The importance of Kolar Gold’s (LON:KGLD) announcement late last month of a new granted mining lease in India was best illustrated by the sharp share price rise.
Shares soared more than 53% on the day (October 28) to 5.75p and have since increased yet further to stand at 6.125p.
Since its establishment in the late 1990's, the company has been attempting to breathe new life into the historic Kolar Gold Fields area, formerly operated by Bharat Gold Mines, and recently the Supreme Court has directed for a tender sale and revival to proceed.
The news that its local partner GMSI (Kolar owns 30% GMSI equity) had received final state government approval for the mining lease for the Jonnagiri gold project represents a shift towards development mode from primarily bureaucratic lease application work.
Nick Spencer, Kolar's chief executive, told Proactive: "This is a major step. It's been a long time coming but it's good to see that with a bit of focus and persistence with local partners that granted licences can result.
Now GMSI and KG can move into mine development mode."
Earlier this year, Kolar and Geomysore Services India (GMSI) revisited the working relationship and agreed they would now explore and develop GMSI's portfolio of 49 Kolar Gold projects - of which Jonnagiri is one.
Kolar has taken a 30% stake in GMSI, making it a major shareholder. It paid £700,000 cash and cancelled a £300,000 loan made to GMSI.
GMSI has a huge portfolio of prospects and deposits surrounding and adjacent to the Kolar Gold fields, including 32 prospecting licence applications and six mining lease applications with preferential rights and covering over 11,000 sq km with 1.36 million ounces of JORC resources defined.
Jonnagiri lies in the Kurnool district of Andhra Pradesh in India, has a resource of 720,000 ounces and an exploration target of between 2 and 5 mln ounces.
A competent person’s report (CPR) last year confirmed an open pittable resource at the Dona East block of 190,000 ounces at 2.1g/t and 530,000 ounces at 4.3g/t in an underground resource at the Dona Temple block.
Spencer revealed there were now up to three drill rigs already on their way to the site with the aim to upgrade and extend the resource.
"Obviously, we now need to increase the resource inventoryfrom this quality goldproject. 700,000 ounces is a good start but GMSI have mobilised rigs for a three rig drill programme with six geologists now on the project.” he said.
"One to two million ounces is the immediate exploration target for next year and then we can start prefeasibility work and begin designing one of India’s first modern gold mines. “
So production of the yellow stuff may still be a way off yet but the Jonnagiri 30 year licence (with the option to extend for a further 20 years) sets the company on a path to building one of India's first private gold mines and generating more interest in the area from third parties.
Spencer expects to come back to the market before the year-end to spell out how the mine will be proved up and developed.
Meanwhile, Kolar and GMSI are prioritising the most advanced half dozen prospects within the vast portfolio, namely those that already have resources, with a view to forming a multi-development plan.
The central plank of Kolar’s strategy is well known. Along with a group of former employee unions, it aims to bid for the historic BGML mine in the prolific Kolar district.
This mine produced a whopping 25 million ounces of the precious metal over 120 years.
And in July this year, there was breakthrough news from India, where the Supreme Court ordered that the bidding process should start.
Kolar, in tandem with main unions, has the right of first and lastrefusal.
Spencer said the firm was now looking forward to the imminent next step to the process - the government appointment of an advisor who will run the tender.
The mine closed in 2001 after it became uneconomical when the gold price went to USD$250 per ounce and very old mine technologies were being used. It employed around 3,000 workers when it ceased to operate.
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