Caspian Holdings (LON:CSH) shares shot up around 15 per cent in early deals as it announced the start of a drill programme at the La Parrilla tungsten mine in Spain.

It comes after the firm acquire the mine in December as it took control of Iberian Resources Spain.

The firm plans to drill out 1,500 metres of diamond drill core so that it can appraise potential extensions to the La mine. It says that five holes will be drilled during the four month programme. 

The work will target higher grade intersections in the edge of the orebody, Caspian added. This would be an open pit zone, located to the west of the existing mining operation.

Caspian says the historic mine has an estimated resource of 36 million tonnes, at a grade of 0.09 per cent tungsten oxide, which makes it one of the largest tungsten deposits in the western world.

Additionally Caspian said that pilot testing is underway at the La Parrilla tailings project. It believes that the findings will allow it to define and optimise the industrial process for the treatment of the tailings. It will also confirm the final industrial plant design and layout.

Given that the price of tungsten has more than doubled the price of tungsten has increased rapidly over the last 3 years by more than double. 

La Parrilla tailings deposit and tungsten mine development offer a low cost, high margin resource development opportunity, the company said.

At 8:16 on AIM Caspian shares were up 0.05p, or 17.5 per cent, trading at 0.34p.

The company, which was previously focused entirely on Kazakhstan, moved into the United States to diversify risk away from its ongoing dispute over the Zhengeldy Oil Field. Caspian did however investors today that it was continuing to fight the Kazakhstan’s Supreme Court’s ruling confirming the revocation of its wholly owned subsidiary Taraz LLP’s rights to Zhengeldy, and that any ‘remedy’ of the situation would be positive for investors as the company had already written off its Kazak assets on the balance sheet.

While Kazakhstan has undoubtedly been an unwelcome development for shareholders, the company has attempted to rebuild its asset base.  Last year it acquired a 50% stake in Black Gold Inc, a US based company focused on acquiring neglected, partially depleted oil fields.

Typically these are fields have significant remaining in-situ resources and existing infrastructure but yield very low quantities of oil per well (1-10 barrels of oil per day).

Black Gold’s primary focused has been on accumulating leases across the Irvine field, where wells are generally over 20-40 years old and in need of work-over to improve their operating efficiency. While of little interest to oil Majors, Caspian believes that these wells offer good potential for cash flow and margins at oil prices of over US$50 per barrel.

As part of its ambitions to increase production in the US, Caspian announced earlier this week that it had raised £0.2 million through the placement of 80 million shares.  Michael Masterman, Executive Chairman of the company, subscribed for 20 million shares, taking his personal holding to approximately 161.7 million shares, or 36.25% of the outstanding equity.

Caspian’s broker, HB Markets, placed the remaining 40 million shares with institutional investors and has a 'speculative buy' rating on the stock.

It anticipates reporting results during the third quarter 2009 and will keep the market and shareholders informed on developments.

After reporting several encouraging steps in completing the regulatory hurdles to move the Zhengeldy Oil Field in Kazakhstan back into production, yesterday Caspian Holdings said it had received a letter from the Ministry of Energy and Mineral Resources which effectively terminated its Sub Soil Use Contract.

Michael Masterman, who spoke to Proactiveinvestors today, confirmed that the company was confident of reinstating its full contractual oil production licence terms and restarting production. Under Kazakh law, Caspian has 60 days to appeal the decision.  The company is also considering legal proceeding in the courts to set aside the decision by the MEMR.

“This latest letter is in conflict with the earlier letter of the Committee of Geology of MEMR (dated 13 days earlier) and in contrast to the steady progress the Company has been making toward regulatory approval to restart oil production at Zhengeldy. In addition, under the SSUC that the Company has with the State of Kazakhstan, the Ministry does not have the right to unilaterally terminate the contract without a Kazakh Court decision and must provide a reasonable period for the company to rectify any default”, the company said.

Commenting on the situation, Chairman Michael Masterman stated:

 “With the conflicting Kazakh regulatory environment, Caspian Holdings decision to significantly diversify its asset base towards the United States is proving to be a wise and timely decision.”