It’s early days but the news coming from the Mandilla gold project of Anglo Australian Resources (ASX:AAR) south of Kalgoorlie in WA points to the potential for a significant discovery – or should that be re-discovery.

Earlybird investors with an understanding of how the exploration process works have started to take an interest in the low-profile stock, lifting its price by 50 per cent over the past month with a rise from 6c to 9c.

At that latest price Anglo Australian is still a tiddler with a stock-market capitalisation of just $33m, a value which could significantly underestimate what it might have found at Mandilla.

One reason for the market not over-reacting to last week’s news of drill intersections of up to 4.25 grams of gold (g/t) per tonne over 45m from a depth of 103m is that the Mandilla project has been on the company’s books for some time.

As far back as 2006, a near-surface paleochannel (effectively an old river bed) was mined for the recovery of 23,000 ounces of gold in an easy-to-dig open pit project.

Briefly satisfying the question which remained unanswered is where did the paleochannel gold come from because it wasn’t generated there, just washed down from where it was formed eons ago.

The most obvious source of the paleochannel gold is a nearby quartz-vein structure called Mandilla East which had been drilled to reveal 38,000oz of gold – but that number seems to have been a significant underestimate.

The problem with the early work at Mandilla East is that it made the classic mistake of misunderstanding the “nuggety” nature of the mineralisation meaning that the variable distribution of the quartz veins, plus the presence of coarse gold, led to a low gold count.

The latest work at the project, which is just 75km south of Kalgoorlie, has included a new assay technique with samples taken every metre and analysed using the PhotonAssay technique pioneered by the CSIRO which bombards samples with powerful X-rays – leading to a quicker and more accurate set of results than 500-year-old fire assay technology.

So much more gold

Anglo Australian provided a glimpse into its fresh look at Mandilla East in last week’s drilling report, noting that the hypothesis that the earlier assays missed a lot of the gold was correct.

“It is apparent that previous sampling and assaying failed to identify significant gold zones,” Anglo Australian said.

“That being the case, previously reported mineralised intersections … would seem to significantly understate the amount of gold actually present and, hence, the size of the resource previously reported.”

Anglo Australian’s external consulting geologist, Ed Baltis, put the work at Mandilla East into perspective in a paragraph towards the end of last week’s report in which he described the overall Mandilla project as a gold-hosting intrusion, an observation which points to the system being significantly different to the better-known shear zones of the Kalgoorlie region.

“Such intrusions are known to host large gold systems,” Baltis said. “Examples being Jupiter in WA and Kirkland Lake in the Superior Province of Canada.”

Anglo Australian chairman and goldfields veteran, John Jones, said Baltis had brought a fresh approach to the Mandilla project, calling on his experience as a former gold targeting officer with the old Western Mining Corporation.

Jones said the assays results received so far from Mandilla East were outstanding.

“With the extent of the mineralisation not yet known and bearing in mind that the previous assay method would seem to have significantly understated gold mineralisation, there is every reason to believe that the size of the resources at Mandilla East is substantially higher than that which was previously calculated,” Jones said.

Whatever happens next, Mandilla should be worth watching because the company is only part-way through a drilling campaign with a number of assays pending.

Also, of interest is that the original work at Mandilla was conducted at a time when the gold price was much lower than today, and that the gold-bearing system appears to be close enough to the surface to sustain a bulk, open-pit mine.

In last week’s report, Anglo Australian highlighted four assays, the 45m at 4.25g/t mentioned earlier, plus 93m at 3.11g/t from a depth of 49m, 94m at 1.17g/t from 101m, and 112m at 1.5g/t from 41m.

The current drilling campaign was scheduled to include 31 holes for a total of 5400m, but is being extended by an additional 10 holes for another 1530m, plus a campaign of 60 shallow holes for 3600m.

Read more from Tim Treadgold:

Nickel Mines keeps on winning

Copper recovers as gold stumbles, possibly signalling a metal-markets sea-change

Diggers & Dealers: Your ultimate guide to the stocks to watch at Australia’s biggest mining conference