KAU kicks off drilling at Victorian gold exploration asset

Our gold producing Investment Kaiser Reef (ASX: KAU) just started diamond drilling at its Maldon project in Victoria.

KAU’s drill program is the first time any company has drilled inside the old Union Hill pit where previous surface mining stopped in 1992.

Back then the gold price was ~US$300 per ounce (down ~66% from previous all time highs)

Now the gold price is trading near all time highs at US$3,450 per ounce…

(Remembering of course that commodity prices can be volatile and can go down as well as up for periods of time.)

KAU’s current drilling will be testing for extensions to the “Eaglehawk Reef” which alone produced ~491k ounces of Maldon’s total ~1.74M ounce production history.

KAU will be following up a drillhole that previously returned a 7.6m intercept with gold grades averaging 4.88g/t.

We like that KAU is drilling at its Maldon project for three main reasons:

1. Maldon sits ~4.1km away from KAU’s operating Victorian processing facility which is currently operating well below its capacity - meaning any new discovery could be put into production very close by (versus trying to build something from scratch)…
2. The EagleHawk reef which KAU is targeting is close to the existing decline (tunnel that goes underground at Maldon) - meaning any extensions to the reef should also be easier to access.
3. The market is very interested in Victorian gold exploration, with another ASX explorer Falcon Metals re-rating more than 10x off very narrow, high grade hits from ~544m to ~600m depths.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

That 1.2m hit at 543g/t gold was a real monster from Falcon, but we think that any repeat of the previous 7.6m intercept with gold grades averaging 4.88g/t at KAU’s project could bring with it some market attention to KAU.

Especially with how close KAU’s project is to its existing operating mill…

Falcon, for example, has no mine infrastructure or operating mill and is very early into the delineation phase at its discovery.

Falcon after raising $20M two weeks ago has a market cap now >$210M.

We think the market has set a precedent for how KAU’s Victorian assets could be re-rated by the market if exploration drilling delivers

KAU is currently capped at $113M (and has producing assets in Tasmania that produced ~4,069 ounces of gold inside a 1.5 month period)

Check out our take on KAU’s operating assets here: KAU early quarterly update: Record gold production… again. Now at a 46 day streak.

Why exploration success next to a nearby mill could be big for KAU

A great example of a company making a game changing discovery next door to its processing plant is ASX listed Spartan Resources (formerly Gascoyne Resources).

Spartan’s project in WA was also placed into care and maintenance (and even went into administration) - similar to KAU’s Maldon project…

In 2022 Spartan Resources drilled ~50m away from its existing JORC resource (which had been producing gold for years) and made a seriously high grade discovery…

That discovery took the Spartan share price from ~10c to a share price north of $2 per share…

Past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

We think KAU (with a lot of exploration luck) has the potential to deliver a valuation re-rate too.

KAU has a processing mill ready to go.

All it takes is one monster hit…

What’s next for KAU?

Cost optimisation and exploration at Tasmanian project (Henty) 🔄

The main thing we want to see at Henty is for KAU to increase production rates and optimise costs.

BUT at the same time we are looking forward to exploration drill results from the project.

KAU is currently drilling at Henty and has already hit a “108m intersection of strong alteration, indicating that the Henty style alteration extends 600m from the current known mineralisation”.

The main target for the drilling is to find extensions to the “Darwin Zone” which is where Henty has produced over 655k ounces of gold at average gold grades of 8.4g/t.

If we get big extensions to the south of that area and show that those numbers could be repeated into the future we think that will be a big win for KAU.

Here is a visual of where KAU is drilling (note those chequered sections “Darwin target zone” and “Darwin South”:

(Source)

Exploration program at Maldon 🔄

Now with KAU drilling at Maldon, we want to see the results from drilling.

Because KAU is drilling with a diamond rig, we could see early visuals with visible gold in drillcores (which is usually a good sign the company is hitting the right rocks).

The reason we think exploration success at Maldon could be material for KAU is because of how close it is to KAU’s operating processing plant AND because Maldon was previously home to Australia’s highest grade gold mine - Nuggety Reef - which produced ~301k ounces of gold at ~187g/t gold grades.

Although not guaranteed, a major discovery at Maldon (even 1/10th of the grades Nuggety produced at) could be a game changer for KAU primarily because of the proximity to a mill which is currently operating at 20% of its capacity:

Update on strategic review of A1 Mine 🔄

On Friday last week KAU announced a strategic review of its A1 Mine.

A1 is where KAU was producing most of its gold in Victoria, and at the time of our initial Investment we had high hopes for the project.

Last quarter A1 produced 756 ounces of gold, mostly from remnant ore (meaning it was from parts of the mine that had been accessed by previous owners of the project).

KAU has spent the last ~12-18 months drilling deeper and spending on development CAPEX to try and access parts of A1 that have never been mined in the past.

Then on Friday, KAU said “mineralisation identified in the recently reached mid to northern region of the Nova Zone is showing reduced alteration and less consistent and lower grade gold than in the levels immediately above it, resulting in lower mined grades”.

Which prompted KAU starting a strategic review of the asset to “assess a range of options to maximise shareholder value from the A1 operation”.

KAU did explicitly mention that no decision had been made on the asset yet…

But after the drilling campaign on the A1 mine earlier in the year KAU may want to allocate resources to the newly acquired Henty mine in Tasmania and exploration at the promising Maldon project in Victoria.