Australia's Kentor eyes gold on Great Silk Road

SYDNEY (Reuters) - Australia's Kentor Gold Ltd (KGL.AX) will more than double its spending this year on mine exploration along the fabled Great Silk Road in Kyrgyzstan, encouraged by signs of a rich find and rising bullion prices.

Kentor has scoured Soviet-era geological data compiled on Kyrgyzstan's southern border region with China, laid rail lines and set up a regional office in the capital Bishkek since listing on the Australia bourse in 2005.

The company aims to have a resource estimate established by the year-end for its main project, the Savoyardy lode, where it has only been possible to bring in equipment by horse, limiting exploration activity to the warmer months, Managing Director Simon Milroy said in an interview on Monday for the Reuters Global Mining and Steel Summit.

"In the winter months you couldn't work up there, too much snow. We've rehabilitated the underground workings with a view to resuming drilling -- but from underground -- and we will be able to do that all year round," Milroy said.

"In May, when we expect the snow will be gone, we'll commence drilling from the surface as well."

Kentor, valued at less than $11 million, has relied mainly on data compiled by Cold War-era Russian geologists hoping to mine the deposits lining the Great Silk Road -- the route opened by Alexander the Great in the 4th century BC linking Eastern and Western civilizations.

The ancient trading cities along the Silk Road have been blighted through the ages by war, occupation, fire and famine.

Importantly for Kentor, said Milroy, the company's holdings fall inside the ore-rich gold belt that extends from Uzbekistan into Mongolia for 2,200 km (1,367 miles).

Kentor is one of about 15 foreign-listed mining companies present in Kyrgyzstan. The largest Australian firm there is oil and gas group Santos Ltd (STO.AX). Through its geological arm, Kyrgyzstan's government holds a 20 percent stake in Kentor's local subsidiary, CJSC Kentor, providing it with the geological database, said Milroy.

"Were we to progress to the stage of actually having an operation, it's possible we could come up with a production sharing agreement where there is some small equity interest in exchange for tax concessions or royalty concessions, but it's really too early to look at that," he said.

Strong bullion prices -- spot gold last week hit a record high just below $1,000 an ounce -- were also driving Kentor to increase its exploration work, Milroy said. "It makes it easier to raise money for exploration for gold projects."

Kentor Gold was also looking further afield in Central Asia for new ground as well as keeping an eye out for opportunities back at home, Milroy said.

"We're now concentrating on getting hold of advanced projects that we can quickly take into a developing operation as opposed to grassroots type exploration."

Savoyardy is 145 km (90 miles) southeast of the city of Osh and sits within the Shan gold belt where Centerra Gold Inc (CG.TO) mines the Kumtor gold mine, one of Central Asia's richest, yielding 300,000 ounces last year.

Milroy said about half this year's exploration budget of $4.5 million will be spent on the Savoyardy project, compared with an overall budget last year of less than $2 million.

The company also has been granted exploration licenses for two new locations in Kyrgyzstan, where Soviet data indicated the presence of lead, zinc, copper, gold and uranium, Milroy said.

(For Summit blog: summitnotebook.reuters.com/)

(Editing by Ian Geoghegan)