Tanzanian Royalty zeroes in on Kigosi

Gold exploration in Tanzania is about to get a shot in the arm as Tanzanian Royalty Exploration (TNX-T, TRE-X) of Surrey, B.C., gears up for a $6-million drilling program aimed at its Kigosi property in the Lake Victoria goldfields.

The aggressive stab at in-house exploration is a departure from the junior’s traditionally conservative strategy of farming out properties in exchange for work commitments, property payments and a royalty, should the property reach production.

“Kigosi evolved a little faster than some of our other projects,” says David Duval, a corporate adviser to the company speaking on behalf of chairman and CEO Jim Sinclair, who declined to be interviewed for this story. “We got some joy there fairly quickly, so we decided to develop the project ourselves.”

Last November, Tanzanian Royalty reported some of the highest grades ever intersected at Kigosi, including a peak value of 101.25 grams gold per tonne (3 oz. per ton) over 1 metre within a wider intersection of 9 metres grading 11.93 grams gold (0.35 oz. per ton) on the Bateleur gold shoot.

Tanzanian Royalty repurchased rights to the property, comprising 16 prospecting licences on the north end of the Kigosi game reserve, from AngloGold Ashanti (AU-N) in late 2006 for about $1 million. The junior had owned Kigosi through its predecessor Tan Range Exploration, but had optioned the licences to Ashanti.

Following the repurchase, Tanzanian Royalty drilled more than 3,000 metres in 311 reverse-circulation (RC) holes. The campaign confirmed the presence of seven shallow gold shoots at Kigosi, including the newly discovered Goshawk shoot. Two shear zones that host the shoots have been traced along a strike length of 1.6 km and remain open towards the northwest.

Kigosi has become such a priority for the company in recent months that president John Deane is focusing his efforts there exclusively. Patrick Charles, former assistant to the senior vice-president of exploration for Anglo American’s (AAUK-Q) acquisition division, has been appointed Tanzania-wide exploration manager.

Rather than follow the conventional route and dilute the company with a public equity offering, Tanzanian Royalty has taken the unusual step of calling upon Washington-based Scowcroft Group to scout out a private partner to finance the ambitious exploration campaign at Kigosi.

Managed by Brent Scowcroft, former National Security Advisor to President George H.W. Bush, Scowcroft bills itself as an international business advisory firm whose principals and consultants “reach into governments and businesses worldwide, enabling (Scowcroft) to represent clients in virtually every market.”

Scowcroft’s usual clients are industry leaders in the telecommunications, insurance, aeronautics, energy and financial products sectors.

“Jim has a longstanding relationship with one of Scowcroft’s partners and that’s the reason they agreed to take on the assignment,” Duval says.

Tanzanian Royalty estimates it will cost roughly $25 million to bring Kigosi to the feasibility stage, with Sinclair willing to finance the whole effort if necessary. He has already committed to buying a new diamond drill that will complement the company’s existing RC drill.

Negotiations between Sinclair and a Middle Eastern group interested in bankrolling Kigosi in exchange for a share of the property are ongoing, with Scowcroft acting as middleman.

Sinclair was instrumental in securing Bulyanhulu, one of the largest underground gold deposits in the world, for Sutton Resources in the 1990s. After an aggressive exploration campaign, Sutton sold Bulyanhulu to Barrick Gold (ABX-T, ABX-N) for about $500 million in 1999. Located northeast of Kigosi in the Lake Victoria goldfields, Bulyanhulu now produces more than 300,000 oz. gold per year.

Later, with a keen interest in Tanzania and the ear of President Jakaya Kikwete, Sinclair vended his Tanzanian assets into Tan Range Exploration, which evolved into Tanzanian Royalty. He has put about $16 million of his own cash into the new venture, rarely turning to the market for financing. According to the latest information circular, Sinclair owns about 3.4% of Tanzanian Royalty.

First and foremost a precious metals specialist and commodities trader, Sinclair has a loyal following of gold investors in North America and a reputation for accurate gold price forecasts. In a recent entry on his website (www.jsmineset.com),

Sinclair predicts gold will soon be trading at US$1,650 per oz., unless the recent turmoil in equity markets calms down.

Tanzanian Royalty is also hoping to cash in on properties that are subject to royalty agreements with companies such as MDN Inc. (MDN-T) of Montreal, part owner of the Tulawaka gold mine in Tanzania, Sloane Developments, a private U.K.-based company, and Barrick.

MDN is looking for new sources of feed for the Tulawaka mill and has been reporting promising results from two of Tanzanian Royalty’s properties in the area. Tulawaka is a 70-30 joint venture between Pangea Goldfields, a wholly owned subsidiary of Barrick and MDN. The mine, 120 km west of Bulyanhulu, produced 139,655 oz. gold in 2006 at a cash cost of US$279 per oz.

Sloane recently drilled Tanzanian Royalty’s Itetemia project adjacent to Bulyanhulu to improve the confidence level of the gold grades within the Golden Horseshoe Reef down to the 200-metre level. The private company is expected to complete a National Instrument 43-101 report on Itetemia, where the reef has been traced to a vertical depth of about 440 metres and shows open-pit potential.

Sloane’s agreement with Tanzanian Royalty calls for a work commitment of US$1 million within a 2-year period, of which $400,000 is to be spent in the first year and the remainder in the second year.

Meanwhile, Tanzanian Royalty’s significant nickel assets in the Kabanga/Kabera nickel belt have roused the interest of Chinese investors. Scowcroft is helping the junior negotiate an agreement with the Chinese on 12 licences comprising the entire 4,482-sq.-km portfolio of nickel licences held by Tanzanian Royalty in the belt.

Investors must be pleased with the latest developments: at presstime, shares of Tanzanian Royalties were trading at $6.25, up about 30% from last summer’s low of $4.72. –The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Communications ( www.geopen.com ).