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Korab Resources resumes mining at Bobrikovo gold project in Ukraine

Korab Resources (ASX: KOR) has reported that mining operations have resumed at Bobrikovo gold mine in Ukraine. In the first instance, the company will mine oxide ore from surface to 30-40 meters depth.

This section of the deposit corresponds to the measured resource forming part of the maiden JORC Code compliant resource announced to the market on 1st March 2010.

The oxide ore will be stockpiled on-site pending the construction of the processing plant. It is expected that gold production will commence in 2011.

Korab commenced development of the Bobrikovo gold mine in June 2008 through Korab's 74% owned subsidiary Donetsky Kryazh Ltd (NYSE:DKL). Korab's equity in DKL is held by Korab’s Australian subsidiary, Lugansk Gold Ltd.

The remaining 26% interest in DKL is held by Ukrainian investors. DKL is registered under Ukrainian laws and is subject to local corporate tax at a rate of 25%. All funding requirements for DKL’s Bobrikovo gold mine are provided by Korab through Lugansk Gold Ltd.

Korab Resources announced in February 2010 that Lugansk intends to seek a separate listing on ASX following an initial public offering (NYSEARCA:IPO). Korab intends to call shortly an EGM to approve the distribution of Lugansk shares held by Korab to Korab shareholders.

The funds raised by Lugansk Gold through the IPO will be used to cover the capiat expenditure associated with construction and commissioning of the processing plant, for working capital requirements and to repay loans from Korab Resources Ltd.

Loans provided by Lugansk to DKL will be repaid by DKL from project’s pre-tax cash flows. Ukraine has no restrictions on repatriation of capital or profits and is a major investment destination for European Union’s institutional investors.

Disclosure: The author holds no positions in the company