Keegan ramps up exploration in 2011

After delineating nearly five million ounces of gold at its Esaase project in Ghana, Keegan Resources (KGN-T) is continuing to intersect mineralization as it tests both downdip and strike extensions of known zones.

The company has four exploration rigs operating on site while concurrently completing a feasibility study and securing permits for Esaase.

“Last year a lot of our capital – both money and personnel – were dedicated to the development scenario,” says executive chairman Shawn Wallace. “Now that we’ve done that (a prefeasibility study is imminent), we’ll have a fairly aggressive exploration program for Esaase. We’ve ramped up the program because we want to make sure that we fully test all the targets.”

The new push on exploration is partly the result of a 2010 drilling campaign that intersected a new zone (D-2) about 200 metres northwest of the existing resources. Results included 9 metres at 5.7 grams gold per tonne, 18 metres at 1.2 grams gold, and 6 metres at 3.3 grams gold. The zone remains open at depth and along strike in both directions.

As part of the exploration drive, Keegan expects to acquire more property in the vicinity of Esaase that could add to the project’s resources. 

The updated resource includes 3.23 million oz. gold in the indicated category and 1.68 million oz. gold in the inferred category. Within the resource, grades range from 1.0 to 1.2 grams gold per tonne at a 0.4 gram gold cutoff. The estimate is based on 770 holes drilled over 190,000 metres and the mineralization represents more than 3.5 km of strike length along the A-1 structure and includes drilling completed in the B-1 and D-1 zones to the northwest of the main zone.

It has been a busy winter for the Vancouver-based junior. In December, Keegan announced the new 4.91-million-oz. resource, up 40% from 2009. In February, the junior closed a $213-million bought-deal share offering to fund development of the resource. Keegan expects to complete a feasibility study on the project by year-end.

Although Keegan acquired Esaase five years ago and its other Ghanaian property, Asumura, even earlier, the projects did not register with most investors until 2009, when the company announced its first “world-class” resource estimate for Esaase. Since then, the company’s shares have quadrupled from $2 to nearly $8 as the gold price has risen in tandem with resources.

Ghana, and West Africa in general, is receiving greater attention from investors since Kinross Gold (K-T, KGC-N) bought Red Back Mining for $7.1 billion in September 2010. Red Back’s assets include the Tasiast mine in Mauritania and the Chirano mine in Ghana as well as exploration projects in both countries. 

Ghana boasts prolific greenstone belts that have yielded more than 100 million oz. gold historically, and there are currently several multi-million-ounce, low-grade gold mines in operation. As a result, Ghana ranks as the world’s 10th and Africa’s second largest producer of gold, with current production estimated at more than 2.4 million oz. per year.

Mining companies have traditionally paid royalties of 3% of their revenue to Ghana’s government, but the law allows the government to collect up to 6%. Last year, to reflect the rising gold price, the government jacked up royalties to 5% except for operators such as AngloGold Ashanti (AU-N)  and Newmont Mining (NMC-T, NEM-N) that have had their rates frozen under stability agreements. 

Newmont Ghana Gold, the second largest gold producer in Ghana, paid royalties amounting to US$5.8 million in the fourth quarter of 2010, according to Ghana Business News.

Newmont operates the Ahafo mine in the Sefwi-Bibiani belt, one of three major gold producing belts in the country’s southwest. The half-a-million-ounce annual producer is one of two operating mines along the belt, including Kinross’s (formerly Red Back’s) Chirano that consists of 11 separate deposits producing about 180,000 oz. per year.

Keegan hopes to join these producers on the same belt one day with further exploration on its Asumura property, about 65 km southwest of Ahafo.

The targets at Asumura are disseminated bulk-mineable gold deposits associated with northeast-trending faults. Extensive geophysical and stream-sediment sampling work accompanied by regional auger drilling has identified five main targets on the 280-sq.-km property, but core drill results from last year’s program failed to replicate a 14-metre intersection grading 4.5 grams gold encountered in one of these structures in 2008.

Keegan will refine its Asumura targets further in 2011. “We have a lot of people bringing us ideas because of the success we have had. But of all the properties we’ve seen, I still think Asumura is the best exploration project outside of Esaase,” Wallace says.

He describes each target at Asumura as being as big or bigger than the deposit outlined at Esaase, but that exploration is much more difficult because there is no outcrop in the tropical basin that hosts the property.

Working along the same belt is Noble Mineral Resources (NMG-A), which expects to begin producing at its Bibiani gold project during the second quarter of 2011, ramping up to a  production rate of 150,000 oz. per year by 2012. Noble recently raised $30 million to continue its aggressive exploration program at the site.

Keegan also sees potential exploration opportunities along the Asankrangwa belt, the sedimentary basin that hosts Esaase. The target there is bulk-mineable gold mineralization hosted by Birimian-age metasedimentary rocks that contain gold-bearing quartz veins.

– The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Communications, www.geopen.com.