Kryso Resources

December 22, 2006

Kryso Resources Plays a Blinder With Its Strategic Alliance With Great Basin Gold.


By Jack Hammer



The management team at AIM listed Kryso Resources have at least one pre-requisite for working in Tajikistan – experience. For one thing, chief executive Vassilios Carellas and finance director Craig Brown are both married to Tajik wives. More pertinent to the matter in hand, both worked for Nelson Resources when it owned the ZGC project that is now giving Avocet such a headache. Local Tajik director Abuali Ismatov also happens to own four vodka bottling plants, which over the years has no doubt helped to take the edge off the hard winters. He is a prominent business man and has vital political contacts.
Between them those directors and two other non-executives hold 38 per cent of the company. Nothing unusual about that, but there are some other quirks to the shareholder base. Not only does Kryso boast familiar funds Gartmore and RAB on the register, but also showing up, with 4.3 per cent of the company is Simon Cawkwell, aka “Evil Kneivel”, a man well-known in the London markets as an ardent and ruthless proponent of shorting. And 32 per cent of the shares are held by what company presentations simply term “others”, but which, according to Mr Carellas, comprise primarily of retail investors.

That’s an unusually high retail presence for an Aim miner, and on a randomly selected day in London – Friday 15th December – there had been twenty trades in Kryso’s shares before 2pm, a number that directors of some other companies might be thankful for. Even so, in the light of this year’s steady decline in value of Kryso shares, Mr Carellas still worries about liquidity and is contemplating a dual listing in Canada to tempt more punters in.

So what would they be buying? Well, at the moment Kryso presents two key propositions. The most advanced is the Pakrut gold deposit, which contains over 1.2million ounces in the Russian C2 and P1 categories, while the most exciting early stage property is the Hukas nickel, copper, cobalt and PGM prospect, due to be drilled next year.

Pakrut is currently being delineated via an underground drill programme operating out of old Soviet adits. That’s more expensive than drilling from surface, but the company gains time by not having to shut down during the severe winter months. To date Kryso has drilled 7,000metrs on Pakrut, with 3,500metres still to go under the current programme. Significant intersections include 40metres at 8.56 g/t, 33metres at 3.69 g/t and two 40metre plus intersections at over 2 g/t gold. Mineralization is open at depth and open to the east. Mr Carellas is hopeful that he can add significantly to the three ore zones identified by independent consultant Snowden in the company’s competent person’s report. Russian data, generated at a cost of US$5metres according to Mr Carellas’s estimate, recognises eight. Looking ahead the plan is for an initial open pit, followed in due course by an underground mine.

With the most recent drill core samples currently en route for independent assay by SGS Lakefield, Kryso ought to be able to put a JORC resource number on Pakrut by February. At the moment Mr Carellas is expecting something of the order of half a million ounces, measured and indicated. On current timelines the first gold pour will take place in the fourth quarter of 2008, with production ramping up to around the 70,000 ounces per year mark and average cash costs running at around US$300 per ounce.

In the background is the Hukas prospect, signed up in July 2006, a sulphide nickel occurrence with a strike length of over 5km. It’s been drill ready since Soviet times, with average surface grades from trenching showing grades of 1.5 % nickel and 1 % copper. It’s definitely worth a look, and diamond drilling commences next year.

But Kryso’s next big hurdle probably won’t be related to the drill bit, but to money. That is why the recent announcement that Great Basin Gold , part of the Hunter Dickinson Group, has invested £1 million in Kryso giving it a 15.24 per cent holding, is so crucial. A strategic alliance has been agreed between the two companies and Great Basin will appoint a director to the board of Kryso as well as a technical adviser to the management team.

Mr Carellas reckons it will take a further US$30 million to get Pakrut into production so he has picked his partner well. Great Basin has a strong balance sheet and access to funds. Moreover it is led by Ferdi Dippenaar who was Bernard Swanepoel’s right hand man at the big South Africa gold producer Harmony Gold. Ferdi wants to spread his wings outside South Africa and he knows plenty about underground mining. Kryso now starts to look seriously interesting.