De Grey Mining looks to expand empire with strategic acquisition of Kalamazoo’s Ashburton gold project in Pilbara

De Grey Mining (ASX: DEG) looks set to acquire Kalamazoo Resources’ (ASX: KZR) Ashburton gold project in Western Australia’s Pilbara region as a key part of its future growth plans.

Operator of the rich Hemi project, one of Australia’s largest recent gold discoveries, De Grey is adding Ashburton’s 1.44 million ounces – one of the largest unmined gold resources in the Pilbara outside of Hemi – to its portfolio.

The company says it is already investigating the potential to truck ore from Ashburton, located approximately 290km south of Hemi, for potential processing at the Hemi processing plant.

De Grey managing director Glenn Jardine said the Ashburton project represents an important first step in De Grey’s long-term growth plans and emphasises the strategic importance of the Hemi pressure oxidation (Pox) processing plant located within trucking and shipping distance of the plant and wharf facilities at Port Hedland.

“The proposed 10 million tonnes per annum gold plant at Hemi, including a 0.8Mtpa POx circuit, will be a regionally strategic asset that provides the company with the potential to treat gold ore and concentrates from other regional gold projects,” Mr Jardine said.

“This leverage has the potential to increase Hemi’s annual gold production rate, economic returns and project life.”

Option agreement details

The acquisition is being made via an option agreement being undertaken through two tranches and features an upfront $3m fee payable to Kalamazoo within five business days of the option being executed.

The option period is 12 to 18 months (at De Grey’s election) with De Grey to commit a minimum of $1m in expenditure to exploration, test work and studies on Ashburton as part of its due diligence program.

Exercise of the option, which is at De Grey’s election following or during the option period, would result in an initial payment of $15m and an additional $15m within 18 months of exercise.

Previous mining history

The Ashburton asset has a previous mining history, an extensive drilling database and development concept studies that indicate it may be complementary with De Grey’s development strategy for Hemi.

“The company’s current scoping study into its 2.2Moz Hemi regional resource is also consistent with this strategy,” Mr Jardine said.

“However, the potential development of additional production sources outside the Hemi deposits would occur only following the commencement of production and cash flow from Hemi itself.”

In February 2023, Kalamazoo reported an independently-reviewed joint ore reserves committee mineral resource estimate (MRE) for Ashburton of 16.2Mt grading 2.8 grams per tonne of gold for 1.44Moz.

The MRE covers five deposits – Mt Olympus, West Olympus, Zeus, Peake and Waugh – with Mt Olympus accounting for 977,000 of the contained ounces.

Ashburton historically produced approximately 350,000oz of gold between 1998 and 2004, with production reportedly coming from 3.2Mt of oxide (and minor transition) ore at an average grade of 3.3g/t.

Data consolidation

De Grey plans to consolidate all previous geochemical, geophysical and drilling data at Ashburton for a detailed review to identify resource extension and exploration priorities.

Preliminary drilling of initial targets will be undertaken in 2024 and development potential will be assessed in detail with a key focus on metallurgy, geotechnical studies and costs.

Notably, significant exploration infrastructure remains at the site, including a self-contained camp, drill core farm and supporting infrastructure.

The gold processing facility at the site was sold in 2006, then disassembled and transported to another site, with site rehabilitation completed in 2007.

Initial programs

De Grey’s planned initial work programs include geological mapping and relogging to update the geological and structural model at Mt Olympus, along with drilling of twin holes to confirm grade and continuity from previous work.

The company said drilling of metallurgical holes and associated test work to assess the metallurgical characteristics of the mineralisation, as well as its potential recoveries and performance within the Hemi processing circuit will also be an important component of the work scheduled.