Keegan rising on Esaase results

VANCOUVER — With the price of gold continuing to climb and a 50,000-metre program steadily expanding the gold deposit at its Esaase project in Ghana, Keegan Resources (KGN-T, KGN-X) has seen its share price climb 55% since July to reach the $8 range.

Keegan published a preliminary economic assessment (PEA) for Esaase in April. Before the report was completed the company had already embarked on the next round of exploration at the 73-sq.- km property, which entailed 50,000 metres of step-out and infill drilling using two drill rigs.

The latest results stem from holes testing for updip and downdip extensions to the existing resource. The downdip work returned several promising results. Hole 831 cut 100 metres grading 0.78 gram gold per tonne, starting 178 metres downhole and including 1 metre of 23.7 grams gold. Nearby, hole 832 hit 40.1 metres averaging 1.54 grams gold from 235 metres depth, including 1 metre of 15.95 grams gold. And hole 862 intercepted 16 metres of 5.42 grams gold from 123 metres depth, followed by 43 metres of 1.81 grams gold from 277 metres depth.

Earlier drilling testing for downdip potential in the northern half of the deposit returned similar results, such as 53 metres of 3.01 grams gold, 72 metres of 1.88 grams gold, and 134.8 metres of 1 gram gold.

An earlier set of holes, released in September, probed a new area at Esaase known as D-1. The Esaase resource stretches along 2.5 km of northeast strike; the D-1 zone is 200 metres west of the north end of the deposit. The near-surface zone returned such intercepts as 18 metres of 1.16 grams gold from 40 metres depth, 9 metres of 5.65 grams gold from 25 metres depth, and 6 metres of 3.3 grams gold from 24 metres downhole.

Keegan is also stepping out north of the resource along strike, with success. Results from the northern extension area include 5 metres of 6.49 grams gold, 10 metres of 1.58 grams gold, and 6 metres of 2.09 grams gold, all within 100 metres of surface.

The resource at Esaase currently stands at 58 million indicated tonnes grading 1.2 grams gold plus 41.7 million inferred tonnes averaging 1.2 grams gold. Infill drilling designed to upgrade the resource confidence is returning results in line with those resource numbers, such as 42.9 metres grading 2.12 grams gold, 122 metres of 1.02 grams gold, 98.1 metres of 1.43 grams gold, and 6 metres of 8.68 grams gold.

The Esaase project lies on the Asankrangwa gold belt in southwest Ghana, 35 km from Kumasi. Kumasi is Ghana’s second-largest city and the capital of the Amansi West region. The deposit outcrops at the top of a hill and dips moderately to the northwest. Gold is hosted in highly deformed Birimian metasedimentary rocks that contain sheeted and stockwork quartz veins.

Artisanal miners have been tapping into the gold at Esaase for years and the effort has already produced some 500,000 oz. gold.

The April PEA predicted Esaase could produce 243,000 oz. gold annually for the first three years of operation. Over its 10-year mine life the operation would produce 2 million oz. gold, at an average cash cost of US$452 per oz.

For the first two years an Esaase mine would process 18,000 tonnes of oxide material daily; for the following eight years it would churn through 13,000 tonnes of fresh rock each day. Both types of ore would go through grinding followed by a combination of gravity and carbon-in-leach separation, a flow sheet expected to recover 94% of the contained gold.

Using a gold price of US$850 per oz. and a 5% discount rate, the Esaase project carries a net present value of US$168 million and should produce a 17.2% internal rate of return. Keegan should be able to repay the US$319.5 million in capital costs needed to build the operation in three years.

Keegan will calculate a new resource estimate once the current drill program is complete.

Investors must be pleased with the results of the drill program to date, as they have lifted Keegan’s share price from just over $5 in July to its current hover near $8. The company has 46 million shares outstanding, 50 million fully diluted.