Kefi Minerals moves into the land of 'black gold'

When oil was first discovered bubbling up out of the tar sands of La Brea in the mid-1850s – and along what is now Los Angeles' Wilshire Boulevard - the Californian gold rush was still in full swing. The black tarry stuff that seeped up out of the ground and had been used for centuries by local people to caulk their boats and waterproof their houses, was suddenly recognised for what it was – a potential replacement for the increasingly expensive coal supplies on which the region relied for energy. Not unnaturally, the forty-niners christened it “black gold”.

And “black gold” it has remained throughout the century and a half that has followed, as rich new oil fields have been discovered worldwide to meet the insatiable demand for ever more energy. Arguably, the discovery which had most impact was made on 3 March 1938, when the first oil  flowed in the then newly unified Kingdom of Saudi Arabia. Black gold transformed the nation, which is now one of the richest in the world.

But now the wheel has turned full circle. Attracted by the vast prospectivity of the Kingdom, in particular the 1.2 million sq km  Arabian Shield, explorers are again making their way into Saudi Arabia - this time in search of not “black gold” but the real thing. There is no doubt that it is there – just as California's indigenous people had been using tar for centuries, the people of this region had been mining gold for hundreds – nay, thousands - of years. Legend has it that King Solomon's Mines were located in the Kingdom, and indeed, ancient workings, many predating the Christian Era, litter the Arabian Shield and its extension across the Red Sea, the Nubian Shield. Since 2000, Ma'aden – the Saudi Arabian Mining Company – has racked up around 14 million ounces of gold resource spread over five mines and several new exploration projects, and just across the Red Sea on the Nubian portion of the Shield lies Centamin's giant Sukari project, currently standing at 14.5 million ounces and rising...

It was into this landscape that Kefi Minerals (AIM:KEFI) ventured in 2008, seeking to rediscover long-forgotten gold. Virtually no modern exploration had been carried out prior to the 1970's, when the Saudis, aided by the USGS and the French BRGM, began to look seriously at their potential for precious and base metal discovery, so small and agile exploration companies like Kefi – which have all the modern techniques at their finger-tips and can react swiftly to opportunity - have every chance of success. In fact, encouraged by the establishment of the Saudi Mining Investment Code, which came into force in 2005, exploration outfits from several countries are now seeking licences for precious and base metals in the Kingdom.

Following initial evaluation, Kefi's first major step was to compile a large database of mineral occurrences and historic workings, geological maps, geophysical aeromagnetic imagery and remote sensing data for the region. In partnership with a potential joint venture partner, field reconnaissance identified approximately 1000 km2 of prospective ground, and pre-emptive applications for exploration licences were lodged. In May 2009, the company were able to announce the establishment of a formal 40:60 joint venture with leading Saudi construction and investment group Abdul Rahman Saad Al-Rashid & Sons Company Limited (“ARTAR”)  to jointly explore the Arabian Shield for gold and base metals. The primary target of the JV company – operated by Kefi and known as Gold & Minerals (G&M) – is a gold deposit of at least 1 million ounces.

The opportunity here is huge. Kefi and ARTAR have now lodged applications for 21 exploration licences (ELAs), covering 2,100 sq km, seven of which are now at an advanced stage of permitting. All of the ELA areas – two of which lie only 50km from operating gold mines - contain ancient workings and some have visible gold in quartz veins. The ELAs are focused on both gold and copper-gold mineralisation, and bridge a wide range of geological styles, all of which are potential hosts for these metals:

1)    Volcanic massive sulphide deposits, which host copper, gold and a range of base metals. G&M have already identified 8 km of gossans – weathered oxidised outcrops - overlying VMS structures which have never yet been drilled, and where there is rich potential for open pittable gold mines with sulphide polymetallic deposits beneath.
2)    Epithermal deposits, hosting gold, silver and base metals, often in the form of quartz veining and stockwork; and mesothermal quartz vein deposits – where gold and silver predominate. G&M have applied for licences over several prospects with potential for high grade gold vein style mineralisation where they have found visible gold in some veins and showings occurred in previous drill and trench results from BRGM's exploration work in the 1970-80s.
3)    Intrusion related gold deposits

Current work plans include further project generation, leading to applications for new ELAs, and the definition of specific targets for geophysical surveying and drilling, probably before the end of this year.

Mining costs in Saudi are low in comparison to world averages – gold, for instance, is being mined by Ma'aden at a cash cost of around $200 per ounce – and Ma'aden's discovery costs are lower than in most other regions at only $8 an ounce on average. Add to that the generous provisions of the new Mining Code – which are designed to attract mining investment and include a flat 20% corporate tax; no royalty on minerals; no restrictions on repatriation of capital and profits; accelerated depreciation and exemption from import duties on capital items – and it is easily understood why Kefi have targeted this key area for their next stage of development.

Low cost – high prospectivity – proven geology – an ancient mining tradition – all located in a country which is keen to diversify from its dependence on black gold into the other valuable minerals which underly its land mass. Recent mineral developments include the Ma'aden JV with Alcoa for the mine-to-metal exploitation of bauxite, Ma'aden's own phosphate project and the London Mining iron ore project at Wadi Sawawin. Also moving towards construction following the award of its mining licence earlier this year is the country's first major copper project at Jabal Sayid, operated in JV by Citadel Resources of Australia and Saudi-based Construction Material Chemical Industries (CMCI).

The potential is there, without a doubt. If Kefi can maximise their early-mover advantage and make the most of the expertise and stature of their JV partner, Saudi Arabia will become the venue for a new era for this capable exploration junior.

Meanwhile, Turkey – the company's alma mater -  has not been neglected. Like all junior explorers, Kefi Minerals suffered during the global recession from a lack of readily available funding, but their JV business model in Turkey has ensured that their two main projects at Artvin and Bakir Tepe have remained on track.

Both have been funded by the mid-tier Canadian gold miner, Centerra, who are currently very active in Turkey, where they believe there is great potential.

At Artvin, two rounds of exploration drilling have increased understanding of the mineralisation on the property, which, with grades of up to 20 g/t Au, shows good potential to host porphyry-style and VMS structures, bearing copper and base metals as well as gold. Following two years of funding by Centerra, Kefi have now regained 100% ownership of Artvin, as it was not potentially of the scale required to satisfy Centerra's exploration objectives. Further work is currently being planned by Kefi. 

At Bakir Tepe, Centerra continue to fund exploration, and can earn 51% of the project by spending $750,000 over two years, following which Kefi can choose to contribute or revert to a 2% royalty. Early drilling has been disappointing, in spite of strongly anomalous geophysical results and encouraging surface work, and the partners are considering the way forward.

In the meantime, Kefi's extensive exploration database - which contains individual target assessments of 100 prospects in Turkey – is being fully utilised to identify new exploration projects to add to the current portfolio, which also includes projects at Gumushane, Hasancelebi, Derinin Tepe and Muratdag. Initial targets being sought are Cyprus-style copper-gold deposits in the Southern Ophiolite Belt.

Now that the investment climate is improving, funding is becoming easier to obtain, and major gold and base metal miners are once more turning their attention to the acquisition of new resources and reserves, the opportunities open to a specialist exploration junior are on the increase.  With established expertise in Turkey, and a rapidly growing awareness of both precious and base metals potential in Saudi Arabia, Kefi Minerals are well placed to go places.