mine, likely after 2026.
