Kilo juggles projects in the DRC, Afghanistan

In late January Kilo Goldmines (KGL-V) announced that its iron ore joint-venture project with Rio Tinto (RIO-N) in the Democratic Republic of the Congo (DRC) has the potential to host direct shipping ore. In the same announcement the junior confirmed that it had been selected as the preferred bidder for concession Block A of the Hajigak iron ore deposit in Central Afghanistan, 130 km west of Kabul.

The news flow from Kilo’s offices in Toronto and Kinshasa has continued unabated since then, with the Feb. 21 release of more high-grade drill intercepts from the company’s Adumbi gold deposit in northeastern DRC’s Orientale Province, 40 km south of its Asonga joint-venture iron ore project.

“We’re not well known,” says Kilo’s president and chief executive Alex van Hoeken, who took the helm in September 2011. “But we have completely changed the board, strengthened management and we’re going to turn it around. The share price took a real nosedive last year, but since Christmas it’s been climbing back again. I think it’s an undervalued story that has a lot of upside potential, and if you take a closer look at it, you’ll see why.”

Kilo’s flagship is the Adumbi deposit, which contains inferred resources at a 0.50-gram-gold-per-tonne cut-off grade of 46.3 million tonnes, grading 1.37 grams gold per tonne for 2.03 million contained oz. gold. The resource estimate released last March was based on 25 drill holes collared on section lines at 80-metre intervals, as well as data from four adits and 12 trenches.

The most recent highlights from Adumbi include 3.31 grams gold per tonne over 31 metres in drill hole 44, 3.09 grams gold over 34 metres in hole 49, 2.02 grams gold over 27 metres in hole 39 and 15.25 grams gold over 3 metres in hole 47.

The drill holes intersected steep, northerly dipping sheared units of banded-iron formation, with interbedded meta-sedimentary rocks. Historical mining focused on exploiting gold from a shear zone quartz vein over a nearly 2-km strike length.

Kilo plans to release an updated resource estimate before April. 

The deposit starts at surface on a 130-metre hill and the company believes it is open-pittable. “Adumbi is a big mountain so it will have a very low stripping ratio in its early mine life, and I would assume over its entire mine life,” Van Hoeken says in a telephone interview from Lubumbashi.

The initial resource estimate encompasses a 1.2-km strike length that appears hosted within a 5-km-long regional lineament where which artisanal mining occurs, the company says.

This year Kilo has restarted soil sampling and trenching at Adumbi and plans to resume drilling soon. It will also carry out a high-resolution airborne magnetic and radiometric survey over the entire deposit early in the second quarter.

Adumbi lies in one of eight exploitation permits Kilo has in the DRC that make up its Somituri project. Kilo expects to explore all seven of the other exploitation permits to generate additional drill targets. 

The eight Somituri exploitation licences are valid until 2039 and are held by KGL Somituri Sprl, in which Kilo holds a 75% stake.

Van Hoeken says instead of concentrating on Adumbi’s 2-million-oz. gold resource, as previous management did, he will concentrate on the other prospects within a 5-km radius of Adumbi to find additional resources and expand the company’s global resource. “The previous management has always known about the other prospects, but I’m just putting more emphasis on them,” he explains.  

This year Kilo will drill 13,000 metres. A few holes will be punched into Adumbi but the lion’s share will be drilled on other prospects close by. The company also plans to explore one of the seven concessions 30 km west of Adumbi.

Van Hoeken is a Dutch mining engineer who established a diamond mining operation in the DRC in 1999 after being invited by a local business group to assess mining investment opportunities there. He has worked in the country on and off since then with intermittent stints in Malaysia, and says he has what it takes to turn Kilo around.  

“A lot of people had written off the company until I took it over,” he says. “They saw the share price falling and wondered what was happening. I’m not slamming previous management, that’s just a fact.

“I have changed the strategy to chasing the larger upside potential based on favourable geology, extensive artisanal workings, historical industrial production and preliminary encouraging exploration results,” he explains. “In addition, my in-country experience and relationships should help operating efficiency. For instance, since taking over the company I managed to complete the transfer of the mining titles from our minority local partner to the DRC-KGL subsidiary, a process that had been pending for some time.”

Van Hoeken says the biggest challenges he faces in the DRC are finding the right people and setting up the right logistical support structure, not political risk.

“We don’t have a joint venture with the state so there are no real issues with that,” he explains. “If you have a joint venture with the state then it’s someone else you have to deal with, and a state’s objective is not always the same as the objective of a private company.”

What is risk?

He also makes the point that what people believe are risky jurisdictions in the world today should be re-examined. “What is considered to be a risky mining jurisdiction has to be put into context of areas previously considered stable,” he argues. “West African countries, South Africa and even Australia have made considerable changes to their fiscal mining regimes,” which he says “prejudices mining” in those countries.

“If a junior wants to differentiate itself it needs to acquire outstanding assets, many of which are considered ‘risk destinations,’” he continues. “In many cases it is the early pioneering work which gives the biggest rewards. The DRC was considered a no-go zone ten years ago, but has seen a significant mining rush in the past seven years and can showcase some significant success stories from early players.”

In terms of its iron ore property north of Adumbi, van Hoeken says Rio Tinto approached Kilo after it identified the area as prospective for large iron ore deposits in greenstone belts hosting significant banded-iron formations. “They thought we would be a suitable partner, approached our company and eventually a deal was made.”

On Jan. 25 Kilo announced “encouraging” results from the Asonga prospect. 

Assays from five diamond drill holes drilled by Rio Tinto Mining and Exploration included 73 metres grading 66.6% iron in hole 12, 26 metres of 66.69% iron in hole 13, 65 metres of 64.11% iron in hole 14, 49 metres of 63.73% iron in hole 15 and 22 metres of 67.76% iron in hole 16.

The drill pattern tested iron-formation continuity over a wide area centred on Mount Asonga, with drill-hole spacing varying from 750 metres to 3,000 metres over a strike length between 4.5 km and 500 metres across strike. Drilling will continue this year.

Hajigak iron ore

As for its bid for Block A of the Hajigak iron ore project in Afghanistan, van Hoeken says Kilo is part of a consortium that includes British financier David
Buckle, who is active in the resource industry and holds a stake in Kilo. 

“We prepared an offer and we were selected based on our proposal, and that means we now have the right to negotiate a definitive contract,” he says. “I cannot say more than that because we are still in negotiations, and there is a media blackout. But they chose us to develop one block and chose an Indian consortium for the other three blocks.”

Van Hoeken adds that Kilo will mitigate political risk in Afghanistan by ensuring a fair and equitable contract and by developing relationships with national and international partners and stakeholders including the local community, and notes that the province in which the deposit is situated “is considered to be the quietest in the country.”

If a definitive contract is signed, which van Hoeken says could be as early as April, the first step will be to verify the historic data left from previous German and Russian exploration on the property. “They were there in the 1960s and not much work has been done there since,” he says. “They did some drilling and they drilled some adits, so there’s a lot of data we have to verify to make a compliant resource.”

According to historical data — Russian for the most part — which has been supplied by the Ministry of Mines in Afghanistan, the “A” block contains 485 million tonnes grading 62% iron.  

At presstime Kilo traded at 25¢ per share within a 52-week range of 12¢–50¢. 

The junior explorer has 217 million shares, fully diluted.